Earnings Call: Q2 2021

Aug 18, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Joy Inc. 2nd Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the 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 Q2 2021 earnings conference Joining us today are Mr. David Xueling Li, Chairman and CEO of Joy Ms. Ping 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 Q2 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 well as we will make forward looking statements. Finally, please note that unless otherwise 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. Hello, everyone. Welcome to our Q2 2021 earnings call. We maintained our growth momentum in the second quarter Despite the negative impact from local holidays in certain regions, during the Q2 of We grew our total revenues by 39.7% year over year to RMB662,000,000 while Bigo's revenue increased by 38.4% year over year to RMB598 1,000,000. Notably, this quarter, on a non GAAP basis, We almost achieved breakeven at the group level for the first time after we deconsolidated YY Live as Bigo's non GAAP net margin continued to improve to 3.3% from 1.6% quarter over quarter And its non GAAP net profit increased to 19,000,000 Before we go into the detailed development of our products, we would like to share with you the Lattice, the progress in the further enhancement of our localized content offerings. As discussed on last quarter's call, we view our content ecosystem as one of our strategic course That's determined the long term competitiveness of our products. During the quarter, we have made great strides Expanding our product content variety and enlarging our premium content library. Based on our thorough insights into local users' content preferences, we Partner with gaming entertainment companies and local talent agencies and abroad In multitude of high quality streamers and content creators in categories such as gaming, Variety shows, music, lifestyle and many others. In the entertainment content category, partnering with local entertainment agencies And celebrities, we achieved meaningful progress in further expanding our premium content and Assembling top local talent in the music and variety show category. In the U. S, Bigo Live hosted the Bigo Idol Talent Competition in May with Our star lineup of just such as Palmer Braxton, Krisha Turner and DJ Wukie attracting over 300,000 With unique views, in Turkey, our platform attracted the king of pop music, SADA, Alltech and the iconic new generation singer ran Darecy to become Start streamers on Big O Live. In Thailand, Mai, one of our Thai country music streamers on Big O Live, Participated in bonus karaoke, a top music variety show and debuted to great To provide a stage of other country music singers to showcase their talents, Bigo Live's Stimulationist launched a country music competition, Bringing in celebrity advisors and professional judges in collaboration with a Renowned local talent agency. After test running our Gaming streaming channel on BigoLive and officially launched our own esports activities Called Bigo Farm in the Middle East region in 2020. We have organized a variety of Events, including video creation challenges and content covering multiple hit games. In the Q2, we partnered with a number of gaming companies and further enriched the gaming content on our platform to In June, we reached a strategic cooperation agreement with King of Averon, Dragon Warfare, mobile strategy multiplayer role playing game, We launched in France and Germany a series of middle aged themed online gaming events, During which, virtual trailer tests were released randomly To the audience without the turn into the live streaming channel, well, local Top gaming live streamers played games and interacted with their local fans. In Indonesia, BigoLive became the exclusive partner of the Free Fire Tournament and the live stream playoffs among 137 teams bring immersive e sport to the local audience. In addition to our continued expansion of content categories, we have Pursue the seamless integration of content with the rich and Diverse local culture. As mentioned previously, our mission is To cultivate an inclusive and global community where Everyone can be heard and seen. Diversity and inclusiveness manifest Not only in the number of regions in which we operate all the Variety of content categories, we have made available, but also in the degree At which we have integrated our content with local culture, user behavior and social elements. For example, during Ramadan, Bigo Live launched the Good to be Good Campaign in Indonesia. The campaign motivated local youngs to express their Creativity by showing his romantic unique culture and customers Through music or stand up comedy shows, thus winning endorsements from Indonesia's Ministry of Tourism and other government agencies as content creators served as a foundation of our success in creating and maintaining a vibrant And engaging content community, we have implemented extensive program to identify, Developed and motivated talent creators in the past quarter, in addition to host local culture Identify talented content creators. LaiKey also worked with external partners to help creators improve Their public exposure expanded their social influence and pursue content creation as a lifelong Korea. For example, in the Q2, LaiQi hosted the 3rd season of the LaiQi's Star Idol Talent Show in Indonesia. In collaboration with a local entertainment company, Nike selected 5 top participants to form a POPGO group called Dreamgirls, which debuted soundtrack and music video garnered playback on more than 116 Indonesia radio stations are tracking a slew of offers for Shutter in contents and commercial advertising, that was Lai Ki's pilot project to Test drives its ability to identify, develop and motivate professional content creators. Going forward, likely we will launch more supporting programs to direct more user traffic Creators help creators monetize their content and thus Creating a friendly, engaging and dynamic content community. With the combination of more Diverse high quality content from an increasing number of talented content creators. We believe that we will be able to build a richer and more lovely content ecosystem and further expand our platform's user base. Now let me share with you the quarterly updates of our All product lines for BigoLive, despite the negative impact from local holidays in certain regions, Overall, MAU grew by 0.3% year over year to 29,500,000 Well, its MAU outside of India increased by 27.8% year over year, thanks to its progress in localizing its content ecosystem. Meanwhile, Its playing user increased by 10.7% year over year, contributing to a year over year revenue growth of 31.8%. Geographically, Bigo Live maintained its well diversified growth. Developing countries continued To outperform, as its original revenue grew by 47.6% year over year. In particular, Revenues from Europe grew by 104.6% And the revenues from Eastern Pacific region grew by 52.5%. Revenues from Southeast Asia and other emerging countries grew by 31.7 percent. Through product upgrades, BigoLive continued to improved its user live streaming experience as evidenced by the 1.6% Sequential increase in average duration of live streaming sessions this quarter by Optimizing its content recommendation algorithm, BigoLive improved The average viewer time spent among its new user by 4.4% sequentially. Furthermore, By introducing more gaming contents, Bigo Live improved its overall user engagement during the quarter and Prolonged its average viewer time spent in gaming and streaming SaaSENSIONS by 40.9% sequentially. Next, about like key. As mentioned in last quarter's call, because we priority is our long term growth. We have placed a greater emphasis on the Health and sustainability of our ecosystem and growth model. That's why we have adjusted LYT's marketing strategy and focused our investment on content and Social Ecosystem since the Q1. As a result of our marketing strategy adjustment Combined with Indian government spend since the Q3 of last year, Nike's MAU contracted by 38.6 percent year over year to 92,300,000 MAU outside of India increased modestly by 6.8% year over year. Despite the temporary user base, FLAC Tuition. Lantie's total revenues in the quarter continued to increase by 130 6.7% year over year, mainly driven by strengths In developed countries and the Middle East, revenue from developed country increased by 106.3 percent and the revenues from the Middle East are multipled by 4 times year over year. Product wise, likely upgrade its Subtitle function is based on TTS technology to provide Automated subtitle and dubbing, but also updated features, which enabled video upload up to 3 minutes and post Production recording, thus providing more efficient content production tools To content creators, especially those in the informative content category. Furthermore, LaiQI updated its user traffic allocation and content As a result, creators' private traffic increased by 25%, suggesting the Social connection between creators and their followers to motivate users And the creators to participate in live streaming, like he made multiple updates to its Fan engagement features and achieved 7.7 times increase in the daily number of Users joining SENSE Group, which in turn motivated creators to Host mall streaming sessions by updating social interaction features lanky improved its user experience in live streaming sessions and achieved a 20 2.3% sequential increase in its average duration of streaming sessions as well as 30.9% increase in its average streaming time per user in And the Indian government spend since the Q3 of last year, HAGO's MAU fell by 62.9% year over year to 11,800,000 in the 2nd quarter. MAU outside of India increased by 25.5% year over year. However, Hanfu continued to make meaningful progress in its user interactivity and Product commercialization, its revenue grew by 5 54.3 percent year over year and its non GAAP operational loss narrowed further on the sequential basis. In the 2nd quarter, Hago launched its version 4.0 product to better satisfy users' needs For entry spaces, social entertainment. In this version, the feature channel enable user to engage with friends and community members and Freely communicate with one another in the form for real time text, voice, Video and interactive games. Users can also publish posts in their virtual family, thus fulfilling their real time as well as non real time social desires. As a result, the penetration rates of Hago's featured channel increased by 7.4% and its 30 day user retention rates increased by 5.5% sequentially. During the quarter, HAGO launched a party game a number of Popular games, which feature multi user audio chatting and gaming functions as well as Upgrades of user experience in real time interactive games. As a result, the penetration rate Our party game increased by 10.7% and the average user time spent increased by 30% sequentially. To conclude, despite the negative impact From local holidays in certain regions, we maintained the growth trajectory of our global business and achieved significant progress in further enriching our localized content offerings. With the enhancement of our products monetization, improvement in our operation and leverage and Execution of more prudent marketing strategy, we almost reached the Breakeven on a non GAAP basis at the group level for the first time after Despite the recent volatility in the Macro element and the increasing uncertainty due to COVID-nineteen, We remain committed to our long term vision and corporate mission. We will continue to deploy our resources to areas that can Sharpen our competitive edge, including further optimization of our localized Content and the social ecosystems as well as enhancement our research and development abilities so that we can create greater value for our shareholders. With that, I will now turn the call to Alex Liu, General Manager of Finance, for a more detailed explanation of Thanks, David. Hello, everyone. As Joy Finance General Manager, 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 have changed our reporting currency from RMB to US Dollar To better illustrate our operational results, please note that the financial information The non GAAP financial information disclosed in our Q2 earnings press release is presented Starting from the Q2 of 2020, the company deconsolidated We Are and accounts for our investment in We Are As an equity measure investment and apply the equity measure accounting 1 quarter in areas To enable us to provide financial disclosures independent of the reporting schedule of Huya. Also, As the shoe of Bama 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 are discontinued operations accordingly, starting from the Q4 of 2020. During the Q2 of 2021, despite the negative impact from local holidays In certain regions, we maintained our strong growth momentum and delivered robust financial results. Our total net revenues for the Q2 increased by 39.7% year over year to USD661.7 million from USD473.5 million in the same period of 2020, primarily attributable to Bigo's continued paying users' growth and enhanced monetization capabilities. In particular, our live streaming revenues for the 2nd quarter increased by 79.7 percent year over year to 629,600,000 Driven by live streaming revenues growth from Bigo, other revenues in the 2nd quarter increased by 40.3% to USD 32,100,000 Cost of revenues for the Q2 increased by 32.2 percent year over year to US458.3 million Revenue sharing fees and content costs increased to US189.5 million In the Q2 from RMB198.2 million in the same period of 2020, which was in line with the increase in live streaming revenues. Bandwidth cost decreased to USD27.5 million from USD32.7 million in the same period of 2020, Primarily due to the company's improved efficacy and the combination of bandwidth usage for India users After the India government ban of Chinese apps in late June 2020, partially offset by their continued user User based expansion outside India. Gross profit increased by 60.4 percent year over year to US203.4 million dollars Gross margin in the Q2 of 2021 improved to 30.7% from 26.8% in the same period of 2020. Operating expenses for the 2nd quarter increased to US340 1,000,000 From USD247.6 million in the same period of 2020, among the operating expenses, General and administrative expenses increased to US101.1 million In the period from USD51,500,000 in the same period of 2020, primarily due to the Impairment loss arising mainly from an investment made in the prior years. Our GAAP operating loss for the 2nd quarter was US101.1 million From USD119.9 million in the same period of 2020, operating loss margin for the 2nd quarter narrowed to 15.3% compared to 25.3% in the same period of 2020, primarily due to the increase of operating income of Bigo. Our non GAAP operating loss for the 2nd quarter This excludes share based compensation expenses, amortization of intangible assets from business acquisitions, FBS impairment of goodwill and investments and gain on the follow-up of subsidiary and business This increased by 80.3 percent to USD30 1,000,000 compared to narrowed to 2% from 13.9% in the prior year period. GAAP net loss from continuing operations attributable to controlling interest of Joy In the Q2 of 2021 was US109.3 million dollars compared to UST $28,500,000 in the same period of 2020, mainly due to the impairment loss arising mainly from Investments made in the prior years. Net loss margin was 16.5% in the Q2 of 2025 compared to 6% in the corresponding period of 2020. Non GAAP net loss from continuing operations attributable to controlling interest of Joy was $500,000 in the 2nd quarter compared to $50,500,000 in the same period of 2020. Non GAAP net loss margin was significantly narrowed 0.1% in the Q2 of 2021 from 10.7% in the same period of 2020. This means that We have almost achieved breakeven at group level for the first time since we deconsolidated VYVA Life. Notably, Bigo has achieved a positive non GAAP net income for the Q2 of $19,400,000 with non GAAP net margin improved to 3.3% from negative 3.8% in the prior year period. Diluted NANDOS per ADS in the Q2 of 20.29 was USD1.43 compared to USD0.39 in the same period of 2020. Non GAAP diluted net loss for ADS was narrowed to USD0.01 from USD0.63 in the 0.63 in the same period of 2020. In addition, In accordance with our quarterly business plan approved on August 11, 2020, and on November We will be distributing a dividend of USD0.51 per ADS For the Q2 of 2021, this is expected to be paid on September 29, 2025 to shareholders of record as of the close of business on September 10, 2021. Also, we would like to provide an update to our execution of the share repurchase program announced on May 2020 and the company may repurchase up to USD300,000,000 of its to August 2021. As of June 13, 2021, The company has repurchased approximately US196.8 million dollars of its shares. We will continue to invest in business development initiatives To further expand our global market rates, cultivate our highly engaged user community and enhance our high quality content offerings. We will also actively explore other ways to maximize Beginning in the Q2, we have anticipated some negative impact Our users online social entertainment activities from the gradual length of pandemic related lockdowns In certain countries, we expect our net revenues for the Q3 to be between US608 million and US635 million dollars representing a year over year increase between 13.7% to 18.7% on a constant currency basis. Excluding the revenue contribution from Huya and VAMA Life in the same period of last year, we currently have limited Visibility surrounding the COVID-nineteen epidemic's long term impacts and geopolitical 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 business, which are subject to change. That concludes our prepared remarks. Operator, we would now Like to open up the call to questions. Thanks. Thank you. We will now begin the question and answer Our first question comes from Thomas Chong at Jefferies. Please go ahead. Thanks management for taking my questions. I have two questions. The first one is about the Q3 Revenue guidance as well as the margin outlook in the second half? And my second question is about Bigo Life. Can management comments about the paying ratio, the ARPU trend, as well as the live This is Alex. I will answer your Regarding Q3 guidance, starting from the end of the second quarter, some countries Gradually lifting lockdown bans during the pandemic, therefore, we have anticipated some negative impact on users' social entertainment activities online, which may reduce time spent on online entertainment and therefore affect some So far, we have limited visibility into the precise impact of the lockdown Therefore, we have provided a relatively conservative estimation for our Q3 revenue, which implies a year over year growth of 13.7% to 18.7% at group level, mainly due to short We'll provide further updates once we have better In terms of revenue growth for the whole year, we do expect Bigo segment to remain a decent growth. As for the revenue distribution across different regions, the group's revenue growth in the second quarter mainly driven by developed countries and Southeast Asia region. The Middle East region underperformed mainly due In terms of revenue distribution, our revenue is well diversified across For Bigo Life in the 2nd quarter, the MAU growth, paying ratio and ARPU expansion together drives the growth of revenue. In terms of future trends, in the long run, we'll be positive about the potential developed countries, including U. S, Europe and Eastern Considering that users in these regions have better paying capability and also better payment habits. We are also expanding our localized operation and content efforts In Southeast Asia and also other developing countries, considering the huge user base and also that as we to cultivate users' behavior and habits in these regions, we believe that the monetization Our next question comes from Alex Poon at Morgan Stanley. Please go ahead. My first question is related to Bigo Life's new product and content strategies. Recently, we have noted increasing penetration into game segments and also some casual gains like Ludo. And also want to get an update around e commerce strategy. And my second question is related to the use of cash And the status of the Baidu transaction, we have almost used up the share buyback Program of RMB 300,000,000, do we have plans to initiate a new buyback program and the And the use of cash on other purposes, if you can share. Thank you very much. This is David. In terms of The new content related to game live streaming and We found that users in certain regions, especially in Europe, Middle East and South America are Very interested in gaming content. Therefore, in the past few quarters, we have gradually introduced more gaming important part of our diverse content offerings and we will continue to partner with leading mobile game companies to create To encourage users to establish connections and interact with other users, Enabling users to engage in social interactions, not only through live streaming, but also by playing So far, we have seen positive impact on V Go Live user activity and engagement level from these newly Gaming and video games is still relatively small. As for cash usage, I believe that you could see from our earnings release that in the second quarter, we have repurchased around $100,000,000 of our shares and we are still executing our quarterly dividend payout As for the remaining cash, as the sale of FlyWhite Life Has been substantially completed, but still with some customer matters still in progress. We would love to wait till the full completion of the deal to determine the remaining cash Thank you. Our next question comes from Yi Wen Zhang at China Renaissance. Please go ahead. Thank you for taking my question. I have 2. The first thing regarding the content ecosystem, you mentioned a few times during the prepared remarks. Can you share more color in terms of how the localized content Would that help user acquisition engagement and also the retention and how that could help differentiate us from the peers? And secondly, on the monetization, can you talk about the progress on non live streaming monetization, for example, the advertisement? Thank you. This is David. I will answer your question. At this stage, the priority of Baike is still about content development, especially the motivation and cultivation Content creators and the development of the content creation community. This quarter, we have taken the first step. We've already seen Perfect. In the coming second half of the year, we will continue to launch more programs To better identify and cultivate creators and also bring more conducive updates regarding traffic allocation and provide Diversified monetization tools for creators, especially talented and those who have outperformed. So that we'll be able to enable creators to play a greater role on our platform. But we would love to say that compared with advertising, the cultivation of content ecosystem Does not happen overnight. The improvement of content offerings and user experience is a gradual With you in the progress of adjusting advertising, we believe that there would be time spent to gradually We change the users' user experience. We believe that it will have a positive impact on this health and sustainability of the product. Regarding diversified monetization, Currently speaking, our revenue stream mainly includes live streaming, advertising and membership subscription. As of today, live streaming is still our biggest revenue stream, contributing around 95 End of our revenue. While other revenues, although growing at 40% year over year And close to 11% quarter over quarter this quarter in terms of the size, Our next question comes from Li Zhang at Bank of America. Please go ahead. Thanks management for taking my question. Two questions here. First, can you give us more color on our regulatory environment In different overseas markets and any concern, let's say, the privacy content of the tipping behavior. Secondly, I want to follow-up on the sales and marketing adjustments since last quarter. Since we have a good cash position and monetization remain good, Well, our competitor are actually investing overseas. So I want to know your thoughts. Do you have any concern on the user growth from This is David. Regarding your first question about regulation, after The sale of YY Life, which has been substantially completed with certain customer matters to be completed. The majority of our business is Located in non PRD regions, but we do have R and D team located in China as there are lots of experience As for our global overseas market, as we've increased since 2020 as we penetrate into Multiple markets such as Europe, Eastern Pacific region, the Middle East and other emerging countries, our revenue is actually well distributed Across different regions, so the risk of any single region has been greatly reduced. And what we'd love to emphasize Is that, since the incorporation of Joy, we have been strictly complying with local policy and laws, no matter in which In which countries we operate our business in. We will continue to execute our Regarding your second question, we understand that previously, for any Internet product, the usual logic Leverage on the advantage in terms of its user base to gain other competitive advantages in terms of attracting more creators, attracting newer advertising vendors and in the 3rd All of these advantage lead to further user base expansion. That is the common logic of Internet products, but we don't see that applicable for short form And it's not applicable to Joy because what we can see is that our main Right now, it's actually investing in dollar amount way more than what we can afford. From what we know is that one of our key competitors have been investing 1,000,000,000 Even tens of 1,000,000,000 of U. S. Dollar into user acquisition. And in such more practical and take a relatively more balanced growth strategy whereby we'd love to ensure the health and sustainability of the product. Therefore, we'll be more able to obtain established position from a longer term Our next question comes from Tianqiao at TH Capital. Please go ahead. While we have been doing Between doing live streaming in China and overseas, that's number 1. Number 2, we have been Doing overseas live streaming for a while. And what's the management's outlook in terms of the gross margin and First, regarding different operating live streaming business in PRC, let's say, other areas of the world. There are quite significant differences. First of all, if you operate in global market, Because there are so many different regions, so many different culture, you're actually operating in multilanguage, multicultural markets. Well, if you operate China, there is only one single market. So that's why for V Go Live currently, we have Operating capabilities and teams in over 30 regions and our local team operates based on very thorough understanding of local culture, law regulation And the maintenance of and the development of local content and content creators are also maintained by these localized operational teams. And secondly, I believe that there is another difference in terms of user acquisition channels. In China, actually, every User acquisition channel, all of these companies are doing live streaming themselves. So for live streaming platform, it's actually very to obtain additional user and to continue the expanded user base. As for the overseas market, The main user acquisition channel and advertising platform is Google and Facebook, and they themselves do not Actually heavily rely on live streaming as a business. Therefore, the public pool of user traffic It's available. And the stores of user traffic channel is also more abundant for Global Live Streaming Business. Regarding margin trend, what we would love to say is that we've Seeing improvement of our net margin non GAAP wise in the 2nd quarter, mainly due to 3 factors. The first is continued Revenue expansion was diversified monetization progress of multiple product lines and second, improved operating leverage, Lower bandwidth cost and payment channel cost. And 3rd, as mentioned, the decrease in LINE case, advertising costs. So for the second half of this year, we believe that we will continue to improve operating efficiency. And although gaming content has been introduced into Bigo Buy, we do not foresee content cost margin to be will roll out in the second half of the year. Sales and marketing expense will be higher, but sales and marketing expense margin will likely to be slightly lower than the first half. So in conclusion, we believe that fiscal segment will enter into a new year of sustained And from the full year perspective, we believe that Bigo segment will achieve a positive Non GAAP net margin for the full year. And from a longer perspective, considering that the stand alone Operating profit of V Go Live has remained around 20%, and other products are gradually moving towards We believe that the overall profit margin will be gradual. Thank you. And That's the end of our call, and we look forward to speaking with everyone next quarter. Thank you, management. This does conclude today's conference call. Thank you all for joining. You may now disconnect.