What happened

Would you believe it? The first time we've ever written about recent Middle Eastern social networking IPO Yalla (NYSE:YALA) was just a month ago -- and already, it's time to write about it again! Yalla, you see, just reported its first batch of earnings news as a public company. The stock is down 18.5% on the news (as of 11:11 a.m. EST).

Now let's find out why.

The word Crash next to a stock arrow headed downward

Image source: Getty Images.

So what

As a recent IPO, Yalla is too young on the public markets to have much in the way of analyst forecasts written about it. As a result, it's impossible to say whether the company's Q3 2020 earnings numbers "beat" or "missed" expectations. Here's what we can say, though:

Sales for the fiscal third quarter increased 90% year over year to $33.8 million. Of these, about 90% of Yalla's revenue came from its chat service, with the remaining 10% from users playing games online. Monthly average users of Yalla's services more than quadrupled to 14.3 million. Paying users grew tenfold to 5.1 million.

Despite all the growth, however, Yalla lost money -- $31 million.

Now what

Yalla founder and CEO Yang Tao is fine with that dichotomy, calling his company's performance "robust," but investors don't seem so sure. Why not?

Well, for one thing, Yalla guided to $35 million or $36 million in Q4 revenue, implying as much as 87% year-over-year sales growth. That's a bit slower than the growth seen in Q3 and only about 5% growth sequentially. Yalla also didn't give any guidance on next quarter's earnings or say anything about its free cash flow, either in Q4 or Q3.

Investors who watched Yalla stock soar more than 53% in just the few weeks since its IPO seem nervous about the dearth of profitability information that Yalla is providing so far. Perhaps a bit more disclosure going forward would help with that -- and help Yalla to hold onto more of its gains.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.