Earnings Call: Q4 2020

Mar 26, 2021

Welcome to the Joy Inc. 4th Quarter and Full Year 2020 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 Sheer, the company's Senior Manager of Investor Relations. Please go ahead, Jane. Thank you, operator. Good morning and good evening, everyone. Conference call, welcome to Joy's 4th Quarter and Full Year 2020 Earnings Conference Call. Joining us today are Mr. David Shuling Li, Chairman and CEO of Joy our CFO, Mr. Bing Qing and COO, Ms. Ting Li. For today's call, management will first provide a review of the quarter and then we will conduct a Q and A section. Call, the Q4 2020 financial results and webcast of this conference call are available at ir. Joy. Xg. Call, 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, call, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi. Time, I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please go ahead, sir. Hello, everyone, and welcome to our Q4 2020 earnings conference call. Develop and capitalize on a number of growth initiatives, including YY Live, Huya, Vivo Live, LaiQi, Hago conference call, today excluding YY Live, Joy serves over 350,000,000 users worldwide call, through a diverse portfolio of online entertainment products in live streaming, short form video, casual games, instant messaging and audio based social media, after nearly 5 years of development, our overseas business, Bigo, has already generated larger revenue than YY Live in 2020, our track record of success has validated not only our long term growth strategy, but also our unique capability in leading continuous innovation and our commitment to generating impressive ROI for shareholders. Time, going forward, we will remain focused on fueling our live streaming and short form video growth engines, accelerating our overseas expansion and building joy into an increasingly segment, diverse and engaging social entertainment ecosystem, we firmly believe that digital life has sufficient rate, we achieved at least 4 times the scale of YY Life in terms of revenue. We also foresee great monetization potential for LaiQi As it enjoys substantial competitive advantage in low entry barrier for user content production, high user engagement and interactivity time, we plan to realize the potential of both platforms through a combination of global footprint and localized operations. To further localize our product offerings and business operations, call, we will further strengthen our talent team with technology expertise, global vision and local knowledge. As of December 2020, over 25% of Bebo's staff were hired locally. Armed with local language, cultural background and consumer insights, our employees are able to tailor our products to the unique user preferences in each target market and thus expand our local user base. Now turning to our quarterly performance. As we prepare our next phase of growth in the post pandemic world, we continue to witness a rising demand for online entertainment and socialization, as evidenced by our solid financial and operational results in the 4th quarter. Zevo's revenue increased by 87.9 percent year over year to RMB3.4 billion in the 4th quarter, primarily driven by continued user base growth and improved monetization capabilities of several platforms. 50 8.2% year over year increase in MAUs and 131.6% year over year increase in paying users. Additionally, revenues in the Middle East grew by 87.4% year over year, driven by a 63% year over year increase in MAUs During the Q4, in addition to fulfilling users' needs for fan entertainment content, Vivo Live also augmented its user activity and engagement by continuously innovating its social interaction feature. For example, our newly released features enabled users to seamlessly move between single and multi user group chat rooms, empowering ordinary users to easily integrate live streaming into their regular social interactions. As a result, on a sequential basis, our user base penetration rates increased by 10.9% for multi user video chat rooms and 2.3% for multi user audio chat rooms. As we continue executing such product strategy, we are laying a solid foundation for our sustainable growth going forward. Call, on the brand enhancement front, We hosted the 2nd Annual V Go Awards Gala in January, which featured a variety of live performances, conference call, including fire dances, DJ sets and K pop dances by top streamers from around the world. Although this year's gala was held entirely online due to travel and social gathering restrictions, V Go's influential brand attracted approximately 4,000,000 viewers globally and over 20,000,000 viewers votes for their favorite performances. To further boost Bigo's brand recognition, we placed billboards for award winning streamers at landmarks across 23 different countries, call, including NYC's Times Square, Sohu's Coax Convention Center, Istanbul's Supplier Tower and many others. Lifesk and the news outlet in India grew by 120% year over year to 114,000,000. In addition, its user base continued to expand rapidly in many regions, with MAUs ramping up by 55.3% year over year in the developed countries time, while maintaining its rapid global user base expansion quarter, LIKE also made significant progress in monetization, mainly through live streaming. Consequently, slide, please. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of Largely driven by growth in developed worlds and the Middle East, revenue from developed markets grew by 2 99% year over year, To help YYK's users further enhance the efficiency, effectiveness and quality of their content production, we continue to improve the platform's video capturing and image enhancement tools in the quarter. Our upgrade of AI powered music recommendation feature The average daily number of video uploads featuring our recommended song tracks increased by 300,000 in the quarter. Moreover, by continuously optimizing our search engine algorithms, we were able to boost our user search satisfaction rate by 3% quarter over quarter. As a leading global short form video platform, we prioritize the quality and availability of content at the core engine to drive like e's sustainable growth. As such, we seek to attract top tier content creators, optimize content recommendation algorithms time, we find our user experiences continuously. In 2021, we plan to further localize Laike's content ecosystem and social community by reducing its entry barriers to content production, boosting its content creators' enthusiasm and productivity time, we are empowering content creators in all aspects, with its social community DNA, user interaction, propensity and accelerated monetization via live streaming, LIKI enables the talented creators to reach large audience time, we will continue to gain more economic rewards, who in turn produce more quality content for LaiQi, thus forming a virtuous cycle. As a result, we believe that we are able to attract a broader range of content creators, further enrich our content offerings and ultimately bring new users to the As Hago increased its quarterly prepaid user count by 121.2%, its revenue grew by 69.4% year over year. In line with our previous forecasts, Hago achieved the 1st single breakeven month in the Q4 of 2020 and narrowed its quarterly loss time, as compared to the average of the 1st 3 quarters in 2020. Product wise, we introduced a game feature called party, So that multiple users can play casual games and interact with one another through our audio chat rooms at the same time. Such update enhanced user interactions on the platform as the user base penetration rate for our feature channels point, we will uphold our mission to connect people and enrich their lives through video, expand our global footprint through localization and Beyond expanding our existing business, we also stay attuned to new opportunities in the industrial AI Internet and cross border e commerce sectors. In addition, leveraging on our established technical expertise in real time audio and video interactions time, we have already made preliminary exploration in cloud based and enterprise services. Looking ahead, we will continue to explore new business development opportunities and generate greater returns for our long term shareholders. Before I turn the call to our CFO, Bing Jin, I would like to take a moment to thank him for his years of dedication and contributions to Joy. As previously disclosed in our SEC filings, Bing is pursuing a new job opportunity and will leave his position as the company's CFO At the end of April, on behalf of all of our colleagues here at Joy, I wish him the best in his future endeavors. Time, we have commenced a search process for new CFO. That concludes my prepared remarks. I will now turn the call to Bing for a more detailed explanation call, I will follow-up on the line. Thanks David. Hello everyone. As David noted, I will leave my current position as the company's CFO at the end of April to pursue a new job opportunity. Call, I would like to start off by saying that it has been a true honor to serve as Joy's CFO and grow together with the company over the past several years. Call, I will always cherish this experience and would like to thank David and all of my colleagues here for their guidance, support and friendship. Looking ahead, I firmly believe that this company remains well positioned to continue developing its competitive advantage, conference call, I will talk about the financial results. Please note that the financial information and non GAAP financial information disclosed in our Q4 earnings press release is presented on a continuing operation basis unless otherwise specifically stated. After the deconsolidation of Huya, the company accounts for our investment in Huya as an equity method investment and apply the equity method accounting 1 quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya. Also, as the company entered into definitive agreements with Baidu on November 16, 2020, pursuant to which Baidu will acquire Joy's domestic video based entertainment live streaming business, YYM Live, and the sale of YYM Live was substantially completed conference call, on February 8, 2021, the historical financial results of YY Life are reflected in the company's consolidated financial statements time, we have discontinued operations accordingly, starting from the Q4 of 2020. During the Q4 of 2020, we maintained our strong momentum and delivered robust financial and operating metrics. Call, our total net revenue for the Q4 increased by 77.5 percent year over year to RMB3.78 billion call, RMB2.13 billion in the same period of 2019. In particular, our live streaming revenues call, the Q4 increased by 93.3 percent year over year to RMB3.59 billion, driven by live streaming revenues growth call, other revenues in the 4th quarter decreased by 30.5 percent to RMB189,600,000. Cost of revenues for the Q4 increased by 76.6% year over year to RMB2.67 billion. Revenue sharing fees and content costs increased to RMB1.69 billion in the 4th quarter from RMB708.6 million in the same period of 2019, which was in line with the increase in live streaming revenues, bandwidth call, the results decreased to RMB179,500,000 from RMB221,800,000 in the same period of 2019, call, primarily related to the company's improved efficiency and the termination of bandwidth usage for users in India, updates measures to block certain Chinese mobile apps in late June 2020, partially offset by the continued user base expansion outside India. Gross profit increased by 79.6 percent year over year to RMB1.11 billion. Gross margin in the Q4 of 2020 improved to 29.3% from 29% in the same period of 2019. Operating expenses for the 4th quarter increased to RMB1.68 billion from RMB1.58 billion in the same period of 2019, among the operating expenses, sales and marketing expenses increased to RMB973.8 million period from RMB782 1,000,000 in the same period of 2019, primarily due to the company's increased efforts call, our general and administrative expenses for the Q1 quarter, we recorded a decrease to RMB236.3 million from RMB319.8 million in the same period of 2019, call, mostly due to decrease in provision for loss allowances of receivables. Our GAAP operating loss for the 4th quarter time, we generated a decrease to RMB557.6 million from RMB863.3 million In the same period of 2019, operating loss margin for the Q4 was narrowed to 14.7% time, amortization of intangible assets from business acquisitions as well as impairment of goodwill and investment and gain on disposal call, subsidiaries and business decreased by 60.7 percent to RMB220.7 million Compared to RMB561.5 million in the same period of 2019, Non GAAP operating loss margin for the 4th quarter was narrowed to 5.8% from 26.3% in the prior year period. Notably, Bigo has achieved a positive non GAAP operating income for the 2nd consecutive quarter point of RMB 49,200,000, with non GAAP operating margin improved to 1.5% from negative 11.3 percent in the prior year period, GAAP net loss attributable to controlling interest of Joy quarter, the Q4 of 2020 was RMB791.9 million compared to RMB816.6 million in the same period of 2019, net loss margin was 20.9% in the Q4 of 2020 compared to 38.3 percent in the corresponding period of 2019. Non GAAP net loss attributable to Controlling interest and common shareholders of Joy was RMB 149,400,000 year, our earnings was narrowed to 3.9% in the Q4 of 2020 from 21.4% in the same period quarter of 2019, diluted net loss per ADS in the Q4 of 2020 time, it was RMB10.07 compared to RMB10.43 in the same period of 2019. Non GAAP diluted net loss per ADS was narrowed to RMB1.86 from RMB5.7 time, we are now in the same period of 2019. Now turning to our results for the full year of 2020. Call, our total net revenues increased by 112.1 percent year over year to RMB13.23 billion, point, driven by the same factors that led to the quarterly increase. Our net loss attributable to controlling interest of Joy call for the full year of 2020 decreased by 79.7 percent to RMB105.9 million time, our non GAAP net loss level, attributable to continued interest and common shareholders of joy for the full year of 2020 was RMB1.4 billion full year of 2020, which improved by 8.6% compared to 31.5% in 2019. Time, diluted net loss per ADS for the full year of 2020 narrowed by 71.6% year over year to RMB2.14 call, RMB7.54 in 2019 and non GAAP diluted net loss per ADS for the full year of 2020 was narrowed to RMB14.28 compared to RMB25.42 in 2019. In addition, in accordance with our quarterly dividend plan approved on August 11, 2020, and on November 16, call, we will be distributing a dividend of US0.51 dollars per ADS call, we will be conducting a call for the Q4 of 2020, which is expected to be paid on April 30, 2021, to shareholders of record As of the close of business on April 19, 2021. Also, we would like to provide an update to our execution of the share repurchase program announced on May 2020, under which the company may repurchase up to US200 $1,000,000 of its shares Q August 2021, as of December 31, 2021, the company had repurchased time, approximately 139,500,000 of its shares. As mentioned in David's speech, we will continue to invest in business development initiatives to further expand our global market reach, cultivate our highly engaged user community and augment our high quality content offerings, we will also actively explore other ways to return value call, we will now be conducting a question and answer session. Call, for the Q1 of 2021, we expect our net revenue to be between US590 million point, US605 $1,000,000 representing a year over year increase between 72.5 percent point, we are now in the range of $1,000,000 to $76,900,000 if excluding the revenue contribution from Huya and Wangalai in the same period of last year. We currently have limited visibility surrounding the COVID-nineteen epidemic's long term impacts and geopolitical uncertainties in 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, call, we are subject to change. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thank you. Thank you. We will now begin the question and answer session. Please ask one question at a time. If you wish to ask more questions, please rejoin the queue. Also, when asking a question, Thank you. Our first question comes from Thomas Chong at Jefferies. Please go ahead. Thanks management for taking my questions and congratulations on a strong set of results. My question is about Bigo Life. Can management share about the paying ratio as well as the people At the moment and with regard to our 2020 revenue growth, what's the contribution coming from user Ping ratio as well as ARPU? Thank you. Thank you, Thomas. Let me address those questions. In terms of the current paying ratio up to our Bigo Life, let's talk about the paying ratio first. The pay ratio of Bigo Life is Still lower than in China OR Life, but we have seen a good ramp up of the paying ratio for Bigo Life, particularly Bigo Life strategy is penetrating in the developed markets. Developed markets as revenue contribution to Bigo Life is over 43% already. So as we have covered more developed markets, the paying behavior, the paying capability of those developed market users obviously is much higher than the original emerging market, so we will continue to see a ramp up of the paying ratio, but it's still lower than in China at this stage. We see a good future potential. In terms of the ARPU, as we explained to the investor pool and analyst pool, the general ARPU of Bigo Live is around 3x of worldwide. And as we penetrate to more developed markets, we will also see Our future ramp up of the ARPU level for Bigo Life in general. In terms of the contribution time, for our revenue in 2020, as you can see, we have achieved more than 110% year on year growth for revenue contribution. I would say roughly 1 third is from the user expansion, meaning the MAU growth for V Go Live, Our portfolio is driven by the book markets, as I mentioned, and onethree for paying ratio expansion and also onethree for ARPU expansion. Thank you. Thank you. Our next question comes from Alex Toons time, Morgan Stanley. Please go ahead. My question is related to LYKI. Could management please share the user and revenue target in the next 1 to 2 years. And in terms of the user engagement, revenue diversification, geographical distribution, How is it different from Bigo Live? And in terms of user behavior, is there any notable difference Hi, this is David. Let me answer your questions. As I mentioned in the previous speech, Laiki just started modernization recently. And in the past 3 years of development, we have focused on user expansion and also community cultivation, I believe that in the long run, we expect some changes to LaiQI's long term strategy in the following aspects, especially in terms of understanding of the competitive landscape, we'd like to prioritize 2 features point of our LaiQI, first one is the social community and user interaction. 2nd, it's our content creators. I believe that if we continue to cultivate our social community, improve user interaction and continue time, we empower our content creators in all aspects, we'd be able to achieve a differentiated competitive advantage against our competitors, especially based on our understanding and our knowledge, we believe that a lot of our competitors are still having a very completely different ecosystem, whereby It's more like a media feature, whereby the KOLs are dominated platforms, while LIKI is more content, it's more a community, which emphasizes user interactions and also Content creator focused. So I believe that based on such a long term strategy, we'd be able to have differentiated competitive advantage in the global industry and that would also time, help the company and LaiKey to achieve a long term sustainable growth. Thank you. Our next question comes from Yi Wen Zhang at Citi. Please go ahead. Thank you, management, management for taking my questions. So my question is on the overseas live streaming. When is the end for the investment market time, we will use all North America and Europe. Also, can you touch on any recent change you've seen in live streaming in the overseas market? Thank you. Quarter over quarter, I'd love to clarify here is that if you look at our quarterly over quarter growth rate full Bigo in RMB, you might consider growth rate relatively flat with minor decrease. But if you actually exclude conference, a quarterly over quarter increase of 4% and year over year increase of 82%. So that actually proves our point that the overseas live streaming industry is actually growing at a very fast speed. In terms of especially if you look at the scale of Bigo's revenue, right now, we have already past, the RMB10 1,000,000,000 in terms of revenue for the full year and the fact that we'll be able time, we will continue to grow our revenue at such a rapid speed, at such scale proves that the potential of the overseas live streaming industry. And also in the past, it was a tradition for the market time, we are confident that the U. S. Users does not actually have the habit of tipping on live streaming platforms. Lee, in the past few years of business practice, we've actually witnessed a very strong growth in the live streaming sector in the U. S. Market. So it's not China specific business model, it's already a well established and well affected business model to monetize your users. We believe that it's actually a quite not only mature, but a very user friendly business model in a way that it does not interrupt time, the users from enjoying the use of these applications and it does not interrupt the users' user experience improvement while using their apps. So it's actually call, a very good business model as compared to a lot of other monetization tools. So if you look back, As we launched our audio live streaming and video live streaming back in 2010, I think that we witnessed the growth process, the trajectory in the past 10 years. And we've seen that today, it has come to a point in China Almost all Internet companies, small and big, have all included live streaming as a very essential and important or even main monetization tool. So I think that it will be the same for U. S. And also, the other overseas countries, especially in U. S. For platforms such as YouTube, Instagram or Facebook, I think it's very likely that it will all kick off monetization via live streaming soon. So it's just a matter of time and the difference in terms of time, on the stage of development between the PRC live streaming sector and the overseas SAC sector, we believe that such involvement will continue to drive the market potential of the overseas live streaming sector to even larger And also everyone will be able to contribute to the whole ecosystem. In China, we have seen that even with the major the big conglomerates entering into live streaming sector, it actually does not affect those existing players' market share or their revenue scale. It's because what we saw was that the market began to recognize or increasingly recognize time, the business model and the scale of the total market begin to increase to a new level. And I think that's and also for the applications, it was previously mainly focused on entertainment live streaming. Time, we will be able to see multiple applications via live streaming time, we are currently in the overseas sector, and we believe that we'd be able to see the potential of the whole market and Our next question comes from Lei Zhang at Bank of America. Please go ahead. Thanks management for taking my question. Can you give us more color on the use of cash and the spending plans for Bigo's overseas markets? And then how should we look at the margin trends for Bigo in 2021? Thanks. Thanks, Zhang. Let me address those two questions. Firstly, it's regarding the use of proceeds. We had a good cash balance right now. And obviously, after Baidu's acquisition of quarter, we have additional U. S. Sales coming in. And then we have several methods of utilizing this cash. One is, obviously, we still need to organic grow our business, particularly given the global overseas market has much bigger potential. So We will continue to invest in terms of sales marketing, R and D, artificial intelligence, etcetera. Secondly, we had a $1,000,000,000 cash usage. Thirdly, as we mentioned in the prepared remarks, we are Thinking about a potential dividend or additional share buyback programs, albeit depending on the share price, of returning more value to shareholders, so we will keep flexible in terms of the cash usage. We will not do big scale M and A at this stage. So in general, we will make sure that we generate good value for the shareholders. Secondly, in terms of the investment for Bigo, there are 2 parts. 1 is Bigo Lite. Bigo Lite is already very profitable, over 20% margin profile, so I think the margin of Vivo Life will continue to improve given that we will further enhance the overseas payment channel efficiency and then with the revenue growth scale, we'll achieve more operating leverage on various expense and cost items. For Life Qi, the strategy going forward will be a more balanced approach. We will pay more attention to the ROI And we will find a way of further monetizing the LaiQI's user base. So as a result, I think the investment of LaiQI will also be Further, I will say, monitored according to the ROI return. So in general, if you combine these two together, The net non GAAP net margin for Bigo will obviously be positive, right? As point, we said we have already achieved breakeven for 2 consecutive quarters. If we look at the full year 2021, I think we will be able to achieve Kind of low single digit margin profile for Bigo as a whole. Hopefully, that answers your question. Thank you. Juncture, I will hand back to management for closing remarks.