Good morning and good afternoon, ladies and gentlemen. Welcome to Yalla Group Limited's third quarter 2021 earnings conference call. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Ms. Kerry Gao, Director of IR of the company. Please go ahead.
Hello, everyone, and welcome to Yalla's third quarter 2021 earnings conference call. We released our earnings earlier today, and the release is now available on our IR website as well as on our 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.
Please also note that Yalla's earnings press release and this conference call include 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.
With that said, I'd now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.
Thank you, Carrie. Thank you, everyone, for joining our 2021 third quarter earnings conference call. It has been a year since Yalla's NYSE listing. Before updating you on our business progress during this quarter, I'd like to take a moment to elaborate on our mission, vision, and strategy.
Demand for online social networking and entertainment services is high among MENA users. Historically, there have been few digital products reflecting local values or customized for local users' specific needs. When we drafted the prospectus for our IPO, we asserted that our vision is to build MENA's most popular destination for online social networking and entertainment activities.
We will continue to fortify and refine them with more comprehensive studies on local users' needs and preferences to provide customized, targeted, and trendy online services. Yalla is developing rapidly. We are also facing challenges in an increasingly complex environment. As such transformative businesses, we thought it was critical to have our new colleagues better understand Yalla's DNA and to think and act in Yalla's way.
We upgraded the app's foundation and improved capability and response rate, which elevates the user experience and will allow the product to support a larger user base in the future. We firmly believe that in the digital era, an IM product with features tailored to local users' preferences is a fundamental need, and the MENA region has waited too long for a dedicated product.
Long before the Metaverse concept began trending lately, our team was researching new types of social networking opportunities to provide users with a higher level of freedom and more immersive social experiences. We see strong potential for development and innovation in this area, and we are happy to share that we are working on a cutting-edge social app, which will feature the first-ever social Metaverse design for the MENA region.
We plan to gradually open our game distribution platform to more quality content, making Yalla Game the ideal MENA-based distribution partner for game developers in the near future. With respect to our internal initiatives, we officially kickoff our internal ESG program this quarter.
Looking into the future, Yalla will remain dedicated to the development of UAE's digital economy and continue to deliver online social networking and entertainment products tailored to the MENA's culture. We are also proud to have bolstered our leadership and governance this quarter. It is my honor to welcome Mr. Saeed Al Hamli to the board as our independent director.
We will continue to uphold 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. Adhering to these principles has been the driver of our past success, and we are assured that we keep succeeding.
Thanks, Tao. Hello, everyone. Thanks for joining us today. In addition to the accomplishments Tao shared, we have made impressive progress with our new products. Yalla Okey remained one of the most downloaded apps in the board game category in Turkey. We have received very good feedback from users on this product and are seeing an outstanding retention rate.
Along with this new product designed for the MENA market, Yalla Parchis, the South American version of our Ludo app, also performed impressively. By the end of quarter three, Parchis contributed 786,000 of Yalla Group's monthly active users. Parchis is showing outstanding user stickiness, and our next step will be to cement our monetization strategy and begin to boost Parchis monetization capabilities, taking South American cultural differences into consideration.
We prioritize research and strive to develop innovative features in our existing social and gaming mobile application, as well as create brand new apps to give our loyal users more engaging opportunities to express themselves. We believe Yalla Group has received this honor from UAE's government due in large part to these efforts.
With recognition from specialized judges representing key players in the international digital industry, such as PwC Middle East and Deloitte Middle East. This award further solidifies our position as one of the MENA region's top companies. We now join an illustrious group of past winners, including IBM, LinkedIn, and Tencent.
Furthermore, in September 2021, we hosted an analyst day to facilitate communications with our investment community. Our users, team members, and industry experts shared their respective experiences with Yalla and the digital economy insights, presenting colorful close-up views of what we do, our market, and its tremendous growth prospects.
Our third quarter revenues grew by 110.8% year-over-year to $71.3 million, while our non-GAAP net income reached $33.2 million with a growth rate of 114.5% year-over-year. Our non-GAAP net margin remained exceptionally higher at 46.6%, reflecting our strong monetization capabilities and the disciplined SG&A spending.
A 110.8% increase from $33.8 million in the same period last year. The increase was primarily driven by the broadening of Yalla Group's user base and the enhancement to Yalla Group's monetization capabilities. Our average MAUs increased by 81.9% from 14.3 million in the third quarter of 2020 to 25.9 million in the third quarter of this year.
Yalla Parchis's MAU also reached 786,000 in the third quarter of 2021. Now let's look at our costs and expenses. Our cost of revenues was $23.4 million in the third quarter of 2021, compared with $25.6 million in the third quarter of 2020.
Excluding share-based compensation expenses, cost of revenues as a percentage of total revenues decreased from 34.1% in the third quarter of 2020 to 31.1% in the same period of 2021 due to continued optimization of our revenue mix, which resulted in less increase in commission fees for the third-party payment platforms.
This compared with $4.5 million in the third quarter of 2020. Excluding share-based compensation expenses, selling and marketing expenses as a percentage of total revenues remained relatively stable at 12.9% in the third quarter of 2021.
This in turn was driven by an expansion of our general and administrative staff. Excluding share-based compensation expenses, general and administrative expenses as a percentage of total revenue decreased from 5.3% in the third quarter of 2020 to 3.8% in the third quarter of 2021 due to economies of scale.
Excluding share-based compensation expenses, technology and product development expenses as a percentage of total revenues also increased from 2.6% in the third quarter of 2020 to 5.1% in the same period of 2021.
Moving to the bottom line, our net income was $25.3 million in the third quarter of 2021, compared with a net loss of $31 million in the same period last year. Excluding share-based compensation expenses, non-GAAP net income for the third quarter of 2021 was $33.2 million, a 114.5% improvement year-over-year.
On May 21, 2021, we announced the 2021 share repurchase program. As an update, in the third quarter, we repurchased 1,042,985 American Depositary Shares, representing 1,042,985 Class A ordinary shares from the open market with cash for an aggregate amount of approximately $14 million.
Starting in the fourth quarter of 2021, as we continue to expand our product portfolio, we will report our MAUs and paying users at the company level instead of by product to better reflect our increasing integrated product ecosystem. 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 touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Thanks, management, for taking my question and congrats on your strong quarter. I have two questions. The first question is about YallaChat. How will you differentiate YallaChat from other IM products, and how will you initiate the product with the seed users?
Hi. Good morning, Shiqi Ge. Thank you for the question. I'll take the first question. Our YallaChat version 0.2 can fulfill users' most basic needs for an IM product. As mentioned earlier, with this version, we enhance the app's foundation and improve the product system.
When we think YallaChat is ready, we will further polish and sponsoring the product within our existing community of users. Hope this answers your question. The second question, I will hand over to our CFO, Karen.
There are a lot of things we need and want to do in the MENA region. Some of these include further building our brand, strengthening our market efforts, investing in R&D capabilities, continuing to expand our product portfolio, and growing our headcounts with right talents.
With that said, I believe compared with our peers, we will be able to maintain our margin at a very competitive level. Hope this answers your question. Thank you.
Sure. Thanks, management.
The next question comes from Kaifang Jia with CITIC. Please go ahead.
Hi, management. Thanks for taking my question. I have two questions. The first is about the new products. Can management share some updates about YallaChat and any color about the monetization of the new products?
Thank you, Kaifang. Thanks for your question. I will take the first question and then our CEO, Jeff, will answer about the user growth. Just as I answered Shiqi for the last question, the monetization will depend on different product types.
Hi, Kaifang Jia. I'll be answering your second question regarding the user growth and the strategy. Our expectation for MAU growth for fourth quarter is still 10%-15% quarter-over-quarter. For next year, since the user base will be larger, we expect each quarter our MAU to grow by around 10% quarter-over-quarter.
In summary, our acquisition strategy needs to be always evolving; otherwise, we will see a decrease in efficiency. Hope that answers your question, Kaifang.
Thank you.
The next question comes from Yulin Zhong with Haitong International. Please go ahead.
Hello, management. Thanks for taking my question. I was wondering, have you had any new monetization initiatives, such as do you have any plan on ad, live streaming, hardcore games?
Okay, hi Yulin, this is Yang. This is a topic we have been actively discussing internally with our team. We have looked into and examined possibilities in advertising, e-commerce, and others. Among all of these options, we believe at this stage, gaming is the next area for us to develop as a monetization channel. Thank you.
Thanks.
The next question comes from Thomas Chong with Nomura. Please go ahead.
Hi, good morning, management. This is Thomas Chong from Nomura. I have a question on our user acquisition costs. As we have seen some peers adjusting their overseas marketing strategy, could management share more color on the trend of our user acquisition cost? Thank you.
Hi, Thomas. I'll be answering this question. So for the user acquisition cost, we believe that it will gradually trend upward; that's for sure. That's true not just for Yalla Group, but for all internet product companies around the world.
Thank you.
The next question comes from Yuchen Yang with TF Securities. Please go ahead.
Hi, management. Thanks for taking my question, and congratulations on the strong result for that quarter. Could you please just share your plan in developing heavy games in-house? Are we going to see increasing R&D expense related to the game this year or/and next year?
Thank you, Chen. Good morning. As for your questions, the first one about the game. Our previous experience is more related to casual games, so we will be cautious as we move into the realm of heavy games.
For the past five years, we have always been the largest in the region. We are always growing and innovating. Two years ago, we launched Yalla Ludo in the market, and at that time, we were the first company to combine casual game and voice chatting together.
As we just mentioned, we are going to launch the first Metaverse social app designed for Arab users. We believe the Metaverse concept opens the door to new and exciting potential for voice chatting in MENA to be realized.
Our vision is larger than that. We intend to build the largest online social networking and entertainment platform in MENA. Thank you very much.
As there are no further questions, I would like to turn the conference back over to Ms. Kerry Gao for any 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. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.