Yalla Group Limited

Good morning and good evening, ladies and gentlemen. Thank you for standing by for Yellow Group Limited's fourth quarter and full year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there'll be question and answer session. Today's conference call is being recorded. Now, I'll turn the call over to your speaker host today, Ms. Kerry Gow, IR Director of the company. Please go ahead, ma'am.

Hello, everyone, and welcome to YALA's fourth quarter and four-year 2025 earnings conference call. We issued our earnings press release earlier today, and it is now available on our IR website as well as on news file outlets. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involved inherent risks and uncertainties As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our earnings release and our annual report filed with the SEC. YALA does not assume any obligation to update any forward-looking statements except as required by law. Please also note that YALA's earnings press release and this conference call include a discussion of an audited GAAP financial information as well as unaudited non-GAAP financial measures. Yala's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, you will hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Saifiz Mayu, the company's President, who will briefly review our recent business developments. Mrs. Karen Hu, our chief financial officer, will then provide additional details on the company's financial results and discuss our financial outlook. Following management's prepared remarks, we will open the call to questions. Mr. Jeff Xu, our chief operating officer, will join the Q&A session. With that said, I'd now like to turn the call over to our chairman and chief executive officer, Mr. Tao Yang. Please go ahead, sir.

Thank you, everyone, for joining our fourth quarter and full year 2025 earnings conference call. We kept up 2025 with a solid fourth quarter thanks to continued execution excellence. Our fourth quarter revenues reached 83.9 USD, the median USD, approaching the high end of our guidance. For the full year, total revenues rose to USD 341.9 million, driven by exceptional performance across our product ecosystem. Our revenues from GAINS services started to gain significant traction in 2025, growing 9.1% year over year, benefiting from our deep dedication to our gaming business and effective marketing campaigns. We also continued to enhance profitability with net income growing by double digits, up 10.4% to USD 148.1 million. Our solid balance sheet and healthy cash flows enabled us to actively pursue new opportunities across the Middle East while also consistently enhancing shareholder returns. As highlighted in Sensor Tower's latest report, 2025 marked a year of structural divergence in the global mobile gaming industry, moving away from broad-based market growth towards sub-markets with distinct economies. growth drivers and competitive dynamics. Industry performance varied significantly by region. Minas digital entertainment market continues to surge while material gaming market growth pace has moderated. Amid this favorable trend, Yela is poised to seize emerging opportunities in the MENA region and drive its next phase of growth. Several of our highly anticipated new game titles are advancing according to plan. led by official launch of our first Match 3 title, TurboMatch. During the initial rollout, we strategically leveraged the group's internal traffic resources to cost-effectively drive users' acquisition for the first stage, efficiently establishing an initial user base across the Middle East. We saw good data results from previous trials, and the team is now diligently working to ensure our readiness for serving users at potentially significantly larger scale. We will gradually scale our investment in external marketing to research a broader pool of potential users and progressively build this revenue stream. Meanwhile, our dagger-themed SLG title, co-developed with a top-tier studio and featuring rich Arabian aesthetics and strategic gameplay, will start official promotion in Q2. As is typical in the gaming industry, monetization and growth will ramp up in stages over time. We expect to see revenues from these two new games come coming in the second half of this year. We appreciate your patience with our team and we will provide more specific guidance on revenue scale once we have better visibility. We've been investing consistently in Match 3 and SLG games over the past few years and have built strong fundamental capabilities in both. We see great growth potential for these two genres in the Middle East and across global markets. Central Tower data shows that strategy games and puzzle games, which include the Match 3 game category, were the two highest-grossing genres worldwide in 2025. each generating annual revenues exceeding USD 10 billion. Given this industry trend and our expertise in this , we will remain focused on systematically expanding our and over the long term. Our development process is guided by data and learning from each iteration. strengthening our execution over time and positioning us to capture new opportunities and generate sustainable returns for the group. Moving on to our AI initiatives, we continue to proactively enhance our AI tools, including Siemens, our in-house developed multimodal AI model. Siemens is the Constantly learning from massive Arabic language data sets and user behavior data. Continuously refining content, recognition accuracy, cultural context understanding and risk anticipation. Seamless performance in analyzing text and images. and detecting inappropriate content continues to lead the industry in MENA. Our team is also researching and testing AI-related integrations for our products to encourage engagement and interactions in our online community and drive users in socialism. We will keep you posted on any meaningful progress. Additionally, YALA is strategically deepening its engagement in key regional markets as part of its growth strategy. In Saudi Arabia, we have entered into a strategic partnership with the Saudi Esports Federation to drive the continued expansion of the kingdom's national esports system in line with Vision 2030 and the national gaming and esports strategy. Under this partnership, YALA has been appointed official event partner of the Saudi E-League 2026, the kingdom's premier national e-sports competition, which enhances our brand visibility and local market engagement in one of the region's most important growth markets. Support for the women's Saudi E-League will be a key focus of the partnership. along with YALA's dedication to promoting inclusion and community development and broader participation in digital entertainment. In addition, YALA will launch a talent development program in collaboration with the SEF Saudi Esports Academy. designed to foster local esports talent through training, mentorship, and competitive experience. We view this partnership as a disciplined approach to market development in Saudi Arabia, strengthening our connection with the local users and increasing our original impact while positioning the company to capture sustainable growth opportunities and deliver long-term value. In early 2025, we committed to accelerating the execution of our share repurchase program. We have delivered on that commitment. In 2025, we executed USD 56.6 million of our USD 150 million share repurchase program. eliciting a positive market response. The company has also decided to cancel all shares repurchased in 2025 as part of our commitment to generating sustained benefits for our shareholders. The aggregate value remaining available for purchase under the existing share repurchase program is the USD Additionally, the company's board of directors has authorized a new share repurchase program, or the 2026 program, for up to USD 150 million of the company's shares, effective from March 9, 2026 through March 8, 2028. Once again, I would like to emphasize that we constantly place shareholders' interests at the core of our capital allocation decisions, maximizing shareholder value through a continuously optimized return framework. 2026 will be a pivotal year for Yala as we focus on executing our strategy for sustainable growth We plan to unlock deeper synergies between our social and gaming ecosystems, boosting cross-product engagement and user lifetime value. Concurrently, we are embedding AI across content creation, risk management, and operations to drive efficiency. With a pipeline of new products, we are diversifying our ecosystem to leading the rapidly growing MENA market. We are confident Yella is well positioned to deliver consistent growth and generate lasting value for our shareholders. Now I'd like to turn the call over to Saifi for a closer look at our operational achievements. Saifi, please go ahead.

Hello, everyone. Thanks for joining us today. First, I would like to share our operational performance highlights in the fourth quarter. We increased MAUs by 8.2% year over year to 44.8 million. Defined operation and a wider variety of engagement initiatives drove user growth while also and leverage data-driven insights to enrich monetization scenarios. For paying users, we implemented targeted tiered strategies to fully unlock their spending potential. These efforts supported sustained improvements in overall user-like value, highlighting an expertise and precision in guiding users throughout their lifecycle. In the fourth quarter of 2025, we celebrated 101OK Yalla's fifth anniversary with a special campaign that achieved recorded high single event participation and drove both quarterly revenue to all-time highs, up more than 20% year-over-year. As the group's third self-developed title to reach five years of operation, 101OK Yalla's success demonstrates our deep understanding of MENA's culturally diverse user segments and validates our ability to replicate the Gaming Plus social model across MENA. In the late of last year, we received the Strategic Alliance Award at AppGallery HTC 2025 MEA Summit, recognizing our strength in technology and localization. as well as our active role in promoting a more diverse, higher quality digital entertainment ecosystem in the Middle East. This marks the second consecutive year we have earned this recognition, highlighting the depth of our commitment to technology, synergy, localization, and joint user ecosystem development. Going forward, we will continue to work closely with our channel partners to drive tech innovation and product excellence. creating an ever-growing variety of digital experience tailored to local cultural preferences for users across the Middle East. In 2026, we will continue to optimize our core product experience and deepen localization and community operations in a new and existing market, supported by keen cultural insights and an effective data-driven approach. We are confident that Yalla is well positioned to strengthen its leadership of MENA's digital entertainment market. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.

Thank you, Sefi, and hello, everyone. Thank you for joining us today. In the fourth quarter, we continue to focus on efficiency enhancement to strengthen profitability. Our net income increased by 6.2% year over year to $34.5 million with a net margin of 41.2% at 5.4 percentage points year over year. For the full year, we delivered both top and bottom line growth through our strong strategic execution and effective cost control. Our consistent efforts in the game businesses are bearing fruit. driving a 9.1% year-over-year increase in the segment's revenue. Our solid balance sheet and healthy cash flow position to continue returning value to shareholders, highlighted by $56.6 million returned in 2025 through our existing share repurchase program, and the launch of a new share repurchase program for up to $150 million over the next 24 months, Looking ahead, we will continue to invest in long-term growth opportunities, delivering high-quality growth and maximizing value for all stakeholders. Let's move on to our detailed financials for the fourth quarter of 2025. Our revenues were $83.9 million in the fourth quarter of 2025, compared with $19.2 million $8 million in the fourth quarter of 2024. The decrease was primarily due to a decrease in paying users as a result of few promotion events held by third-party payment platforms in the fourth quarter of 2025, compared with those held in the fourth quarter of 2024. Turning to costs and expenses, our total costs and expenses were $57.2 million in the fourth quarter of 2025. a 5.7% decrease from $60.7 million in the same period last year. Our cost of revenues was $26.3 million in the fourth quarter of 2025, a 15.1% decrease from $31 million in the fourth quarter of 2024, primarily due to lower commission fees paid to third-party payment platforms as a result of diversified payment channels. Cost of revenues as a percentage of total revenue decreased to 31.4% in the first quarter of 2025 from 34.2% in the same period last year. Our selling and marketing expenses were $9.4 million in the first quarter of 2025, a 26.5% increase from $7.4 million in the first quarter of 2024, primarily due to higher advertising and marketing promotion expenses attributable to our continued use accuracy efforts and expanding product through the volume. Selling and marketing expenses as percentage of total revenues increased to 11.2% in the fourth quarter of 2025 from 8.2% in the same period last year. Our GA expenses were $12.1 million in the fourth quarter of 2025 a 7.8% decrease from $13.1 million in the fourth quarter of 2024, primarily due to a decrease in incentive compensation. GA expenses as a percentage of total revenues was flat at 14.4% in the fourth quarter of 2025, compared with the same period last year. Our technology and the product development expenses were $9.5 million in the fourth quarter of 2025, a 3.2% increase from $9.2 million in the fourth quarter of 2024, primarily due to an increase in the salaries and the benefits for our technology and the product development staff. driven by an increase in the headcounts to support the development of new businesses and the expansion of our product portfolio. Technology and product development expenses as percentage of total revenues increased to 11.3% in the fourth quarter of 2025, from 10.1% in the same period of last year. As such, our operating income was 26.6 million US dollars in the fourth quarter of 2025, compared with 30.1 million US dollars in the same period last year. Interest income was 6 million US dollars in the fourth quarter of 2025, compared with 7.1 million in the same period last year. Investment income was 1.1 million US dollars in the fourth quarter of 2025, compared with an investment loss of 1.7 million US dollars in the same period last year, primarily due to changes in the fair value of wealth management projects. Income tax benefit was 0.6 million US dollars in the fourth quarter of 2025, compared with income tax expense of 3.4 million US dollars in the fourth quarter of 2024, primarily attributable to the preferential tax rate applicable to a subsidiary since the fourth quarter of 2025. As a result of foregoing, our net income was $34.5 million in the fourth quarter of 2025, a 6.2% increase from $32.5 million in the same period last year. Our non-GAAP net income in the fourth quarter of 2025 was $36.9 million, a 3.2% increase from $35.7 million in the same period last year. Moving to our liquidity and capital resources, our cash position remains solid and healthy. As of December 31, 2025, we had cash and cash equivalents restricted cash, term deposits, and short-term investments of $754.6 million compared with $656.3 million as of December 31, 2024. Moving to our outlook, for the first quarter of 2026, considering the impact of Ramadan, which falls completely within the first quarter of this year, We expect our revenues to be between $75 million and $82 million. The above outlook is based on the current market conditions and reflects companies' management's current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. In the interest of time, please refer to our earnings price release. for further details on our first quarter and the four-year 2025 financial results. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone and write your name to be announced. To withdraw your question, please press star 11 again. There may be a short pause as we compile the Q&A roster. We will now take our first question from the line of Xueqin Zhang from CICC. Please ask your question. Xueqin, your line is open.

Thanks, Min Win, for taking my question. And then my question about your e-sports strategy. Can management brief us on the company's partnership with the Saudi e-sports federation, including the strategic focus and the key initiatives? Thank you.

Thank you for this question. I will take this question. Our strategic partnership with the Saudi e-sports federation, also known as SEM, represent a key step in deepening our presence in Saudi Arabia while aligning with Saudi government vision 2030. Serving as the official event partner of the Saudi ELEAGUE 2026, we will meaningfully enhance our brand visibility in Saudi, one of our most important growth markets. Moreover, we will also support women's Saudi ELEAGUE helping calculate female esports role models and encouraging significantly broader participation by Saudi women in digital entertainment. This closely aligns with our commitment to promoting inclusion and community development. In addition, we will collaborate with the SEF Saudi Esports Academy to launch a talent development program designed to foster local esports talent through training, mentorship, and the competitive experience. The Saudi ELEAGUE 2026 is now in progress. We look forward to sharing further details on our partnership as the event unfolds. We believe this will enable us to cultivate deeper connection with the users in Saudi market and strengthen our original influence, positioning the company to capture sustainable growth opportunities and deliver long-term value. Notably, this collaboration is not limited to a single tournament. It opens the door to broader possibilities. Looking ahead, we plan to explore additional partnerships with eSports tournament operators, top-tier game publishers, and content creator ecosystem players across the Middle East and other high-growth emerging markets to jointly build a cross-regional digital entertainment ecosystem. Thank you.

Thank you. Thank you. We will now take our next question from Chloe Wei from CICC. Please ask your question. Chloe, your line is open.

Okay, really appreciate the opportunity to ask the question. So my question is about the microenvironment. So management may be sure the perspective on the evolving microdynamics in the Middle East and its implications for the company. Thank you.

Thank you, Chloe. This is Saifi. I will take this question. The recent developments in the Middle East are top of mind of investors. We do not have any operations in Iran or Israel. In the Gulf countries, we have responded promptly to government guidance and have arranged for our employees to work from home. Our immediate priority is ensuring the safety and well-being of our employees throughout the region. Operationally, based on our recent performance data, there has been no material revenue variation over the past two weeks. The overall impact appears limited at this stage. Given that our business operates online, users' demand for community engagement and real-time emotional connection during these periods may still persist. Based on our recent observation, we will continue to closely monitor the situation. We stand ready to adjust our strategy as the situation evolves. Thank you.

Thank you. We will now take our next question from the line of Tianhao Liu from CITIC. Tianhao, please ask your question. Your line is open.

Okay, thanks for taking my question. I would like to follow up on the pipeline. Could management provide an update on the product rollout and the marketing schedule? Thanks.

Thank you, Tianhao, for the question. For our first match free title, Turbo Match, during the initial rollout, we strategically leveraged the group's internal traffic resources to quite effectively acquire our first group of users. We saw encouraging test data, and our team is now diligently preparing to serve users at a potentially large scale. Starting Q2, we gradually increased our investment in external marketing to reach a broader audience pool of potential users and progressively build this revenue stream. Meanwhile, our desert-themed SLG title collaborated with the top-tier studio is currently in the final stage of product optimization. We're targeting its official on-scale promotion in Q2 as is typical in the gaming industry. For these two new games, monetization and growth will ramp up. in stages over time. At this point, we expect our mid-core and hardcore games to start generating more meaningful revenue contributions in the second half of this year. We keep you updated. Thank you.

Thank you. We will now take our next question from Xiao Yuehu from Haitong. Please go ahead.

Hello, management. Thank you for taking my questions. Could you share more details on the company's proprietary AI model and its future direction in the AI domain? Thank you.

Thank you, Xiaoyu. We continue to ramp up our AI investment and have made notable progress. Our in-house developed multimodal AI model, CEMIS, is constantly learning from massive Arabic language data sets. and user behavior data, continuously refining content recognition accuracy, cultural context understanding, and the risk anticipation. CIMIS has achieved industry-leading performance in MENA in analyzing text and images and detecting inappropriate content. significantly enhancing our content moderation efficiency and platform safety. The integration of AI in marketing also significantly help us to optimize our marketing budget and reduce expenses. Beyond multimodal AI model, our team is also actively researching and testing AI-related integrations for our products including AI-assisted content creation tools to encourage engagement and interactions in our online community. and drive user enthusiasm. Looking ahead, we will deepen the integration of AI across product development, risk management, and end-to-end operational workflows to improve efficiency and drive innovation. We will share additional product-level developments, ones which will achieve more substantive breakthroughs. Thank you.

Thank you. We will now take our next question from Lincoln Kong of Goldman Sachs. Please ask your question, Lincoln. Your line is open.

Thanks for taking my question. So the first one, do management share your guidance for revenue and profitability for 2026? And I have another question. What's the company's medium-term to longer-term strategy for the gaming business? Thank you.

Thank you, Lincoln. This is Karen. For the first question, looking ahead to 2026, our flagship products remain highly resilient, and we expect revenue from our mature existing businesses to remain flat, and the margin to remain stable at around 40%. As we gradually launch and promote new gaming products, we expect our mid-core and high-core gaming businesses generating revenue in the second half of this year. and image as a new growth driver. Regarding profitability, we will adopt a more dynamic management approach to optimize margins. We expect R&D spending to follow a trajectory similar to that of 2025, where our marketing investments will be flexibly adapted in line with new products' performance. Sales and marketing budget for new game is 5% of group's revenue. So we will adjust it flexibly based on ROI and market feedback. We will continue to drive long-term growth through innovative business initiatives, ensuring a disciplined approach for margin stability. For the second question, I will leave Jeff. Thank you.

Hi, Lincoln. For the second question, thank you for this insightful question. From a medium to long-term perspective, our gaming strategy is built on the dual approach of consolidating our core portfolio while also expanding into new growth segments. On the core side, we continue to strengthen our casual gaming foundation. Beyond our flagship titles, Yellow Ludo and 101OK Yellow, we're adding new casual product lines and driving ongoing feature innovation to optimize user cycle value. On the expansion side, we remain committed to investing in mid-core and hardcore games under a clearly defined two-pronged roadmap. Utilizing in-house development for mid-core titles and partnership-based population for hardcore games. In mid-core categories such as match-free and board games, we are leveraging years of accumulated expertise to scale in a systematic and disciplined manner. In hardcore genres, particularly SLG, we are collaborating with top-tier global developers who are capitalizing on our competitive strength in localized publishing, distribution, and operations. From market selection standpoint, we remain highly focused on the Middle East as our core strategic market, fully tapping in its monetization upside. We are not ruling out global markets like North America and Europe markets for categories with global appear such as match-free, once product market fit and operating tractions are validated. We believe this targeted yet flexible strategy positions us to build sustainable competitive advantages over the long term. Thank you.

Thank you. We will now take our next question from Qianyu Guo from Nomura. Please ask your question, Qianyu. Your line is open.

Thank you so much for taking my question. My question is about the capital return. Could you share more details on the share repurchase program announced earlier? Thank you very much.

Thank you. Thank you, Guo, for highlighting shareholder returns. In 2025, we efficiently delivered on our share repurchase commitment, executing a total repurchase of 56.6 million for the full year. The company will cancel all share repurchase in 2025, a process that is underway and has been well received by the market. Entering into 2026, we will first execute the remaining $44 million repurchase value available under the existing program before it expires. Additionally, the company's board of directors has authorized a new share repurchase program effective from March 9, 2026 through March 8, 2028 for up to $150 million for the company's shares. This large-scale authorization reflects our commitment to maximizing shareholder value, directly underscoring management's strong confidence in the company's business outlook and the media to long-term value. We will consistently place shareholder interests at the core of our capital allocation decisions, returning value to investors through a continuously optimized return framework. Thank you for your question. Thank you.

As there are no further questions now, I'd like to turn the call back to management for closing remarks.

Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yala's Investor Relations or PSMT Financial Communications. Both parties' contact information is available in today's press release as well as on our company website. Thank you.

This concludes this conference call. You may now disconnect your lines. Thank you.