Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s First Quarter 2021 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..

Thank you, operator. Hello everyone. Welcome to JOYY's first quarter 2021 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Leo [ph], 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 section.

The fourth quarter 2020 financial results and webcast of this conference call are available at ir.joyy.sg. 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, 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..

Hello, everyone. Welcome to our first quarter 2021 earnings call. We reached another milestone in our product commercialization progress by executing our strategies of globalization through localization and short-form video plus live streaming.

During the first quarter, total revenue of JOYY exceed Street expectations and grow by 88.1% year-over-year to US$643 million, especially revenue from Bigo grow by 92.5%, year-over-year to US$581 million, with paying user grow by 72.1% year-over-year to 1.67 million. Above all, Bigo’s non-GAAP net income turned positive during this quarter.

[Audit Start] We have always believed that how much we can harvest in the fall is determined by how much we have shown in the spring, and that's why we need to be long-term thinkers.

As mentioned on our last quarter’s earnings call, Bigo’s achievement today is a result of our persistent execution of long-term business strategies over the past five years.

Having reached a milestone in commercialization will remain goal-oriented and long-term focused, where we’ll devote our resources to sharpening our competitive edge and expanding our marketing influence, so that we can sustain our growth trajectory for the long haul.

At JOYY, we feel the social interactivity and content ecosystem as a strategic call that are fundamental to the long-term competitiveness of our products. JOYY has always been on a mission to cultivate an inclusive and global community where everyone can be heard and seen.

During the first quarter of 2021, more than 17% of Bigo Live's active user hosted live streaming sessions and more than 19% of Likee's active user created their own short-form videos.

Going forward, leveraging our product metrics combining short video content with live streaming, we seek to further expand user social connections via our content offerings, facilitate immersive social interactions through live streaming and help users forge intimate social relationships with one another.

We aim to provide the user with a sense of collection, belonging and the gratification through social interactions in addition to relation and entertainment. At the same time, as mentioned in the last call, we plan to continue augment our localized content ecosystem.

Thanks to our products intrinsic social features, we have accumulated a massive pool of amateur live streamers and content creators contributing that reservoir of user generated content.

By empowering users with a full suit of video production tools, we have eased their way into hosting live streaming sessions and lower the entry barrier for their content production.

By combining user chain costs and user incentive programs, we have encouraged mall users to reduce original content thus expanding our pool of grassroot live streamers and content operators continuously. In addition, based on our insights into local users' content preference.

We have partnered with gaming companies, TV show producers, and entertainment agencies to attract more high-quality live streamers and content creators to our platform, and introduced an increasing volume of premium content to our content pool.

By leveraging the social influence of leading content creators, we have also been able to expand our user base persistently. We believe the high-quality content and the social ecosystem together from the initiate engine propelling our growth for the long-term.

As such, we have gradually adjusted the product promotion strategy for certain products such as Likee and HAGO’s. As we reduced our advertising spend on those products, we allocated our resources towards the developments of our content and the social ecosystem instead.

Consequently, these products user base suffered a decline and may experience some fluctuation in the near-term. However, we believe that prioritizing advertisement in our content and the social ecosystem will improve our user experience and contribute to our long-term competitiveness.

We are confident that our strategic adjustment will enable boost our product and the business to achieve sustainable growth in the long run.

For new business initiatives, we discussed on the last call that we will stay attuned to new opportunities in the cross-border e-commerce sector, and that we have made some preliminary explorations in cloud-based audio and the video enterprise services.

As we continue to explore such new market opportunities, we plan to gradually build up our competitive advantage in our products and technologies. We will provide further updates when our new business initiatives progress to further maturity. Now, let me share with you quarterly updates in each of our core products.

During the first quarter, Bigo Live’s MAU grew by 9% year-over-year to $29.1 million, while its revenue grew by 106.2% year-over-year. As Bigo Live penetrates deeper into multi-market, its geographic coverage is becoming increasingly diversified.

[Audit Ends] On year-over-year basis, revenue from Europe grew by 227.8% with paying users increasing by 118.9%. Revenue from Eastern Pacific Region grew by 147.5% with paying user increasing by 63.2% and revenues from the Middle East grew by 46.1% with paying user increasing by 39.9%.

Product-wise, we continue to upgrade Bigo Live’s social features to better satisfy the users demands for social interactions. As a result, in a sequential basis, the total number of users that hosted a live streaming session on Bigo Live, increased by 6.5%, with average time of live streaming session, increased by 1.9% in the quarter.

By allocating more screen space to displays the background information of hosts and guests on live streams, we have made even much easier for user to initiate simultaneous interactions with multiple parties on live streaming, facilitating more multi-user interactions on the platform.

As a result, sequential base, the average viewers time spent in multi-user audio chat rooms and video chat rooms, increased by 9.7% and 16.1% respectively. And the user to streamer conversation rate in multi-user chat rooms increased by 11.2% in the quarter.

In addition, as we further fine tuned our social interaction feature called BAR, its user penetration rate also increased by 7% sequentially over the last quarter. As part of our efforts to develop prime entertainment content ecosystem, we collaborated with popular Hunan TV show live host and host audio on our platform.

Through those audition, we elected several host from Bigo Live to participate in the show, thereby boosting the influence of both our platform and its hosts in the region. Meanwhile, during the Indian government spend our adjustment to product promotion strategy Likee's MAUs declined by 12.6% year-over-year to $115 million.

However, its revenue maintained a rapid pace of growth multiplying by 4.2 times year-over-year during the quarter.

In particular, on a year-over-year basis Likee's revenue from the Middle East multiplied by 40.3 times, with paying users increasing by approximately 10 times, while its revenue from the Southeast Asia region multiplied by 1.6 times, with paying users increasing by 1.7 times.

Product wise, we introduced a full-screen format for Likee’s cell phone videos and further optimize the platform's content recommendation algorithm during the quarters to improve its user experience.

At the same time, we provide content of producers with more effective data support and markup tools, attracting user usage from about 10% of our professional content creators on a daily basis in the quarter.

We have also seen the increased engagement of high quality KOLs in live streaming activities, as average daily live streaming sessions organized by KOLs whose active followers were more than 10,000 and 100,000 increasing by 12.8% and 18.5% respectively.

In sequential basis, in the quarter, we also refined our recommendation algorithms using the live stream channel and enhanced trusted network based on content distribution.

As a result, users' social interactions within the platform's live streaming chat rooms improved with the average user time spent on live streaming chat rooms increased by 25.5% and effective live streaming MAUs increasing by 9.5% on a sequential basis.

Content-wise, we organized the second season of Likee Star Idol content in Indonesia in February, attracting a high talented group of creators. One of the content winners, Ihsan Tarore, was later invited to platform on Indonesia Idol, the largest national -- large reality variety show in Indonesia.

By organizing those types of large scale events and collaborating with popular TV reality shows, Likee has effectively created a platform for new creators to gain exposure, raise their public profiles, and launch their careers, which in turn motivated the creators to produce more high quality content on our platform.

Since the second half of 2020, also due to our adjustment to product promotion strategy, HAGO’s MAUs experienced some decline in the past few quarters. During the period, HAGO’s MAUs was 13.1 million. However, HAGO achieved meaningful progress in its user interactivity and product commercialization.

Its revenue increased by 66.8% year-over-year, driven by a year-over-year increase of 28% in its paying users. Meanwhile, HAGO’s non-GAAP operation loss narrowed further in a sequential basis. During the quarter, in addition to launching a number of multi-user audio chat room games, HAGO introduced a new social feature into its channel called Family.

This feature enables user to establish a Virtual Family with their friends and supporters -- and support instant interaction through text, audio and video, thus satisfying users growing demand for interest-based social networking.

By combining instant entertainment with the social interactions on HAGO, we created HAGO’s average -- we increased HAGO’s average time of live streaming session in audio chat rooms by 8.5%. Its average viewer time spend on audio chat rooms by 6.2%.

Its user to streamer conversion rate by 2.2%, and the penetration rates of our feature channel by 10.9%, sequentially. In conclusion, as we expanded our paying user basis across multiple products, we achieved solid operating and financial results during the first quarter.

Going forward, we remain committed to further enhancing our localized content and social ecosystem and enriching our user social entertainment experience. With that, I will now turn the call to our General Manager of Finance, Alex Leo [ph]for more detailed explanation of our quarterly financial results..

Okay. Thanks, David. Hello, everyone. JOYY’s Finance Controller, I will talk about the financial results. Since majority of our revenues and expenses are now denominated in USD, starting from January 1, 2020, we changed our reporting currency from Renminbi to US Dollar to better illustrate our operational results.

Please note that the financial information and non-GAAP financial information disclosed in our first quarter earnings press release is present on a continuing operations basis, unless otherwise, specifically stated.

After the deconsolidation of Huya, the company accounts for our investment in Huya as an equity measured investment and apply the equity measure accounting one quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of who we are? Also as the sale of YY Live was successfully completed on February, 8 2021 with certain customary matters to be completed in this near future.

The historical financial results of YY Live are reflected in the company's consolidated financial statements as discontinued operations accordingly starting from the fourth quarter of 2020. During the first quarter of 2021, we maintained our strong growth momentum and delivered robust financial and operating results.

Our total net revenues for the first quarter increased by 88.1% year-over-year to $643.1 million from $342 million in the same period of 2020. In particular our large streaming revenues for the first quarter increased by 95.6% year-over-year to $614.5 million, driven by live streaming revenues growth from Bigo.

Other revenues in the first quarter increased by 3.6% to $29 million. Cost of revenues for the first quarter increased by 76.5% year-over-year to $442.9 million.

Revenue sharing fees and content costs increased to $282 million in the first quarter from $126.3 million in the same period of 2020 which was in line with the increase in live streaming revenues.

Bandwidth costs decreased to $29.5 million from $33.2 million in the same period of 2020, primarily related to the company's improved emphasis and the commission of fan-based usage for users in India after age matters to block certain Chinese mobile apps in late June 2020, partially offset by the continued user-based expansion outside India.

Gross profit increased by 119.8% year-over-year to $200.2 million. Gross margin in the first quarter of 2025 improved to 31.1% from 26.6% in the same period of 2020. Operating expenses for the first quarter increased to $279 million from $206.3 million in the same period of 2020.

Among the operating expenses our research and the divestment expenses increased to $87 million in the first quarter from $69.1 million in the same period of 2020, as part of the company's efforts to enhance its research and development capabilities.

Sales and marketing expenses increased to $137.4 million in the period from $113.9 million in the same period of 2020, company's increased efforts in sales and marketing activities in the global markets. Our GAAP operating loss for the first quarter was US$73 million from US$113.9 million in the same period of 2020.

The operating loss margin for the first quarter was narrowed to 11.4%, compared to 33.3% in the same period 2020, primarily due to narrow operating loss of Bigo.

Our non-GAAP operating loss for the first quarter, which excludes share-based compensation expenses, amortization of intangible assets from business acquisitions, as well as impairment of goodwill and investments and gain on disposal of subsidiaries and business decreased by 57.2% to US$29.7 million, compared to US$69.3 million in the same period of 2020.

Non-GAAP operating loss margin for the first quarter was narrowed to 4.6% from 28.3% in the prior year period. GAAP net loss from continuing operations attributable to controlling interest of JOYY in the first quarter of 2021 was US$87.3 million compared to US$62.3 million in the same period of 2020.

Net loss margin was 13.6% in the first quarter of 2021, compared to 18.2% in the corresponding period of 2020. Non-GAAP net loss from continuing operations attributable to controlling interest of JOYY was US$24.1 million in the first quarter, compared to US$64.5 million in the same period of 2020.

Non-GAAP net loss margin was narrowed to 3.7% in the first quarter of 2021 from 18.9% in the same period of 2020. Notably Bigo has achieved a positive non-GAAP net income for the first quarter of US$9.5 million with non-GAAP net market improved to 1.6% from negative 7.9% in the prior year period.

Diluted net loss per ADS in the first quarter of 2021 was US$1.13 compared to US$0.81 in the same period of 2020. Non-GAAP diluted net loss per ADS was narrowed to US$0.3 from US$0.81 in the same period of 2020.

In addition in accordance with our quarterly dividend plan approved on August 11 2020, and on November 16, we will be distributing a dividend of US$0.51 per ADS for the first quarter of 2021, which is expected to be paid on June 28, 2021 to shareholders breakout as of the close of business on June 18, 2021.

Also, we would like to provide an update to our execution of the share repurchase program announced on May 2020, and which the company may repurchase up to $300 million of its shares to August 2021. As of March 31, 2021, the company had repurchased approximately $196.8 million 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 maximize shareholder value.

For the second quarter of 2021, we expect our net revenues to be between $645 million, and $663 million, excluding the revenue contribution from Huya and YY Live in the same period of last year, representing a year-over-year increase between 36.2% to 40%.

We currently have limited visibility surrounding the COVID-19 epidemic’s long-term impacts and geopolitical uncertainties on our business and the markets in which we operate. Therefore, this forecast only reflects our current and preliminary views of the market and operational conditions, which are subject to change. Okay.

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

Thank you. [Operator Instructions] Thank you. Our first question comes from Alex Poon at Morgan Stanley. Please, go ahead..

[Foreign Language] Thanks for taking my question. My first question is regarding, there are some rumors about the management change at the Bigo level.

So, I would like to understand the actual situation and is there any impact on operation? My second question is regarding the Bigo key operating regions -- key operating countries about the user growth, user retention and paying ratio etcetera? Thank you very much..

[Foreign Language] Hi. This is David. Let me answer your question. In the past 12 months Bigo did have some personnel changes. Such changes were made to better execute our long-term strategy and satisfy the evolving needs of business development.

But what may remains unchanged with our conviction and confidence in the global market potential as mentioned before, we believe that Bigo Live still has four or even 5x potential of YY Live's revenue in the near future would mean that the global market potential is still unlimited for us to gradually exercise and execute in the following few years.

As for Likee, there would be some strategy changes. As I mentioned in my prepared remarks, we have reduced our spending on advertising and prioritize our resources towards content ecosystem and our social community. We believe that the prior model of trying to seize more market share by aggressive advertising spending has to end.

Previously, our business was more driven by our advantage in the technology sector. Going forward, we'd love to combine our technology advantage together with our operation advantages.

Via that, we would love to gradually prioritize our resources in the content ecosystem, whereby we introduce more high-quality content creators and more premium content into our content pool and try to improve the retention rate and also on our content offerings by our localized operations.

[Audit Start] So, I think that, for Bigo, it is already a company with five years' history and its business operations over the past few years have become more mature. As Bigo grows in scale and revenue, we seek to further establish a more mature system to recruit, develop and manage our talents.

Going forward, we will continue to recruit more talent with technology expertise, global vision and also local acumen and further develop our team to better achieve our long-term business goals..

Next question comes from Daniel Chen at JPMorgan. Please, go ahead..

[Foreign Language] My question is related to the Baidu deal. So, could management provide related update on your transaction with Baidu on YY Live? Thank you..

[Foreign Language] This is David. Regarding the latest updates of Baidu, we don't have any new information. As mentioned and disclosed in the SEC filings on February the 7 and March the 9, we have substantially completed the sale of YY Live to Baidu. There were still some customary matters that are still in progress.

For further information, it will be disclosed when and as required by applicable security law. Thank you..

Our next question comes from Thomas Chung at Jefferies. Please, go ahead..

Hi, Thomas..

[Foreign Language] Thanks management for taking my questions. My question is about the cost side. Can management share about the content cost trend, as well as the off packs and how we should think about margin trend going forward? Thank you..

This is Alex. For clarification, the adjustment on product promotion synergy was mainly about prioritizing the allocation of resources. It means that the reduced spending on advertisements will be mainly redirected to product research and development, our content ecosystem and also other localized operational activity.

In terms of profitability trend, as mentioned previously, Bigo Live itself it's already profitable. With the steady progress in terms of product monetization across other products, we believe that the operating margin of the whole Bigo segment will gradually improve.

And given the economy of scale, we should be able to achieve more operating leverage on various expenses and cost items such as payment channel costs, bandwidth cost et cetera. The fact that Bigo's non-GAAP net margin turns positive this quarter marks a good start.

So if we look at the full year, I think we should be able to achieve low single-digit non-GAAP net margin for Bigo as a whole..

Thank you..

Our next question comes from Tian Hou at TH Capital. Please go ahead..

So as Bigo is well-developed in overseas and the more users and user participation, I wonder if we have other ways to monetize this group of people, such as advertising. Also in the last several calls, David, you mentioned about the new business. And I wonder if you could give us some clarification or updates on those new business? That's number one.

Number two is that geopolitics. I do see more sensitivity in around geopolitics. So as a Chinese company to go overseas and operates in other countries, do you foresee any potential regulatory pressure on either live streaming or short video? Thank you. That's my two questions. [Audit Ends].

[Foreign Language] And in terms of our other source of revenue, first of all, I’d love to clarify that we do believe that live streaming is a very healthy and promising monetization tool. And you will continue to see decent growth coming from live streaming monetization in the coming few year.

As for advertising, we have been actively exploring in this sector as well. But we need to admit that even if we can achieve a certain scale from our global advertising revenues, it would still be very challenging for anyone to try to make advertising as a primary source of our revenue.

You probably know that in the whole industry, we need to rely on Google and Facebook who are the two dominant platforms in terms of advertising, And if you like to start independent platform, you need very heavy investment into sales and marketing, probably hiring tens of thousands of sales and marketing staff to make sure that you've got sufficient source of sales -- of advertising customers.

So, we do not see that that would be achieved within a short period of time. It's a more long-term and gradual process, but we do have higher interest in cross-border e-commerce.

As I mentioned in our previous earnings calls as well, we still believe that over the coming few years, we do see that China's manufacturing still enjoys competitive advantages both in terms of supply chain efficiency and also product quality.

So, we still love to participate in facilitating global trade and help to improve efficiency in such process. Thank you. For geopolitical risk, I think that the company has emphasized and have been well prepared in that sector.

Since day one, we incorporated the company in Singapore and also have discrete and strictly abide by the policy and regulatory requirements of each region. In terms of our server network, we are also well distributed across the globe with data stored locally in different countries. And we have been hiring a lot of local employees.

Currently our local employees total number has reached -- exceed several thousand. So, I think that we will continue to make sure that we stand by the policies and regulations of each local market that we operate.

And you also can see that in 2020 and in the first quarter of this year as we penetrate into multiple markets such as Europe, Eastern Pacific regions the Middle East and other emerging countries on the risk of a single region assets greatly reduced.

We will slightly adjust our user expansion and also operating strategies in accordance with the development of the overall situation to minimize the impact of geopolitical risks. Thank you..

Thank you. That's all the time we have for questions. I will hand back to management for closing remarks..

Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you..

[Foreign Language].

Thank you. That does conclude the call today. Thank you so much for attending. You may now disconnect..