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Why Yalla Investors Yelled "Hurray!" Today

By Rich Smith – Nov 9, 2021 at 12:17PM

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The Middle Eastern and African social network company booked a healthy Q3 profit just one year after it reported a big loss.

What happened

Shares of Dubai-based Yalla (YALA 11.16%) exploded higher Tuesday, rising 26% through 10:45 a.m. EST after the Middle Eastern and North African social networking company nailed Wall Street's target for third-quarter revenue, and shifted from a loss of $0.43 per share a year ago to a $0.14 per share profit this time around.  

So what

Revenues for the quarter were $71.3 million, up 111% year over year, and right in line with analysts' expectations, with about 75% of the business coming from the provision of "chatting services" and the balance from "gaming services."  

Not only did Yalla attract more users to its network -- its monthly average users (MAU) metric was up 82% to 25.9 million -- it got them to use its services for longer as well. This explains why revenue growth outpaced user growth. The number of paying users rose 51% to 7.7 million -- not quite as strong as MAU growth, granted, but still a healthy gain.

Man shouting and dancing as dollar bills rain down against a yellow background

Image source: Getty Images.

Now what

Now for the bad news: Heading into the fourth quarter, Yalla management expects growth will slow significantly. While its prediction for Q4 revenue in the range of $67 million to $72 million would amount to a gain of 39% to 48% year over year, that represents a sharp slowdown from Q3. It also falls short of the $73.4 million in revenue that Wall Street has been forecasting.

Considering that Yalla only met revenue forecasts in Q3 (rather than beating them) and that it's now calling for a Q4 miss, I fear that Tuesday's stock price rally will not last long.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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