JOYY Inc. (NASDAQ:YY) Q4 2022 Earnings Conference Call March 15, 2023 9:00 PM ET

Company Participants

Jane Xie - Senior Manager, Investor Relations
David Xueling Li - Chairman & Chief Executive Officer
Alex Liu - General Manager of Finance

Conference Call Participants

Thomas Chong - Jefferies
Thomas Shen - Nomura
Jasmine Wang - Credit Suisse
Yiwen Zhang - China Renaissance

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc. Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session.

I’d now like to hand the conference over to your host today, Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

Jane Xie

Thank you, operator. Hello, everyone. Welcome to JOYY's fourth quarter 2022 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Liu, the General Manager of Finance. For today's call, management will first provide a review of the quarter and then we will conduct a Q&A session. The financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours.

Before we continue, I like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20F and other documents filed with the SEC. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in US dollar.

I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please go ahead, sir.

David Xueling Li

Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Let me start with an overview of our fourth quarter and -- results. In the fourth quarter, we recorded a $604.9 million in revenues include $476.5 million of revenue from BIGO and generated $50 million in non-GAAP net profit, include $57.7 million in non-GAAP net profit from BIGO.

For the full year of 2022, we achieved $2.4 billion in revenues at the group level -- million of which come from BIGO. We further improved our non-GAAP profitability at the group level as we earn a non-GAAP net profit of $199.3 million with a non-GAAP net margin of 8.3%. The BIGO segment recorded $288 million in non-GAAP net profit with a non-GAAP net margin of 14.4%.

2022 marked a year of uncertainty of multinational companies as we continue to be impacted by macro economy [ph] headwinds, the combination of post-COVID normalization, high inflation and the strong US dollar created downward pressure on our users' online payment, spending and top line growth, despite these short-term challenges, we've taken actions to focus on the contribution of our user community, improved content quality, keeping engagement on our various products and pursue sustainable, high-quality growth. By concentrating on the factors that we could control and backed by our strong execution capabilities, our efforts yield significant results.

First, we continued our path to sustainable profitability by generating $199.3 million in non-GAAP net profit at the group level of 2022. Thanks to our continuous cost optimization efforts and improved operational efficiency. This represent 83% year-over-year growth in our non-GAAP net profit and the second consecutive year of positive non-GAAP net profit at a group level since our the consolidation of YY Live.

Second, we witness accelerating in user growth of Bigo Live as its MAU grew by 40.3% year-over-year in the fourth quarter of 2022, up from 11.9% in the last year. Such acceleration was a noteworthy. This -- as it was achieved in the backdrop of the post-COVID normalization and during a period of more disciplined marketing spending. And highlights of Bigo Live improve user acquisition capabilities, which drive by our continuous cultivation of its content offerings and the social experience.

Heading into 2023, visibility of the global macro elements remains limited and its possibility -- it's possible that micro headwinds maybe linger for another one or two quarters. However, this short-term value -- will not reverse the secure trends of using pivoting and increasing among their time and they are spending from offline to online.

As we remain committed to enrich our users lives and facilitating their online activities through our products and services. We fit a market with massive growth potential. As such, we need to slight strategic balance between navigating short-term macro uncertainties and actively pursuing long-term growth.

In the current macro uncertainties, we will retain our focus on the quality and profitability of our entertainment business in the near term. This means we will continue to do better with less. We will maintain discipline in our marketing spending further refine our localized operations in order to further improve our content and social experience, and ultimately, both our product organic growth. Optimizing efforts we will continue as we strive to maintain steady high-quality growth of both our social in business and its operating cash flow. In the meantime, we will continue to try out revise our resources and investments into high potential business that in line with our long-term strategy and which will ship our core capabilities. We are confident that we can remain self sufficient in our cash flows. Reinforce our strong financial position and act swiftly to size long-term growth opportunities as the rise.

Now let's take a closer look at our products. We will start with the bigger line. In the fourth quarter, Bigo Live's obtained its strong user growth trajectory, thanks to effective logins and increase the user acquisition efficiency during the quarter, Bigo Live's MAUs increased by 18.3% year-over-year to 36.8 million notably MAUs in Southeast Asia and other emerging markets increased 21.6% year-over-year.

During the 2022 World Cup, Bigo Live’s rolled out one month at stake on to better engage the football players and fans around the global. The pro forma highlights Bigo Live's diverse localized content and responses with local communities. In November, Bigo Live's you might see the well-known professional football -- such as England, Kieran Trippier, and Netherlands, Wesley Sneijder to join its live interviews a group of local football creators were selected by Bigo Live as World Cup ambassadors to host live commentary sessions.

We also established the discussion groups and a chat room which support up to 500 concurrent speakers, who encourage to create and share original content. This effort successfully posted an engaging community experience on Bigo Live during the World Cup. The decision to connecting users, we remain fully dedicated to create value for our creators.

In January, we hosted our first annual flagship event, the BIGO Awards Gala 2023 at Singapore's historical Capitol Theatre. During the event, Bigo Lives honored over 270 Bigo Live families hold their contribution to the community in the past year. Bigo Live also featured activity performance from top tenants from across the global with approximately 4 million viewers into the watch, further boosting our future exposure on a worldwide stage, we will continue to recognize and contribution of our creators in making our platform what is today and the Bigo award was just when is -- visit of our effort to incubate talent building communities and promote in class and in diversity on our platform.

In the fourth quarter, Bigo Live conducted a comprehensive upgrade of its live streaming tools and rooms and introduced a number of new interactive features. This improved the effectiveness of live session, recommendation and the user go-live experience. On a sequential basis, the number of live streaming -- live streamers on Bigo Live increased by 3.3% and the average during per live session increased by 4.5% in the first quarter.

Turning to Bigo Live monetization. During the fourth quarter, monetization continued to be negatively impacted by micro-chains. In the Middle East, we will also negatively impact as user spending was diverted to offline entertainment activities during the world. Notably, the number of global paying user was several lines and the number of paid users in Europe and North America, have assumed sequential growth for two consecutive quarters.

Looking aside in 2023, we aim to further improve Bigo Live’s penetration rates and expand a services in multiple regions around the world include, Europe, America and the Middle East, the Eastern Pacific and Southeast Asia. Improvement in user acquisition efficiency and user engagement will remain our priority, as we continue to pivot Bigo Live content and user interaction via product innovation and innovative local operations.

Furthermore, Bigo Live will advance its efforts to boost the paying user and monetization growth by our users playing experience in live streaming session and brand. Net sales life tends to likely following a year of proactive optimization, like its operation loss in 2022 was in line with our expectation, narrowing by 83% year-over-year.

More importantly, Likee hit another milestone by achieving breakeven in the second half of 2022. Following the initial launch of its Loop feature, Likee has expanded its efforts to collaborate with companies from variety of industry multiples, in order to further cultivate its interest-based communities.

Take the gaming community as an example, which is one of the largest interest group of Likee, with various popular games include Converse [ph], law [ph], live mobile and PUBG mobile to offer -- gives gamers a shared space to interact with each other.

In December 2022, Likee become official streaming partners of the TIM Awards 2022 annual award ceremony honoring achievements in the video game industry. Millions of viewers from all over the world watched the event live and with each other on Likee’s platform.

Boosted by Loop and the Likee’s refined content offerings, we saw an increase in user interaction quality and units on Likee. In the fourth quarter, Likee’s average user time spent grew by 70.4% and the 30-day user retention improved by 6.3% over the previous quarter.

Looking ahead, as we enter into 2023, we intend to further implant Likee’s monetization efficiency by diversified monetization models and achieve constant profitability. We will continue to prioritize creator input, as they take social interactions among our universe and further refine our local centered on interest-based communities.

As we gradually improve Likee’s operating cash flow, organic growth capabilities and user base, we believe, Likee’s user base will gradually stabilize and the user growth will resume in certain regions over time.

Next, on Hago. During the fourth quarter, Hago’s operation loss narrowed substantially over the previous quarter. In product set, as we mentioned in Hago’s positioning upgrade about a year ago, substantially Hago has transitioned away from being an interactive platform, primarily focused on casual games. Now, it is a multi-user social platform, where a user can enjoy engaging interactions with a much more adverse range of ARPUs.

Following the upgrade, our user socializing high patterns on Hago become clear. First, you view every opine by participating in multi-player casual games then after a few rounds of games, some users may choose to in further by joining one of Hago’s social channels such as video and audio multiplayer chat rooms and Hago Space where they can interact with each other using customized 3D avatars.

With the level of interaction reach a certain level, user may choose to join the same group of families, their life mine, friends and --engage, which is other on a much more refined basis frequent basis. Hago has enhanced its monetization efficiencies throughout the process by developing a variety of monetization features as the pay to play games advertisement, live streaming and virtual items.

During the fourth quarter, we optimized our recommendation algorithm to help our users in a located social rooms. This initiative drove a sequential increase in the total China's next day user retention rate by 1.5% and user plan spend by 5.3%. We also introduce a new 3D printing screen and launched the areas of optimization beginner side to Hago Space. As a result, new user time spend on Hago Space improved by 6.5%, and the revenues from virtual items increased by 13.4% over the previous quarter.

In 2023, in argument with our strategy of Likee, we intended to further enhance Hago's monetization efficiency, while maintaining our efforts to achieve consistent profitability at the product level Hago is going to optimize its futures throughout its users socializing patterns and better facilitate user interactions, such as we expect to further improve Hago user retention and organic growth capabilities, which are crucial gradual stabilization and eventual recovery of user growth over time.

Finally, some updates on capital return during the fourth quarter, we qualify additional 31 points of our shares. In the full year of 2022, we have repurchased total of $138.1 million of shares and paid cash dividends in an aggregate amount of $145.9 million. We are confident in our long-term affect and we will continue to actively utilize the remaining share purchase program to reward the long-time support of our shareholders.

To conclude, effective strategy planning and strong execution drove our solid performance in 2022 despite certain macro environment. Looking ahead, we remain committed to enrich our user life and facility and improving their online activity through our diverse range of innovative products and services.

With our resilient business model, strong financial position and sharpened focus on building our core capabilities, we are well-positioned to gather short-term macro headwinds, while driving long-term growth opportunities and creating lasting value for shareholders. Now, Alex.

Alex Liu

Thanks, David.

David Xueling Li

Now, I handover to Alex Liu.

Alex Liu

Yes. Thanks, David. Hello, everyone. Now let me go through the details of our financial results. Please note that the financial information and non-GAAP financial information disclosed in our earnings press release is presented operations basis, unless otherwise specifically stated.

Our total net revenues following the quarter was US$604.9 million compared to US$663.7 million in the same period of 2020, primarily due to macroeconomic uncertainties and unfavorable exchange rates, which negatively affect paying user sentiment.

During the quarter, we have continued to optimize the cost structure and enhance operating efficiency as [indiscernible] and on multiple product fronts. Cost of revenues for the quarter decreased to US$392.6 million, among which sharing fees and content costs decreased to US$247.5 million.

Gross profit was US$212.3 million in the quarter, with our gross margin improved to 35.1% from 33.7% in the same period of 2021, primarily due to optimization of revenue-sharing cost and other operational original cost.

Our operating expenses for the quarter were $231.2 million increased from $160 million in the same period of 2021.

Among the operating expenses, sales and marketing expenses decreased to $100.2 [ph] million from [indiscernible] million due to disciplined spending on user acquisition.

R&D expenses increased to $73.6 million from $29.3 million in the corresponding period of 2021, primarily due to increased R&D personnel-related expenses of eco and -- consolidation of supply.

Our GAAP operating loss for the quarter was $14.2 million compared to operating income $16.6 million period of 2021. Our non-GAAP operating income for the quarter which excludes SBC expenses, amortization of intangible assets from business, as well as impairment of goodwill and investments and gain on disposal of subsidiaries and business, was $48 million in this quarter compared to $83.5 million in the same period of 2021. Our non-GAAP operating income margin for the quarter was 4.6% compared to 12.6% in the prior year period.

GAAP net loss from continuing operations attributable to controlling interest of JOYY in the quarter was $327.5 million compared to net income of $73.2 million in the same period of 2021, primarily due to an impairment loss of $417.2 million from an equity investment recorded during the quarter. The impairment loss is excluded from our non-GAAP calculations and is not reflected of the underlying trends in our recurring operating performance.

Non-GAAP net income from continuing operations attributable to controlling interest of JOYY in the quarter was $50 million -- $98.3 million in the same period of 2021. The Group's non-GAAP net income margin was 8.3% in the quarter of 2022 compared to 14.8% in the same period of 2021.

Together with our improving profitability, we have maintained a strong operating cash flow as well. For the fourth quarter of 2022, we booked net cash inflows from operating activities of $75.6 million. We remain a healthy balance sheet with a strong cash position of $4.29 billion as of December 31 of 2022.

Now, I would like to briefly walk through the full-year financial highlights. Our total net revenues for the full year were US dollar -- to $411.5 million, compared to $619.1 million in 2021. We have sustained our path to sustainable profitability at the group level for the second consecutive year.

Our non-GAAP net income attributable to controlling interest and company shareholders of JOYY for the full year of 2022 was $199.3 million, up 83% from $108.9 million in 2021. Non-GAAP net income margin for the full year of 2022 was 8.3%, up from 4.2% in 2021, notably BIGO's non-GAAP net income expanded to $288 million in 2022 with its non-GAAP net income margin improved to 14.4% from 7.8% in the prior year.

Importantly, we have continued to enhance returns to shareholders through dividends and share repurchase. In the full year of 2022 [ph], we have been totally repurchased approximately $108.1 million [ph] of our shares and paid dividends in aggregate amount of $145.9 million, which altogether represent 142.5% of our non-GAAP net income.

As of the end of 2022, we still have around US$ 800 million and utilized quarter for 2021 share repurchase program. Given our current cash position, we will continue to balance between keeping sufficient cash to invest and build our linker late [ph] and enhancing return for our shareholders. For our business outlook, we expect our net revenues for the first quarter of 2023 to be between US$ 152 million and US$ 517 million.

Let me wrap up with some final thoughts. In 2022, despite the fact that global macro growth -- revenue growth -- effective access to focus on high-quality growth, we have successfully enhanced our operational EBITDA resilience of our business as well as the execution capabilities of [indiscernible]. As we head into 2023, given the low visibility around the global macro, we remain adaptive to the macro environment -- prioritize our investments in building our core capabilities. We remain confident in the long-term potential of our global business and we will actively pursue long-term growth opportunity and generate sustainable shareholder value.

That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] When asking a question, please state your question in Chinese first then, repeat your question in English for the convenience of everyone on the call. Your first question comes from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong

[Foreign Language] Thanks management for taking my questions. I have two questions. The first question is about Bigo Live. Can you share about, how the performance by geographies in Q4 and how should we think about the trend in 2023, among the different geographies? And my second question is about 2023 revenue trend. And when we should think about the inflection point? Thank you.

David Xueling Li

[Foreign Language] Thank you, Thomas, for your question. This is David. So in Q4, we believe that the life monetization was still negatively affected by the global macro uncertainties, noticed different recovery trends by region. For example, we've seen Europe, North America and Southeast Asia resumed sequential growth with Europe even recorded a double-digit growth Q-on-Q. We believe that was mainly due to our active operational year-end events in Q4, which promoted, creates activity in the region.

The Middle East region underperformed as the hosting of the World Cup diverted part of users' time spend -- time and spending offline during the period. But we saw ping activities in the region began to recover immediately after the ban was concluded.

So if we look back the full year performance across the different markets, some markets turn out to be more resilient against the macro headwinds and achieve positive year-over-year growth such as Australia, New Zealand, the Philippines, the UK, Italy, et cetera. So if we look ahead for the year of 2023, we believe that the recovery trends across different regions should be highly related to their economic growth and the level of development of our operations in the local region.

Overall speaking, we intend to stick to our globalization strategy with a diversified exposure across the various -- we will remain operational flexibility as we can flexibly prioritize, allocate resources globally and locally into markets that are more efficient to achieve a higher ROI. We will continue to focus on key markets, such as Europe, America, Southeast Asia, the Middle East and the Eastern Pacific region, and we will closely track market changes and remain flexible and adaptive in our operational strategy. Thank you.

[Foreign Language] And to answer your second question, we believe that the visibility of the global macro environment remains limited, and there has been this news coming out recently as well. So we believe that it is possible that macro headwinds may affect us for another, one or two quarters.

Given the current uncertainties, we believe that we will need to control short-term risks and at the same time, having certain degree of operational flexibility, and making sure that we are fully prepared to easily take action and capture growth opportunities, especially when the macro or user paying sentiment takes a positive turn.

And according to our previous seasonality experience, usually Q1 is a quantitative season with less marketing activities. And we believe Bigo's top line should gradually stabilize in Q2 and resume sequential a year-over-year growth in the second half of the year. Similarly, we believe that the Others segment should also resume sequential growth in Q2.

So overall speaking, we believe that the year 2023 should be a year of recovery in top line growth, especially in the second half, and we will continue to closely track the evolving market dynamics and flexibly adjust our operating strategies. Thank you. Next question please.

Operator

Thank you. Your next question comes from Thomas Shen with Nomura. Please go ahead.

Thomas Shen

[Foreign Language] Thanks to management for taking my question. I have two questions. The first one is could you share the margin trends for our key segments such as Bigo and the rest of business down the road. The second question is that if you could mention and share more color on the expenses and the margins for the entire company in the year of 2023? Thank you.

Alex Liu

[Foreign Language] Thank you for your question. This is Alex. I'll take your question on the profitability and margin outlook. So looking at the full year of 2022, our profits were better than expected. The group achieved a non-GAAP operating margin of 6.8%, up by 4 percentage points, and BIGO segment achieved a non-GAAP OP margin of 14.4%, up by 5.8 percentage points from 8.6% last year. So this was mainly attributed to our enhanced operating efficiency at group level. And also improve profitability at almost all product levels.

And if we take a closer look at Bigo segment for the full year of 2022, BIGO's segment gross margin was improved by 3.7 percentage points from 33.8% and to 37.4% last year. And we see cost optimization happen at multiple cost and expense items, including our content cost, payment channel expenses and other operating expenses as well. And at product level, Bigo Live has maintained relatively stable when it comes to operating margins.

Likee has continued to narrow its operating loss by 87% year-over-year. And other products under the BIGO segment also reverts its loss-making trend and began to make a profit in the full year.

So looking forward to the year 2023 for BIGO segment, we will still prioritize high-quality growth in the near term, given the macro uncertainties. But at the same time, we will ensure sufficient operational flexibility when planning our resources allocation so as to swiftly take action and capture larger growth opportunities when user paying sentiments take a concept turn. Therefore, for the full year of 2023 on a constant currency basis, we expect the non-GAAP operating profit margin for BIGO segment to remain roughly stable when compared to the level of 22%, retaining certain resources for potential growth.

And overall speaking, at group level, we intend to strike a strategic balance between navigating short-term uncertainties and actively pursue long-term growth. We expect to remain profitable and self-sufficient in our operating cash flow in the year 2023. Thank you. Next question, please.

Operator

Thank you. Your next question comes from Jasmine Wang with Credit Suisse. Please go ahead.

Jasmine Wang

[Foreign Language] Thanks management for taking my question. My question is about the user willing, management mentioned that global macro visibility remains limited. What is your view on the trend of paying user number, engagement and ARPU this year? Thank you

David Xueling Li

Hi. Thank you for your question. This is David. I will take your question on the paying user and ARPU trend. So based on our -- in the past few quarters, we've seen that global macroeconomic uncertainties have negatively affected European sentiment as implied in the recent trend of our paying users and ARPU. However, we did have observed that the number of paying users have gradually stabilized since Q3 in the year '22 and that the paying users in Europe and North America have resumed sequential growth for two consecutive quarters. We believe this could be an early sign of recovery for our monetization.

If we look at the phase of development and also from a mid to long-term perspective, we believe our user penetration rate and also the paying ratio of our products are still relatively low with empty room for further improvement. So in the year '23, we will still focus on our user growth and also the conversion of paying users will continue to cultivate our products and our user community and improve user satisfaction, which we believe are the fundamental driver for user paying user and also ARPU growth in the long term. And we don't believe that the recent trends will change our long-term product strategy. Thank you. Next question please?

Operator

Thank you. Your next question comes from Yiwen Zhang with China Renaissance. Please go ahead.

Yiwen Zhang

So my question is regarding, our view – project share for 2023? What's our view on the Likee and Hago user trend and the monetization update? Thanks.

David Xueling Li

[Foreign Language] Thank you, Yiwen. This is David. Regarding our outlook for Likee and Hago, both products have prioritized and also consider breakeven as a key operating priority in the year 2022. And we've seen positive results comes out from both products as well, especially with Likee achieving breakeven in the second half of year 2022. We believe that -- given that the product is now approaching breakeven, we believe that the product will be able to explore potential user recovery on the basis of consistent profitability.

Operator

Thank you. That's all the time we have for our question-and-answer session today. I'll now hand back to management for closing remarks.

Jane Xie

Thank you so much for your time, and we look forward to seeing everyone next quarter. Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.