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On August 8, after the close of trading, Yalla Group (NYSE: YALA) (“Yalla”) announced its unaudited Q2 2022 financial. This company, the leading voice-centric social networking and entertainment platform in the Middle East and Northern Africa (MENA), delivered a remarkable report for investors, as before.

The information shared in the financial report and the earnings conference call held on August 8, showed a glimpse of Yalla’s current situation and future development.
 

Maintaining chatting services and increasing games services

In terms of revenues, Yalla’s revenues were 76.1 million dollars in 2022Q2, raising the company's single-quarter revenues ceiling again. For these reasons, Yalla said its main benefit came from the more delicacy operation and management, which further promoted users’ participation and their willingness to pay.

For details, revenues generated from chatting services were 52.7 million dollars, up a bit YoY/QoQ. During Q2, despite the traditional Ramadan holiday, Yalla's chatting services continued to grow. It may have resulted from the updates of products. Yalla’s management said the company has upgraded its newly released IM app YallaChat and metaverse app Waha in the second quarter, of 2022.

On the other hand, revenues generated from games services were 23.34 million dollars during Q2, up 45.8% YoY and 14.9% QoQ, hitting a record high. With Yalla becoming entrenched in emerging markets such as Saudi, Arabia, and Turkey, the potential of its games services has been gradually released. As Yalla’s management said, the company’s casual game portfolio, including Yalla Parchis, 101 Okey Yalla, and Yalla Baloot, performed well with a steady increase in user retention and average daily hours spent, which benefited from the new VIP subscriptions and pass rolled out during Q2.
 

Intensifying localization of operation and a steadily growing number of users

Due to the unique cultural characteristics, MENA possesses a unique pan-entertainment environment. With the support of culture and age structure, Middle East pan-entertainment market presents a "young but mature" cultural structure, which has a higher threshold compared with other overseas markets. Therefore, to better acquire those unique customers, the most effective way is to focus on the local population and then, hold customized activities.

Yalla set a good example. During Q2, Yalla hosted plenty of localized events in the Middle East, including Ramadan, Eid, and Yalla's 6th-anniversary festival. Both of the company's flagship products, Yalla and Yalla Ludo, have participated in the activities, in order to boost brand loyalty and user engagement, and deepen the synergy between products and services.

(Picture shows the 6th-anniversary event page of Yalla)

Looking at the operating data in the second quarter, Yalla’s average MAUs were 29.9 million, up 35.6% YoY; the number of paying users was 10.6 million, up 65.3% YoY and, the percentage of paying users was 35.4%. From the growth trend, we can find the number of users has maintained a growth in the past six quarters, and the reasons were as mentioned above.

Compared with Q1, Yalla delivered a strong financial performance in the second quarter of 2022. The net income in the second quarter was 20.4 million dollars, the net profit margin was 26.7%, Non-GAAP net income was 28.6 million dollars, corresponding to a net profit margin of 37.6%.
 

Proper cost ratio and high financial safety margin

As can be seen, the company still adopted strict ROI management and project appraisal mechanism and continued to pursue stability, with a disciplined approach to managing expenses and an ROI-based sales and marketing strategy.

This quest for certainty was manifested in many aspects. From the perspective of selling expenses, in the past few quarters, the proportions of Yalla’s operating cost and selling expenses have been continuously controlled within a stable range, while the proportion of administrative expenses have shown a downward trend with the growth of the revenues, which represents the company's financial management level.

Obviously, for some costs which should be increased, Yalla never hesitated. In the second quarter of 2022, the company’s R&D costs increased over 144% YoY, accounting for over 10% of its revenues. With the approaching of mid-core and hard-core games, the upgrade of products accelerated, hence, Yalla promoted the size and treatment of R&D teams, guaranteeing R&D efficiency.

With respect to cash flow, as of June 30, 2022, Yalla had cash and cash equivalents of 384.9 million dollars, a slight increase compared with the first quarter of 367.5 million dollars, presenting ample cash flow on hand.
 

Accelerated layout in the metaverse, adopted the direction of local policies

For the future layout of the business, Yalla showed the same tendency. In the Q2 earnings conference call, Yalla’s management revealed the company's focus and plan for the second half of 2022. Besides, during Q2, the company upgraded Waha’s system and foundation, to better prepare the product for future opportunities.

Frankly speaking, it was no doubt that Yalla's layout in metaverse had foresightedness and coincided with the government's policy at the same time. In mid-July, the UAE government launched the Dubai Metaverse Strategy, proposing to provide more than 40,000 virtual job opportunities by 2030, which may contribute about 4 billion dollars to the UAE economy. So, the Dubai government established the Virtual Assets Regulatory Authority (VARA) in May this year and planned to set up some government departments for metaverse affairs, and these policy advantages may boost Yalla's layout in the metaverse.

In fact, the partnership between Yalla and UAE government has already been shown before. In January 2022, to incubate local coders and coding hub, and propel UAE's digital economy strategy, the government launched the Coders HQ program. And Yalla was the only UAE internet company selected to participate. The trust from the government gave Yalla a special status compared to other local companies, which also consolidated the foundation of Yalla.

Furthermore, recently, a new independent director, Mohamed Al Ghanim, has joined Yalla. According to the earnings conference call, this new independent director is a renowned telecommunications expert and is also the founder and ex-director general of the UAE Telecommunications and Digital Government Regulatory Authority (TDRA), having an extensive regulatory background. In the future, Al Ghanim will also serve as a member of Nominating and Corporate Governance Committee.
 

Summary

Although the global circumstance is turbulent in 2022, Yalla still commits to exploring the opportunities, seeking to become the largest online social networking and entertainment platform in MENA. From the standpoint of Yalla’s historical performance and future strategy, the company keeps seeking a balance between growth and stability. Therefore, even though Yalla may not be the fastest company in exploring the pan-entertainment market, its stability and safety are incomparable.

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