Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s Second 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 second 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, 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 second quarter 2021 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 U.S. dollar. I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please, go ahead, sir..

Dragon Warfare, a mobile strategy multi-player role playing game.

We launched in France and Germany a series of middle-age themed online gaming events, during which virtual chest were released randomly to the audience without the turn into the live-streaming channel while local top gaming live streamers played games and interacted with their local fans.

In Indonesia, Bigo Live became the exclusive partner of the Free Fire tournament and the live stream playoffs among 137 teams, bringing immersive e-sport experience to the local audience. In addition to our continued expansion of content categories, we have pursued seamless integration of content with reach and diverse local culture.

As mentioned previously, our mission is to cultivate an inclusive and global community where everyone can be heard and seen.

Diversity and inclusivity is manifested not only in the number of regions in which we operate on the variety of content categories, we have made available but also in the degree as which we have integrated our content with local culture, user behavior and social environment.

For example, during Ramadan, Bigo Live launched the Food to be Good campaign in Indonesia. The campaign motivated local young to express their creativity by showing this Ramadan's unique culture and customers through music or stand up comedy shows thus winning endorsement from Indonesia's Ministry of Tourism and other government agencies.

As content creators served as the foundation of our success in creating and maintain a vibrant and engaging content and community, we have implemented extensive program to identify, develop, and motivate talent creators.

In the past quarter, in addition to host the local culture themed competitions and talent challenges to better identify talented content creators. Likee also worked with external partners to help creators improve their public exposure, expand their social influence and pursue content creation as life-long career.

For example, in the second quarter, Likee hosted the third season of the Likee Star Idol talent show in Indonesia.

In collaboration with a local entertainment company Likee selected five top participants to form a pop girl group called Dreamgirls, which debuted sound check and music video garner playback on more than 116 Indonesia radio stations attracting a slew of offers for sharing contents and commercial advertising that was the Likee’s pilot project to test drive its ability to identify, develop, and motivate professional content creators.

Going forward, Likee we will launch more supporting programs to direct more user traffic to creators. Help creators monetize their content and thus creating a friendly engaging and dynamic content community.

With the combination of more diverse, high-quality content from increasing number of talented content creators, we believe that we will be able to build a richer and more lovely content ecosystem, and further expand our platform's user base. Now, let me share with you, the quarterly updates of our core product lines.

For Bigo Live, despite the negative impact from local holidays in certain regions, its overall MAU grew by 0.3% year-over-year to $29.5 million while as MAU outside of India increased by 27.8% year-over-year thanks to its progress in localizing its content ecosystem.

Meanwhile, it's playing user increased by 10.7% year-over-year contributing to a year-over-year revenue growth of 31.8%.

Geographically, Bigo Live maintained its well-diversified growth, developing countries continued to outperform as its original revenue grew by 47.6% year-over-year, in particular revenues from Europe grew by 104.6% and the revenues from Eastern Pacific region grew by 52.5%. Revenues from Southeast Asia and other emerging countries grew by 31.7%.

To report upgrades, Bigo Live continued to improve its user live streaming experience as evidenced by the 1.6% sequential increase in average duration of live streaming sessions this quarter. By optimizing its content recommendation algorithm, Bigo Live improved the average viewer time spent among its new user by 4.4% sequentially.

Furthermore, by introducing more gaming content, Bigo Live improved its overall user engagement during the quarter and prolonged its average viewer time spent in gaming streaming sessions by 40.9% sequentially.

Next, about Likee, as mentioned in last quarter's call, because we prioritize our long-term growth we have placed a greater emphasis on the healthy and sustainability of our ecosystem and growth model that's why we have adjusted Likee's marketing strategy and focused our investment on content and social ecosystem since the first quarter.

As a result of our marketing strategy adjustment, combined with Indian government spend, since the third quarter of last year, Likee's MAU contracted by 38.6% year-over-year to $92.3 million. MAU outside of India increased modestly by 6.8% year-over-year.

Despite the temporary user base fluctuation, Likee's total revenues in the quarter continued to increase by 136.7% year-over-year, mainly driven by strengths in developed countries and the Middle East. Revenue from developed country increased by 106.3% and the revenues from the Middle East multiplied by four times year-over-year.

Product-wise Likee upgrade its subtitle function basis -- based on TTS technology to provide automated subtitle and dubbing, but also updated the features, which enabled video upload up to three minutes and post-production recording.

Thus providing more efficient content production tools to content creators, especially those in the informative content category. Furthermore, Likee updated its user traffic location and content distribution mechanism to drive more traffic to creator's private domains.

As a result, creators private traffic increased by 25%, strengthening the social connection between creators and their followers.

To motivate users and creators to participate in live streaming, Likee made multiple updates to its fan engagement features and achieved a 7.7 times increase in the daily number of users joining fans group, which in turn motivated creators to host more streaming sessions by updating social interaction features.

Likee improved its user experience in live streaming sessions and achieved a 22.3% sequential increase in its average duration of streaming sessions as well as a 30.9% increase in its average streaming time per user in multiuser chat rooms.

Lastly about HAGO, similarly, due to marketing strategy adjustments and the Indian government spend since the third quarter of last year, HAGO's MAU fell by 62.9% year-over-year to $11.8 million in the second quarter. MAU outside of India increased by 25.5% year-over-year.

However, HAGO continued to make meaningful progress in it's user interactivity and product commercialization. Its revenue grew by 54.3% year-over-year and it's non-GAAP operation loss narrowed further on the sequential basis.

In the second quarter, HAGO launched its version 4.0 product to better satisfy users needs for interest basis social entertainment. In this version, the feature channel enable user to engage with friends and community members and freely communicate with one another in the form for real time text, voice, video and interactive games.

Users can also probably publish posts in their virtual family, thus fulfilling their real-time as well as non-real time social desires. As a results, the penetration rates of HAGO'S featured channel increased by 7.4% [ph] and its 30-day user retention rates increased by 5.5% sequentially.

During the quarter, HAGO launch in party game, a number of popular games, which feature multi-user audio chatting and gaming functions as well as upgrades of user experience in real time interactive games. As a result, the penetration rate of party game increased by 10.7% and the average user time spend increased by 30% sequentially.

To conclude, despite the negative impact from local holidays in certain regions, we maintained the growth trajectory of our global business and achieved significant progress in further enriching our localized content offerings.

With the enhancement of our production monetization, improvements in our operational leverage and execution of more prudent marketing strategy, we almost reached the breakeven on a non-GAAP basis at the group level for the first time after we deconsolidated YY line Despite the recent volatility in the macro environment and the increasing certainty due to COVID-19, we remain committed to our long-term vision and coverage mission.

We will continue to deploy our resources to areas that can sharpen our competitive age, including further optimization of our localized content and the social ecosystems as well as enhancements our research and development abilities so that we can create greater value for our shareholders.

With that, I will now turn the call to Alex Leo, General Manager of Finance for more detailed explanation of our quarterly financial results..

Thanks, David. Hello, everyone. As JOYY, Finance General Manager, I'm going to talk about the financial results. Since majority of our revenues and expenses are now denominated in USD, starting from January 1, 2021, we have changed our reporting currency from RMB to US dollar to better illustrate our operational results.

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

Starting from the second quarter of 2020, the company deconsolidated Huya and accounts for our investment in Huya as an equity measured investment and applied the equity measure accounting one quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya.

Also, the sale of YY Live was substantially completed on February 8, 2021 with certain customary matters to be completed in the 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 second quarter of 2021, despite the negative impact from local holidays in certainly retails we maintain our strong growth momentum and delivered robust financial results.

Our total net revenues for the second quarter increased by 39.7% year-over-year to $661.7 million from $473.5 million in the same period of 2020, primarily attributable to Bigo's continued user growth and enhanced monetization capabilities.

In particular, our live streaming revenues for the second quarter increased by 79.7% year-over-year to $629.6 million driven by live streaming revenues growth from Bigo. Other revenues in the second quarter increased by 40.3% to $32.1 million. Cost of revenues for the second quarter increased by 32.2% year-over-year to $458.3 million.

Revenue sharing fees and content cost increase to $289.1 million in the second quarter from $198.2 in the same period of 2020 which was in line with the increase in live streaming revenues.

Bandwidth costs decreased to $27.5 million from $32.7 million in the same period of 2020, primary due to the company's improved emphasis and the commission of fab-based usage for India users after the India government's ban of Chinese apps in late June 2020, partially offset by their continued user-based expansion outside India.

Gross Profit increased by 60.4% year-over-year to $203.4 million. Gross margins in the second quarter of 2021 improved to 30.7% from 26.8% in the same period of 2020. Operating expenses for the second quarter increased to $340 million from $247.6 million in the same period of 2020.

Among the operating expenses, general and administrative expenses increased to $101.1 million in the period from $51.5 million in the same period of 2020, primarily due to impairment loss arising mainly from our investment made in the prior years.

Our GAAP operating loss for the second quarter was $101.1 million from $119.9 million in the same period of 2020. Operating loss margin for the second quarter was narrowed to 15.3%, compared to 25.3% in the same period of 2020, primarily due to the increase of operating income of BIGO.

Our non-GAAP operating loss for the second 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 80.3% to US$13 million, compared to US$65.7 million in the same period of 2020.

Non-GAAP operating loss margin for the second quarter was narrowed to 2% from 13.9% in the prior year period.

GAAP net loss from continuing operations attributable to controlling interest of JOYY in the second quarter of 2021 was US$109.3 million, compared to US$28.5 million in the same period of 2020, mainly due to the impairment loss arising mainly from our investments made in the prior years.

Net loss margin was 16.5% in the second quarter of 2021, compared to 6% in the corresponding period of 2020. Non-GAAP net loss from continuing operations attributable to controlling interest of JOYY was US$0.5 million in the second quarter, compared to US$50.5 million in the same period of 2020.

Non-GAAP net loss margin was significantly narrowed 0.1% in the second quarter of 2021 from 10.7% in the same period of 2020. This means that we have almost achieved the breakeven at group level for the first time since we deconsolidated YY Live.

Notably, Bigo has achieved a positive non-GAAP net income for the second quarter of US$19.4 million with non-GAAP net market improved to 3.3% from negative 3.8% in the prior year period. Diluted net loss per ADS in the second quarter of 2021 was US$1.43, compared to US$0.39 in the same period of 2020.

Non-GAAP diluted net loss per ADS was narrowed to US$0.01 from US$0.63 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 second quarter of 2021, which is expected to be paid on September 29, 2021 to shareholders of record as of the close of business on September 10, 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 US$300 million of its shares to August 2021. As of June 30, 2021, the company has repurchased approximately US$296.8 million of its shares.

We will continue to invest in business development initiatives to further expand our global market reach, cultivate a highly engaged user community and enhanced our high-quality content offerings. We will also actively explore other ways to maximize shareholder value.

Beginning in the second quarter, we have anticipated some negative impact on users' online social entertainment activities from the gradual lift of pandemic-related lockdowns in certain countries.

We expect our net revenues for the third quarter to be between US$608 million and US$635 million, representing a year-over-year increase between 13.7% to 18.7% on a constant currency basis, excluding the revenue contribution from Huya and YY Live in the same period of last year.

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 on the market and operational conditions, which are subject to change.

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Thomas Chong at Jefferies. Please go ahead..

[Foreign Language] Thanks management for taking my questions. I have two questions. The first one is about the Q3 revenue guidance as well as the margin outlook in the second half? And my second question is about Bigo Live.

Can management comments about the paying ratio, the people trend, as well as the live streaming revenue performance across different countries? Thank you..

[Foreign Language] This is Alex. I will answer your questions. Regarding Q3 guidance, starting from the end of the second quarter, some countries are gradually lifting lockdown bans during the pandemic.

Therefore, we have anticipated some negative impact on users' social entertainment activities online, which may reduce time spent on online entertainment and therefore affect some users paying behavior spectrum.

So far, we have limited visibility into the precise impact of the lockdown proposed; therefore, we have provided a relatively conservative estimation for our Q3 revenue, which implies a year-over-year growth of 13.7% to 18.7% at group level, mainly due to short-term fluctuation of Bigo Live paying ratio and ARPU.

We'll provide further updates once we have better visibility. In terms of revenue growth for the whole year, we expect Bigo segment to remain in decent growth. As for the revenue distribution across the region, the group's revenue growth in the second quarter was mainly driven by developed countries and Southeast Asia region.

The Middle East region underperformed mainly due to the Ramadan season. In terms of revenue distribution, our revenue is well diversified across the above mentored region. For Bigo Live in the second quarter, in MAU grow, same ratio, and ARPU expansion together drive to grow revenue.

In terms of future trends, in the long run, we are positive about potential developed countries, including U.S., Europe, and Eastern Pacific region, as well as the Middle East market considering that users in these regions have better paying capability, and also better payment habits.

We also extending our localized operations and content assets in Southeast Asia and also other developing countries, considering the huge user base and also that as we continue to cultivate users' behavior and habits in these regions, we believe that the monetization potential of these regions is also promising..

Thank you..

Our next question comes from Alex Poon at Morgan Stanley. Please go ahead..

[Foreign Language] My first question is related to Bigo Live new product and content strategies. Recently we have noted increasing penetration into game segments and also some casual games like Ludo? And also want to get an update around eCommerce strategy. And my second question is related to the use of cash and the status of the Baidu transaction.

We have almost used up the share buyback program of $300 million, do we have plans to initiate new buyback program? And the use of -- any use of cash on other purposes if you can share? Thank you very much..

[Foreign Language] This is David. In terms of the new contents related to game live streaming and Window games, because throughout our operation, we found that users in certain regions, especially in Europe, Middle East, and South America are very interested in gaming content.

Therefore, in the past few quarters, we have gradually introduced more gaming content in these regions. As the global mobile game market has a very huge user base and that Bigo Live diverse content offerings and social interactivity fits mobile games naturally.

In the long run, we believe that gaming content will be a important part of our diverse content offerings. And we will continue to partner with leading mobile game companies to create active and lively content community -- gaming content community.

As for the Ludo games, this is a small attempt by us to encourage users to establish connections and interact with other users, enabling users to engage in social interactions, not only through live streaming, but also by playing casual games.

So far, we have seen positive impact on Bigo Live user activity and engagement levels from these newly introduced gaming contents and Ludo games, but we might need longer time to draw any conclusion. The revenue contribution on gaming and Ludo game is still relatively small.

As for cash usage, I believe that you could see from our earnings release that in the second quarter, we have repurchase around $100 million of our shares and we're still executing our quarterly dividend payouts.

As for the remaining cash, as the sale of Wei Ya Live has been substantially completed, but to deal with some customer matters doing progress. We would love to wait till the full completion of the deal to determine the remaining cash you usage that we'd be able to give you a more clearer update. Thank you..

Our next question comes from Yiwen Zhang at China Renaissance. Please go ahead..

[Foreign Language] Thank you for taking my question. I have two.

The first one is regarding accounting ecosystem, you mentioned a few times during the prepared remarks, can you share more color in localized content would help user official engagement and also to retention in a hope that could help differentiate us from the peers? And secondary on monetization, can you talk about the progress on now live stream monetization for example, advertisement? Thank you..

[Foreign Language] This is David. I will answer your question. At this stage, the priority of Likee is still about content development, especially, the motivation and cultivation of content creators and the development of the content creator community. This quarter we have taken the first step.

We have already seen positive impact on user retention rate, user time spend and frequency of user on platform.

In the coming second half of the year, we will continue to launch more programs to better identify and cultivate creators and also bring more conducive updates regarding traffic allocation and provide diversify, monetization tools for creators, especially talented and outperform.

So that we'll be able to enable creators to play a greater role on our platform. But we'll love to say that compared with advertising, the cultivation of content ecosystem does not happen overnight. The improvement of content offerings and user experience is a gradual process.

With few in the progress adjusting advertising, we believe that there will be time spent to gradually change the users' using experience. We believe that it will have a positive impact on the health and sustainability of the product.

Regarding diversify monetization, currently speaking, our revenue stream mainly including live streaming, advertising, and membership subscription.

As of today, live streaming is still our biggest revenue stream, contributing around 95% of our revenue, while other revenues although growing at 40% year-over-year and close to 11%, quarter-over-quarter this quarter, in terms of the size is still relatively small.

We're gradually progressing diversify monetization plans and will launch some new monetization features in the second half, which we believe will be beneficial to the content creators, as it will better connect the fans and content creators and cultivate users' paying habits and therefore driving further growth of our revenue. Thank you..

Thank you..

Our next question comes from Lei Zhang at Bank of America. Please go ahead..

[Foreign Language] Thanks management for taking my question. Two questions here. First, can you give us more color on our regulatory environments in different overseas markets and any concern like data privacy, content, or the tipping behavior? Secondly want to follow-up on sales and marketing adjustments since last quarter.

Since we have a good cash position and monetization remain good, well our competitors are actually investing overseas. So, want to know your thoughts? Do you have any concern user growth from the dynamic competition chain? Thank you..

[Foreign Language] This is David. Regarding your first question about regulation, after the sale of Wei Ya Live, which has been successfully completed with certain customary matters to be completed. The majority of our business is located in non-DRT regions. But we do have R&D team located in China as there lots of experience come here.

As for our global overseas market, as you can see on 2020, as we penetrate into multiple markets, such as Europe, Eastern Pacific region, the Middle East and other emerging countries, our revenue is actually well-distributed across different regions. So, the risk of any single region has been greatly reduced.

And what we love to emphasize is that since the incorporation of JOYY, we have been strictly complying with local policy and laws, no matter in which countries we operate our business in. We will continue to execute our global strategy, reduce geopolitical risk to any particular region, to further diversify our revenue across multiple regions.

Regarding your second question, we understand that previously, for any internet product, the usual logic of expansion is that early stage product might choose to effectively invest in advertising to grow a relatively sizable user base.

Therefore, you can actually leverage on the advantage in terms of its user base to gain others competitive advantages in terms of attracting visitors, attracting advertising, vendors, and the third stage by all of these advantage lead to further user base expansion. That is a common logic of internet products.

But we don't see that applicable for video, and it's not applicable for JOYY, because what we can see is that our main competitor right now is actually investing in dollar amount, way more than what we can afford.

From what we know is that one of our key competitors have been expensed -- has been investing billions or even tens of billions of US dollar into user acquisition. And in such circumstances, if we invest couple hundred million US dollar or $1 billion into you the acquisition, it will not actually make any difference.

So, I think that Likee would like to be more practical and take a relatively more balanced growth strategy whereby not to ensure the health and sustainability of the product, therefore, be more able to obtain average position from a longer term perspective.

We believe that we still have opportunity to change once you obtain competitive advantage in the longer term. Thank you..

Very helpful. Thank you..

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

[Foreign Language] Wei Ya has doing live streaming for a long time [Technical Difficulty what's the difference between doing live streaming in China and overseas? That's number one.

Number two, we have been doing overseas live streaming for a while and what's the management's outlook in terms of the gross margin and net margin going forward? Thank you..

[Foreign Language] First regarding different operating live streaming systems in PRST and also other areas of the world, there are quite significant differences. But if you operate in global markets, if there are so many different regions, so many different culture, you're actually operating multi-language multicultural markets.

Well, if you operate in China, there is only one single market.

So, that's why for Bigo Live, currently we have operating capabilities and teams in over 30 regions and our local team operates based on very thorough understanding of local culture, law regulation, and the maintenance and the development of local content and content creators also maintained by these localized operational teams.

And secondly, I believe that there is another difference in terms of user acquisition channels. In China, actually, every user acquisition channel, all of these companies are doing live streaming themselves. So, for live streaming platforms is actually very difficult to obtain additional user and to continuously expand the user base.

As for the overseas market, the main user acquisition channel and advertising platform is Google and Facebook. And they themselves do not actually heavily rely on live streaming as a business. Therefore, the public pool of user traffic is available. And the source of user traffic on channel is also abundant for global live streaming business.

Regarding margin trends, what we would love to say is that we've seen improvement of our net margin, non-GAAP wise in the second quarter, mainly due to three factors.

The first is continue revenue expansion with diversified monetization progress of multiple product lines, and second, improved operating leverage, lower bandwidth cost, and payment channel costs. And third, as mentioned, the decrease in Likee's advertising costs.

So, for the second half of this year, we believe that we will continue to improve operating efficiency and although gaming content has been introduced into Bigo Live, we do not foresee content cost margin to be increased significantly, and will likely remain relatively stable in the future.

And for marketing activities, as more marketing activities will roll out in the second half of the year, sales and marketing expense will be higher, but sales and marketing expense margin will likely to be slightly lower than the first half. So, in conclusion, we believe that this segment will enter into a new era of sustained profitability.

And from the full year perspective, we believe that Bigo segment will achieve a positive non-GAAP net margin for the full year.

And from a longer perspective, considering that the standalone operating profit of Bigo Live remained around 20% and other products are gradually moving towards breakeven, we believe that the overall profit margin will be gradual. Thank you. And that's the end of our call; we look forward to speaking with everyone next quarter..

Thank you, management. This does conclude today's conference call. Thank you all for joining. You may now disconnect..