JOYY Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Joy Inc. Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the management prepared remarks, there will be a question and answer session. I'd now like to hand the conference over to your host today, Jane Shi, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

Thank you, Operator. Hello, everyone. Welcome to Joy's second quarter 2024 earnings conference call. Joining us today are Ms. Ting Lee, chairperson and CEO of Joy, Mr. David Sherling Lee, co-founder and director, 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 webcasts of this conference call are available at ir.joy.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 20F. and other documents filed with the FCC. 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 chairperson and CEO, Ms. Ting Li. Please go ahead, Ms. Li.

Hello, everyone. I'm Li Ting. Welcome to our second quarter 2024 earnings call. This is my first time addressing you as Joy's chairperson and CEO. I'm truly excited to connect her and share ideas with you all. Today, we are pleased to be joined by our founder, David, who I would like to invite to say a few words to kick off our call. David, over to you.

Thank you, Li Ting. Welcome, everyone. As we announced earlier this month, with the Board's approval, I have officially resigned from my role as Chairman of the Board and CEO as of August 3, passing the baton to Li Ting to oversee the company's daily management and operations. This carefully planned leadership transition marks an important milestone to Joy's development. It underscores our commitment to enhance our corporate governance and strengthen our organizational capabilities to foster sustainable long-term growth. It has been an integral part of our leadership team as the COO since 2016 and has played an instrumental role in driving our strategic transformations and navigating key growth phases. Her operational experience makes her the ideal person to lead YY into its next chapter. I have complete confidence in Li Ting and our current management team, and I'm pleased to entrust the company's leadership to her capable hands to ensure continuity and maintain our business momentum. I will remain actively involved as a member of our board. In this capacity, I look forward to offering strategic guidance and supporting joy as we prudently explore long-term opportunities. With that, I'd like to hand the call back to Li Ting.

OK. Thanks, David. I'm grateful for your support and your trust. I look forward to building a strong foundation you have laid. Under David's leadership, we've established our globalization strategy. and our business has achieved remarkable growth on the worldwide scale. According to Data.ai, our flagship products are ranked among the top social apps by consumers spent globally. And importantly, our business continues to generate robust cash flow together. This lays a strong foundation for our future, which empowers us to strike a balance between focusing on our core strategy in the near term while exploring long-term growth prospects. We uphold our corporate mission of enriching life through technology. Moving forward, our strategic focus remains clear and consistent. First, we remain committed to executing on our global strategy. We will advance continuous product innovation with a focus on advertising user social interactions and content experience to enhance user satisfaction. We see significant growth potential in our global business and we will leverage our strong product capabilities and user-centric approach to drive healthy expansion of our global user community. From day one, we have been dedicated to building an inclusive, diverse global community. Our platform transcends geographical boundaries allowing users from different cultures to connect, interact, and form meaningful relationships. Today, what sets us apart is the truly global nature of our user community and the widespread cross-regional social connections across our platform. To fully leverage our platform's unique value, We are sharpening our ability to match our diverse global users with their preferred content and connections. Our end team constantly finds terms of recommendation, algorithms to better understand our users and the content they engage with. Our goal is to create more precise and effective connections between people and the content they love. We are enhancing our recommendation algorithm is crucial. It's just one part of our approach. We are also focused on innovative features that directly impact how users interact on our platform and enhance their experience. Take BeagleLive's RealMatch feature. For example, launched last year, it creates a space for users to meet new people. After several rounds of optimization, RealMatch.eu penetration rate has nearly doubled in the past six months. now exceeding 20%. This success has had a ripple effect, boosting bigger life user rate instruction, payment conversion, and overall ROI. Enhancements such as real match strengthen our competitive edge and optimizing our user experience will remain a core goals moving forward. Second, they are laser-focused on balancing goals with operational efficiency to drive steady expansion in product and group profitability. Our global operations are complex, ecosystem-accomplishing user acquisition, bandwidth and payment infrastructure, KOL management, and monetization and marketing initiatives. In the long term, we aim to optimize every link in this chain to comprehensively strengthen in efficiencies and the capabilities of our global operations. Third, we will keep cultivating Long Run initiatives that will further diversify our revenue and create sustainable growth. Our year of efforts of advertising are bearing fruit, with advertising playing an increasingly meaningful role in driving the bigger segment revenue recovery in 2024. However, we must acknowledge that the scale of our new monetization streams is currently still relatively small. We are taking a long-term view and will continue to nurture the developers then and maximize their potential. Finally, we will continue to advance shareholder returns. In the second quarter, we repurchased the additional 71.4 million worth of our shares. We will continue to actively utilize share reporting to reward our shareholders for their long-term support. Now, let's review our overall performance during the second quarter. In the second quarter, our group revenue was $565.1 million, a year-over-year increase of 3.3%. Group non-GAAP net profit came in at $74 million, up 10.2% quarter-over-quarter. We also continued to record positive operating cash flow at the group level, generating a healthy $71.1 million. Our core business segment, Bigel, recorded revenues of $507.2 million, a year-over-year increase of 7.7%. Such training is a top-line recovery trend for the fourth consecutive quarter. Notably, Beagle's advertising revenue increased substantially year-over-year. Beagle's non-GAAP operating profit reached 69.4 million, up 10.1% sequentially. Next, let's take a closer look at our products, starting with BeagleLive. In the second quarter, bigger lives and mails recovered by 1.6%, quarter over quarter to 37.7 million. Our targeted strategy of relocating advertising budgets and operational resources to regions with high monetization potential paid off particularly in development countries. In these countries, legal lifestyle year-over-year growth of 9.4% in MAUS, 20.3% in paying users, and 11% in revenue, while global macro uncertainties persist. We will prioritize high-quality paying user goals and ROI to prepare BeagleLive's top-line recovery. In the second quarter, we launched a series of innovative marketing initiatives tailored to local customs and user preferences which brought fresh, diverse content to the platform and injected new energy into our user community. A standout example was BeagleLive's partnership with the EWC from June to July. BeagleLive broadcast all free fair, MLBB, and PUBG mobile events, offering users an immersive gaming experience and unique opportunities to interact directly with professional esports players. In June, BeagleLive also participated in the 13th VETCON held in the United States. This event allowed us to showcase BeagleLive's vibrant creature ecosystem and cutting-edge live streaming features. to top American content creators, laying the groundwork for BeagleLive to expand its reach and boost its performance in key markets. We further elevated BeagleLive's live streaming experience with a suite of upgrades, including more dynamic emojis, interactions, and seamless cross-room engagement features. This enhancement drove sequential increases of 4.2% in the number of streams and 6.5% in numbers of users going live. Finally, let's look at our other products. As we previously discussed, our other products currently contribute modestly to revenue and profit. Our main objective for this product is to enhance monetization efficiency, maintain strict cost-based plan, and achieve profitability at product level. Meanwhile, our operational strategy remains focused on the core market to these products as we developed their fundamental features and their unique value proposition. In the second quarter, Lighty remained profitable. The crucial DAO growth in Europe and advertising inventory optimization contributed to a 34.7% year-over-year increase in Likert's advertising revenue. This quarter, we introduced significant upgrades to Likert's video toolkit by adding advanced AI-powered filters and effects. This enhancement has enabled the creation of higher-quality videos leading to more diverse content and driving a 1.3% sequential increase in average DAU time spent. Leike launched a series of creator-centric events and interactive features, helping content creators deepen their connections with their core fan base. This strategic approach is yielding positive results with stressors, community ties, and enhanced user retention. In June, Lighting hosted its fourth fantasy music festival, Lighting Fantasy Fest, where outstanding regional creatures took the stage and interacted with fans. Held in Europe, the event provided local users with live experience centered around their love of animation, film, music, and gaming. This initiative underscores our commitment to involving lighting into a deeply engaging platform. Finally, let's look at Huggle. In the second quarter, Hargo subchanged its positive operating cash flow. We continued to enhance Hargo with new features, including live ballot screen, interactive games in voice rooms, and tools to quick summon family members into live sessions. These upgrades delivered a positive impact on user engagement during this second quarter, average time spent per user in Hygo's social channels increased sequentially to 103 minutes, accompanied by steady improvement in the product's next day retention rate. Hygo also innovated on the monetization front, launching activity that the future customized virtual gifts. Along with collection and ranking features, the campaign was a major hit, engaging more than 60% of total paying users. Looking ahead, we will adhere to our globalization strategy as we innovate. and outreach our products, enhance user experience, and strengthen our unique value proposition. Operational excellence will remain at the core of our approach as we deliver sustainable skills and create long-term value for our global community and our shareholders.

Now let's welcome the VP of Finance, Mr. Alex Mills, to provide a financial update.

Thanks, Misty. Hello, everyone. Before I go into the details, I would like to remind you that despite the latest development in the shield of VavaLife, to the date of this press release, we have not obtained control over VavaLife. and therefore has not consolidated the business. The financial results presented in our press release and this conference call primarily consisted of Beagle and all other segments, excluding VavaLife. I will now provide a recap of some key financial highlights for the second quarter. Our total net revenues were $565.1 million in the second quarter, up by 3.3% year-over-year. Revenues from BQ segment were $507.2 million, up by 7.7% year-over-year. In particular, BQ's non-live streaming revenues were $67.8 million. which was up substantially year-over-year, primarily due to the increase of advertising revenues. Geographically speaking, as we prioritized to allocate our operational resources towards developed countries, our revenues from developed countries was up by double digits year-over-year after performing on other regions. Cost of revenues for the quarter increased to $366.2 million, among which revenue sharing fees and content costs increased to $263.9 million. Beagle's cost of revenues was $327.7 million. This was up year over year, mainly driving by increased traffic acquisition costs paid to shared-party partners in relation to our advertising business. Gross profit was 198.9 million in the quarter with a gross margin of 35.2%. Beagle's gross profit was 179.4 million with a gross margin of 35.4%. Beagle's gross margin was lower year over year due to change of revenue mix with higher contribution of Beagle audience network advertising revenue. Our gross operating expenses for the quarter were 198.7 million compared with 191.7 million in the same period of 2023. Among the operating expenses, R&D expenses decreased to 69.9 million from 75.5 million, primarily due to decreased salary and welfare and share-based compensation expenses. General and administrative expenses increased to $40.7 million from $29 million in the same period of 2023, primarily due to impairment losses of equity investments. FIGO's total operating expenses for the quarter were $121.6 million decreased from 125 million in the same period of 2023, primarily due to decreased issues and marketing expenses. Other groups gave operating income for the quarter was 2.3 million. Other groups now gave operating income for the quarter, which excludes SBC expenses. amortization of intangible assets from business acquisitions, gain on the consolidation and the disposal of subsidiaries, as well as impairment of goodwill and investments was $13 million in this quarter, with a non-GAAP operating income margin of 5.3%. PECOS GAAP operating income for the quarter was $58 million, And BCO's non-GAAP operating income was 69.4 million, representing a non-GAAP operating income margin of 13.7 percent. Our group's GAAP net income attributable to controlling interest of joint in the quarter was 52.1 million. compared to 155.1 million in the same period of 2023. GAAP net income margin was 9.2% in the second quarter of 2024, compared to 28.3% in the same period of 2023. Our GAAP net margin was higher last year due to realized gains from the disposal of certain equity investments of $77.7 million and foreign currency exchange gains of $20.3 million. Beagle's gap net income in the quarter was $64.6 million with a gap net margin of 12.7%. Non-gap net income Attributable to controlling interest of Joy in the quarter was $74 million compared to $97.3 million in the same period of 2023. The group's non-GAAP net income margin was 13.5% in the quarter compared to 17.8% in the same period of 2023. Beagle's non-GAAP net income was $77.8 million compared with $99.7 million in the same period of 2023. Beagle's non-GAAP net margin was 15.3% in the quarter compared with 21.2% in the same period last year. Beagle's non-GAAP net margin was higher last year due to foreign currency exchange gains of $22 million. For the second quarter of 2024, we booked net cash inflows from operating activities of 71.1 million. We remain a healthy balance sheet with a strong cash provision of 3.3 billion as of June 30 of 2024. In the second quarter, we continued to enhance returns to shareholders. and they repurchased an additional approximately 71.4 million worth of our shares. Our board has also authorized to extend our existing share repurchase program for another 12 months period. Upon each original expiry date and which, we may repurchase up to 400 million of our shares to the end of November 2025. Turning now to our business outlook, as we are fully dedicated to stressing the efficiency and sustainability of our global operations, we have taken some proactive actions to optimize our content costs, and we are gradually introducing some adjustments to Beagle's audio live streaming product. to enhance risk control. We anticipate such adjustments might cause near-term fluctuation of BGO's top line. At group level, we expect our net revenues for the third quarter of 2024 to be between 555 million and 569 million. This forecast reflects our preliminary views on the market and operational conditions, which are subject to changes. Looking forward, we will remain dedicated to our strategic priorities, adhering to our globalization strategy, optimizing products, and innovating our operations to create value for our users and shareholders. We will continue to execute our ROI-oriented operational strategy in order to deliver a profitable, sustainable growth. That concludes our prepared remarks. Operator, we'd like to open up the call to questions.

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. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Ladies and gentlemen, when asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. One moment, please, while we poll for questions. Your first question is from the line of Thomas Chong with Jefferies. Please go ahead.

第二个问题是关于Beagle, Thanks management for taking my question. My first question is about the company strategy in the future. Should we expect there will be any changes after the recent management change? And my second question is about the BGO outlook. Can management share about the revenue trend in the second half as well as the trend across the different geographies? Thank you.

Thank you, Thomas. This is Ding Li. I will answer your first question and then Alex can answer your second question.

For the first question, I think we go through this and prepare a map that our strategic priorities will remain quite consistent, and I will elaborate in my following part.

First, we will remain committed to our globalization strategy. Secondly, in terms of product operation strategy, we are constantly deepening our value as a global social platform. For example, Bigo Live is a very globalized product. Our users can see more than 30 kinds of content on this product. And users also like to cross-reference social media on global websites. For example, users in developed countries such as the United States and the UK, in fact, 30% to 50% of the rewards are done in other areas. And second, specifically regarding to our product operations, we will continue to strengthen our unique value proposition as a truly global social platform. To take an example,

BeagleLive in itself is a highly globalized product, and our users can actually watch content in over 30 languages. And our users have actually demonstrated a content consumption platform where they enjoy cross-regional social interactions. For example, if you look at our users from US, UK, or other developed countries, actually around 35 to 50 percent of their virtual gifts go to creators from other regions. So going forward, the next phase of our operational optimization will be basing on our users' cross-regional social activities and their patterns to ensure an effective content cultivation and also a matching of their social network.

Thirdly, given the current macro environment, we will continue to have higher demand over the sophistication of our localized operations.

and we will demand a further improvement of our operating efficiency. Our goal is to achieve a steady profitability growth of our core businesses.

The fourth point is to continue to explore new revenue and profit growth points. At present, our new business has already been deployed, but it is still in the investment stage. What we need here is a long-term belief to cultivate. But at the same time, we will ask that new business can achieve more improvements on the profit model every year to achieve sustainable and diversified growth goals.

And lastly, we will continue to explore new revenue streams and profit streams. Currently, we do have some development in our new businesses, but they are still relatively young and in an early stage of development. We will take a long-term view and continue to nurture them while we will continuously push for improvements in their economics and financial health every year. Our goal is to develop a sustainable and multi-tier growth engine for the group's sustainable long-term growth. Thank you. And Alex will answer the second question.

Hi, Thomas. Thank you for your second question. Let me answer it. In terms of our performance in the second quarter, the live income of the three core products of Beagle has maintained a positive growth. In terms of drive factors, it is mainly based on the growth of paid users. Paid users have maintained a growth of a high number in the same ratio. In terms of area, the growth rate of developed national regions, whether in the same ratio or in the same ratio, is better than that of other regions in multiple quarters. In the second half of the year, as we enter the peak of operating activities, the activity of local broadcasters and users will increase. The live broadcast of some areas will have the opportunity to resume growth. For example, we have already seen some warm-up signs in the Middle East. But at the same time, in order to improve efficiency, to build a sustainable business ecosystem, we are still optimizing the content cost of some areas of BeagleLive, and we have made further adjustments to the non-core audio and audio streaming products of Beagle at the beginning of the third quarter. We expect that these adjustments may have a negative impact on the short-term streaming revenue. The Q3 guidance we have given to the market now has a comprehensive consideration of the impact of the increase in the number of speakers. What needs to be emphasized is that the adjustments we are making now are all in order to polish the product's healthier profit model and build a sustainable growth business environment. These short-term disruptions will not affect our long-term promotion of global business size and profit-sustaining growth confidence. Looking at the whole year of 2020, due to the continuous growth of advertising business, we expect that the whole year will still achieve the growth of your revenue. Thank you.

This is Alex. I will take your second question. Based on our performance in the second quarter, the live streaming revenue from Beagle's three core global products has actually maintained a positive growth. And if we look behind the main driver, it's still the growth of paying users that is driving our revenue recovery, which has maintained a high single-digit growth year over year. while our live streaming R pool has continued to fluctuate. Looking at the performances among different regions, developed countries have consistently outperformed other regions, both in terms of sequential and year-over-year growth rates in the past quarters. Well, looking ahead to the second quarter, to the second half of the year, while we enter a period of elevated operating activities, we expect the streamers and users to be more active, and their activity is likely to increase. Therefore, some regions might be likely to return to positive revenue growth sequentially, and that's what we're already seeing in the Middle East. However, to improve efficiency and enhance the sustainability of our global business, we have taken some proactive actions to optimize Beagle Live's content cost and also we're gradually making some additional adjustments onto Beagle's non-core audio live streaming products starting in Q3. We expect these adjustments mainly to short-term fluctuation of Beagle's live streaming revenue, which we've already taken those into account when we deliver the current revenue guidance for Q3. But we'd like to emphasize that the adjustments that we are making today are aiming at refining a healthier profit model and building our sustainable business ecosystem. And these short-term fluctuations will not affect our long-term commitment to continuously drive for a long-term growth of our revenue and profit of our global business. And lastly, for the full year of the year 24, given that our advertising business has maintained such a strong growth momentum, we still expect the Beagle segment to achieve single digit revenue growth for the full year. Next question, please.

Thank you. Your next question comes from the line of Lei Zhang with Bank of America. Please go ahead.

Hi, Mr. Guan, good morning. Thank you for accepting my question. My question is mainly about interest rates. I would like to ask Mr. Guan if he can help us look at Thank you, Mr. Zhang. I will answer your question. First of all, in the second quarter, the net profit of the non-GAAP group has increased by 10.2%.

Among them, the non-GAAP profit rate of the Beagle version grew by 10.1%. This is mainly due to the cost optimization of the Beagle Live live broadcast content, which promoted the profit margin of the Beagle version and improved it. In terms of operating costs, the market sales cost is also significantly reduced. This is mainly because we have further strengthened the requirement for ROI, and the investment cost is reduced. In the second half of the year, because of the continuous promotion of content costs and the optimization of investment strategies, we expect the profit rate of overseas products, BeagleLive, to rise steadily. But at the same time, considering that we have been playing with non-core voice live broadcast products under Beagle, we will make further adjustments. Thank you, John Lee. This is Alex. I will answer your question.

First, let's look at our profit details in the second quarter. The group's non-GAAP net profit achieved a 10.2% QOQ growth. And within that, BeagleSegments non-GAAP operating profit was up by 10.1% sequentially, mainly due to the optimization of BeagleLife content costs, which drove an improvement in Beagle's gross margin. And on the operating expense side, Beagle's sales and marketing expenses were also down meaningfully to OQ, primarily due to our reduced spending on user acquisition due to our higher requirement on ROI. Looking ahead to the second half of the year, as we continue to optimize our content cost and our user acquisition strategy, we expect Beagle Live's profit margin to remain stable or even deliver a slight increase. However, considering the accumulated negative impact of the adjustments that we made to Beagle's non-core audio live streaming product, we expect on our profits We expect the absolute amount of Beagle's segment non-GAAP operating profit to modestly decline compared to last year. And for the other segment, we're expecting the amount of its total non-GAAP operating loss for the full year to also narrow slightly compared to last year. Next question.

Thank you. Your next question comes from the line of Derek Fei with Morgan Stanley. Please go ahead.

Thank you, management. My question would be, could you share with us the latest progress of your share repurchase and your outlook for the capital return in the future. Thanks.

谢谢你的问题。 那公司会继续积极地推进股东的回馈。 在第二季度,我们已经累积投入了7,140万美金, 回购了230万股ABS。 这个大概占我们Q1总股本的3.9%。 Thank you. This is Vivi. This is Ting Li. I will answer your question. Regarding our capital return, we remain committed to return value to our shareholders in the second quarter.

we have altogether repurchased an additional of 2.3 million of our ADS for a total consideration of 71.4 million US dollar, which represents 3.9% of our outstanding ADS as of the end of Q1. And the board has just authorized an extension of our unutilized share repurchase program under which we may repurchase up to 400 million of our shares, we will remain active executing our share repurchase program and continue to reward the longstanding support of our shareholders. Last question, please.

Thank you. Your last question is from the line of Brian Gong with Citi. Please go ahead.

Thank you for accepting my question. I have a quick question about advertising. You mentioned that the advertising business is expected to grow rapidly in 2024. Can you talk about the progress of the advertising business, RGDOO, and what is the next trend? Thank you. I will translate it myself very quickly.

Okay, thank you for your question. I'm Vivi, let me answer it. In the second quarter, Bigo's advertising revenue still maintained a high-speed growth. Here, Lighty's advertising revenue increased by 34.7%. Advertising Alliance's revenue increased by 12.8%. The proportion of revenue contributed by the entire advertising branch to Bigo has now increased to 13.4%.

This is Ting Li. I will take your question. Looking at our advertising business performance in the second quarter, you can see that Beagle's advertising revenue has maintained a strong growth momentum. Specifically, Leike's advertising revenue increased by 34.7% year-over-year, and Beagle's audience network revenue increased by 12.8% quarter over quarter. The contribution of our non-live streaming revenue, primarily advertising revenue, has now contributed to 13.4% to Beagle segment total revenue.

And looking ahead for the second half of the year, which is traditionally

a peak season for advertising. We're expecting our advertising revenue to continue to grow on a sequential basis. However, it's worth noting that Beagle Audience Network, it's a new venture under development of our advertising business. It has grown quite substantially in the past few years, but it's still in an early stage of development. And although it has already managed to achieve a positive gross margin and operating margin, it still takes time for us to accumulate scale to drive further profit growth. We aim to continue to find our differentiated value proposition and continue to take a long-term view to explore and refine our operations and products and steadily drive growth a further improvement of our market share over time. Okay, so that was the last question, and thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.

Thank you. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.