Yalla Reports That Its Growth Stock Is Back On Track

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Investors had been hoping that Yalla Group YALA would be able to reverse its recent fortunes and the first quarter report does exactly that. Reportedly, the figures demonstrate that the Dubai-headquartered social media firm has grown significantly over the past year. The data also shows that the slight downward trend in growth during the last quarter of 2021 has not been sustained and that the broader trend appears to be upwards. In fact, Q1 revenue represents an all-time high for the social media firm.  

Yalla, which launched on the US exchange in September 2020, operates a voice-centric social networking and entertainment platform in the Middle East and North Africa (MENA) region. It generates revenue from chatting and gaming services while selling and distributing virtual items and upgrade services. The IPO, which was priced at $7.50 per ADS (American depositary share), raised around $140 million. 

But now the share price has fallen below the IPO level and sits at $3.50 a share. The fall reflects a general move away from tech and growth stocks in favor of value but also concerns about Yalla’s long-term prospects. However, the company is certain that its Q1 results should allay some fears about the firm’s growth trajectory. 

What’s in the Q1 report?

Revenue for the first quarter reached $72.3 million, up from $67.6 million for the same period in 2021. The period actually reflects Yalla’s most successful quarter to date. Chatting services generated the most revenue, accounting for $51.9 million, while gaming services accounted for $20.3 million. Discussing the results, Chief Financial Officer, Karen Hu, said the figures highlighted the strength of the business. “In the first quarter of 2022, our revenue reached $72.3 million, beating the top end of our guidance and demonstrating once again our ability to deliver growth in a rapidly evolving environment,” said Hu.  

However, net income fell to $17.7 million from $19.8 million in Q1 of 2021 as the business ramped up its R&D spending to enhance its offering in this environment. The net margin was 24.5% in Q1 of 2022, down from 29.3% in the exceptional Q1 of 2021. Meanwhile, non-GAAP net income fell to $26 million from $33.6 million in the same period the year before. This fall can largely be attributed to increasing costs. “We also increased investments in R&D and grew our talent pool during the quarter to drive new business development,” Hu noted in a statement. 

However, the company says that the growth in users is perhaps the biggest positive to come out of the Q1 report. Average monthly active users (MAUs) reached 29.2 million in Q1, representing a 55.3% increase year-on-year. The sustained user growth throughout the past two years has been exceptional, growing from 6.1 million in the first quarter of 2020. The growth in paying users was also sizeable. There were 5.8 million paying users in Q1 of 2021, and this grew to 9.4 million in Q1 of 2022, representing a 61% increase. 

Prospects

Yalla maintains that it has pushed ahead in expanding and improving its offerings, including the launch of YallaChat version 1.0 and the rolling out of several important features with this iteration. The group has also launched the MENA region’s first-ever social metaverse app, WAHA. The Q1 update noted the rollout of more localized functions of the app that enables WAHA users to enjoy immersive, 3D social scenes.

Yang Tao, Founder, Chairman and CEO of Yalla said that the group would continue to develop its products. “We have also made progress in a number of new initiatives – notably, we will soon introduce the beta version of our first hard-core mobile game supported by our holding subsidiary Yalla Game,” Yang said in a statement. The continued improvements to the company’s offerings should aid further revenue growth and expansion.

Challenges

As mentioned, growth stocks are not in vogue at the moment. With high inflation and interest rates in many major economies, investors are increasingly looking toward value and dividend-paying stocks. One reason for this is that higher interest rates can increase the cost of growth. However, it is apparent that Yalla has enough cash to fund its R&D plans. Despite this, Yang recognized that 2022 would not be an easy year. “2022 is undoubtedly shaping up to be a year full of challenges. During these uncertain times, we will intensify our focus on pursuing quality growth while remaining steadfast in our mission to build the most popular online social networking and entertainment destination in the MENA region,” the CEO stated.

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