Earnings Call: Q1 2021

May 27, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Joy Inc. First Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After management's 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. Please go ahead, Jane. Thank you, operator. Hello, everyone. Welcome to Joy's Q1 2021 Earnings Conference Call. Joining us today are Mr. David Shilling Li, Chairman and CEO of Joy Ms. Ting Li, our COO and Mr. Alex Liu, the General Manager 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 Q1 2021 financial results and webcast of this conference call are available at ir. Joy. Xg. A replay of this call will also be available on our website in a few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which apply to this call as we will make forward looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U. S. Dollar. I will now turn the call over to our Chairman and CEO, Mr. David Sharlene Li. Please go ahead, sir. Hello, everyone. Welcome to our Q1 2021 earnings call. We reached another milestone in our product commercialization progress by executing our strategies of globalization through localization and the short form video plus live streaming. During the Q1, total revenue of Joy exceeded street inspections and grew by 88.1 percent year over year to US643 $1,000,000 Especially revenue from Bigo grew by 92.5 percent year over year to 581,000,000 with paying user growth by 72.1 percent year over year to $1,67,000,000 Above all, Bigo's non GAAP net income is determined by how much we have shown in the screen. And that's why we need to be long term thinkers. As mentioned on our last quarter's earnings call, Bigo's achievement today is a result of our persistent execution of long term business strategies over the past 5 years. Having reached a milestone in commercialization. We remain goal oriented and long term focused. We will devote our resources to sharpening our competitive edge and expanding our marketing influence So that we can sustain our growth trajectory for the long haul. At Joy, we view the social interactivity and the content ecosystem strategic call that fundamental to the long term competitiveness of our products. Joy has always been on a mission to cultivate an inclusive and global community where everyone can be heard and seen. During the Q1 of 2021, more than 17% of Bigo Live's active user hosted live streaming sessions and more than 19% of LIKI's Combining short video content with live streaming, we seek to further expand user social connections via our content offerings facilitate immersive social interactions through live streaming and help users forge intimate social relationships with one another. We aim to provide user with a sense of connection, Belonging and the Critification through Social Interactions In addition to relaxing and entertainment, at the same time, as mentioned in the last call, We plan to continue augment our localized content ecosystem. Thanks to our products in chain sync social features, we have accumulated a massive pool of amateur live streamers and content creators contributing a vast reservoir of user generated content by empowering user with a full suite and lower the entry barrier for the content production. By combining user chain course and user incentive programs. We have encouraged more users to reduce our original content, thus expanding our pool of grassroots live streamers and content creators continuously. In addition, Based on our insights into local users' content preference, we have partnered with gaming companies, TV show producers and entertainment agencies to attract more high quality live streamers and content creators to our platform and introduced an increasing volume of premier content to our content pool. By leveraging the social influence of leading content creators, We have also been able to expand our user base persistently. We believe the high quality content and the social ecosystem together form the initiative engine propelling our growth for the long term. As such, we have Gradually adjusted the product promotion strategy for certain products such as Lucky and HAGO. As we reduced our advertising spend on those products, We allocated our resources toward the development of our content and social ecosystem instead. Consequently, this product user base suffered a decline and may experience some Floccution in the near term. However, we believe that Prioritizing advertisement in our content and social ecosystem will improve our user experience and contribute to our long term competitiveness. We are confident that our strategy adjustment will enable both our products and business to achieve sustainable growth in the long run. For new business initiatives. We discussed on the last call that we would Suite attend to new opportunities in the cross border e commerce sector and that we have made some preliminary explorations in cloud based audio and the video Enterprise Services. As we continue to explore such new market opportunities, We plan to gradually build up our competitive advantage in our products and technologies. We will provide further updates when our new business initiatives progress To further maturity, now Let me share with you quarterly updates in each of our core products. During the Q4, Bigo Life's MAU grew by 9% year over year to 29,100,000 While its revenue grew by 106.2% year over year, As Bigo Live TinyTree is deeper into multi market, its geographic coverage is becoming increasingly diversified. On a year over year basis, Revenue from Europe grew by 227.8 percent with paying users increasing by 118.9%. Revenue from Eastern Pacific region grew by 147 0.5% with paying user increasing by 63.2% and revenues from the Middle East Road by 46.1% with paying user increasing by 39.9 Percent. Product wise, we continue to upgrade Bigo Life's social features to In a sequential basis, the total number of users that hosted a live streaming session With average time of live streaming session increased by 1.9% in the quarter, By locating more screen space to display the background information of hosts and guests on live streams. We have made it much easier for user to initiate simultaneous interactions with multiple parties on live streaming, facilitating more multi user interactions on the platform. As a result, sequential is the average real time spent in Multi user audio chat rooms and video chat rooms increased by 9.7% and 16.1%, respectively. And the user to streamer Conversation rate in multi user chat rooms increased by 11.2% in the quarter. In addition, as we further find trend our social interactions feature called VAR, Its user penetration rate also increased by 7% sequentially over the last quarter. As part of our efforts to develop 10 entertainment content ecosystem, We collaborated with popular Venamis TV show, LoveHorse and host audio on our platform. Through those auditions, we Elected several hosts from Bigo Live to participate in the show, thereby boasting the influence of both our platform and its host in the region. Meanwhile, During the Indian government spend our adjustment to product promotion strategy, Lattice MAUs Declined by 12.6 percent year over year to 115,000,000 However, its revenue maintained a rapid pace of growth, multiplying by 4.2 times year over year during the quarter. In particular, 1 year over year basis, Life is revenue from the Middle East multiplied by 40.3x, with paying user increasing by approximately 10x, Well, it's revenue from the Southeast Asia region multiplied by 1.6 times with paying user increasing by 1.7 times. Product wise, We introduced a full screen format for LIKI's softphone videos and further Optimized the platform's content recommendation algorithm during the quarters to improve its user experience. At the same time, we provide content producers with more Effective Data Support and Markup Truth Attracting User Usage From About 10% of our professional content creators on a daily basis in the quarter. We have also seen the increased engagement of high quality KOLs in live streaming activities. As average daily live streaming sessions organized by KOLs whose Active followers were more than 10,100,000, increasing by 12.8% 18.5%, respectively. In a sequential basis in the quarter, we also refined our recommendation Interactions within the platform's live streaming chat rooms improved with average user time spent Our live streaming chat rooms increased by 25.5 percent And the effective live streaming MAUs increasing by 9.5% on a sequential basis. Content wise, we organize the 2nd season of Lai T. Star Idol content in Indonesia in February, attracting a high talented group of creators. 1 of the content winners, Ethan Taro, was later invited to platform on Indonesian Idol, the largest national variety show in Indonesia. By organizing those type of large scale events and collaborating with popular TV variety shows LaiQi has effectively created a platform for new creators to gain exposure, raise their public profiles and advance their careers, which in turn motivated creators to produce more high quality content on our platform. Since the second half of twenty twenty, also due to our Adjustment to produce adjustment to product promotion strategy. Hago's MAUs experienced some decline in the past few quarters. During the period, Hargo's MAU was $13,100,000 However, Hargo achieved meaningful progress in its user interactivity and product commercialization. Its revenue increased by 66.8% year over year, driven by a year over year increase of 28% in its paying users. Meanwhile, During the quarter, in addition to launching a number of multi user audio chat room games. Hago introduced a new social feature into its channel called Family. This feature enables user to establish a virtual family with their friends and their supporters and the support instant interaction through text, audio and video, thus satisfying users' growing demands for Interest Based Social Networking. By combining instant entertainment with social interactions Hago. We increased Hago's average time of live streaming session in audio chat rooms by 8.5%. This average viewer time spent conversion rate by 2.2% and the penetration rates of our feature channel by 10.9 Percent Sequentially. In conclusion, As we expanded our paying user basis across multiple products, we achieved solid operating and financial results during the Q1. Going forward, we remain committed Social Entertainment Experience. With that, I will now turn the call to our General Manager of Finance, Alex Liu, for a more detailed explanation of our quarterly Financial Results. Okay. Thanks, David. Hello, everyone. As Joy Finance Controller, I will talk about the financial results. Since a majority of our revenues and expenses are now denominated in USD. Starting from January 1, 2021, We changed our reporting currency from renminbi to U. S. Dollar to better illustrate our operational results. Please note that the financial information and non GAAP financial information disclosed in our Q1 earnings press release is present on a continuing operations basis unless advised specifically stated. After the deconsolidation of Huya, The company accounts for our investment in Oya as an active measured investment and apply the active measured accounting 1 quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya. Also, as the sale of VAVA Life was substantially completed on February 8, 2021, With certain customary matters to be completed in the near future, the historical financial results of VAVA Life are reflected in the company's consolidated financial statements as discontinued operations accordingly, starting from the Q4 of 2020. During the Q1 of 2021, We maintained our strong growth momentum and delivered robust financial and operating results. Our total net revenues for the Q1 increased by 88.1% year over year to US643.1 million dollars from US342 million dollars in the same period of 2020. In particular, our live streaming revenues for the Q1 increased by 95.6 percent year over year to 614,500,000 driven by live streaming revenues growth from Bigo. Other revenues in the first quarter increased by 3.6 percent to USD29 1,000,000. Cost of revenues for the Q1 increased by 76.5 percent year over year to US442.9 million Revenue sharing fees and content costs increased to US282 1,000,000 In the Q1 from USD126,300,000 in the same period of 2020, which was in line with the increase in live streaming revenues. Bandwidth costs decrease to USD29.5 million from USD33.2 million in the same period of 2020, primarily related to the company's improved emphasis and the combination of bandwidth usage for users in India after its matters to block certain Chinese mobile apps in late June 2020, partially offset by the continued user base expenses upside in the year. Gross profit increased by 119.8 percent year over year to USD 200,200,000. Gross margin in the Q1 of 2021 improved to 31.1% from 26.6% in the same period of 2020. Operating expenses for the Q1 increased to US279 $1,000,000 from US206 $300,000 in the same period of 2020. Among the operating expenses, our research and the divestment expenses increased to $87,000,000 in the Q1 from $69,500,000 in the same period of 2020. As part of the company's efforts to enhance its research and development capabilities, Shows and marketing expenses increased to USD 100 and $37,400,000 in the period from USD113,900,000 in the same period of 2020, primarily due to the company's increased efforts in social and marketing activities in the global markets. Our GAAP operating loss for the Q1 was USD73 1,000,000 from USD113.9 million in the same period of 2020. Operating loss margin for the Q1 was narrowed to 11.4% compared to 33.3% in the same period of 2020, primarily due to narrow operating loss of Bigo. Our non GAAP operating loss for the Q1, which excludes share based compensation expenses, Multi Distance of intangible assets from business acquisitions as well as impairment of goodwill and investments And again, on the follow-up of subsidiaries and business decreased by 57.2 percent to USD $29,700,000 compared to $69,300,000 in the same period of 2020. Non GAAP operating loss margin for the Q1 was narrowed to 4.6% from 20.3% in the prior year period. GAAP net loss from continuing operations Adoption to controlling interest of Joy in the Q1 of 2021 was USD87,300,000 compared to US62.3 million dollars in the same period of 2020. Net loss margin was 13.6% in the Q1 of 2025 compared to 18.2% in the corresponding period of 2020. Non GAAP net loss from continuing operations Excluding interest of Joy was US24.1 million dollars in the 1st quarter Compared to USD64,500,000 in the same period of 2020, non GAAP net loss margin was narrowed to 3.7% in the Q1 of 2021 from 18.9% in the same period of 2020. Notably, Bigo has achieved a positive non GAAP net income for the Q1 of US9.5 million Non GAAP net margin improved to 1.6% from negative 7.9% in the prior year period. Diluted net loss per ADS In the Q1 of 2021 was USD1.13 compared to USD0. 21 in the same period of 2020. Non GAAP diluted net loss per ADS was narrowed to USD 0.3 from USD 0.81 in the same period of 2020. Jason, in accordance with our quarterly dividend plan approved on August 11, 2020 and on November 16, we will be distributing a dividend of USD0.51 per ADS For the Q1 of 2021, which is expected to be paid on June 28, 2021 to shareholders of record as of the close of business on June 18, 2021. Also, we would love to provide an update to our execution of the share repurchase program announced on May 2020, and which the company may repurchase up to USD 300,000,000 of its shares till August, 2021. As of March 31, 2021, The company had repurchased approximately US196.8 million dollars of its shares. As mentioned in David's speech, we will continue to invest in business development initiatives to further expand our global market rates, cultivate our highly engaged user community and augment our high quality content offerings. We will also actively explore other ways to maximize shareholder value. For the Q2 of 2021, We expect our net revenues to be between US645 1,000,000 and USD663,000,000 excluding the revenue contribution from Huya and WAVA Life in the same period of last year, representing a year over year increase between 36.2% to 40%. We currently have limited visibility surrounding the COVID-nineteen epidemic's long term impact and its analytical uncertainties of our business and the markets in which we operate. Therefore, This forecast only reflects our current and preliminary views on the market and operational conditions, Okay. That concludes our prepared remarks. Operator, 21. Everyone on the call, please ask one question at a time. If you wish to ask more questions, please rejoin the queue. Thank you. Our first question comes from Alex Poon at Morgan Stanley. Please go ahead. Thanks for taking my question. My first question is regarding, there is some rumors about The management change at Spiegel level. So would like to understand the actual situation and is there any impact user growth, user retention and paying ratio, etcetera. Thank you very much. Hi, this is David. Let me answer your question. In the past 12 months, Bigo did have some personnel changes. Such changes were made to better execute our long term strategy and satisfy the evolving needs of business development. But what remains unchanged was our conviction and confidence in the global market potential. As mentioned before, we believe that Bigo Life still has 4 or even 5 times potential of YY Life's revenue in the near future. We believe that the global market potential is still unlimited for us to gradually exercise and execute in the following few years. As for LaiQi, there would be some strategy changes. As I mentioned In my prepared remarks, we have reduced our spending on advertising and prioritized our resources towards content ecosystem and our social community. We believe that the prior model of trying to seize more market share by aggressive advertising spending has to end. Previously, our business was more driven by our advantage in the technology sector. Going forward, we'd love to combine our technology Technology Advantage together with our operation advantages. By that, we would love to gradually prioritize our resources in the content ecosystem whereby we introduce more high quality content creators and more premium content into our content pool and trying to improve the retention rate and also company with 5 years history and its business operations over the past few years have become more mature. As Bigo grows in scale and revenue, we seek to further establish a more mature system to recruit, Develop and manage our talent. Going forward, we will continue to recruit more talents with technology expertise, Global Vision and also local acumen and further develop our team to better achieve our long term business goals. Question comes from Daniel Chen at JPMorgan. Please go ahead. My question is related to the Baidu deal. So could management provide the latest update on your transaction with Baidu on YY Live. Thank you. This is David. Regarding the latest update of Baidu, we don't have any new information As mentioned and disclosed in the SEC filings on February 7 March 29. We have substantially completed the sale of YY Life to Baidu. There are still some customer matters that are still in progress. For further information, it will be disclosed when and as required by applicable Securities. Our next question comes from Thomas Chong at Jefferies. Please go ahead. My question is about the cost side. Can management share about the content cost trend as well as the OpEx and how we should think about the margin trend going forward. Thank you. This is Alex. For clarification, the adjustment on product promotion synergy was mainly about prioritizing the allocation of resources. It means that the reduced spending on and also other localized operational activities. In terms of profitability trend, as Steady progress in terms of product monetization across other products. We believe that the operating margin of The whole legal segment will gradually improve and given the economy of scale, we should be able to Achieve More Operating Leverage on various expenses and cost items such as payment channel costs, Bandwidth Costs, etcetera. The fact that Beagle's non GAAP net margin turns Positive This Quarter Marks A Good Start. So if we look at Full year, I think we should be able to achieve low single digit non GAAP net margin for Bigo as a whole. Thank you. Our next question comes from Tian Hu at TH Capital. Please go ahead. So as Bigo is well developed in overseas and more users and user participation. I wonder if we have other ways to monetize this group of people and such as advertising. Also in the last several calls, David, you mentioned about the new business. And I wonder if you could give us some clarification or updates on those new business. That's number 1. Number 2 is about geopolitics. I do see more sensitivity around geopolitics. So as a Chinese company to go overseas and operates in other countries, do you foresee any potential Regulatory Pressure on either live streaming or short video. Thank you. That's my two questions. In terms of our other source of revenue. First of all, I'd love to clarify that we still believe that live streaming is a very healthy and and promising monetization tool. And you will continue to see decent growth coming from live streaming monetization this sector as well. But we need to admit that even if we can Achieve a certain scale from our global advertising revenue, it would still be very You probably know that in the whole industry, we need to rely on Google and Facebook who are the 2 dominant platform in terms of advertising. And if you like to Hiring tens of thousands of sales and marketing staff to make sure that you've got sufficient source of Sales of Advertising Customers. So we do not see that, that would be achieved within a short period of time. It's a more long term and gradual process. But we do have Higher Interest in Cross Border E Commerce. As I mentioned in our previous earnings calls as well. We do believe that over the coming few years, we do see that China's manufacturing still enjoys competitive advantages both in terms of supply chain efficiency and also product quality. So we still love to participate in facilitating global trade and help to improve efficiency in such process. Thank you. For geopolitical risk, I think that the company has emphasized and have been well prepared in that sector. Since day 1, we incorporated the company in and regulatory requirements of each region. In terms of our server network, we are also well distributed across globe with data stored locally in different countries. And we have been hiring a lot of local employees. Currently, our local employees' total number has reached exceed several 1,000. So I think that we will continue to make sure that we stand by the policies and regulations of each local market that we operate. And you also can see that in 2020 and in the Q1 of this year as we penetrate into multiple markets such as Europe, Eastern Pacific Regions, the Middle East and other emerging countries on the risk of a single region have been greatly reduced. We will flexibly adjust our user expansion and also operating synergies in accordance with the development of the overall situation to minimize the impact of geopolitical risks. Thank you. Thank you. That's all the time we have for questions. I will hand back to management for or closing remarks. Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you. Thank you. That does conclude the call today. Thank you so much for attending. You may now disconnect.