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DATE
Monday, May 19, 2025, at 8 p.m. EDT
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Tao Yang
President — Saifi Ismail
Chief Financial Officer — Karen Hu
Chief Operating Officer — Jeff Xu
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TAKEAWAYS
Revenue: $83.9 million for Q1 2025, reflecting a 6.5% year-over-year increase, driven primarily by user base growth and enhanced monetization.
Net Margin: Improved to 43.4% GAAP net margin, up from 39.5% in the comparable period, as a result of disciplined cost control and operational efficiency.
Net Income: $36.4 million for Q1 2025, an increase of 17% year over year.
Average Monthly Active Users (MAU): 44.6 million average monthly active users for Q1 2025, representing 17.9% year-over-year growth, described as an "accelerating growth rate substantially higher than that of previous quarters."
Selling and Marketing Expenses: Decreased by 14.3% to $6.9 million in the first quarter of 2025 compared to the same period last year; as a percentage of revenue, declined to 8.3% from 10.3% in the same period last year, attributed to increased efficiency supported by AI-driven user acquisition models.
Product Development Expenses: Rose by 25% to $7.8 million compared to the same period last year, primarily due to additional headcount supporting new business and expanding the product portfolio.
Share Repurchase Commitments: 2025 buyback target raised to $50 million, with $27.4 million in share repurchases completed by May 16, 2025.
Cash and Short-term Investments: $690.9 million as of March 31, 2025, compared to $656.3 million as of Dec. 31, 2024.
Guidance: Q2 2025 GAAP revenue expected in the range of $76 million to $83 million, and net margin (GAAP) projected to remain near 40%.
New Games Pipeline: Three game titles set for release in Q3, with initial product testing complete and additional regional market tests under consideration.
AI and Technology Development: Launched AI-based content moderation capable of multilingual recognition and integrated it into core products, resulting in improved operational efficiency and cost management.
MAU Growth Outlook: Management expects full-year MAU growth of around 10% year over year, with quarterly growth variability influenced by product and community needs.
SUMMARY
Yalla Group (YALA -4.67%) reported strong revenue and user growth driven principally by enhanced monetization of its flagship products and AI-supported user acquisition efficiencies. The company substantially raised its share repurchase commitments for 2025, signaling a direct return of value to shareholders. Management highlighted major advances in proprietary AI platform deployment for moderation and user profiling, as well as disciplined progress in the product development pipeline, with three new games scheduled for release in the third quarter. Strategic operational initiatives, including significant online and offline events, further elevated brand engagement across key MENA markets, contributing to an accelerating MAU growth rate. Fiscal guidance indicates management's expectation for continued profitability and stable net margins, with explicit revenue guidance for the quarter.
Chief Financial Officer Karen Hu emphasized consistent topline strength, noting, "Yalla has achieved record high revenues for three consecutive quarters."
The company completed $27.4 million in share repurchases from Jan. 1 through May 16, 2025, and set aside an additional $22 million above its previous $28 million buyback plan for 2025.
AI-driven user acquisition and product optimizations led to MAU growth exceeding 7% in Q1 2025, which management described as well above historical quarterly increases of 2%-3%.
General and administrative expenses climbed by 30.8% year over year to $8.07 million, primarily due to higher incentive compensation and professional service fees related to expanded operations.
The company plans further regional testing for new mid-core games outside MENA, indicating ongoing geographic expansion initiatives.
INDUSTRY GLOSSARY
MENA: Refers to the Middle East and North Africa region, the company's primary strategic market for user growth and product expansion.
ADS: American depositary shares; a U.S.-traded equity share representing underlying shares of a foreign-domiciled company.
MAU: Monthly active users; a standard industry metric for measuring user engagement and growth on digital platforms.
Mid-core games: Video games designed to appeal to players seeking more complexity than casual games but less time commitment or difficulty than hardcore titles.
Full Conference Call Transcript
Tao Yang: We issued our earnings press release earlier today and it is now available on our IR Web as well as on newswire 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 involve 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. Yalla does not assume any obligation to update any forward-looking statements, except as required by law.
Please also note that Yalla's earnings press release and conference call include a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Yalla'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. Saifi Ismail, 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 section. 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.
Tao Yang: Thank you. Thank you, everyone, for joining our first quarter 2025 earnings conference call. We kicked off 2025 with a strong first quarter, even with the impacts of Lamda, which fell entirely within the first quarter of this year. Our Q1 revenue still reached $84 million, up 6.5% year over year and beating the upper end of guidance. Our persistent efforts to deliver positive growth and enhance our overall efficiency are also yielding positive results. In Q1, our net margin improved substantially year over year from 39.5% to 43.4%. Our robust quarterly performance benefited from our effective growth strategy and efforts to enhance our flagship applications, Skinny occasion, and optimize user acquisition.
These initiatives ultimately delivered a better experience for our users, boosting Yalla's and Yalla Ludo's users' willingness to pay and stay. In recent months, shifting international policies have sharply impacted the global macro economy. Against this fast-evolving backdrop, the MENA region, Yalla's core strategic market, has maintained remarkable stability and immense potential upside. Historically, The Middle East served as a retail crossroads for cultural exchange and trade between East and West. Today, it is a thriving hub for digital services, thanks to its vibrant young demographics and high Internet penetration. Technology is actively embraced across the region, making MENA a prime incubator for development and AI innovation.
To capitalize on these opportunities, Yalla has made MENA a destination for social networking and entertainment activities. We remain deeply committed to R&D and AI deployment. During the first quarter, we leveraged extensive localized materials from our products in The Middle East to train our self-developed AI content moderation model to support recognition of both images and text in Arabic as well as several MENA regional dialects. We are especially proud that our proprietary platform's recognition speed and accuracy now lead the MENA region. We also integrated our moderation platform into our flagship products during the quarter, a win-win in terms of technological advancement and cost efficiency. Beyond moderation, we extended AI applications to user profile management.
Our data integration and systematic management tools bring deeper insights into user activity, spending patterns, and other behaviors, further optimizing our customer acquisition efficiency. Moving to our gaming business, the MENA region's young population, enhanced digital infrastructure, and visionary government support for the culture and entertainment industries generate unique growth momentum for the gaming sector. With a robust product pipeline spanning casual and mid-core games, we have three titles slated for official release in Q3. We just completed one round of product testing, and the team is working to further improve various details before this title's launch. We may test the waters in a few additional regions outside MENA with this game.
Moving forward, we will continue to build our product matrix with a steady and disciplined approach and collaborate with industry partners to foster the growth and prosperity of MENA's gaming ecosystem. Before I turn the call over to Saifi, an update on our shareholder return program. We mentioned last quarter that we would accelerate our share repurchases this year, targeting at least double the amount of last year's buyback or a minimum of $108 million. As of May 16, 2025, Yalla had repurchased over 4.2 million ADS or Class A ordinary shares in 2025, totaling $27.4 million, bringing us close to fulfilling our commitment made this March.
In line with our commitment to sustain shareholder returns, we have decided to raise this year's buyback target by an additional $22 million on top of the previously outlined $28 million, bringing our total planned share repurchases to $50 million for 2025. We will provide another progress update next quarter and discuss whether to increase the buyback scale even further. Moreover, the company has decided to cancel all shares repurchased this year as part of our commitment to generating sustained benefits for our shareholders. In summary, Yalla Group capitalized on diverse opportunities during the quarter amid a complex global landscape, achieving breakthroughs in both R&D and product offering.
We continue to deepen our technological capabilities, using AI innovation to drive efficiency improvements and optimize user experience while further strengthening our localized advantage. We remain committed to amplifying Yalla Group's role in The Middle East digital transformation, creating value for all of our stakeholders. Now I will turn this call over to our President, Mr. Saifi Ismail, for a closer look at our recent development. Hello, everyone.
Saifi Ismail: Thanks for joining us today. Let's take a closer look at our first quarter operations and our product performance. First, let me walk you through our operational and product performance in the first quarter. It is important to note that Ramadan in 2025 started earlier than usual, the entire month falling within the first quarter. Even so, our products delivered impressive results. Notably, while our flagship application, Yalla Ludo's user base continued to grow, our We Muslim organically gained broader popularity during Ramadan without raising our selling and marketing expenses. This increased our group's average monthly active users by 17.9% year over year to 44.6 million, achieving an accelerating growth rate substantially higher than that of previous quarters.
We continued to roll out compelling online and offline initiatives crafted to enhance user experience and boost engagement, and we are thrilled to see them drive meaningful results within Yalla's vibrant community. Yalla Ludo's 3 million participants, including a remarkable share of devoted users, have been with Ludo since its launch. During Ramadan, we introduced a spectacular array of month-long celebratory events online and across our mobile apps, drawing users closer to our products and each other. Participating in our activities and exploring Yalla's apps became a new part of our users' daily lives during Ramadan.
To celebrate the close of Ramadan, we also hosted an iftar gathering in Dubai, showcasing the crucial role our offline activities play in driving industry progress. This event brought together over a hundred government officials, business partners, tech industry leaders, and regional media executives to engage in thought-provoking discussions on the latest trends and innovation opportunities in technology while sparking insightful exchanges of ideas. This gathering also expanded the region's cross-segment partnership networks industry-wide, laying a solid foundation for future synergetic growth. We were honored to host these distinguished guests and to extend our heartfelt gratitude to our partners for their continued trust and support.
At the end of March, we hosted an additional offline event to amplify our regional presence and strengthen our brand impact, returning to Iraq with the Yalla Ludo friendship tournament. Tens of thousands of users registered for the online qualifying rounds to compete for a competitive spot in the offline event. These events give us invaluable insight into the passion of this region's players and their high regard for the Yalla Ludo brand. Looking back at the first quarter of 2025, we see our success reflected in growth metrics as well as deepening user trust and market recognition.
Looking ahead, we remain committed to harnessing technological innovation as our engine and user needs as our compass, driving synergy between our social and gaming businesses while expanding the boundaries of MENA's digital ecosystem. As always, our vision is to build the largest destination for online social networking and entertainment activities in MENA, and we will never lose sight of that goal. With that, I will now turn the call over to our CFO, Karen Hu, who will discuss our key financial and operational results.
Karen Hu: Thank you, Saifi. And hello, everyone. Thank you for joining us today. I'm pleased to report that we delivered a robust first quarter as we continue to execute our high-quality growth strategy and enhance overall efficiency. Our revenues increased by 6.5% year over year to $83.9 million despite the impact of Ramadan. Thanks to our disciplined cost control and stronger operating leverage across the business, we further enhanced our profitability with net income increasing by 17% year over year to $36.4 million. Our net margin also rose substantially to 43.4% from 39.5% in the same period last year. Excluding share-based compensation, non-GAAP net margin increased to 46.6%.
Supported by our solid fundamentals and a clear strategy roadmap, we remain confident in our ability to seize new opportunities across the MENA region and beyond and deliver enduring value to our stakeholders. Let's move on to our detailed financials for the first quarter of 2025. Our revenues were $83.9 million in the first quarter of 2025, a 6.5% increase from $78.7 million in the same period last year. The increase was primarily driven by our broadening user base and enhanced monetization capability. Turning to our costs and expenses, our total cost and expenses were $52.7 million in the first quarter of 2025, a 6.2% increase from $49.6 million in the same period last year.
Cost of revenues was $29.2 million in the first quarter of 2025, a 2.2% increase from $28.6 million in the same period last year, primarily due to higher commission fees paid to third-party payment platforms as a result of increasing revenues generated. Cost of revenues as a percentage of total revenues decreased to 34.8% in the first quarter of 2025 from 26.3% in the same period last year. Our selling and marketing expenses were $6.9 million in the first quarter of 2025, a 14.3% decrease from $8.1 million in the same period last year, primarily driven by a decrease in incentive compensation.
Selling and marketing expenses as a percentage of total revenues decreased to 8.3% in the first quarter of 2025 from 10.3% in the same period last year. Our general and administrative expenses were $8.07 million in the first quarter of 2025, a 30.8% increase from $6.6 million in the same period last year, primarily due to an increase in incentive compensation and higher professional services fees. General and administrative expenses as a percentage of total revenues increased to 10.4% in the first quarter of 2025 from 8.4% in the same period last year.
Our technology and product development expenses were $7.8 million in the first quarter of 2025, a 25% increase from $6 million in the same period last year, primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in the headcount of the staff to support the development of new businesses and expansion of our product portfolio. Technology and product development expenses as a percentage of total revenues increased to 9.3% in the first quarter of 2025 from 8% in the same period last year. As such, our operating income was $31.2 million in the first quarter of 2025, a 7.1% increase from the same period last year.
Interest income was flat at $6.6 million in the fourth quarter of 2025 compared with the same period last year. Income tax expense was $1.4 million in the fourth quarter of 2025 compared with $3.5 million in the first quarter of 2024, primarily due to a decrease in UAE corporate tax. As a result of the foregoing, our net income was $36.4 million in the first quarter of 2025, a 17% increase from $31.1 million in the first quarter of 2024. Our non-GAAP net income in the first quarter of 2025 was $39.1 million, a 10.9% increase from $35.3 million in the same period last year.
Moving on to our liquidity and capital resources, our cash position remains solid and healthy. As of March 31, 2025, we had cash and cash equivalents, restricted cash, term deposits, and short-term investments of $690.9 million compared with $656.3 million as of December 31, 2024. We continue to return value through our share repurchase program. Pursuant to the company's current share repurchase program from January 1 through May 16, 2025, the company repurchased 4,275,812 ADS or Class A ordinary shares totaling approximately $27.4 million, including $5.4 million in the fourth quarter of 2025.
As of May 16, 2025, the company has cumulatively completed cash repurchases in the open market of 11,580,950 ADS or Class A ordinary shares, totaling approximately $76.9 million since the inception of the current share repurchase program. The aggregate value of ADS or Class A ordinary shares that remain available for purchase under the current share repurchase program was $73.1 million as of May 15, 2025. Furthermore, as our CEO just mentioned, we have raised our 2025 share buyback target to $50 million, strengthening our commitment to share our success with shareholders. We believe our solid fundamentals and ample liquidity will support us in returning value to shareholders while maintaining daily operations and investing in future growth.
Moving to our outlook, for the second quarter of 2025, we expect our revenues to be between $76 million and $83 million. The above outlook is based on the current market conditions and reflects the company's 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 press release for further details on our first quarter 2025 financial results. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question will come from Xueqing Zhang with CICC. Please go ahead.
Xueqing Zhang: Hi. Good morning, management. Thank you for taking my question, and congratulations on another solid quarter. My question is about your financials. What is the main driver of the significant year-over-year increase in net margin? And guidance for next quarter and this year? Thank you.
Karen Hu: Thank you, Xueqing. I will take your questions. On the revenue side, revenues from game services are the main growth driver. Our flagship product, like Yalla Ludo, continues to progress robustly. Yalla has achieved record high revenues for three consecutive quarters. On the expense side, we have significantly decreased our selling and marketing expenses, mainly thanks to enhanced user acquisition efficiency driven by our innovative AI predictive model for analyzing users' lifetime value. Together, these factors support our robust net margin performance. Regarding next quarter's guidance, I would say it is fair to expect our net margin to remain at around 40%. It is a relatively sustainable level given our current business. Thank you.
Operator: The next question will come from Etzu Piao with Haitong International. Please go ahead.
Etzu Piao: Hello, management. Thank you for taking my question and congrats on a strong first quarter. Can management please share the recent developments of our two flagship products, Yalla and Yalla Ludo? Thank you.
Saifi Ismail: I'll take this question. Thanks. Yalla is celebrating its ninth anniversary today, coincidentally on the same day as our earnings release. We have kicked off a major in-app celebration to mark this special occasion. We also have some upgrades lined up for Yalla's operation and design this year to enrich the user chatting experience, making it more fun. The goal is to keep things fresh and engaging for our users and draw in a wider audience. For Yalla Ludo, we continue to boost user engagement in our online community through high-quality operational activities. We also continue to host highly praised tournaments across MENA countries, effectively expanding the Yalla Ludo brand influence from online to offline.
Overall, we see both products performing solidly, generating steady and consistent cash flow for the company. Thank you.
Operator: The next question will come from Lincoln Kong with Goldman Sachs. Please go ahead.
Lincoln Kong: Thank you, management, for taking my question. My question is about shareholder return. We have seen the share price rally quite nicely in the past two months. At this moment, could you share the latest thoughts on the number behind the shareholder return trend going forward? How should we think about the consistency of our buyback program? Thank you.
Tao Yang: Hi, Lincoln. This is Tao. I will take this question. We are glad to see market recognition in the company's valuation. Our buyback program is definitely picking up speed. Two months ago, we committed to at least doubling last year's buyback amount for 2025, and we are close to achieving this goal. As we just mentioned, to further strengthen our efforts to return value to shareholders, we have raised this year's buyback target by an additional $22 million, bringing our total planned share repurchase to $50 million. I also want to highlight that the company has decided to cancel all shares repurchased this year as part of our commitment to delivering sustained benefits to our shareholders.
We will provide another update next quarter and discuss whether to further ramp up the buyback. I hope that helps. Thank you, Lincoln.
Operator: The next question will come from Kaifang Jia with Citi. Please go ahead.
Kaifang Jia: Hi, management. Thanks for taking my questions. Could management brief us on the advancements in mid-core and hardcore games? Thank you.
Tao Yang: Hi, Kaifang. Thanks for raising this. Our CEO just mentioned the match-three titles set to be released in Q3, and we have several additional mid-core games in the pipeline with potential launches as early as Q3. For these games, we are not only focused on The Middle East but also exploring several other overseas markets to expand our user base. We will provide more details after the official rollout. Thank you.
Operator: The next question will come from Jenny Yuan with UBS. Please go ahead.
Jenny Yuan: Hello. Thanks, management, for taking my question. We see Yalla has achieved very strong growth momentum this year with more focus on new products. Looking ahead, will we see a more ambitious user acquisition plan in the future? Thank you.
Tao Yang: Thank you, Jenny, for your question. I'll be taking this question. So MAU growth in Q1 indeed came in well above our expectations. Historically, our quarterly MAU growth has ranged from 2% to 3%, and Q1 exceeded 7%. This was largely driven by our refined user acquisition strategy tailored for Ramadan, as well as our AI-driven traffic acquisition optimizations. Overall, this year's MAU growth may not follow the smooth trajectory we saw in the past few years. We will adjust and plan dynamically based on the needs of our products and communities. We are keeping a close eye on the ROI of our marketing initiatives. Currently, we still expect full-year MAU growth to be around 10% year over year.
We will revisit this and keep you posted if anything new comes up. Thank you.
Operator: As there are no further questions now, I would like to turn the call back over to management for any closing remarks. Please go ahead.
Tao Yang: 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 Yalla's Investor Relations or PSNA Financial Communications. Both parties' contact information is available in today's press release as well as on our website.
Operator: This concludes this conference call. You may now disconnect your lines. Thank you.