JOYY Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 27, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Joy Inc. 2nd Quarter 20 24 Earnings Call. At this time, all participants are in a listen only mode. After the management prepared remarks, there will be a question and answer session. I'd now like to hand the conference over to your host today, Jane Shi, the company's Senior Manager of Investor Relations.

Operator

Please go ahead, Jane.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to Joy's Q2 2024 Earnings Conference Call. Joining us today are Ms. Ting Li, Chairperson and CEO of Joy Mr.

Speaker 1

David Shilling Li, Co Founder and Director and Mr. Alex Liu, the Vice President of Finance. For today's call, management will first provide a review of the quarter and then we will conduct a Q and A session. The financial results and webcast of this conference call are available at ir.joy.com. A replay of this call will also be available on our website in a few hours.

Speaker 1

Before we continue, I would like to remind you that we may make forward looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20 F and other documents filed with the SEC. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U. S. Dollar.

Speaker 1

I will now turn the call over to our Chairperson and CEO, Ms. Ting Li. Please go ahead, Ms. Li.

Speaker 2

Hello, everyone. I'm Liting. Welcome to our Q2 2024 earnings call. This is my first time addressing you as Joy's Chairperson and CEO. I'm truly excited to connect and share ideas with you all.

Speaker 2

Today, we are pleased to be joined by our founder, Dali, who I would like to invite to say a few words to kick off our call. Dali, over to you.

Speaker 3

Thank you, Liting. Welcome, everyone. As we announced earlier this month with the Board's approval, I have officially resigned from my role as Chairman of the Board and CEO as of August 3, passing the baton to Li Ting to oversee the company's daily management and operations. This carefully planned leadership transition marks an important milestone to Joy's development. It underscores our commitment to enhance our corporate governance and strengthen our organizational capabilities to foster sustainable long term growth.

Speaker 3

Yidian has been integral part of our leadership team as the COO since 2016 and has played an instrumental role in driving our strategic transformations and navigating key growth phases. Her operational experience makes her the ideal person to lead YY into its next chapter. I have complete confidence in Le Ting and our current management team and I'm pleased to entrust the company's leadership to her capable hands to ensure continuity and maintain our business momentum. I will remain actively involved as a member of our Board. In this capacity, I look forward to offering strategic guidance and supporting Joy as we prudently explore long term opportunities.

Speaker 3

With that, I'd like to hand the call back to Liting.

Speaker 2

Okay. Thanks, David. I'm grateful for your support and your trust. I look forward to building on the strong foundation you have laid. Under David's leadership, we've established our globalization strategy, and our business has achieved remarkable growth on the worldwide scale.

Speaker 2

According to Data AI, our flagship products are ranked among the top social apps by consumer spend globally. And importantly, our business continues to generate robust cash flow together. This lay a strong foundation for our future, which empowers us to strike a balance between on focusing on our cost strategy In the near term, we are exploring long term growth prospects. We uphold our corporate mission of enriching life through technology. Moving forward, our strategic forecast remains clear and consistent.

Speaker 2

First, we remain committed to executing on our global strategy. We will advance continued product innovation with a focus on advertising user social interactions and content experience to enhance user satisfaction. We see significant growth potential in our global business, and we will leverage our strong product capabilities and user centric approach to drive healthy expansion of our global user community. From day 1, we have been dedicated to building an inclusive, diverse global community. Our platform transcends geographical boundaries, allowing users from different cultures to connect, interact and form meaningful relationships.

Speaker 2

Today, what set us apart is the truly global nature of our user community and the widespread cross regional social connections across our platform. To fully leverage our platform's unique value, we are sharpening our ability to match our diverse global users, which their preferred content and connections. Our Android team constantly fine tuned our recommendation algorithm to better understand our users and the content they engage with. Our goal is to create more precise and effective connections between people and the content they love. We are enhancing our recommendation algorithm is crucial.

Speaker 2

It's just one part of our approach. We are also focused on innovative features that directly impact how users interact on our platform and enhance their experience. Take Bigo Life's Real Match feature. For example, launched last year, it creates a space for users to meet new people. After several rounds of optimization, u match du penetration rate has nearly doubled in the past 6 months, now exceeding 20%.

Speaker 2

This success has had a ripple effect, boosting Bigo Life user rate instruction, payment conversion and overall ROI. Enhancements such as Real Match strengthens our competitive edge and optimizing our user experience will remain a core goal moving forward. 2nd, the laser focused on balancing growth with operational efficiency to drive steady expansion in product and group profitability. Our global operations are complex, ecosystem, encompassing user, acquisition, bandwidth and payment infrastructure, KOL management and monetization and marketing initiatives. In the long term, we aim to optimize every link in this chain to comprehensively strengthen in efficiencies and capabilities of our global operations.

Speaker 2

3rd, we will keep cultivating long term initiatives that will further diversify our revenue and create sustainable growth. Our year of effort of advertising are bearing fruit, with advertising playing an increasingly meaningful role in driving the Bigo segment revenue recovery in 2024. However, we must acknowledge that the scale of our new monetization streams is currently still relatively small. We are taking a long term view and we'll continue to nature the device them and maximize their potential. Finally, we will continue to advance shareholder returns.

Speaker 2

In the Q2, we repurchased the additional 71.4000000 worth of our shares. We will continue to actively utilize share repurchase to reward our shareholders for their long term support. Now let's review our overall performance during the Q2. In the Q2, our group revenue was RMB565.1 million, a year over year increase of 3.3%. Group non GAAP net profit came in at CNY74 1,000,000 up 10.2% quarter over quarter.

Speaker 2

We also continued to record positive operating cash flow at the group level, generating a healthy CNY71.1 million. Our core business segment, Bigo, recorded revenues of CNY507.2 million, a year over year increase of 7.7 percent, such draining a top line recovery trend for the 4th consecutive quarter. Notably, Bigo's advertising revenue increased substantially year over year. Bigo's non GAAP operating profit reached RMB69.4 million, up 10.1% sequentially. Next, let's take a closer look at our products, starting with Bigo Life.

Speaker 2

In the Q2, Bigo Life and Mayo's recovered by 1.6% quarter over quarter to 37,700,000. Our targeted strategy of relocating advertising budgets and operational resources to regions with high monetization potential paid off, particularly in development countries. In these countries, Bigo Life saw year over year growth of 9.4% in MAU. S, 20.3% in paying users and 11% in revenue. While global macro uncertainties persist, we will purchase high quality paying user growth and ROI to propel Bigo Life's top line recovery.

Speaker 2

In the Q2, we launched a series of innovative marketing initiatives tailored to local customs and user preferences, which brought fresh diverse content to the platform and injected new energy into our user community. A standout example was Bigo Life partnership with EWC from June to July. Big O Live broadcast all free fare, MLBB and PUBG Mobile events, offering users immersive gaming experience and unique opportunities to interact directly with professional e sports players. In June, Big O Life also participated in the 13th welcome held in the United States. This event allowed us to showcase Big O Life's vibrant creator ecosystem and cutting edge live streaming features to top American content creators, laying the groundwork for Big O Life to expand its reach and boost its performance in key markets.

Speaker 2

We further elevated Bigo Life's live streaming experience with a field of upgrades, including more dynamic emerging, interactions and similar classroom engagement features. This enhancement drove sequential increases of 4.2% in the number of streams and 6.5% in numbers of users going live. Finally, let's look at our other products. As we previously discussed, our other products currently contribute modestly to revenue and profit. Our main objective for this product is to enhance monetization efficiency, maintain strict cost discipline and achieve profitability at product level.

Speaker 2

Meanwhile, our operational strategy remains forecast on the core market to these products as we develop their fundamental features and their unique value propositions. In the Q2, Lucky remained profitable. Sequential DAU growth in Europe and advertising inventory optimization contributed to a 34.7% year over year increase in licensed advertising revenue. This quarter, we introduced significant upgrades to LIKI's video toolkit by adding advanced AI powered filter and effects. These enhancements have enabled the creation of higher quality videos, leading to more diverse content and driving a 1.3% sequential increase in average DAU time spent.

Speaker 2

Lucky launched a series of creator centric events and interactive features, having content creators depend their connections with their core fan base. This strategic approach is yielding positive results with stressors, community guides and enhanced user retention. In June, Lightning hosted its 4th Fantasy Music Festival, Lightning Fantasy Fest, where outstanding regional creatures took the stage and interacted with fans. Held in Europe, the event provided local users with live experience centered around their love of animation, film, music and gaming. This initiative underscore our company's commitment to involving Lucky into a deeply engaging platform.

Speaker 2

Finally, let's look at HAGO. In the Q2, HAGO's strengthened its positive operating cash flow. We continued to enhance HAGO with new features, including live valid screen, interactive games, invoice rooms and the tools to click summon family members into live sessions. This upgrade delivered a positive impact on user engagement during this Q2. Average time spent per user in HAGO social channels increased sequentially to 103 minutes, accompanied by steady improvement in the product's next day retention rate.

Speaker 2

HAGO also innovated on the monetization front, launching activity that the future customized virtual gifts along with collection and ranking features. The campaign was a major hit, engaging more than 60% of total paying users. Looking ahead, we will adhere to our globalization strategy as we innovate and enrich our products, enhance user experience and strengthen our unique value proposition. Operational excellence will remain at the core of our approach as we deliver sustainable growth and create long term value for our global community and our shareholders.

Speaker 1

Now let's welcome the VP of Finance, Mr. Alex Mills to provide a financial update.

Speaker 4

Thanks, Ms. Steve. Hello, everyone. Before I go into the details, we would like to remind you that despite the latest divestment in the show of VAVA Live, to the date of this press release, we have not obtained control over VAVA Live and therefore have not consolidated the business. The financial results presented in our press release and this conference call primarily consisted of Bigo and all other segments, excluding VAMA Live.

Speaker 4

I will now provide a recap of some key financial highlights for the Q2. Our total net revenues were RMB565.1 million in the Q2, up by 3.3% year over year. Revenues from Bigo segment were RMB507,200,000 up by 7.7% year over year. In particular, Because non live streaming revenues were $67,800,000 which was up substantially year over year, primarily due to the increase of advertising revenues. Geographically speaking, as we prioritize to allocate our operational resources towards developed countries.

Speaker 4

Our revenues from developed countries was up by double digits year over year, outperforming on other regions. Cost of revenues for the quarter increased to $366,200,000 among which our revenue sharing fees and content costs increased to $263,900,000 Legal's cost of revenues was $327,700,000 which was up year over year, mainly driven by increased traffic acquisition costs paid to shared party partners in relation to our advertising business. Gross profit was $198,900,000 in the quarter with a gross margin of 35.2%. Bigo's gross profit was $179,400,000 with a gross margin of 35.4%. Bigo's gross margin was lower year over year due to change of revenue mix with higher contribution of Bigo audience network advertising revenue.

Speaker 4

Our group's operating expenses for the quarter were $198,700,000 compared with $191,700,000 in the same period of 2023. Among the operating expenses, R and D expenses decreased to $69,900,000 from $75,500,000 primarily due to decreased salary and welfare and share based compensation expenses. General and administrative expenses increased to $40,700,000 from $29,000,000 in the same period of 2023, primarily due to impairment losses of equity investments. Bigo's total operating expenses for the quarter were $125,600,000 decreased from $125,000,000 in the same period of 2023, primarily due to decreased issues and marketing expenses. Our Group's GAAP operating income for the quarter was $2,300,000 Our Group's non GAAP operating income for the quarter, which excludes SBC expenses, Amortization of intangible assets from business acquisitions, gain on the consolidation and the disposal of sub securities, as well as impairment of goodwill and investments was $13,000,000 in this quarter with a non GAAP operating income margin of 5.3%.

Speaker 4

Bigo's GAAP operating income for the quarter was 58,000,000 dollars and Bigo's non GAAP operating income was $69,400,000 representing a non GAAP operating income margin of 13.7%. Other group's GAAP net income attributable to controlling interest of Joy in the quarter was $52,100,000 compared to 100 and $5,100,000 in the same period of 2023. GAAP net income margin was 9.2% in the Q2 of 2024 compared to 28.3% in the same period of 2023. Our GAAP net margin was higher last year due to realized gains from the disposal of certain equity investments of $77,700,000 and foreign currency exchange gains of 20,300,000 dollars Bigo's GAAP net income in the quarter was $64,600,000 with a GAAP net margin of 12.7%. Non GAAP net income attributable to controlling interest of Joy in the quarter was $34,000,000 compared to $97,300,000 in the same period of 2023.

Speaker 4

The group's non GAAP net income margin was 13.1% in the quarter, compared to 17.8% in the same period of 2023. Bigo's non GAAP net income was $77,800,000 compared with $99,700,000 in the same period of 2023. Bigo's non GAAP net margin was 15.3% in the quarter compared with 21.2% in the same period last year. Bigo's non GAAP net margin was higher last year due to foreign currency exchange gains of 22,000,000. Dollars For the Q2 of 2024, we booked net cash inflows from operating activities of 71,100,000 We remain a healthy balance sheet with a strong cash position of 3,300,000,000 as of June 30, 2024.

Speaker 4

In the Q2, we continued to enhance returns to shareholders and repurchased an additional of approximately 71,400,000 worth of our shares. Our Board has also authorized to extend our existing share repurchase program for another 12 months period, upon each original expiry date and which we may repurchase up to 400,000,000 of our shares till the end of November 2025. Turning now to our business outlook. As we are fully dedicated to strengthening the efficiency and sustainability of our global operations, we have taken some proactive access to optimize our content costs and we are gradually introducing some adjustments to Bigo's audio live streaming product to enhance risk control. We anticipate such adjustments might cause near term fluctuation of Bigo's top line.

Speaker 4

At group level, we expect our net revenues for the Q3 of 2024 to be between $555,000,000 $569,000,000 This forecast reflects our preliminary views on the market and operational conditions, which are subject to changes. Looking forward, we will remain dedicated to our strategic priorities adhering to our global license strategy, optimizing products and innovating our operations to create value for our users and shareholders. We will continue to execute our ROI oriented operational strategy in order to deliver a profitable, sustainable growth. That concludes our prepared remarks. Operator, we'd like to open up the call to questions.

Operator

Thank Your first question is from the line of Thomas Chong with Jefferies. Please go ahead.

Speaker 5

Thanks management for taking my question. My first question is about the company strategy in the future. Should we expect there will be any changes after the recent management change? And my second question is about the Beagle outlook. Can management share about the revenue trend in the second half as well as the trend, of course, at different geographies?

Speaker 5

Thank you.

Speaker 2

Okay.

Speaker 1

Thank you, Thomas. This is Ding Li. I will answer your first question and then Alex can answer your second question. For the first question, I think we go through it in the prepared remarks that our strategic priorities will remain quite consistent. And I will elaborate in my following part.

Speaker 1

First, we will remain committed to our globalization strategy. And second, specifically, regarding to our product operations, we will continue to strengthen our unique value proposition as a truly global social platform. To take an example, Bigo Live in itself is a highly globalized product and our users can actually watch content in over 30 languages. And our users have actually demonstrated a content consumption platform where they enjoy cross regional social interactions. For example, if you look at our users from U.

Speaker 1

S, U. K. Or other developed countries, actually around 35% to 50% of their virtual gifts go to creators from other regions. So going forward, the next phase of our operational optimization will be basing on our users' cross regional social activities and their pattern to ensure an effective content cultivation and also a matching of their social network. And thirdly, given the current macro environment, we will continue to have higher demand over the sophistication of our localized operations and we will demand a further improvement of our operating efficiency.

Speaker 1

Our goal is to achieve a steady profitability growth of our core businesses. And lastly, we will continue to explore new revenue streams and profit streams. Currently, we do have some development in our new businesses, but they are still relatively young and early in an early stage of development. We will take a long term view and continue to nurture them while we will continuously push for improvements in their economics and financial health every year. Our goal is to develop a sustainable and multi tier growth engine for the group's sustainable long term growth.

Speaker 1

Thank you. And Alex will answer the second question. This is Alex. I will take your second question. Based on our second our performance in the Q2, the live streaming revenue from Bigo's 3 core global products has actually maintained a positive growth.

Speaker 1

And if we look behind the main driver, it's still the growth of paying users that is driving our revenue recovery, which has maintained a high single digit growth year over year, while our ARPU has our live streaming ARPU has continued to fluctuate. Looking at the performances among different regions, developed countries have consistently outperformed other regions, both in terms of sequential and year over year growth rates in the past quarters. While looking ahead to the second quarter to the second half of the year, while we enter into a period of elevated operating activities, we expect the streamers and users to be more active and their activities likely to increase. Therefore, some regions might be likely to return to positive revenue growth sequentially, and that's what we're seeing already seeing in the Middle East. However, to improve efficiency and enhance the sustainability of our global business, we have taken some proactive actions to optimize Spiegel Live's content cost.

Speaker 1

And also we're gradually making some additional adjustments onto Bigo's non core audio live streaming products starting in Q3. We expect these adjustments mainly to short term fluctuation of Bigo's live streaming revenue, which we've already taken those into account when we deliver the current revenue guidance for Q3. But we'd like to emphasize that the adjustments that we are making today are aiming at refining a healthier profit model and building our sustainable business ecosystem. And these short term fluctuations will not affect our long term commitment to continuously drive for a long term growth of our revenue and profit of our global business. And lastly, for the full year of the year 'twenty four, given that our advertising business has maintained such a strong growth momentum, we still expect the Bigo segment to achieve single digit revenue growth for the full year.

Speaker 1

Next question please.

Operator

Thank you. Your next question comes from the line of Lei Zhang with Bank of America. Please go ahead.

Speaker 2

Just want to get more color on the margin trend for Bigo and the group in second half? Thank you.

Speaker 1

Thank you, Zhang Wei. This is Alex. I will answer your question. First, let's look at our profit details in the second quarter. The group's non GAAP net profit achieved a 10.2% QoQ growth.

Speaker 1

And within that, Bigo segment's non GAAP operating profit was up by 10.1% sequentially, mainly due to the optimization of Bigo Live content costs, which drove an improvement in Bigo's gross margin. And on the operating expense side, Bigo's sales and marketing expenses were also down meaningfully Q on Q, primarily due to our reduced spending on user acquisition due to our higher requirement on ROI. Looking ahead to the second half of the year, as we continue to optimize our content cost and our user acquisition strategy, we expect Bigo Live's profit margin to remain stable or even deliver a slight increase. However, considering the accumulated negative impact of the adjustments that we made to Bigo's noncore audio live streaming product, we expect on our profits, we expect the absolute amount of Bigo's segment's non GAAP operating profit to modestly decline compared to last year. And for the all other segment, we're expecting the amount of its total non GAAP operating loss for the full year to also narrow slightly compared to last year.

Speaker 1

Next question?

Operator

Thank you. Your next question comes from the line of Derek Fai with Morgan Stanley. Please go ahead.

Speaker 4

Thank you, management. My question would be, could you share with us the latest progress of your share repurchase program and your outlook for the capital return in the future? Thanks.

Speaker 1

Thank you. This is Vivi. This is Ping Li. I will answer your question. Regarding our capital return, we remain committed to return value to our shareholders.

Speaker 1

In the Q2, we have altogether repurchased an additional of $2,300,000 of our ADS for a total consideration of 71 400,000, which represents 3.9 percent of our outstanding ADS as of the end of Q1. And the Board has just authorized an extension of our unutilized share repurchase program under which we may repurchase up to 400,000,000 of our shares. We will remain active executing our share repurchase program and continue to reward the long standing support of our shareholders.

Operator

Your last question is from the line of Brian Gong with Citi.

Speaker 4

I have a quick question on ad business. Could management comment on the business trend and your thoughts on outlook for our ad business? Thank you.

Speaker 1

This is Ping Li. I will take your question. Looking at our advertising business performance in the 2nd quarter, you can see that Bigo has maintained Bigo's advertising revenue has maintained a strong growth momentum. Specifically, like, e's advertising revenue increased by 34.7% year over year, and Bigo's audience network revenue increased by 12.8% quarter over quarter. The contribution of our non live streaming revenue, primarily advertising revenue, has now contributed to 13.4% to Bigo segment total revenue.

Speaker 1

And looking at ahead for the second half of the year, which is traditionally a peak season for advertising, we're expecting our advertising revenue to continue to grow on a sequential basis. However, it's worth noting that Bigo Audience Network, it's a new adventure under development of our advertising business. It has grown quite substantially in the past few years, but still it's still in an early stage of development. And although that it has already managed to achieve a positive gross margin and operating margin, it still takes time for us to accumulate scale to drive further profit growth. We aim to continue to find our differentiated value proposition and continue to take a long term view to explore and refine our operations and products and steadily drive a further improvement of our market share over time.

Speaker 1

Okay. So that was the last question. And thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.

Operator

Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your line.

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