JOYY Inc (JOYY) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to JOYY Inc.'s Fourth Quarter and Full Year 2022 Earnings Call. (Operator Instructions) I'd now like to hand the conference over to your host today, Jane Xie, the company's Senior Manager of Investor Relations. Please go ahead, Jane.

Thank you, operator. Hello, everyone. Welcome to JOYY's Fourth Quarter 2022 Earnings Conference Call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Liu, the 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 financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours.

Before we continue, I would like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the SEC.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollar.

I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please go ahead, sir.

Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Let me start with an overview of our fourth quarter results. In the fourth quarter, we recorded a $604.9 million in revenues, include $476.5 million of revenue from BIGO and generated $ 50 million in non-GAAP net profit, include $57.7 million in non-GAAP net profit from BIGO. For the full year of 2022, we achieved $2.4 billion in revenues at the group level, about $2 billion of which come from BIGO. We further improved our non-GAAP profitability at the group level as we earn a non-GAAP net profit of $199.3 million with a non-GAAP net margin of 8.3%.

The BIGO segment recorded $288 million in non-GAAP net profit with a non-GAAP net margin of 14.4%. 2022 marked a year of uncertainty for multinational companies as we continue to be impacted by macroeconomic headwinds. The combination of post-COVID normalization, high inflation and the strong U.S. dollar created a downward pressure on our users' online entertainment spending and top line growth. Despite these short-term challenges, we've taken actions to focus on the contribution of our user community, improve content quality, deepen engagement on our various products and pursue sustainable high-quality growth. By concentrating on the factors that we could control and by our strong execution capabilities, our efforts yield significant results.

First, we continued our path to sustainable profitability by generating $199.3 million in non-GAAP net profit to the group level of 2022, thanks to our continuous cost optimization efforts and improved operational efficiency. This represents 83% year-over-year growth in our non-GAAP net profit and the second consecutive year of positive non-GAAP net profit at a group level since our -- deconsolidation of YY Live.

Second, we witnessed accelerating in user growth of Bigo Live as its MAU grew by 14.3% year-over-year in the fourth quarter of 2022, up from 11.9% in the last year. Such acceleration was noteworthy as it was achieved against the backdrop of the post-COVID normalization and during a period of a disciplined marketing spending.

In highlight of Bigo Live, improved user acquisition capabilities, which are driven by our continuous cultivation of its content offerings and social experience.

Heading into 2023, visibility of the global macro environment remains limited and its possibility -- it's possible that micro headwinds maybe linger for another 1 or 2 quarters. However, this short-term volatilities will not reverse the secular trends of users pivoting an increasing amount of their time and their spending from offline to online.

And we remain committed to enrich our users' lives and facilitating their online activities through our products and service. This is a market with massive growth potential. As such, we need to find a strategic balance between navigating short-term micro uncertainties and actively pursue long-term growth.

In the current macro uncertainties, we will remain -- we'll retain our focus on the quality and profitability of our entertainment business in the near term. This means we will continue to do better with less. We will maintain discipline in our marketing spending, further refine our localized operations in order to further improve our content and social experience, and ultimately boost our product's organic growth.

Optimizing efforts will continue as we strive to maintain steady high-quality growth of both our social business and its operating cash flow. In the meantime, we will continue to prioritize our resources and investments into high-potential business that align with our long-term strategy and which will shape our core capabilities. We are confident that we can remain self-sufficient in our cash flows, reinforce our strong financial position and act swiftly to seize long-term growth opportunities as they arise.

Now let's take a closer look at our products. We will start with Bigo Live. In the fourth quarter, Bigo Live sustained its strong user growth trajectory, thanks to effective [local operations] and increased user acquisition efficiency during the quarter. Bigo Live's MAU increased by 18.3% (sic) [14.3%] year-over-year to 36.8 million. Notably MAUs in Southeast Asia and other emerging markets increased 21.6% year-over-year.

During the 2022 World Cup Bigo Live rolled out a 1-month Match Day program to better engage the football players and fans around the globe. The program highlights Bigo Live's diverse localized content and resonates with local communities. In November, Bigo Live invited well-known professional football players such as England's Kieran Trippier and Netherland's Wesley Sneijder to join its live interviews. A group of local football creators were selected by Bigo Live as World Cup ambassadors to host the live commentary sessions. We also established the discussion groups and chat rooms, which support up to 500 concurrent speakers, to encourage to create and share original content.

This effort successfully posted an engaging community experience on Bigo Live during the World Cup. In addition to connecting users, we remain fully dedicated to create value for our creators. In January, we hosted our first annual flagship event, the BIGO Awards Gala 2023 at Singapore's historical Capital Theater. During the event, Bigo Live honored over 270 Bigo Live creators and about 100 Bigo Live families for their contribution to the community in the past year.

The gala also featured captivating performance from top talents from across the globe, with approximately 4 million viewers into the watch.

Further boosting our creators' exposure on a worldwide stage, we will continue to recognize the contribution of our creators in making our platform what it is today. And the BIGO Award was just one facet of our efforts to incubate talent, building communities and promote inclusivity and diversity on our platform.

In the fourth quarter, Bigo Live conducted a comprehensive upgrade of its live streaming tools and rooms and introduced a number of new interactive features. This improved the effectiveness of live session recommendation and the user go-live experience.

On a sequential basis, the number of live streaming -- live streamers on Bigo Live increased by 3.3% and the average during per live session increased by 4.5% in the first quarter.

Turning to Bigo Live's monetization. During the fourth quarter, monetization continued to be negatively impacted by macro headwinds. In the Middle East, we were also negatively impacted as user spending was diverted to offline entertainment activities during the World Cup.

Nevertheless, the number of global paying user was stabilized and the number of paying users in Europe and North America have resumed the sequential growth for 2 consecutive quarters.

Looking aside in 2023, we aim to further improve Bigo Live's penetration rates and expand its current base in multiple regions around the world, include Europe, America and the Middle East, the Eastern Pacific and Southeast Asia. Improvement in user acquisition efficiency and user engagement will remain our priority as we continue to pivot Bigo Live's content and user interaction via product innovation and innovative local operations.

Furthermore, Bigo Live will advance its efforts to boost the paying user and monetization growth by optimizing users' playing experience in live streaming session and BAR.

Next, let's turn to Likee. Following a year of proactive optimization, Likee's operation loss in 2022 was in line with our expectation, narrowing by 83% year-over-year. More importantly, Likee hit another milestone by achieving breakeven in the second half of 2022.

Following the initial launch of its Loop feature, Likee has expanded its efforts to collaborate with companies from a variety of industry verticals in order to further cultivate its interest-based communities. Take the gaming community as an example, which is one of the largest interest group on Likee. Likee partnered with various popular games include Conquerors, Lords Mobile and PUBG Mobile to offer gamers shared the space to interact with each other.

In December 2022, Likee become official streaming partners of the Game Awards 2022, and annual award ceremony honoring achievements in the video game industry. Millions of viewers from all over the world watched the event live and with each other on Likee's platform.

Boosted by Loop and Likee's refined content offerings, we saw an increase in user interaction quality and [user stickiness] on Likee. In the fourth quarter, Likee's average user time spend grew by 13.4% and the 30-day user retention improved by 6.3% over the previous quarter.

Looking ahead as we enter into 2023, we intend to further enhance Likee's monetization efficiency, diversified monetization models and achieve constant profitability. We will continue to prioritize creator support, facilitate social interactions among our users and further refine our local [operations] centered on interest-based communities.

As we gradually improve Likee's operating cash flow, organic growth capabilities and user [stickiness], we believe Likee's user base will gradually stabilize and the user growth will resume in certain regions over time.

Next on Hago. During the fourth quarter, Hago's operation loss narrowed substantially over the previous quarter. [In terms of product strategy], we mentioned Hago's positioning upgrade about a year ago. Subsequently, Hago has transitioned away from being an interactive platform primarily focused on casual games. Now it is a multi-user social platform, where users can enjoy engaging interactions with a much more adverse range of tools.

Following the upgrade, our user socializing patterns on Hago become clear. First, [users] make new acquaintance by participating in multiplayer casual games. Then, after a few rounds of games, some users may choose to [interact] further by joining one of Hago's social channels, such as video and audio multiplayer chat rooms and Hago space, where they can interact with each other using a customized 3D avatars.

When the level of interaction reach a certain level, user may choose to join the same group of families, as their like-minded friends and engage with each other on a much more frequent basis. Hago has enhanced its monetization efficiencies throughout the process by developing a variety of monetization features as a pay-to-play games, advertisement, live streaming and virtual items.

During the fourth quarter, we optimized our recommendation algorithm to help our users to locate social rooms. This initiative drove a sequential increase in the social channel's next-day user retention rate by 1.5% and user time spend by 5.3%. We also introduced a new 3D camping scene and launched a series of optimizations, [including] a beginner's guide to Hago Space. As a result, new user time spend on Hago space improved by 6.5%, and the revenues from virtual items increased by 13.4% over the previous quarter.

In 2023, in alignment with our strategy of Likee, we intended to further enhance Hago's monetization efficiency, while maintaining our efforts to achieve consistent profitability at the product level. Hago will optimize its features throughout its users' socializing patterns and better facilitate user interactions. As such we expect to further improve Hago's user retention and organic growth capabilities, which are crucial [for the] gradual stabilization and eventual recovery of user growth over time.

Finally, some updates on capital return. During the fourth quarter, we bought back an additional [$31.8 million] of our shares. In the full year of 2022, we have repurchased a total of $138.1 million of shares and paid cash dividends in aggregate amount of $145.9 million. We are confident in our long-term prospects, and we'll continue to actively utilize the remaining share repurchase program to reward the long-term support of our shareholders.

To conclude, effective strategy planning and strong execution drove our solid performance in [2022] despite an uncertain macro environment. Looking ahead, we remain committed to enrich our users' lives and facilitate and improving their online activities through our diverse range of innovative products and services.

With our resilient business model, strong financial position and sharpened focus on building our core capabilities, we are well positioned to weather short-term macro headwinds while seizing long-term growth opportunities and creating lasting value for shareholders. Now Alex? Now I hand over to Alex Liu.

Yes. Thanks, David. Hello, everyone. Now let me go through the details of our financial results. Please note that the financial information and non-GAAP financial information disclosed in our earnings press release is presented on a [continuing operations] basis, unless otherwise specifically stated.

Our total net revenues for the quarter was USD 604.9 million compared to USD 663.7 million in the same period of 2021, primarily due to macroeconomic uncertainties and unfavorable exchange rates, which negatively affected paying user sentiment. During the quarter, we have continued to optimize the cost structure and enhance operating efficiency [at the group level indiscernible] and on multiple product fronts.

Cost of revenues for the quarter decreased to USD 392.6 million. Among which, [our revenue] sharing fees and content costs decreased to USD 247.5 million. Gross profit was USD 212.3 million in the quarter, with our gross margin improved to 9.1% from 33.7% in the same period of 2021, primarily due to optimization of revenue selling cost and other operational costs.

Our operating expenses for the quarter were USD 231.2 million, increased from [USD 168.2 million] in the same period of 2021.

Among the operating expenses, sales and marketing expenses decreased to USD 100.2 million from USD 112.6 million due to disciplined spending on user acquisition. R&D expenses increased to USD 73.6 million from USD 29.3 million in the corresponding period of 2021, primarily due to increased R&D personnel-related expenses of BIGO and recent consolidation of Shopline.

Our GAAP operating loss for the quarter was USD 14.2 million compared to operating income, $60.6 million [in the same] period of 2021. Our non-GAAP operating income for the quarter, which excludes SBC expenses, amortization of intangible assets from business [acquisitions] as well as impairment of goodwill and investments and a gain on [disposal] of subsidiaries and business was USD 27.8 million in this quarter compared to USD 83.5 million in the same period of 2021. Our non-GAAP operating income margin for the quarter was 4.6% compared to 12.6% in the prior year period.

GAAP net loss from continuing business attributable to controlling interest of JOYY in the quarter was USD 377.5 million compared to net income of USD 73.2 million in the same period of 2021, primarily due to an impairment loss of USD 417.2 million from an equity method investment recognized in the quarter. The impairment loss is excluded from our non-GAAP calculations, as it is not reflective of the underlying trend in our current operating performance.

Non-GAAP net income from continuing operations attributable to controlling interest of JOYY in the quarter was USD 50 million, [compared to] USD 98.3 million in the same period of 2021. The group's non-GAAP net income margin was 8.3% in the quarter compared to 14.8% in the same period of 2021.

Together with our improving profitability, we have maintained a strong operating cash flow as well. For the fourth quarter of '22, we booked net cash inflows from operating activities of USD 75.6 million. We remain a healthy balance sheet with a strong cash position of USD 4.29 billion as of December 31, 2022.

Now I would like to briefly walk through the full year financial highlights. Our total net revenues for the full year were USD 2,411.5 million compared to USD 2,619.1 million in 2021. We have sustained our path to sustainable profitability at the group level for the second consecutive year. Our non-GAAP net income attributable to controlling interest and company shareholders of JOYY for the full year of 2022 was $199.3 million, up by 83% from USD 108.9 million in 2021.

Non-GAAP net income margin for the full year of 2022 was 8.3%, up from 4.2% in [2021.] Notably, BIGO's non-GAAP net income expanded to $288 million in 2022 with its non-GAAP net income margin improved to 14.4% from 7.8% in the prior year. Importantly, we have continued to enhance returns to shareholders through dividends and share repurchase. In the full year of 2022, we have in total repurchased approximately USD 138.1 million of our shares and paid cash dividends in an aggregate amount of USD 145.9 million, which altogether represent 142.5% of our non-GAAP net income.

As of the end of 2022, we still have around USD 800 million unutilized quota for 2021 share repurchase program. Given our current cash position, we will continue to balance between keeping sufficient cash to invest in building our long-term [capabilities] and enhancing return for our shareholders.

For our business outlook, we expect our net revenues for the first quarter of 2023 to be between USD 552 million and USD 570 million.

Let me wrap up with some final thoughts. In 2022, despite the fact that global [macro weighed on our revenue growth], by taking decisive actions to focus on high-quality growth, we have successfully enhanced our operational [efficiency] and resilience of our business as well as the execution capabilities of our team.

As we head into 2023, given the low visibility around the global macro, we remain adaptive to the macro environment and [at the same time] prioritize our investments in building our core capabilities.

We remain confident in the long-term potentials of our global business, and we will actively pursue long-term growth opportunities and generate sustainable shareholder value.

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

(Operator Instructions) Your first question comes from Thomas Chong with Jefferies.

(foreign language) I have 2 questions. The first question is about Bigo Live. Can you share about how the performance by geographies in Q4? And how should we think about the trend in 2023 among different geographies? And my second question is about 2023 revenue trend and when we should think about the inflection point.

(foreign language)

[Interpreted] Thank you, Thomas, for your question. This is David. So in Q4, we believe that Bigo Live monetization was still negatively affected by the global macro uncertainties. Notice the different recovery trends by region. For example, we've seen Europe, North America and Southeast Asia resume sequential growth with Europe even recorded a double-digit growth Q-on-Q. We believe that was mainly due to our active operational year-end events in Q4, which promoted creator activity in the region.

The middle East region underperformed as the hosting of the World Cup diverted part of users' time spend and -- time and spending offline during the period. But we saw paying activities in the region began to recover immediately after the event was concluded. So if we look back the full year performance across the different markets, some markets turn out to be more resilient against the macro headwinds and achieve positive year-over-year growth such as Australia, New Zealand, the Philippines, the U.K., Italy, et cetera.

So if we look ahead for the year of '23, we believe that the recovery trends across different regions should be highly related to their economic growth and the level of development of our operations in the local region.

Overall speaking, we intend to stick to our globalization strategy with a diversified exposure across the areas. We will remain operational flexibility as we can flexibly prioritize, allocate resources globally and locally into markets that are more efficient to achieve a higher ROI. We will continue to focus on key markets, such as Europe, America, Southeast Asia, the Middle East and the Eastern Pacific region, and we will closely track market changes and remain flexible and adaptive in our operational strategy. Thank you.

(foreign language)

[Interpreted] And to answer your second question, we believe that the visibility of the global macro environment remains limited, and there has been active news coming out recently as well. So we believe that it is possible that macro headwinds may affect us for another 1 or 2 quarters.

Given the current uncertainties, we believe that we will need to control short-term risks and at the same time, having a certain degree of operational flexibility, and making sure that we are fully prepared to swiftly take action and capture growth opportunities, especially when the macro or user paying sentiment takes a positive turn.

And according to our previous seasonality experience, usually, Q1, it's a quieter season with less marketing activities. And we believe BIGO's top line should gradually stabilize in Q2 and resume sequential and year-over-year growth in the second half of the year.

Similarly, we believe that the Others segment should also resume sequential growth in Q2. So overall speaking, we believe that the year '23 should be a year of recovery in top line growth, especially in the second half, and we will continue to grossly track the evolving market dynamics and flexibly adjust our operating strategies. Thank you.

Your next question comes from Thomas Shen with Nomura.

(foreign language) I have 2 questions. The first one is could you share the margin trends for our key segments such as BIGO and the rest of business down the road? The second question is if you could mention and share more color on the expenses and the margins for the entire company in the year of 2023.

(foreign language)

Thank you for your question. This is Alex. I will take your question on the profitability and margin outlook. So looking at the full year of '22, our profits were better than expected. The group achieved a non-GAAP operating margin of 6.8%, up by 4 percentage points, and BIGO segment achieved a non-GAAP OP margin of 14.4%, up by 5.8 percentage points from 8.6% last year. So this was mainly attributed to our enhanced operating efficiency at group level and also improved profitability at almost all product levels.

And if we take a closer look at BIGO segment for the full year of '22, BIGO segment's gross margin was improved by 3.7 percentage points from 33.8% to 37.4% last year. And we see cost optimization happen at multiple cost and expense items, including our content cost, payment channel expenses and other operating expenses as well.

And at product level, Bigo Live has maintained relatively stable when it comes to operating margin. Likee has continued to narrow its operating loss by 87% year-over-year. And other products under the BIGO segment also reverts its loss-making trend and began to make a profit in the full year.

So looking forward to the year '23 for BIGO segment, we will still prioritize high-quality growth in the near term given the macro uncertainties. But at the same time, we will ensure sufficient operational flexibility when planning our resources allocation so as to swiftly take action and capture larger growth opportunities when user paying sentiment take a positive turn.

Therefore, for the full year of '23, on a constant currency basis, we expect the non-GAAP operating profit margin for BIGO segment to remain roughly stable when compared to the level of '22, retaining certain resources for potential growth. And overall speaking, at the group level, we intend to strike a strategic balance between navigating short-term uncertainties and actively pursue long-term growth. We expect to remain profitable and self-sufficient in our operating cash flow in the year '23. Thank you.

Your next question comes from Jasmine Wang with Credit Suisse.

(foreign language) My question is about user willingness. Management mentioned that global macro visibility remains limited. What is your view on the trend of paying user number, engagement and the ARPPU this year?

(foreign language)

[Interpreted] Thank you for your question. This is David. I will take your question on the paying user and ARPPU trend. So based on our -- in the past few quarters, we've seen that global macroeconomic uncertainties have negatively affected user paying sentiment as implied in the recent trend of our paying users and ARPPU. However, we did have observed that the number of paying users have gradually stabilized since Q3 in the year '22 and that the paying users in Europe and North America have resumed sequential growth for 2 consecutive quarters.

We believe this could be an early sign of recovery for our monetization. If we look at the phase of development and also from a mid- to long-term perspective, we believe our user penetration rate and also the paying ratio of our products are still relatively low with empty room for further improvement.

So in the year '23, we will still focus on our user growth and also the conversion of paying users. We continue to cultivate our products and our user community and improve user satisfaction, which we believe are the fundamental driver for user -- paying user and also ARPPU growth in the long term. And we don't believe that the recent trends will change our long-term product strategy.

Your next question comes from Yiwen Zhang with China Renaissance.

(foreign language) So my question is regarding the user growth projection for 2023. What's our view on the Likee and Hago user trend, the monetization update?

(foreign language)

(foreign language)

(foreign language)

[Interpreted] Thank you, Yiwen. This is David. Regarding our outlook for Likee and Hago, both products have prioritized and also considered breakeven as a key operating priority in the year '22. And we've seen positive results come out from both products as well, especially with Likee achieving breakeven in the second half of year '22. We believe that given that the product is now approaching breakeven, we believe that the product will be able to explore potential user recovery on the basis of consistent profitability.

That's all the time we have for our question-and-answer session today. I'll now hand back to management for closing remarks.

Thank you so much for your time, and we look forward to seeing everyone next quarter. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.