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spk01: Ladies and gentlemen, thank you for standing by and welcome to Joy 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 Shee, the Company Senior Manager of Investor Relations. Please go ahead, Jane.
spk02: Thank you, Operator. Hello, everyone. Welcome to Joy's first quarter 2021 Earnings Conference Call. Joining us today are Mr. David Sherling Lee, Chairman and CEO of Joy, Ms. Ting Lee, 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 first quarter 2021 financial results and webcasts of this conference call are available at ir.joy.xg. 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 applies 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 Hsieh-Ling Lee. Please go ahead, sir.
spk08: 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 Joy exceeded street expectations and grew by 88.1% year-over-year to US$643 million. Especially, revenue from Beagle grew by 92.5% year-over-year to US$581 million, with paying user growth by 72.1% year-over-year to 1.67 million. Above all, Beagle's non-GAAP net income turned positive during this quarter. 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, Beagle'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, we remain goal-oriented and long-term focused We will 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 Joy, we view the social interactivity and the content ecosystem as a strategic core. that are fundamental to the long-term competitiveness of our products. Joy 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 BeagleLive's active users hosted live streaming sessions, and more than 19% of Likey's active users created their own short-form videos. Going forward, leveraging our product metrics, combining short video content with live streaming, we seek to further expand users' social connections where 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 connection, belonging, and the gratification through social interactions, in addition to relaxation 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 a vast reservoir of user-generated content. By empowering users with a full suite of video production tools, we have eased their way into hosting live streaming sessions. and lower the entry barrier for the content production. By combining user chain costs and user incentive programs, we have encouraged more users to reduce original content, thus expanding our pool of grassroots live streamers and content creators 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 introduce an increasing volume of premium content 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 form the initiator engine propelling our growth for the long term. As such, we have gradually adjusted the product promotion strategy for certain products such as Leaky and Huggle. As we reduced our advertising spend on those products, we allocated our resources toward development of our content and social ecosystem instead. Consequently, this product user base suffered a decline and may experience some fluctuation in the near term. However, we believe that Prioritizing advertisement in our content and social ecosystem will improve our user experience and contribute to our long-term competitiveness. We are confident that our strategy adjustment will enable both our products and business to achieve sustainable growth in the long run. For new business initiatives, we discussed on the last call that we would still attend to new opportunities in the cross-border e-commerce sector and that we have made some preliminary explorations in cloud-based audio and 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, BeagleLife's MEU grew by 9% year-over-year to $29.1 million, while its revenue grew by 106.2% year-over-year. As BeagleLife penetrates deeper into multi-markets, its geographic coverage is becoming increasingly diversified. On a 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 users increasing by 63.2%. And revenues from the Middle East grew by 46.1%, with paying users increasing by 39.9%. Product-wise, we continue to upgrade BeagleLive'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 BeagleLive increased by 6.5%. with the average time of live streaming session increased by 1.9%. In the quarter, by locating more screen space to display the background information of hosts and guests on live streams, we have made it much easier for users to initiate simultaneous interactions with multiple parties on live streaming, facilitating multi-user interactions on the platform. As a result, a sequential base, the average viewer's time spent in multi-user 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 find our social interactions feature called VAR. Its user penetration rate also increased by 7% sequentially over the last quarter. As part of our efforts to develop a pan-entertainment content ecosystem, we collaborated with the popular vietnamese tv show live host and host audio on our platform through those auditions we elected several hosts from biggo 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 spent our adjustment to product promotion strategy, like its MEOs 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, latest 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 LightKey's short-form videos and further optimized the platform's content, recommendation, algorithm, during the quarters to improve its user experience. At the same time, we provide content 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 the average daily live streaming sessions organized by KOLs whose active followers were more than 10,000 and 100,000, increasing by 12.8%. 18.5% respectively. In a sequential basis in the quarter, we also refined our recommendation algorithm within the live streaming channel and enhanced trusted network-based 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 the effective live streaming MAUs increasing by 9.5% on a sequential basis. Content-wise, We organized the second season of Likey Star Idol content in Indonesia in February, attracting a high-talented group of creators. One of the content winners, Ethan Taro, was later invited to platform on Indonesian Idol, the largest national variety show in Indonesia. By organizing those type of large-scale events and collaborating with popular TV variety shows, Leiki has effectively created a platform for new creators to gain exposure, raise their public profiles, and advance their careers, which in turn motivated 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, Hargo's MAU was $13.1 million. However, Hargo 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, Hadoop's non-GAAP operation loss narrowed further in a sequential basis. During the quarter, in addition to launching a number of multi-user audio chatroom games. HAGO introduced a new social feature into its channel called Family. This feature enables users to establish a virtual family with their friends and supporters and support instant interaction through text, audio, and video. thus satisfying users' growing demands for interest-based social networking. By combining instant entertainment with social interactions on Hargo, we increased Hargo's average time of live streaming session in audio chat rooms by 8.5%. Its average viewer time spent 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 users' social entertainment experience. With that, I will now turn the call to our General Manager of Finance, Alex Liu, for a more detailed explanation of our quarterly financial results.
spk05: Okay. Thanks, David. Hello, everyone. As joint finance controller, I will talk about the financial results. Since a majority of our revenues and expenses are now denominated in USD, starting from January 1st, 2021, 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 advice specifically stated. After the consolidation of Huya, the company accounts for our investment in Huya as an equity-measured investment and applies the equity-measured accounting one quarter in arrears to enable us to provide financial disclosures independent of the reporting schedule of Huya. Also, as the seal of VavaLife was substantially completed on February 8, 2021, with certain customary matters to be completed in the near future, the historical financial results of VavaLife are reflected in the company's consolidated financial statements as discontinued operations accordingly, starting from the first 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 USD 643.1 million from USD 342 million in the same period of 2020. In particular, our live streaming revenues for the first quarter increased by 95.6% year over year to $614.1 million, driving back live streaming revenues gross from Beagle. Other revenues in the first quarter increased by 3.6% to USD 29 million. Cost of revenues for the first quarter increased by 76.5% year-over-year to USD 442.9 million. Revenue sharing fees and content costs increased to USD 282 million in the first quarter from USD 126.3 million in the same period of 2020, which was in line with the increase in live streaming revenues. Bandwidth costs decreased to USD 29.5 million from USD 33.2 million in the same period of 2020, primarily related to the company's improved efficiency and the termination of bandwidth usage for users in India after it matters to block certain Chinese mobile apps in late June 2020. partially offset by the continued user-based expenses outside India. Gross profit increased by 119.8% year-over-year to USD 200.2 million. Gross margin in the first quarter of 2021 improved to 31.1% from 26.6% in the same period of 2020. Operating expenses for the first quarter increased to USD 279 million from USD 206.3 million in the same period of 2020. Among the operating expenses, our research and development expenses increased to USD 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 USD 137.4 million in the period from USD 113.9 million in the same period of 2020, primarily due to the company's increased efforts in sales and marketing activities in the global markets. Our gap operating loss for the first quarter was USD 73 million from USD 113.9 million in the same period of 2020. Operating loss margin for the first quarter was narrowed to 11.4% compared to 33.3% in the same period of 2020. primarily due to narrow operating loss of Beagle. Our non-gap operating loss for the first quarter, which excludes share-based compensation expenses, a multiplication 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 USD 29.7 million, compared to USD 69.3 million in the same period of 2020. Non-GAAP operating loss margin for the first quarter was narrowed to 4.6% from 20.3% in the prior year period. Gap net loss from continuing abrasions attributable to controlling interest of Joy in the first quarter of 2021 was USD 87.3 million compared to USD 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 Joy was USD 24.1 million in the first quarter, compared to USD 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, Beagle has achieved a positive non-GAAP net income for the first quarter of USD 9.5 million, with non-GAAP net margin 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 USD 1.13 compared to USD 0.81 in the same period of 2020. Non-GAAP diluted net loss per ADS was narrowed to USD 0.3 from USD 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 USD 0.51 per ADS for the first quarter of 2021 which is expected to be paid on June 28, 2021 to shareholders of record as of the close of business on June 18, 2021. Also, we would love to provide an update to our execution of the share repurchase program announced on May 2020. and which the company may repurchase up to USD 300 million of its shares till August 2021. As of March 31st, 2021, the company had repurchased approximately USD 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 rates, 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 USD 645 million and USD 663 million, excluding the revenue contribution from Huya and Waba Life 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 on 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.
spk01: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. For the convenience of everyone on the call, please ask one question at a time. If you wish to ask more questions, please rejoin the queue. Also, when asking a question, please state your question in Chinese first, then immediately repeat your question in English. Thank you. Our first question comes from Alex Poon at Morgan Stanley. Please go ahead.
spk03: Hello everyone, I'm Alex Poon. Thank you for accepting my question. My first question is about Recently, there have been some rumors that the high level of Beagle has changed. So, I would like to ask about the real situation and what impact this has on your business. Secondly, I would like to ask about the situation of Beagle in some of your major operating countries, such as the growth of users, annual pay, and so on. Thank you. Thanks for taking my question. My first question is regarding there are some rumors about the management change at Beagle level. So I would like to understand the actual situation, and is there any impact on operation? My second question is regarding the Beagle key operating regions, key operating countries, about the user growth, user retention, and paying ratio, et cetera. Thank you very much.
spk08: Yes, I would like to answer your question. First, in the past 12 months, Beagle has indeed undergone some staff changes. This is a team adjustment for a better long-term strategy of the company, and we hope to meet the needs of business development. We have some unchanging things. The first one is that we believe that BeagleLive in the next few years will still be able to create four to five regions with the previous YY revenue scale. This goal has not been changed. And we are more and more confident that we have a lot of market space to do it. Secondly, I think we have made some major adjustments to the short video business, the likey business. Yes, we think that such a business like likey is based on promotion, and then this era of taking over the blue sea country is over. Yes, so we have greatly shrunk the advertising investment of likey. Yes, and then our goal is to take our business from a basically pure technology a business that focuses on pure technology, has to transform into a business that focuses on both technology and operation support. In short, we want to promote the importance of content operation itself in the business. In order to promote higher quality content and better creators in the community. This will lead to some major changes in our future strategy. Beagle has been a company for five years. The entire business is actually more mature. After a period of rapid development and expansion in the past, we have also gathered a large number of excellent talents. We hope that in the future, we will be able to train and manage talent selection, Hi, this is David. Let me answer your question. In the past 12 months,
spk02: Beagle 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 remains unchanged was our conviction and confidence in the global market potential. As mentioned before, we believe that BeagleLife still has four or even five times the potential of YY Live's revenue in the near future. We believe that the global market potential is still unlimited for us to gradually exercise and execute in the following few years. As for Leike, 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 via localized operations. So I think that for Beagle, it is already a company with five years' history, and its business operations over the past few years have become more mature. As Beagle grows in scale and revenue, we seek to further establish a more mature system to recruit, develop, and manage our talent. 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.
spk01: Our next question comes from Daniel Chen at J.P. Morgan. Please go ahead.
spk04: My question is related to the Baidu deal. So could management provide the latest update on your transaction with Baidu on the YY Life? Thank you.
spk08: Regarding the Baidu deal, we don't have any new information to disclose. The company actually disclosed the announcement on February 7th and March 9th this year, saying that we have basically completed the sale. At present, some of the items are still being promoted. If there is further progress, we will disclose it according to the relevant regulations of the Securities Act.
spk02: 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 7th and March the 9th, we have substantially completed the sale of YY Live to Baidu. There are 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.
spk01: Our next question comes from Thomas Cheung at Jefferies. Please go ahead.
spk02: Hi, Thomas.
spk06: Thank you, Thomas. Let me reply.
spk05: The adjustment of the investment strategy this time is mainly a new configuration of investment resources. Some of the investment resources for advertising will be invested in the development, delivery, content, ecology, and activity operation of the product. As we have mentioned many times before, BeagleLive products have already achieved profit. With the gradual transformation of other product lines, And
spk02: This is Alex. For clarification, the adjustment on product promotion strategy was mainly about prioritizing the allocation of resources. It means that the reduced spending on advertisement will be mainly redirected to product research and development, our content ecosystem, and also other localized operational activities. In terms of profitability trend, as mentioned previously, BeagleLife itself is already profitable. With the steady progress in terms of product monetization across other products, we believe that the operating margin of the whole Beagle 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 costs, et cetera. The fact that Beagle's non-GAAP net margin turns positive this quarter marks a good start. If we look at the full year, I think we should be able to achieve low single-digit non-GAAP net margin for Beagle as a whole. Thank you.
spk01: Our next question comes from Tian Hu at TH Capital. Please go ahead.
spk00: David, 管理層,早上好。 我有兩個比較短的問題。 一個就是, 實際上我們海外用戶人已經很多了, 然後年度各方面也還都不錯。 那麼除了現在的直播, 我們有沒有其他的一些變現的辦法, 比如說廣告, 或者說還有一些就是前面 幾個Earnings Co. 協定總提到一些新的業務, Can you introduce the new border and new business to everyone? Another one is that I also see that it seems to be more sensitive in terms of geopolitics. As a Chinese company, we are now going out of the sea to operate some of our business models overseas. So as Beagle 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 and also 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 about geopolitics. I do see more sensitivity around geopolitics. So as a Chinese company to go overseas and operate in other countries, do you perceive any potential regulatory pressure on either live streaming or short video? Thank you. That's my two questions.
spk08: Regarding the issue of other income, I think the first one is that we think that live streaming income itself is a very good, very healthy income. In the next few years, we can all see this very good space for growth. And then the second one, in fact, we are also actively exploring the income of advertising. But the income of advertising is actually in the overseas market. Advertising income is actually difficult. First of all, it's relatively easy for us to make a certain amount of advertising revenue. However, if we want to make advertising revenue the main source of income for the company, it's a very big challenge. In the past, as you all know, advertising businesses overseas are more dependent on Facebook and Google. If you want to make an independent advertising platform, your sales investment is actually a very large scale. Right. And then it should be tens of thousands of sales to be able to provide enough advertising sources. So this is going to be a relatively long process. Another one is that we are working on this e-commerce business. So I think that with global trade as the core, promoting the global circulation of high-quality products, there will be more market opportunities. I have a question.
spk02: In terms of our other source of revenue, first of all, I'd love to clarify that we still 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 years. As for advertising, we have been actively investing exploring in this sector as well. But we need to admit that even if we can achieve a certain scale from our global advertising revenue, 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 would like to start an independent platform, you'd 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 sorts 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 cards 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.
spk08: Yes, the other one is the issue of supervision. Yes, and then this supervision has always been a very important field for us. Yes, and then our company, Bigelow, this business has been based on this overseas, based on globalization from the beginning. So we are actually very cautious and respectful of geopolitics and the local requirements of each country. So, in the beginning, we made a lot of preparations for global operations, including the deployment capabilities of our different regions, and from a technical point of view, we kept each data in different countries. These are things that we have done a lot of work for a long time. In addition, we will hire more local employees in each country and region. Through local employees, we will do more localized business according to local needs. This is our basic standard. There should be thousands of our global employees. In 2020 and this year's first quarter, we have seen that in Europe, the Eastern Pacific region, the Middle East region, and new countries, our income has grown very rapidly. Therefore, our dependence on the single region has greatly decreased. So, based on the development of the future international situation, we will actively adjust the number of users For geopolitical risk, I think that the company has emphasized and have been well prepared in that sector since day one.
spk02: 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, exceeds 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, the risk of a single region has been greatly reduced. We will flexibly 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.
spk01: Thank you. That's all the time we have for questions. I will hand back to management for closing remarks.
spk02: Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.
spk01: Thank you. That does conclude the call today. Thank you so much for attending. You may now disconnect.
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