Earnings call transcript: Yalla Group Q4 2024 beats revenue expectations

Yalla Group Ltd. reported its earnings for the fourth quarter of 2024, surpassing revenue expectations with a reported $91 million, a 12.2% year-over-year increase. The company’s earnings per share (EPS) came in at $0.18, aligning with market expectations. Following the announcement, Yalla’s stock price showed a slight increase, closing at $4.02 in after-hours trading, a modest rise of 0.25%. According to InvestingPro analysis, the company maintains impressive profitability metrics with a 63.61% gross margin and trades at an attractive P/E ratio of 4.76, significantly below industry averages.

Key Takeaways

• Yalla Group’s Q4 revenue exceeded forecasts, reaching $91 million.
• The company maintained a steady EPS of $0.18, in line with predictions.
• Operating income for the quarter increased by 29.4% year-over-year.
• The company is expanding its AI capabilities and gaming portfolio.
• Yalla plans to accelerate its share repurchase program.

Company Performance

Yalla Group demonstrated robust performance in Q4 2024, with revenue increasing by 12.2% year-over-year to $91 million. This growth was driven by strong demand in the MENA region, where the company has established itself as a leading player in the online social networking and gaming sectors. The company’s operating income also saw a significant rise, increasing by 29.4% compared to the previous year.

Financial Highlights

• Revenue: $91 million (12.2% YoY increase)
• Operating Income: $30.1 million (29.4% YoY increase)
• Full Year Net Income: $134.2 million (18.7% increase)
• Cash and Investments: $656.3 million as of December 31, 2024

Earnings vs. Forecast

Yalla Group’s Q4 revenue of $91 million exceeded the forecast of $86.6 million, marking a positive surprise of approximately 5.1%. The EPS of $0.18 matched expectations, indicating stable profitability. This performance reflects Yalla’s effective cost management and strategic focus on growth areas.

Market Reaction

Following the earnings release, Yalla Group’s stock experienced a minor uptick in after-hours trading, closing at $4.02, a 0.25% increase from the previous close. This movement reflects investor confidence in the company’s ability to sustain growth and profitability. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, presenting a potential opportunity for investors. The company’s strong financial health score of 3.48 (rated as "GREAT" by InvestingPro) and return on equity of 22% further support its investment case.

Outlook & Guidance

For the first quarter of 2025, Yalla Group has provided revenue guidance of $75 to $82 million, aiming for a 40% net profit margin. The company is planning potential new product launches in the second half of 2025 and intends to expand its local team in the Middle East. Additionally, Yalla is accelerating its share repurchase program, targeting $28 million. For detailed analysis of Yalla’s growth prospects and comprehensive valuation metrics, investors can access the full Pro Research Report, available exclusively on InvestingPro, which covers this and 1,400+ other top stocks with expert insights and actionable intelligence.

Executive Commentary

Tao Yang, Chairman of Yalla Group, stated, "2025 marks the tenth anniversary of Yalla Group," highlighting the company’s long-term commitment to innovation and market leadership. He emphasized the role of AI in driving efficiency and user engagement, stating, "We aim to harness AI not only as a tool for enhancing efficiency but also as a catalyst for innovation."

Risks and Challenges

• Market Competition: Increasing competition in the MENA region could impact growth.
• Economic Uncertainty: Global economic fluctuations may affect consumer spending.
• Regulatory Changes: Potential changes in digital and gaming regulations in key markets.
• Technological Advancements: The need for continuous innovation to stay ahead of competitors.

Q&A

During the earnings call, analysts inquired about Yalla’s game development progress and strategic priorities for 2025. The company highlighted its focus on product iteration and technology enhancement, with two mid-core games currently in the testing phase. Analysts also questioned the company’s AI strategy, to which Yalla responded by emphasizing its integration efforts to boost efficiency and user engagement.

Full transcript - Yalla Group Ltd (YALA) Q4 2024:

Conference Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited’s Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in listen only mode. After management’s prepared remarks, there will be a question and answer session. Today’s conference call is being recorded.

Now, I will turn the call over to your speaker host today, Ms. Carrie Gao, IR Director of the Company. Please go ahead.

Carrie Gao, IR Director, Yalla Group Limited: Hello, everyone, and welcome to Yala’s fourth quarter and full year twenty twenty four earnings conference. We issued our earnings release earlier today and it is now available on our IR website as well as on news file outlets. Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor provision of The U. S. Private Securities Litigation Reform Act of 1995.

Forward looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our earnings release and our annual report filed with the SEC. Yalla does not assume any obligation to update any forward looking statements, except as specified by law. Please also note that Yala’s earnings press release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non GAAP financial measures.

Yala’s press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. Today, you will hear from Mr. Tao Yang, our Chairman and Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Caiaphis Ma Yu, the company’s President, who will briefly review our recent business developments.

Mrs. Karen Hu, our Chief Financial Officer, will then provide additional details on the company’s financial results and discuss our financial outlook. Following management’s prepared remarks, we will open the call to questions. Mr. Jeff Zhi, our Chief Operating Officer will join the Q and A session.

With that said, I would now like to turn the call over to our Chairman and Executive Officer, Mr. Tao Yang. Please go ahead, sir.

Tao Yang, Chairman and Executive Officer, Yalla Group Limited: Thank you, everyone, for joining our fourth quarter and full year twenty twenty four conference call. We concluded 2024 with robust fourth quarter results. Our revenue rose to USD91 million, reaching a new record high for the second consecutive quarter and once again beating the upper end of our guidance. We are bringing our annual revenue to USD340 million. This exceptional performance is a testament to our deep commitment to enhancing user experiences and boosting user engagement across our vertical system with content tailored to the local culture.

Additionally, we have made significant strides in improving our operational efficiency by enhancing management practices with our service providers, optimizing user acquisition strategies and refining our internal processes, which led to a 26% year over year increase in operating profitability for full year 2024. This impressive results further demonstrate our ability to drive high quality growth and fulfill MENA users’ evolving online social networking and gaming needs. Looking back at 2024, the thriving digital economy in the MENA region continued to attract attention globally. The increasing number of global leading Internet companies are investing more resources and talent into the MENA market, driving evolving demand trends among local users. This vibrant landscape underscores Mina’s potential as one of the fastest growing mobile Internet markets.

On a related note, according to industry research, the digital transformation market in MENA was valued at USD55 billion in 2024 and it is expected to grow at a compound annual growth rate of 22.5%, reaching USD418.54 billion by 02/1934. This dynamic expansion creates tremendous profit and growth opportunities for businesses. Leveraging nearly a decade of experience in the MENA region, a well established product portfolio and flourishing online social and gaming community, Yalla is well positioned for continued market leadership in the MENA region. We remain dedicated to serving local users’ evolving needs for social interaction and entertainment. And we will stay closely attuned to local trends as we create and launch new products tailored to MENA users’ preference.

The MENA region has also experienced significant advancement in artificial intelligence with countries such as Saudi Arabia and The UAE at the forefront of AI infrastructure investments. In the first half of twenty twenty four, Abzabi’s AI sector grew by 41.3%, bringing the total number of AI companies to 400. During upon Yiala’s decade of expertise in Mina’s Internet industry and our deep understanding of local culture and user behaviors, we continued to strengthen our capabilities in developing AI algorithm models that are tailored to local culture and user preference. Our dedicated AI team is rapidly integrating AI driven automation and data analytics into products and operations to optimize R and D efficiency and improve the user experience across our product offerings. For example, we have increased the role of our self developed AI art platform in virtual product design, training it to better align with MENA users’ aesthetic preference.

This has significantly enhanced design efficiency and accuracy. Additionally, we utilized AI algorithm to comprehensively analyze users’ characteristics and they imply personalized recommendations to improve user interaction and re engage domain users. This enhanced features not only boost user engagement, but also drive profitability. Going forward, we will continue to drive innovation in AI applications to provide local users more efficient and engaging services. At the same time, Mina’s gaming industry continues to maintain a strong growth trend as one of the fastest growing regions in terms of global gaming industry revenue.

The MENA market shows a high willingness to download and pay for various types of games. As always, we remain committed to enriching our gaming product portfolio with the continuous focus of R and D for Yala Games. As we’ve shared previously, Yala Games’ product line is vibrant with several self developed metal games in the pipeline. Two of these games have completed development and are in the testing phase. We are also consistently discussing collaboration opportunities proactively with potential partners from gaming studios around the world.

We look forward to seeing these new products capture their corresponding user base and drive revenue growth in the coming years. 2025 marks the tenth anniversary of Yalla Group. We are excited to see our new products and the diverse efforts we’ve made recently come to fruition this milestone year. The MENA market is experiencing incredible opportunity for growth with local government support for digital development laying a solid foundation for future expansion. As MENA’s largest online social networking and gaming company, we remain confident in our ability to navigate the ever evolving digital landscape and deliver value to all of our stakeholders.

Now, I will turn the call over to our President, Mr. Saifie Ismayu, for a closer look at our recent developments.

Saifie Ismayu, President, Yalla Group Limited: Hello, everyone. Thanks for joining us today. Let’s take a closer look at our fourth quarter operations and our products performance. As of 12/31/2024, our MAU increased by 14.4% year over year to 41,400,000. Paying users increased by 3.2% year over year to 12,300,000 with ARBO reaching 7.24%, an increase of 10.2% year over year.

During the quarter, we continued to launch innovative features and engaging operational events for our flagship products, strengthening users’ engagements and maintaining these products’ profitability. For our regional products, we continued to unleash their immense potential with iterations and upgrades. Revenue from one hundred and one Okay Yell Lab reached a new record high contributing to our overall growth. We are delighted to see our legacy products exhibit during popularity and generate strong results as we continue to invest in new opportunities to drive future growth. We continue to strengthen El Laredo’s momentum with a series of outstanding offline events this year.

In December 2024, we held our Yalaludo Champion Tournament in Riyadh in Saudi Arabia, featuring a host of customized experiences inspired by local culture traditions to suit local gamer states. We also provided VR gaming experiences and other immersive activities to strengthen users’ engagement. With these influential events, we create unique opportunities for talented gamers and game enthusiasts to connect while cementing our bond with users and extending our reach to the border gaming community. In terms of regional products, we announced in the third quarter of twenty twenty four that one hundred and one Okay Yalla has set a new quarterly revenue record, a milestone. It swiftly surpassed this quarter.

Meanwhile, the product achieved a significant year over year increase in monthly average MAU during quarter four. These remarkable results have inspired us to remain laser focused on crafting high quality regional products and challenge ourselves to seize every opportunity for success in their respective markets. Our dedication to enhancing MENA’s digital lifestyles continued to win social recognition. On the group level, we are proud to announce that Yalla Group was awarded the PowerHouse Partnership Award at the AppGallery Developer Conference twenty twenty four in Abu Dhabi in November 2024. The award was presented by the co chairman of the UAE Esports Federation in recognition of Yalla’s pivotal contributions to the AppGallery ecosystem, including an array of innovative digital experiences tailored to MENA users’ unique needs.

Additionally, Yalaludu won a Gold Stevie Award for innovation in entertainment applications at the sixth annual Middle East and North Africa Steam Awards in 2025. The Steam Awards are widely considered to be the world’s premier business awards and are the only business awards to recognize innovation in the workplace in 18 nations in MENA. This mark the third consecutive win for Yalla’s industry leading social apps underscoring our unwavering commitment to pursuit of innovation, excellence and the ultimate in user experience. In short, as the largest MENA based online social networking and gaming company, Yalla stands at the forefront of MENA’s digital transformation. Looking ahead, we will remain dedicated to pushing the boundaries of innovation, delivering unparalleled experience to meet our users’ evolving needs and desires.

As MENA’s digital economy continues to grow and thrive, we will leverage our core strength and strategic partnership to explore new opportunities and shape the future of social networking and online entertainment. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Thank you, Sophie, and hello, everyone. Thank you for joining us today. We delivered robust 2024 results, reflecting our unwavering commitment to driving high quality growth in a dynamic and rapidly evolving market. For full year 2024, our revenues reached US239.7 million dollars In the fourth quarter alone, our revenues increased by 12.2% year over year to US90.8 million dollars exceeding the up end of our guidance and underscoring the ongoing success of our user acquisition and monetization strategies. Moreover, we remained focused on enhancing our operational efficiency and optimizing costs, which has significantly contributed to our operating profitability.

Our operating income increased by 29.4% year over year to US30.1 million dollars in the fourth quarter and by 26% year over year to US121.4 dollars for the full year. This meaningfully boosted our overall profitability with net income increasing by 18.7% to US134.2 million dollars for the full year 2024. As we move into 2025, we will continue to prioritize quality development, focusing on both product innovation and the refined operational processes. We will also deepen our commitment to enriching the user experience and expanding our services to cater to the region’s evolving needs. With our deep local insights and strong financial fundamentals, we are well positioned to navigate the market dynamics and see future growth opportunities.

Let’s move on to our detailed financials for the fourth quarter of twenty twenty four. Our revenues were US90.8 million dollars in the fourth quarter of twenty twenty four, a 12.2% increase from US80.9 million dollars in the same period last year. The increase was primarily driven by our burdening user base and enhanced monetization capability. Our solid revenue growth was also partially attributable to the substantial increase in the number of paying users, which grew to RMB12.3 million in the fourth quarter of twenty twenty four from RMB11.9 RMB11.9 million in the same period last year. Turning to our costs and expenses.

Our total costs and expenses were US6.7 million dollars in the fourth quarter of twenty twenty four, a 5.3% increase from US57.6 million dollars in the same period last year. Cost of revenues was US31 million dollars in the fourth quarter of twenty twenty four, a 1.5% increase from US30.6 million dollars in the same period last year, primarily due to higher commission fees paid to third party payment platforms as a result of increasing revenues generated. Cost of revenues as a percentage of total revenues decreased from 34.2 in the fourth quarter of twenty twenty four from 37.8% in the same period last year. Our selling and marketing expenses were US7.4 million dollars in the fourth quarter of twenty twenty four, a 28.5% decrease from US10.4 million dollars in the same period last year, primarily driven by our more disciplined advertising and promotion approach. Selling and marketing expenses as a percentage of total revenues decreased to 8.2% in the fourth quarter of twenty twenty four from 12.8% in the same period last year.

Our general and administrative expenses were US13.1 million dollars in the fourth quarter of twenty twenty four, a 15.6% increase from US11.3 million dollars in the same period last year, primarily due to an increase in incentive compensation. General and administrative expenses as a percentage of total revenues increased to 14.4% in the fourth quarter of twenty twenty four from 14% in the same period last year. Our technology and the product development expenses were US9.2 million dollars in the fourth quarter of twenty twenty four, a 69.6 increase from US5.4 million dollars in the same period last year, primarily due to an increase in salaries and the benefits for our technology and the product development staff, driven by an increase in the headcounts of these staff to support the development of new businesses and expansion of our product portfolio. Technology and product development expenses as a percentage of total revenues increased to 10.1% in the fourth quarter of twenty twenty four from 6.7% in the same period last year. As such, our operating income was US30.1 million dollars in the fourth quarter of twenty twenty four, a 29.4% increase from US23.3 million dollars in the same period last year.

Interest income was US7.1 million dollars in the fourth quarter of twenty twenty four compared with US6.5 million dollars in the fourth quarter of twenty twenty three. Income tax expense was US3.35 million dollars in the fourth quarter of twenty twenty four compared with US0.54 million dollars in the fourth quarter of twenty twenty three. The increase was primarily due to an increase in income tax expenses recognized for recognition of deferred tax liabilities for the undistributed return earnings on consolidated subsidiaries. As a result of our foregoing, our net income was US32.5 million dollars in the fourth quarter of twenty twenty four, a 9.7% increase from US29.7 million dollars in the fourth quarter of twenty twenty three. And our non GAAP net income in the fourth quarter of twenty twenty four was US35.7 million dollars a 6.8% increase from US33.4 million dollars in the same period last year.

Moving on to our liquidity and capital resources. Our cash position remains solid and healthy. As of 12/31/2024, we had cash and cash equivalents, restricted cash, term deposits and short term investments of US656.3 million dollars compared with US535.7 million dollars as of 12/31/2023. We continued to return value through our share repurchase program. Our Board of Directors has approved an extension of the expiration date of the share repurchase program to 05/21/2026, for the company’s share repurchase program beginning on 05/21/2021.

During the fourth quarter, we repurchased 1,595,879 ADS or Class A ordinary shares from the open market, totaling approximately US6.9 million dollars. Cumulatively, as of December 2024, we had completed cash repurchases in the open market of 7,305,138 ADS or Class A ordinary shares totaling approximately US49.4 million dollars Moving to our outlook. For the first quarter of twenty twenty five, we expect our revenues to be between US75 million dollars and US82 million dollars The above outlook is based on the current market conditions and reflects the company’s management’s current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. In the interest of time, please refer to our earnings press release for further details on our first quarter and full year twenty twenty four financial results. This concludes our prepared remarks for today.

Operator, we are now ready to take questions.

Conference Operator: Thank you. Our first question today comes from Shuking Zhang with CICC. Please go ahead.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Good morning, management. Thanks for taking my question. My question about your game business. Could management share the latest progress of new game products and what’s your insights into commercialization expectations? Thank you.

Jeff Zhi, Chief Operating Officer, Yalla Group Limited: Thanks, Cheqing for your question. This is Jeff. I will take your question. Throughout 2024, we focused on advancing the research and development of our new gaming products, consistently exploring new avenues to expand our product portfolio. We have completed the version of one point zero development of two mid core games and are now in the process of fine tuning them.

Meanwhile, we have been proactively pursuing external collaborations that complement our business, leveraging Yalla’s extensive experience in The Middle East. We are working with more potential partners to unlock the local market opportunities and establish a deeper foothold in The Middle East. As the largest media based online social networking and entertainment platform, we aim to curate top tier games and offer game players a richer entertainment experience. We hope YOLA Games’ recent achievement will specific financial guidance will be disclosed in due course. Thank you very much about your question.

Conference Operator: Thank you. And our next question comes from Xiaoyu Hu with Haitong International. Please go ahead.

Xiaoyu Hu, Analyst, Haitong International: Hello, management. Thank you for taking my question. So, can management elaborate on the company’s strategic priorities and the key initiatives for 2025? Thank you.

Tao Yang, Chairman and Executive Officer, Yalla Group Limited: Thank you, Xiaoyi. This is Yang. I will answer his question. I think 2025 marks the tenth anniversary of our company’s funding. Our two flagship products continue to thrive and we are immensely grateful for our MENA based users and wavering support and enthusiasm over the years.

We will continue to iterate these flagship apps by enhancing gamification and rolling out innovative new contents, while leveraging advanced technology to offer diverse and engaging experience for our users. Additionally, as we mentioned earlier, we have a number of new apps in our pipeline that have potential to contribute to the company’s revenue growth in the second half of this year. Going forward, we plan to further expand our local team in The Middle East to enhance our local presence and align with the region’s sweeping digital transformation trend. We will keep a sharp eye on Mina’s evolving user needs and stay open to the new market opportunities while consistently delighting local user footprint products that appeal to their culture values and taste. Thank you, Xiaoye.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Thank you.

Conference Operator: Thank you. And our next question comes from Kaifeng Jia with CITIC. Please go ahead.

Tao Yang, Chairman and Executive Officer, Yalla Group Limited: Hi, management. Thanks for taking the question. I have a question about how should we think about the revenue and margin trades in 2025? Thank you.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Hello, Hai Pang. Glad to see you here. This is Karen. For 2025, even without factoring in potential revenue from new products, we anticipate at least maintaining our current revenue size. We also think that maintaining a net profit margin of around 40% is reasonable.

Of course, our upcoming products are likely to generate new revenue streams this year, but we will wait until these products are launched to provide revenue guidance. Given the necessary sales marketing investments for these new products, we expect a margin of around 35%, but we will adjust our investment budget depending on the specifics of these new products launches. Thank you.

Conference Operator: Thank you. And our next question comes from Rachel Guo with Nomura. Please go ahead.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Hi. Good morning management. Thanks for taking your question. My question is about your shareholder returns. Can management to provide an update on your share repurchase plan?

Thanks.

Tao Yang, Chairman and Executive Officer, Yalla Group Limited: Thank you, Rachel. This is Yang. I think we are committed to delivering value to our shareholders through our share repurchase program. In 2024, we repurchased around 3,000,000 ADS amounting to approximately USD14 million. Moving into this year, we will accelerate shareholders’ returns through our share repurchase program.

We are fully committed to achieving our target of at least doubling our buyback activity to USD28 million this year. We may escalate this amount later this year and we will provide quarterly updates on the plan’s progress. We host strong confidence in Yela’s long term potential and are dedicated to generating sustainable long term value for all stakeholders. I hope that helps. Thank you.

Conference Operator: Thank you. And our next question comes from Lincoln Kang at Goldman Sachs. Please go ahead.

Lincoln Kang, Analyst, Goldman Sachs: Thank you, management for taking my question. So can management elaborate about our strategic vision for leveraging AI to drive our growth and innovation here? Thank you.

Tao Yang, Chairman and Executive Officer, Yalla Group Limited: Hi, Linke. This is Yang. Thank you for raising this. As we noted earlier, we have a dedicated algorithm team and proprietary AI task platform and we are already capitalizing on AI to empower our products, boosting efficiency and elevating user experience. Meanwhile, we see tremendous upside potential in further integrating AI into our ecosystem.

We are actively evaluating various user cases across our products, exploring how to synergize our internal teams with external AI resources to deepen user engagement and expand our market reach. We aim to harness AI not only as a tool for enhancing efficiency, but also as a catalyst for innovation, ensuring that our products remain at the forefront of MENA’s digital entertainment market. I hope this offers a clear picture. Thank you, Lincoln.

Lincoln Kang, Analyst, Goldman Sachs: Thank you.

Conference Operator: Thank you. And our next question comes from Jenny Yuan with UBS. Please go ahead.

Jenny Yuan, Analyst, UBS: Thanks management for taking my question. My question is regarding our regional strategy. So could you please provide any update on whether our company’s future development will still be meaningful or if we have any plans to expand operations to other regions? Thank you.

Saifie Ismayu, President, Yalla Group Limited: Thanks, Jenny. This is Saifie, and I’ll take this question. We have always viewed MENA as our core market and strategic home base, making it the solid foundation supporting our business growth. At the same time, as our products portfolio expands, we may reach users elsewhere, diversifying our user base. Some of our new products may also have the potential for distribution in other regions.

We will also carefully evaluate such situations based on the market data and market prudent decisions that maximize our potential and enhance our ROI. However, wherever else we may go, the MENA region will always remain at the heart of our business and we will continue to deepen our presence in this region to strengthen our market leadership. Thank you.

Conference Operator: Thank you. And this concludes our question and answer session. I’d like to turn the conference back over to the company for closing remarks.

Carrie Gao, IR Director, Yalla Group Limited: Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yala’s Investor Relations or PSNT Financial Communications. Both parties’ contact information is available in today’s press release as well as on our company website. Thank you.

Conference Operator: Thank you. This concludes today’s conference call. You may now disconnect your lines and have a wonderful day.

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