Ladies and gentlemen, thank you for standing by and welcome to JOYY Inc.’s First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. 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 2023 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 Vice President 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 would 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 20-F and other documents filed with the SEC. 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..

Bang Bang to livestreaming the M4 World Championships. The quarter also marked the first collaboration between BIGO Live and ULTRA ABU DHABI. ULTRA ABU DHABI is the first Middle Eastern edition of the world famous Ultra Music Festival.

BIGO Live brought exclusive live concert experiences, exciting performances and behind-the-scenes footage to online audiences. BIGO Live also set up a booth at the festival venue to interact with thousands of audiences, further enhancing its brand awareness in the local community.

In terms of content development, BIGO Live remains focused on incentivizing BAR channel content production. In the first quarter, our strategic efforts to enhance the creation and distribution of high-quality content resulted in an 18.7% sequential increase in video content in BAR.

Furthermore, by utilizing computer vision technology, we have also improved the channel’s automatic content tagging and its recommendation algorithms. These improvements resulted in an 8.8% sequential growth in average impressions per user on the BAR channel. For livestreaming and social interaction, user engagement has continued to grow.

This is mainly due to optimized multi-person room interfaces and new features including sound effects and interactive tools. Sequentially, the number of multi-person rooms hosts increased by 9.3% and the number of users going live increased by 8.7%. Next, let’s turn to Likee.

To ensure the healthiness and sustainability of our ecosystem and growth model, we have been proactively adjusting Likee’s marketing strategy since the first quarter of 2021 and focusing on enhancing its monetization efficiency and organic user acquisition capabilities.

We are happy to announce that we have seen some meaningful progress during the first quarter. Likee’s revenue increased by 9% sequentially in the first quarter. It also achieved breakeven during the quarter, after first hitting this milestone in the second half of last year.

In terms of user engagement, Likee’s interest-based communities grew and quality of user interactions improved. During the first quarter, Likee’s core user base DAUs increased by 5.2% sequentially.

In the first quarter, Likee further optimized its creator services and delved deeper into understanding creators’ needs, the number of official creators increased by 6.2% sequentially. Likee also reinforced its positioning as an interest-based community by collaborating with professionals in various fields, including music, racing, food, and sports.

This actively encouraged them to create high-quality content on the platform, bolstering an already vibrant content ecosystem. We also continued to integrate corporate social responsibility into our daily operations and create positive impact on the community.

During Ramadan, Likee partnered with the Jordanian charitable organization Tkiyet Um Ali TUA for the Share a Meal campaign. This initiative encouraged users to post videos of their Ramadan experience and share blessings during the holiday. For every user who participated in the campaign, Likee donated a certain amount of money to TUA on their behalf.

Nearly 100,000 users participated in the event. Next, on to Hago. During the quarter, Hago remained dedicated to enhancing user activity and boosting social engagement. As we have mentioned previously, over the past 3 years Hago has been gradually transitioning its strategic focus to become a multi-user social platform.

By utilizing social channels including video and audio multiplayer chat rooms, Hago Space, and groups and families, Hago offers users a growing range of social interaction opportunities and has created a highly interconnected user community. In the first quarter, the penetration rate of Hago’s social channels increased by 4.4% sequentially.

In addition, the daily average time spent by users continued to grow, reaching 90.8 minutes. We have also conducted multiple rounds of net promoter score surveys among users, the results of which indicated consistent enhancement of user satisfaction, particularly in Indonesia, and the Philippines, Brazil, and the Mexico.

Furthermore, many users have expressed their appreciation for how Hago enhances their social experiences. Hago will continue to adhere to a disciplined marketing spending strategy and optimize its cost structures. We expect a gradual improvement in Hago’s operating losses over the coming quarters. Finally, some updates on capital return.

During the first quarter, we bought back an additional $15.7 million of our shares. Given recent market volatility, we will step up our share repurchase in the second quarter, to reward the long-term support of our shareholders.

To conclude, despite the near-term macro challenges, we delivered solid results in the first quarter, as we maintained strong profitability at the group level and achieved accelerated growth in BIGO Live’s MAUs. Looking ahead, we remain committed to enriching lives through technology.

We will continue to cultivate our global user community and provide exceptional interactive experiences to our users through product innovation, diverse content, and localized offerings. We are confident that we are well placed to seize long-term growth opportunities and generate sustainable shareholder value. This concludes my prepared remarks.

I will now turn the call to our Vice President of Finance, Alex Liu, for our financial updates..

Thanks, David. Hello, everyone. Despite macro uncertainties, we achieved solid results in the first quarter.

Our revenues in the first quarter exceeded the higher end of our guidance, and we continued to deliver better profits both at group level and at product level, thanks to our effective execution of cost optimization measures and improved operational efficiency.

We were also encouraged to see continued sequential recovery in BIGO’s paying users for the third consecutive quarter, as it increased by 7.8% year-over-year and 1.3% quarter-over-quarter to 1.57 million.

As we continued to cultivate diverse, premium content and carried out effective localized operational activities, we boosted user engagement and drove further progress in user base expansion in the quarter. We reversed the trend of our global mobile active users in the first quarter, which increased by 1.9% sequentially to $272.9 million.

Next let me walk you through our performance for the first quarter of 2023 in detail. Our total net revenues were $583.6 million in the first quarter. Cost of revenues for the quarter decreased to $379.0 million, among which our revenue-sharing fees and content costs decreased to $248.1 million.

Gross profit was $204.6 million in the quarter, with our gross margin improved to 35.1% from 32.2% in the same period of 2022, primarily due to optimization of revenue sharing cost and other operational costs. Our operating expenses for the quarter were $205.3 million, increased from $200.6 million in the same period of 2022.

Among the operating expenses, sales and marketing expenses decreased to $97.6 million from $104.4 million due to our effective control over marketing expenses and optimization of overall sales and marketing strategies.

R&D expenses increased to $75.8 million from $64.1 million in the same period of 2022, primarily due to increased R&D personnel-related expenses as we prioritized resources into building our technological capabilities. Our GAAP operating income for the quarter was $2.5 million, compared to operating income $6.3 million in the same period of 2022.

Our non-GAAP operating income for the quarter, which excludes SBC expenses, amortization of intangible assets from business acquisitions, as well as impairment of goodwill and investments, was $27.8 million in this quarter, compared to $33.3 million in the same period of 2022.

Our non-GAAP operating income margin for the quarter was 4.8% compared to 5.3% in the prior year period. GAAP net income attributable to controlling interest of JOYY in the quarter was $28.0 million compared to net loss of $27.5 million in the same period of 2022.

GAAP net income margin was 4.8% in the first quarter of 2023, compared to net loss margin of 4.4% in the corresponding period of 2022. Non-GAAP net income attributable to controlling interest of JOYY in the quarter was $49.9 million, compared to $20.9 million in the same period of 2022.

The Group’s non-GAAP net income margin was 8.5% in the quarter, compared to 3.3% in the same period of 2022. Together with our improving profitability, we have maintained a strong operating cash flow as well. For the first quarter of 2023, we booked net cash inflows from operating activities of $67.5 million.

We remain a healthy balance sheet with a strong cash position of $4.29 billion as of March 31 of 2023. Importantly, we have continued to enhance returns to shareholders through dividends and share repurchases.

In the quarter, we have in total repurchased approximately $15.7 million of our shares and declared cash dividends in an aggregate amount of $35.5 million, which altogether represent 102.8% of our non-GAAP net income. As of March 31, 2023, we still have around $784 million at unutilized quota under our 2021 Share Repurchase Program.

Given the current market circumstances and our current cash position, we will step up our share repurchases in the second quarter.

As David just mentioned, in-line with our global positioning and commitment to high-quality, sustainable growth, we plan to strategically streamline some of our non-core operations, so that we can concentrate our resources, both financial and management, towards building our core strengths and business that align with our long-term strategic goals.

Therefore, partially as a result of the adjustments, for our business outlook, we expect our net revenues for the second quarter of 2023 to be between $520 million and $541 million. This forecast reflects our preliminary views on the market and operational conditions and business adjustment plans, which are subject to changes.

In summary, technology and our global localized operational capabilities continues to be the backbones to our global business success. We will continue to cultivate our global user community and provide better interactive experiences to our users through product innovation, diverse content and localized offerings.

In the meanwhile, we will continue to pursue high quality growth and improve operating efficiency across all business units. We expect to continue to prioritize our resources into high-potential businesses that align with our long-term strategies and building our core capabilities, while maintaining self-sufficient in our cash flows.

With our robust financial position, we are confident that we are in good position to better seize long-term growth opportunities and generate sustainable shareholder value. That concludes our prepared remarks. Operator, we would now like to open up the call to questions..

Your first question comes from Thomas Chong with Jefferies. Please go ahead..

Thanks management for taking my questions. My question is about BIGO Live, can management comment about the expected performance across different regions in the second half as well as the overall user and the monetization trend? Thank you..

Thank you. Thank you, Thomas for the question. This is David. I will take your first question. First of all if we look at the performances of first quarter, BIGO Live actually beat our previous expectations.

First of all If you look at user growth, BIGO Live achieved elevated user growth than the previous quarter, increasing its MAUs by 19% year-over-year. And we saw that the growth momentum was almost across all regions including Europe, America, Middle East, and Southeast Asia. All of these regions have recorded positive year-over-year and QoQ growth.

And this is mainly due to our effective user growth strategy, which empowers organic growth while we adhere to a disciplined marketing spends geology. During the quarter, we further analyze the interests of various regions and different user groups and carry out a deeper content layering and more targeted cultivation of our content offerings.

In our collaboration with MLBB and Ultra Abu Dhabi Music Festival, gumbos of our efforts to introduce premium and diverse content and BIGO Big Star Search in North America is another example of our efforts to recruit top talent across the field. We also cooperated with influential KOLs and launched a series of online campaigns and offline road shows.

And that is consistent with our observation of users increasing offline activities post-pandemic lockdown removal. And together these efforts have successfully enhanced our exposure and influenced in the local user community enabling us to reach a wider range of users and efficiently drive organic user growth.

In the coming quarters, we expect BIGO Live to continue this strategy and maintain a strong user growth momentum.

Then if we look at the regional trends, early signs of recovery can continue to be seen in Europe and North America, we saw that the number of paying users both substantially increased quarter-over-quarter, and their overall monetization improved for these regions – in these regions for two consecutive quarters as well.

In the Middle East, we saw monetization rebounded from the previous quarter, driven by strong user growth, while Southeast Asia appeared to be more affected by weaker seasonality in Q1 as there were some traditional holidays during the quarter. As for Q2, we expect Ramadan in April to affect Middle East in some Southeast Asian countries.

However, we believe that BIGO Live will gradually stabilize and resume quarter-over-quarter growth in the second half of the year. Next question, please..

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

So, thanks for taking my question. My question is about margin path. How should we think about our – for example, the cost optimization, operating expense chance and also monitoring our logs for second half? Thank you..

And thank you, Yiwen. This is Alex. I will take your questions. First of all, like Xueling, I will elaborate a little bit more about our Q2 guidance and mainly two considerations. First, there is the impact of seasonality.

Although we have seen some recovery in Q1 in some regions, the recovery is still relatively moderate, and Ramadan may still have some effect on the monetization of some regions.

And second as we have just mentioned, starting in Q2 in line with our global positioning, we plan to strategically streamline some of our non-cooperation so that we can concentrate our resources towards our core global businesses. And the current guidance reflects the impact of seasonality and some impacts on the above mentioned business adjustments.

And second on your question on profitability trends, if you look at our performance in the first quarter, we actually did better than our expectations.

BIGO segment achieved a non-GAAP operating margin of 13.6%, which is up by 1.6 percentage points from 12% last year, and that was mainly due to higher gross margin, which was improved from 34.7% to 37.4%.

And if we look at the other segments, the non-GAAP operating loss also further narrowed quite substantially by 18.2%, despite the Q1 seasonality impact and that was mainly due to our products improved gross margin profile and also continued expenses optimization.

So, looking forward to Q2, we expect the above mentioned business adjustments might cause a sequential decline in our margins during the quarter. But as we enter into the second half of the year, when business growth accelerates, we expect both business segments to resume a sequential margin improvement.

To sum up, we will still prioritize high quality growth and for the full year of ‘23, we expect the non-GAAP operating profit margin of the BIGO segment to remain roughly stable when compared with what we achieved in the year ‘22. And at group level, we expect to remain profitable and self sufficient in our operating cash flows. Thank you.

Next question, please..

Your next question comes from Henry So with JPMorgan. Please go ahead..

Thanks management for taking our question. So, I have a question regarding the share repurchase program, could management share some details on your execution plan going forward. Thanks..

Thank you, Henry, for your question. This is David. Regarding your question on capital return, if we look at the Q1 numbers, we have in total repurchased approximately 15.7 million of our shares and declared a cash dividend in an amount of $35.5 million and altogether representing approximately 103% of our non-GAAP net profit.

As of the end of Q1, we have around $180 million unutilized quota under our existing share repurchase program. Given the current market circumstances, we will step up our share repurchases in the second quarter.

And overall speaking, we will continue to maintain financially flexible and strike a balance between keeping sufficient cash and investing in our core businesses while enhancing return for our shareholders. Next question, please..

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

Thanks management for taking my question. My question is related to the overall product metrics – strategies such as Likee. So, can management share with us any color on the update of Likee’s development and the outlook? And looking ahead, when are we going to see the year-on-year assumption of user growth? Thank you..

Thank you, Jasmine for the question. This is David. As I have mentioned in my prepared remarks, Likee made quite some significant progress during the quarter for support, we can see that Likee’s core user base, its DAUs grew by 5.2% on a quarterly basis.

And secondly, if we look at monetization, despite the weak seasonality in Q1, Likee’s revenue increased by 9% sequentially. And that was mainly due to an uptick in live streaming penetration rate and also the substantial increase of its advertising revenue from the previous quarter.

And thirdly, Likee once again achieved financial breakeven in the first quarter, and even made a small profit after hitting this milestone in the second half of last year. These are all meaningful progress, and should be considered a positive answer to our proactive strategy adjustments in the past 2 years.

And yet we also – we are also aware, that it still takes a few additional steps for Likee to get back on the forward recovery track.

And going forward, Likee will continue to focus on key markets, such as the Middle East and Europe, and continue to work on creative support, cultivating interest based content offerings and user community, and also advancing users social interactions.

So, these are the fundamental drivers for sustainable organic growth of its user base and also monetization and profitability improvements. With our progress in Q1, we believe, Likee that has taken one-step forward towards achieving full year breakeven and also reversing a user growth trend in some key markets shortly. So, that’s the end of our Q&A.

And thank you so much for joining our call today. We look forward to speaking with everyone in the next quarter. Thank you..

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..