Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited second quarter 2022 earnings conference 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. Today's conference call is being recorded. Now, I will hand the conference over to your speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead, ma'am.
Hello, everyone, and welcome to Yalla second quarter 2022 earnings conference call. We released our earnings earlier today, and the release is now available on our IR website as well as all news wire services. 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 required by law.
Please also note that Yalla's earnings press release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Yalla'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 Chief Executive Officer, who will provide an overview of our recent achievements and growth strategies. He will be followed by Mr. Saifi Ismail, the company's President, who will briefly review our recent 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 prepared remarks, we will open up the call to questions. Our Chief Operating Officer, Mr. Jianfeng Xu, will join the call for our Q&A session.
With that said, I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.
This is the conference operator. We have temporarily lost connection with the speaker line. Please continue to hold, and the conference will recommence shortly.
Thank you everyone for joining our second quarter 2022 earnings conference call. We are pleased to have delivered another strong quarter with revenue of $76.1 million, exceeding the higher end of our guidance by 8.7%. This represents a second consecutive quarter of record high revenue for the company despite the Ramadan holiday. Such robust quarterly results are a testament to our operational success in refining our processes, enhancing the communication of our flagship applications and optimizing user acquisition. Together, these actions have holistically elevated our user experience, further boosting Yalla's and Yalla Ludo's user engagement and users' willingness to pay on our platforms. In short, our core strategy and operational improvements are effective, and their positive impact is growing.
We recently celebrated the sixth anniversary of Yalla, our group's first product and a pioneering application designed to mirror, preserve, and nurture MENA's unique social traditions in the digital era. Time has flown by as we have deepened our commitment to MENA, its people and its culture, conceiving new products to meet MENA users' evolving needs and facilitating digitalization throughout the region over the past half-decade. As a tech industry leader in MENA, we will continue to expand our services and stretch the boundaries of our business while further deepening synergies among our different products and services to create brand loyalty among users. Now, let's take a closer look at our new product updates, drawing on our industry-leading experience in social entertainment in MENA.
Yalla is now exploring the mid-core and hard-core game distribution business to complement our casual games portfolio. We have already invested in two gaming studios through Yalla Game Limited and are working with them on the mid-core and hard-core mobile games that we will distribute in MENA. We are also open to additional good gaming content and potential collaborators with whom we can further explore the MENA market. Beyond that, as an important part of our group's strategy, we are actively looking for opportunities to broaden Yalla's ecosystem flexibly and efficiently. We look forward to sharing more updates on potential opportunities with our investors in the near future. We are also very excited to share that we recently launched the YallaChat version 1.1 with a number of important new features. First, I'd like to highlight the Azan feature, a unique innovation tailored to Arabic users' traditions and customs.
Since praying plays a significant role in Arabic users' daily lives, we created the Azan feature to enable users to receive reminders for daily prayers. Instant message products are an integral, intimate part of users' daily lives. Thus, we believe targeted hyper-localization of IM product is a necessity. The Azan feature demonstrates our team's close attentiveness and insight into MENA users' needs, as well as our dedication to bring MENA users a truly customized experience. Azan is just one of many localized features under development. We will roll out additional updates in future iterations based on our team's deep understanding of MENA users and this unique market. Second, as we shared last quarter, we are building YallaChat with a unified login system, which will allow users to log into any products within the Yalla Group using their YallaChat account.
We began upgrading Yalla Live last quarter to be compatible with this system and recently commenced Yalla Ludo's upgrade as well. We expect these enhancements to motivate more Yalla Ludo users to register for YallaChat accounts. In addition, we have set up convenient links within these apps, empowering users to explore YallaChat functions with a single click. We see these as an important step to boost product synergies and increase users' loyalty and stickiness to Yalla Group's products. As we reported last quarter, Waha, which represents a significant milestone in Yalla Group's metaverse application explorations, is the first-ever social metaverse designed for the MENA region. During the second quarter, our team upgraded the product system and the foundation of the app to better prepare the product for future opportunities, including merging with new technologies related to the metaverse, enabling more UGC interactions, and supporting a larger user community.
As to metaverse, we are focused on analyzing the potential applications and services that the current available technologies can support, while also closely monitoring industry trends. We firmly believe in the tremendous potential of the future metaverse. Although it will take time for both hardware and software to develop and reach maturity as a full-fledged metaverse. By participating in the initial development phase of the metaverse, we are building our capabilities and positioning ourselves to capture the metaverse boundless future possibilities. Before I conclude, I have one more important update to share. It is my honor to welcome Mr. Mohamed Al Ghanim into the board as an independent director and a member of our Nominating and Corporate Governance Committee. Mr. Al Ghanim is a renowned telecommunications expert with extensive regulatory background.
He is a founder and ex-director general of the UAE Telecommunications and Digital Government Regulatory Authority, the TDRA. I believe Mr. Al Ghanim will bring unique and valuable perspectives to Yalla. We are excited to have him join our board. In conclusion, I am pleased that this quarter represented another solid stride towards our vision of building the most popular destination for online social networking and entertainment activities in MENA. We hope to realize this vision within the next 10 years. Our dedication to the MENA region and our adherence to Yalla's organizational values, multicultural understanding, user first, simple and targeted, has driven our past achievements and will continue to guide our future endeavors. Looking ahead, we will continue to closely observe MENA's local cultural trends and consistently expand Yalla's ecosystem with diverse products and services tailored to local users evolving needs.
Now I will turn this call over to our President, Mr. Saifi Ismail, for a closer look at our recent developments.
Hello, everyone. Thanks for joining us today. Let's take a look at our operations as well as our products performances. As Tao Yang mentioned in his remarks, our experienced operation team further refined our content and user operations. In particular, during the quarter, they enhanced gamification in the Yalla app, which bolstered our paying ratio and average revenue per paying user, stimulated greater user engagement in our community, and further advanced our monetization capabilities. As a result, we are pleased to report a solid quarter with Yalla Group's total revenue of $76.1 million, beating the higher end of the company's guidance. In addition, our monthly active users increased 35.6% year-over-year, reaching 29.9 million. Yalla Group's paying users also increased to 10.6 million.
Our casual game portfolio, including Yalla Parchis, 101 Okey Yalla, and Yalla Baloot, also performed well during the second quarter. Yalla Parchis ranked in the top three in terms of revenue in the board game category in six countries, including Colombia, the Dominican Republic, and Spain. Thanks to the new VIP and gifting feature we rolled out, user retention and average daily time spent continued to improve. We also hosted events to celebrate local holidays, such as Easter Day, attracting participation by more than 70% of our daily active users. During quarter two, 101 Okey Yalla remained one of the most downloaded apps in the board game category in Turkey and ranked among the top five in terms of revenue in the board game category on both Google Play and iOS.
Furthermore, user retention, engagement, and willingness to pay on the platform all improved, benefiting from the new VIP subscription and the battle pass we rolled out this quarter. We also received excellent feedback from Yalla Baloot. We have observed steady user retention improvement as we continue refining the game's experience for new users. The event we hosted to celebrate Ramadan also helped boost user engagement on the platform. We will continue to tailor the details of Baloot's product design while collecting user feedback. Next, it's my privilege to update you on the progress of our participation in the Coders HQ program, a transformational initiative launched in January 2022 by the UAE government under the directives of Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai.
As we reported previously, Yalla was invited to join the program last year and is proud to be the only UAE internet company selected to participate. The Coders HQ program aims to consolidate the UAE's position as a global hub for coders and an ecosystem for incubating innovative tech projects and ideas. Yalla Group is honored to advance the program's goals alongside more than forty companies in the UAE and worldwide, including a number of global tech giants. Throughout the program, our team has contributed its keen insights into MENA's culture and traditions to shed light on two key factors for the success of any product in the region, localization and quality assurance.
We believe Yalla's role in the Coders HQ program not only demonstrates the company's commitment to facilitating the development of MENA's local digital economy, but also attests to the fact that Yalla is a reliable and trustworthy local partner and representative of the local internet industry. We wish to sincerely thank the UAE government for their ongoing trust and belief in Yalla Group. We value their support as we remain committed to maintaining our leading position as one of the UAE's most prominent and thriving technology companies. Another important achievement we would love to share this quarter is the successful expansion of Yalla gift cards, which are now available across the MENA region and worldwide, both online and offline.
To better serve our users' account recharge needs, we continue to collaborate with our partners and have launched a variety of recharge channels, including self-service kiosks, retail stores, mobile wallets, banks, and digital platforms with a worldwide distribution across the MENA region. For customers unable to use digital payment channels, our offline self-service kiosks such as MBME, QPAY, and retail stores, including Cash Plus in Morocco and Virgin Megastores across the MENA region, are a great convenience. Customers with easy access to e-payment system can also reload their accounts with gift cards through their mobile banking apps and wallets. The expansion of Yalla's account recharge channels not only substantially augments Yalla users' account recharge option, especially in areas with limited access to credit cards, but also demonstrates our team's capabilities in cultivating a local channel partner ecosystem across different countries in MENA.
We spare no effort to improve our user experience and ensure that our products and services are tailored to MENA's local needs and preferences. To echo Tao once more, our vision is to build the most popular destination for online social networking and entertainment activities in MENA within the next 10 years. Over the past six years, we have put down deep roots in MENA, rolled out products tailored to local users' habits and preferences, expanded our partnerships with local channels, and collaborated with local communities to help facilitate the development of the digital economy and the internet industry. Keeping our group vision in mind, we will remain faithful to our core values of prioritizing our users, embracing diversity, and operating with a simple, pragmatic, pioneering, and enterprising approach as we work to achieve our goals.
With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.
Thank you, Saifi. Hello, everyone. Thank you for joining us. We delivered a strong financial performance in the second quarter of 2022, with group average revenues reaching a record of $76.1 million, up 14.2% year-over-year, accelerating from the first quarter. With the implementation of our operational refinements, we saw robust growth in paying users, driving our group's paying ratio to 35.4%, while we continue to invest in initiatives to expand our Yalla ecosystem with a disciplined approach to managing expenses and ROI-based sales and marketing strategy. We also maintained our healthy profitability level with a non-GAAP net margin of 37.6%. Going forward, we will continue making efforts to expand our user base, improving operational efficiency, and optimize our resource allocation for quality investment to drive long-term growth while delivering sustainable returns to our partners.
Now, I would like to walk you through our detailed financials for the second quarter of 2022. Our revenues were $76.1 million in the second quarter of 2022, a 14.2% increase from $66.6 million in the same period last year. The increase was primarily driven by the broadening of Yalla Group's user base and enhancements to Yalla Group's monetization capabilities. Our average MAUs increased by 35.6% from 22.1 million in the second quarter of 2021 to 29.9 million in the second quarter of 2022. Now let's look at our costs and expenses.
Our cost of revenues was $29.3 million in the second quarter of 2022, a 23% increase from $23.8 million in the same period last year, primarily due to an increase in technology service fee, fees resulting from the expansion of our product portfolio and an increase in salaries and benefits resulting from the expansion of the operation and the maintenance team. Cost of revenues as a percentage of total revenues increased from 35.7% in the second quarter of 2021 to 38.5% in the second quarter of 2022.
Our selling and marketing expenses were $11.2 million in the second quarter of 2022, a 14.8% increase from $9.8 million in the same period last year, primarily due to higher advertising and marketing promotion expenses led by our continued user acquisition efforts and expenses expanding product portfolio. Selling and marketing expenses as a percentage of total revenues were 14.7% in the second quarter of 2022, increasing slightly from 14.6% in the second quarter of 2021. The ratio declined from 17.3% in the first quarter of 2022, driven by our more disciplined advertising and promotion approach.
Our general and administrative expenses were $6.9 million in the second quarter of 2022, a 37.4% decrease from $11.1 million in the same period last year, primarily due to lower share-based compensation expenses recognized during the second quarter of 2022. General and administrative expenses as a percentage of total revenues decreased from 16.7% in the second quarter of 2021 to 9.1%. Our technology and product development expenses were $7.7 million in the second quarter of 2022, a 144% increase from $3.2 million in the same period last year.
This is primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in the headcount of our technology and product development 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 from 4.8% in the second quarter of 2021 to 10.2% in the second quarter of 2022. Our operating income was $20.9 million in the second quarter of 2022, compared with operating income of $18.8 million in the same period last year.
Excluding share-based compensation, non-GAAP operating income in the second quarter of 2022 was $29.2 million. Our income tax expense was $0.78 million in the second quarter of 2022, compared with $0.38 million in the second quarter of last year. Moving to the bottom line, our net income was $20.4 million in the second quarter of 2022, compared with net income of $18.4 million in the same period last year. Excluding share-based compensation expenses, non-GAAP net income for the second quarter of 2022 was $28.6 million. I would like to briefly go through our liquidity and cash resources.
As of June 30, 2022, we had cash and cash equivalents of $384.9 million as compared with cash and cash equivalents of $367.5 million as of March 31, 2022. This improvement demonstrates our ongoing commitment to streamlining and refining Yalla Group's operations. On May 21, 2021, we announced the 2021 share repurchase program. As of June 30, 2022, we have repurchased 1,903,205 American Depositary Shares, representing 1,903,205 Class A ordinary shares from the open market with cash for aggregate amount of approximately $25.4 million.
In the third quarter of 2022, we expect our revenues to be between $70 million and $75 million. The above outlook is based on the current market conditions and reflects the company's management's current and preliminary estimates of market and operation conditions and customer demand, which are all subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Your first question today comes from Yulin Zhong with Haitong International. Please go ahead.
Thanks, ma'am for taking the question, and congratulations on the strong second quarter results. Actually, I got two questions, and number one is regarding your competitive landscape. Could management elaborate more on the competitive landscape across your multiple products? Number two, the second question is regarding your margin trends. We saw some savings in your G&A and OpEx, but considering that the company will be investing in your new products, how should we see your margin trend going forward? Thanks.
Thank you very much, Yulin. I'll take the first question. MENA is an emerging market with great potential. We saw opportunities here six years ago, and as a leading company in the region, we have made certain achievements that were also recognized by the industry. Following that, a number of the strong internet peers have entered the market. Also following that, they also achieved great success. For example, TikTok and BIGO LIVE and some mobile gaming apps. We think this somehow demonstrates the region's market potential as well as show the energy in this market. In addition, facilitated by this market potential, more and more investors and analysts are now studying this market. As a result, they are allocating more resources and attention to this region, and that's very important. Competition is never bad.
It inspires us to continue studying our users, new technologies and industry trends, and to drive innovation. As a leading player in this region, facing the competition, we will take proactive actions and continue to strengthen our advantages. We are very confident in our capabilities after all these years. The second question, about the margin thing, I think Karen will be answering it. Thank you.
Thank you very much, Yulin, for bringing up this question. If we follow our current pace of development, we know that it's not very difficult for us to achieve 35% for the non-GAAP net margin. But however, during the second half of this year, we may launch various marketing campaigns on YallaChat or Waha, so we may invest more in sales and marketing. We will adjust our strategy based on the market feedback. Although we do have a budget for these campaigns, it could face some changes. If you really want a number, I would say that it's fair to expect our non-GAAP net margin to remain above 13%. But of course, that will benefit the company's long-term goals.
For the MENA areas investment strategy, we think that we now have our chief strategy officer, and we still seeking some opportunities in this region. We think that when we build some ecosystem based on our portfolio, we may can find some good investor opportunities to make some synergies. We think that we keep doing this in this way. If we have some updates, we would love to share with you. Thank you.
Thanks, Yulin . Thank you.
Your next question comes from Edward Wang with Credit Suisse. Please go ahead.
Hi, management. Thanks for the presentations, and congratulations on the robust quarterly results. My question is that it has been a few quarters since the Yalla Parchis was consolidated. Does the company have any new initiatives on globalization? Thank you.
Hi, Edward. Thank you very much for joining our call. Regarding the company's strategy, I think the one key aspect we insist upon is to continue focusing on MENA market. We have built a dedicated and experienced team, and MENA is undoubtedly the most important market for us from all perspectives. With that said, we also stay tuned to opportunities from all emerging markets. For example, South America, as you just mentioned, and the like, and maybe Southeast Asia, which is another popular destination for the international companies. Our strategy department will continue monitoring trends and opportunities in different markets and verticals that synergize with our business. Of course, we will make prudent decisions when decide to explore a new market. Hope this answers your question well. Thank you, Edward.
Thank you.
Your next question comes from Thomas Shen with Nomura. Please go ahead.
Hi. Good morning, management. Thank you for taking my question. I have a question on game business. Could management team provide more details on the pipeline for Yalla's game business for the remainder of the year and for next year? Thank you.
Hi, Thomas. This is Jeff, and I will take this question. Regarding Yalla games pipeline for this year, next year, firstly, the two hardcore games we have invested in, one SLG game and one RPG game we have already officially launched in the market by then. I think by the end of this year, we'll have the beta version launched. Secondly, we are also talking to some gaming studios interested in exploring overseas, especially the MENA markets, and we may collaborate on distribution. Thirdly, we are starting some mid-core games as well, and next year we may have some new initiatives in this area too. I will keep you posted once we have more concrete plans. Thank you, Thomas.
Thank you.
Your next question comes from Xueqing Zhang with CICC. Please go ahead.
Hey, good morning, management. Thanks for taking my questions, and congratulations on strong quarter. I have two questions. Firstly, we have achieved a solid revenue despite Ramadan holiday. So just wonder, could you share more observation of the MENA market in terms of online activities during Ramadan holiday? My second question is a follow-up question about the game business. Can management talk more about its progress in releasing the two mid to heavy games? Thank you.
Hi, Xueqing. Good morning. This is Tao. Thank you very much for joining our call. According to our experience, Ramadan is usually a significant seasonality factor for this market. During the past quarter, we have observed a slowdown in the first several days after the start of Ramadan. If you check the third-party data, you will find that many entertainment products, so does YallaChat. However, later, as we rolled out our online event and further refined our content and user operations, we saw a solid recovery in user engagement and willingness to pay on our platform. Thus, you can find from third-party data that Ramadan's negative impact on our revenue is one of the least among our peers. In fact, our revenue also reached all-time high for the second consecutive quarter despite the impact of Ramadan, which is really not easy.
I believe this demonstrates the successful implementations of various refinements in our operations. The second question about the hardcore game, so I will hand it over to Mr. Jeff. Thank you.
Hi, Xueqing, this is Jeff, and I'll be answering your second question.
We expect the launch of the SLG games beta version by the end of Q3, and the launch of the RPG games beta version in before the end of Q4. For heavy games, it usually takes a few months to test and refine the beta versions of the products, and then we will start the official marketing campaigns for them. That's our current plan, and then we will keep you posted on the progress. Thank you, Xueqing.
Thank you.
Your next question comes from Chenghao Li with CICC. Please go ahead.
Thank you. This is my question. Congratulations on a strong quarter. I have two questions today. First, my question is about the game investment strategy. We know that the company has invested into game studios last year, so considering the changing external competition environment, what is the company's pace in investing in game studios in the future. My second question is about the paying ratio and ARPPU. Recently we noticed that the macro environment in MENA region has been improving and growing despite the COVID-19 spreading in the region. Can the company share something with us about the improvement of the paying ratio and ARPPU of these products? Thank you.
Hi, Chenghao, this is Jeff. Thank you for joining our conference call. I'll be taking your first question. Investing in gaming studios is not the only way we collaborate with the content providers. We're also talking to a number of studios which will cooperate with us only on the distribution business. We're quite flexible about this. We can provide cash, experience or all resources. We don't insist on investing in all the games we help distribute. It really depends on the needs and negotiation. As you are probably already aware, recently, an increasing amount of gaming studios have been hoping to explore the MENA market. Leveraging our experience serving MENA users, we choose the right products and continue distributing mid-core and hardcore games to the MENA markets. For the second question, I hand it over to Mr. Saifi.
Hi, Chenghao, this is Saifi. For your second question, I think MENA's macro environment is improving compared to the previous two years. COVID is easing, oil prices are also rising. I think consumers in MENA are becoming more confident and may be increasingly willing to pay for entertainment. You can find on social media that shopping centers in MENA are getting crowded during the Eid holidays, prices for flights and hotel surge too. That's for the macro. In terms of the immediate impact on our products paying ratio and average revenue per paying user, I think other important factors are our operation requirements and our adjustments to our more efficient user acquisition strategy. If you look at the operation metrics for quarter two, I would say the improvement in our paying ratio mainly resulted from our efforts in these two areas. Thank you.
Your next question comes from Kaifang Jia with CITIC. Please go ahead.
Hi, management. Thanks for taking my question, and congratulations for a strong quarter. I have a question about the user growth. How management sees the user growth in the next several quarters? Will you pay more attention on the users' engagement? Thank you.
Hi, Kaifang. Thank you very much for your question. Last quarter, we mentioned that we had adjusted our user acquisition strategy. As a result, we were able to reduce our sales and marketing expenses Q-on-Q for both Q1 and Q2, while still delivering robust growth in our top line. This quarter, our revenue reached an all-time high for a second consecutive quarter, demonstrating an improvement in the ROI of our sales and marketing strategy. For the second half of this year, we will continue with this strategy, and we expect our MAU growth to remain at the similar pace as Q1 and Q2 of this year. But of course, many users are of great potential, and we will not always keep our user acquisition at this pace.
After our official launch of Yalla Chat and Waha, which may boost the synergies among our products, it's possible that we will have improved ROI on our user acquisition investments. At that time, we may accelerate our user acquisition again. In terms of user engagement, yes, of course, we'll make significant efforts to improve user engagement on our platform. As our CEO, Mr. Yang, just mentioned, operational refinements has played an important role in this quarter in boosting the growth of our paying users. Our experienced operations team has rolled out events that included preparations more elaborate than ever before, and we'll carry on refining our content and user operations to encourage more users to interact on our platform. Thank you, Kaifang.
Thank you. Enjoy your half full.
Your next question comes from Zemin Chen with Huafu Securities. Please go ahead.
Hello, management. Thank you for accepting my question, and thank you for outstanding performance. Can management share how the traffic is connected and converted across the different apps? Thank you.
Hi. Hi, Chen. Thank you very much for your question. As you know, user experiences are something we really care about. For a very long time, Yalla doesn't include any ads. When we launched Yalla Ludo, we didn't even drive traffic from Yalla to Ludo. We promoted Ludo independently. Now, as we are expanding our product portfolio and building and connecting to the Yalla ecosystem, it may be a necessity, as it will help users learn more about the new services Yalla provides and better utilize our platform. As I just introduced in my remarks, we just started the upgrade, and now we are encouraging Yalla and Ludo's users to register Yalla Chat ID, log into Yalla and Ludo with their Yalla Chat account. They will then be directed to the Yalla Chat download page, with one simple click in Yalla and Ludo.
This is an important move we are making at this stage, and we will keep you posted if we make any of these types of upgrades with our other products. Thank you very much.
Thank you. As there are no further questions, now I'd like to turn the call back over to management for closing remarks.
Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have any further questions, please feel free to contact Yalla's investor relations through the contact information provided on our website or The Piacente Group investor relations.
This concludes this conference call. You may now disconnect your line.