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YY(NASDAQ: YY)
Q1 2022 Earnings Call
May 31, 2022, 9:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to JOYY Inc.'s first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. I'd now like to hand the conference over to your host today, Jane Xie, the company's senior manager of investor relations.
Please go ahead, Jane.
Jane Xie -- Senior Manager, Investor Relations
Thank you, operator. Hello, everyone. Welcome to JOYY's first quarter 2022 earnings conference call. Joining us today are Mr.
David Xueling Li, chairman and CEO of JOYY; Ms. Ting Li, our COO; and Mr. Alex Leo, the general manager of finance. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session.
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The financial results and webcast of this conference call are available at ir.joyy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I would like to remind you that we may make forward-looking statements, which are inherently subject to risks and uncertainties that may cause actual results to differ from our current expectations. For detailed discussions of the risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the SEC.
Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars. I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li.
Please go ahead, sir.
David Xueling Li -- Chairman and Chief Executive Officer
Hello, everyone. Welcome to our first quarter 2022 earnings call. Let me start the call with an overview of our first quarter results in line with our previous expectations as various parts of the world started to emerge from pandemic restrictions, a combination of force, including macroeconomic weakness seasonality, and unfavorable foreign exchange impact contributed to a drag on our top-line growth during the first quarter. For the first quarter of 2022, our group's total revenue was $623.8 million, decreasing by 3% year over year.
Among which, BIGO's revenue was $534.6 million decreasing by 8% year over year. However, our global business has demonstrated resilience despite the challenging market environment and weak seasonality. Such resilience is mainly attributable to our sustainable growth model and further improvement to our operating efficiency. When compared to prior-year period, we achieved a steady improvement in profitability during the first quarter of 2022.
Excluding YY Live, we recorded a non-GAAP net profit of $20.9 million and expanded our non-GAAP net margin to 3.3% compared to a non-GAAP net loss margin of 3.7% in the prior-year period. BIGO's non-GAAP net profit grew to $59.9 million, while its non-GAAP net margin improved to 11.2%. In addition, our operation cash flow remained healthy and reached positive $59.2 million in the first quarter. I talked the last quarter about some of the increasing macro complexities facing our business.
As a global company with worldwide operations, we are not new to international microeconomic volatilities. During the initial outbreak of COVID-19 from early 2020 to mid-2021, we experienced an acceleration in business growth as the online social entertainment industry in general, enjoyed a greater user engagement and activities amid lockdowns. However, as the world implied into the post-pandemic era, the long-term effect of COVID lingered and the global economy suffered from pandemic growth recovery and significant inflationary pressures. These adverse macro trends damped the global consumers' confidence, reduced their spending power, and posed challenges for our business growth in the short run.
However, from a medium- and long-term perspective, global users diversified individual demand of social entertainment remains high and the long-term trend of transitioning social entertainment activities from offline to online is still irradicable. As we look further into our key operational regions include North America, Europe, Pacific East, the Middle East, and South Asia, our product penetration rate is still relatively low, which creates substantial headroom for us for further penetrate the market. On top of that, I want to share some thoughts on our operating philosophy. First, we remain committed to our globalization through localization strategy, which has been vital to the rapid growth in our global business over the past periods.
Globalization and diversification help us minimize our single region exposure, cautioning the blow from cyclical fluctuations in certain regions. We will further localize our operation team by recruiting professionals with international background to drive our content localization innovation and integration. Second, we will grow our user community by offering diverse social entertainment services with rich local and premium content offerings. At the same time, by continuously upgrading our products and the user interface and [Inaudible] innovation, we seek to further optimize the immersing into space, the social networking experience of our users.
With our rich and diverse content -- efficiency content recommendation engine and products that better neutral users' social networking needs, we should be able to further expand our product reach and ultimately fuel our monetization growth. Third, we will continue to execute our sustainable OI-driven growth strategy and balance between growth and profitability in 2022. We believe that under the current market element, maintaining a strong operating cash flow is crucial to safeguard our mid- to long-term growth. As a company established in 2005 and with 20 years of listing history, we have been constantly adapting to evolving marketing conditions and have achieved significant breakthroughs.
We believe that with our established operation capacity, continuous iteration on our user-centric products, persistence, execution on a sustainable growth model, and striving to maintain robust cash flows, we are in a stronger position to navigate the current macroeconomic challenges and size emerging growth opportunities along the way. Now let me dive deeper into the progress we made in each of our product lines. Let's start with BIGO LIVE. In the first quarter, BIGO LIVE's MAU grew by 8.8% year over year to $31.7 million.
As I have just mentioned, impacted by global economic uncertainties, seasonal weakness, and multiple local currencies [Inaudible] against the U.S. dollar, BIGO LIVE's live streaming revenue and the paying user in the first quarter decreased by 9.6% and 1.5% year over year, respectively. Geographically speaking, our operation in Europe was less affected when compared with prior-year periods. During the quarter, both our revenue and the number of paid users from Europe sustained their growth momentum and increased by 10.4% and 3.1% year over year, respectively.
During the first quarter, we continued to diversify our localized premium content offerings on BIGO LIVE driving improvement in its user engagement. For example, we hosted the Europe talented campaign legal inviting streamers from various countries to produce local interactive content for European users. In Malaysia, we partnered with WeTV to offer our users exclusive access to streaming -- to stream television from [Inaudible] and reality shows on BIGO LIVE. Thanks to our diversified premier content.
Our user engagement improved and as evidenced by the 9.9% and 2.1% sequentially increased in the average duration of live streaming sessions and the average viewer time spent respectively. BIGO LIVE has always been dedicated to fostering engaging and in class community, and it has been an important venue for global users to connect with others with a similar background or interest. In March, we launched a community feature which reached its space enabling users, especially new users to establish and join different interest groups and quickly connect with like-minded people within each community. Users can interact with friends, video posts, and join their live sessions, thereby significantly improving the efficiency of social interactions.
Since this feature launched, various interest-based community have flourished with sense such as the [Inaudible] pop dance, dining, and others, thus enhanced the diversification of our user content production, as well as promoting the consolidation of our real-time and nonreal-time content posts. Next, let's turn to Likee. Following our proactive adjustment of Likee's marketing strategy, Likee's MAU fluctuation continued in the first quarter, and its MAU reached $61.8 million in the first quarter. Due to the proactive adjustment coupled with macro uncertainty and seasonal fluctuations, Likee's live streaming revenue declined by 11.9% year over year.
However, it's live streaming revenue in the Middle East region turned out slightly better than in other markets, recording a year-over-year increase by 29.4%. Likee continued to cultivate a diversified and leveraged content community by nurturing talented creators through our comprehensive support program. In the first quarter, Likee focused on equipping creators with additional interactive tools and localized operational services. Following the introduction of Superlike and Superfollow features, we launched a pleasant voice chat feature in certain regions on Likee encouraging additional real-time and derived interactions between creators and their fans group.
In Southern Asia during the local wedding season, Likee's local operations team launched a number of lighting-related challenges to encouraging creators to showcase traditional wedding culture feature. Local wedding objectives, makeups and ceremonies attracting million page views. Thanks to our comprehensive creators' support program, the number of Likee certified creators increased by 8.4% sequentially in the first quarter. To meet users' diversified social interactions need, we also launched the Friend feature to allow users to create their own private community groups and exclusively share their personal content with designed -- designated growth enabling individual lives, the social experience on Likee.
We believe that the Friend feature will help [Inaudible] Likee users offline to online social networks and reduce their psychological barriers to produce and share their own content online. During the first quarter, as Likee continued to optimize -- optimization of its short videos and live streaming features and enhanced integration between the two, user engagement with Likee live streaming improved with average viewer time spent on live streaming growth -- growing by 45.6% and Likee's live streaming DAU penetration rate increasing by 10.9% sequentially. Next, on HAGO. During the first quarter, HAGO maintained its monetization growth trajectory as its live streaming revenue increased by 24.2%, and the number of paying user grew by 40.5% year over year.
Based on our product team's deep user insight, HAGO upgraded several product features to explore new innovations in multiplayer social interaction and further enhance user social experience. This quarter, HAGO launched a new feature called HAGO Space, allowing users to create their own 3D digital Avatars and interact with another virtual 3D screens. Users can engage in a variety of activities in their 3D Avatar, including voice track, [Inaudible], gaming and gifting. Certainly, after the new feature was launched, we reserved a positive impact on users' social activities and features channel penetration.
In the following quarter, HAGO plans to further enrich users' HAGO Space experience by introducing more 3D virtual screens, virtual items, and casual gifts. Finally, some updates on capital return. In the first quarter, we continue to enhance return to shareholders and protect their interests through share repurchase program. In the first quarter, we bought back accumulated 80.2 million of our shares.
As of March 31, we have repurchased in total 350.8 million of our shares out of the previously announced the repurchase program of $1.2 billion. Taken together by capitalizing our diversified global product metrics and continuous operating efficiency improvements, our global business demonstrated resilience amid a challenging external environment during the first quarter. We remain confident in the middle- to long-term growth prospects of the global social entertainment market. We will continue to prioritize the cultivation of our content and social ecosystems and seek to maintain a strong cash flow while saving emerging business opportunities along the way.
We remain committed to delivering long-term value to our shareholders. This concludes my prepared remarks. I will now turn the call to our general manager of finance, Alex Leo for our financial updates.
Alex Leo -- General Manager of Finance
Thanks, David. Hello, everyone. Now let me go through the details of our financial results. Please note the financial information and non-GAAP financial information disclosed in our earnings press release is presented on a continuing rising business, unless otherwise specifically stated.
As the sale of YY Live was substantially completed on February 8, 2021, with certain customary matters to be completed in the future, we have this consolidation of YY Live business since February 2021. During the first quarter of 2022, due to increased macroeconomic uncertainties, seasonality, and some depreciation of certain currencies against U.S. dollar, our total net revenues for the first quarter decreased to $623.8 million from $643.1 million in the same period of 2021. In particular, our live streaming revenues for the first quarter was $590.1 million, and other revenues in the first quarter increased by 16.3% to $33.7 million.
Cost of revenues for the first quarter decreased by 4.6% year over year to $422.6 million. Revenue selling fees and content costs was $279.9 million in the first quarter compared with $282 million in the same period of 2021. Bandwidth costs decreased to $20.9 million from $29.5 million in the same period of 2021, primarily due to the company's improved efficiency in bandwidth usage partially offset by the increased bandwidth usage as a result of continued user base expansion of BIGO LIVE. Gross profit increased to $201.2 million in the first quarter with other gross margin improved to 32.2% from 31.1% in the same period of 2021.
As we continued to enhance our operating leverage and execute a prudent marketing strategy, operating expenses for the first quarter decreased by 28.1% to $200.6 million from $239 million in the same period of 2021. Among the operating expenses, sales and marketing expenses decreased to $104.4 million from $137.4 million due to disciplined sales and marketing spending on certain products, including Likee and HAGO. As a result, we continued to achieve expected expenses in our GAAP and non-GAAP profitability for both BIGO segment and the entire group. Our GAAP operating income for the first quarter was $6.3 million compared to operating loss of $33 million in the same period of 2021.
Operating income margin for the first quarter was 1% compared to operating loss margin of 11.4% in the same period of 2021. Our non-GAAP operating income for the first quarter, which excludes share-based compensation expenses, amortization of intangible assets from business acquisitions, as well as impairment of goodwill and investments and gain on disposal of subsidiaries and business was $33.3 million in this quarter compared to non-GAAP operating loss of $29.7 million in the same period of 2021. Our non-GAAP operating income margin for the first quarter was 5.3% compared to non-GAAP operating loss margin of 4.6% in the prior-year period. GAAP net loss from continuing operations attributable to controlling interest of JOYY in the first quarter of 2022 was $27.5 million compared to net loss of $87.3 million in the same period of 2021.
Net loss margin was 4.4% in the first quarter of 2022 compared to net loss margin of 13.6% in the corresponding period of 2021. Non-GAAP net income from continuing operations attributable to controlling interest of JOYY in the first quarter was $20.9 million, compared to non-GAAP net loss of $24.1 million in the same period of 2021. The group's non-GAAP net income margin was 3.3% in the first quarter of 2022 compared to non-GAAP net loss margin of 3.7% in the same period of 2021. Notably, BIGO's non-GAAP net income expanded to $59.9 million in the first quarter with its non-GAAP net income margin improved to 11.2% from 1.6% in the prior-year period.
Together with our improving profitability, we have maintained a strong operating cash flow as well for the first quarter of 2022. We booked net cash inflows from operating activities of $59.2 million. Importantly, we have continued to enhance returns to shareholders through data and share repurchase. In accordance with our previously announced quarterly business plans approved in August and November 2020, we will be distributing a dividend of $0.51 per ADS for the first quarter of 2022, which is expected to be paid on July 6, 2022, to shareholders of record as of the close of business on June 23, 2022.
Additionally, in September and November 2021, our board of directors have authorized additional share repurchase plan, under which the company may repurchase up to $1.2 billion of its shares in total. In the first quarter, the company has repurchased an additional $18.2 million of its shares under these programs. As of March 31, 2022, the company had, in total, repurchased approximately $315.2 million of its shares under these programs. This effort demonstrates our companies in the company's long-term growth and profitability prospects.
We will continue to actively utilize share repurchase to create value for our shareholders and current market conditions. Going forward, as David just mentioned, while we prioritize investment into the cultivation of our content and social ecosystems, we will continue to execute our sustainable ROI driving growth strategy. We plan to continue to enhance our operating leverage, improved returns for each of our products, and seek to maintain a strong operating cash flow. This we believe will provide us with greater financial flexibility to invest in our business and fundamental capabilities.
For our business outlook, we have indicated some negative impact on user online social entertainment activities from the gradual lift of pandemic-related lockdowns in certain countries. Macroeconomic environment volatility and exchange rate fluctuations will also continue to post uncertainties for our global business. We expect our net revenues for the second quarter of 2022 to be between $579 million and $600 million. We currently have limited visibility surrounding the macroeconomic environment, COVID-19 pandemic's long-term impact, and geopolitical uncertainties on our business and the market in which we operate.
Therefore, this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. That concludes our prepared remarks. Operator, we would now like to open up the call to questions. Thanks.
Questions & Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator instructions] When asking a question, please state your question in Chinese first, then immediately repeat your question in English. Thank you.
Our first question will come from Alex Poon at Morgan Stanley. Please go ahead.
Alex Poon -- Morgan Stanley -- Analyst
[Foreign language] My first question is related to the post-COVID normalization and causing out revenue weakness in the first half. So can management share with us when do you expect revenue growth to return to positive year-over-year growth? And just now management also mentioned about the weaker macro environment impact on our business, how should we look at the full year 2022 revenue growth? My second question is related to TikTok, we recently has started a subscription business like Twitch and also plan to start casual game business in Vietnam. Can management share with us on new monetization strategy? Do we have any new plans? Thank you.
David Xueling Li -- Chairman and Chief Executive Officer
[Foreign language]
Jane Xie -- Senior Manager, Investor Relations
Thank you, Alex. For your first question, as I just mentioned, since the second half of last year as global users resumed offline travel, there has been a negative impact on users' online social activities. And yet we have noticed that the long-term effects of the pandemic on the global economy, actually, are still continuing in '22, especially as multiple regions have adopted financial stimulus plans during the pandemic, as well as an easing monetary policy. As these policies being gradually removed, we see increased uncertainty of the global economic growth and also the raising inflation affected consumers' consumption confidence and also their paying capability.
So such adverse macro trends definitely pose uncertainties and challenges for our business growth in the short term. And these challenges are not for us alone, that actually applies to all of the companies with worldwide operations. What we also want to point out is that opportunities often come with challenges. So as you can see in the past two years between '20 and '21, we successfully navigated multiple uncertainties during the pandemic and captured growth opportunity.
Through the years of market operation, our business has reached a meaningful scale. We grew our revenue from $900 million in the year '19 to $2.6 billion in the year of '21, and we have achieved non-GAAP profitability since '21. And also, we have managed to maintain a relatively healthy operating cash flow. So this experience will all lay a solid foundation for us to navigate the current challenges posed by the macro environment and help us better see further growth opportunities.
So for our '22 outlook, our keyword remains the same, is to balance growth and profit. And given the rising uncertainties of the macro environment, will continue to act prudently and closely track market dynamics as we progress, we will continue to execute our sustainable ROI-oriented growth strategy and seek to maintain the resilience of our global business.
David Xueling Li -- Chairman and Chief Executive Officer
[Foreign language]
Jane Xie -- Senior Manager, Investor Relations
And on your second question about new monetization, actually, if you noticed that we have previously already tried exploring advertisement and also membership and these have been introduced in the previous years. And recently, we also have been actively exploring additional monetization tools. For example, Likee launched the Superfollow feature last quarter, and this allows creators to publish exclusive content and charge a monthly subscription fee to their fan groups. And the new 3D HAGO Space feature recently introduced by HAGO would also have some innovation and monetization.
However, I would like to admit that at the current stage, these features are still in the early stage of development. So -- and they are more targeted to improve product user experience. So their contribution to revenue in the short term would be relatively small. For example, in Q1, you can see that our non-live streaming revenue is about $33.7 million accounting for slightly over 5% of our group's revenue.
So we'll continue to observe user feedback on these new features, and we'll continue to explore opportunities to drive further diversification of our revenue stream. Thank you.
Operator
Our next question will come from Thomas Chong at Jefferies. Please go ahead.
Thomas Chong -- Jefferies -- Analyst
[Foreign language] My first question is about the competitive landscape for different regions. And how should we think about the second half business trend? And my second question is about the operating expenses side. How should we think about the expense outlook, as well as the margin in 2022? Thank you.
David Xueling Li -- Chairman and Chief Executive Officer
[Foreign language]
Jane Xie -- Senior Manager, Investor Relations
Thank you, Thomas, for your question. Regarding your question on competitive landscape, I think that the main pressure comes from the macro environment. As I've just mentioned, there would be a short-term fluctuation of users' online activity, time spend and sickness, and at the same time, under paying capacity as well. So this means that for all industry players, we need to gain user engagement and monetization opportunity by providing better products with better service and compete with a wider range of competitors, both online and offline.
So that's why I believe that we visit the original intention of users, what drives them to use these products and focus on the fundamentals when we were -- when we are planning our product strategy. So we will continue to focus on the fundamentals of our products, cultivate our content and social ecosystem and continuously innovate our products to improve users' social experience. I still believe that from the long-term perspective, the global social entertainment market has huge potential and competition will always be there. It will be a long-term marathon as compared to a short-term game.
And in such times of increasing macro uncertainty, risk control and ensuring long-term sustainable growth are more critical than ever. As I've just mentioned, through years of operation our business have already reached a meaningful scale, and we have established worldwide operational capacity and achieved non-GAAP profitability. And our cash flow remained to be relatively healthy as well. I believe that we have already gained additional competitive advantage by being proactive and forward-looking in terms of risk control and ensuring our sustainable growth model.
We believe that with the support of our strong cash flow and also our prudent growth model, we'll be able to better grasp the growth opportunities and further increase our market share. Thank you.
Alex Leo -- General Manager of Finance
[Foreign language]
Jane Xie -- Senior Manager, Investor Relations
As I've mentioned just now, thanks to our sustainable growth strategy and continuous enhanced operational efficiency, we have achieved steady improvement in both GAAP and non-GAAP profitability in the first quarter. BIGO segment achieved non-GAAP net margin of 11.2% and the group achieved a non-GAAP net margin of 3.3%. So if you look at a comparison between Q1 and the same period last year, both our gross margin was improved and we saw cost savings happening across multiple non-GAAP operating expense items. So given the current macroeconomic uncertainty, we will continue our sustainable ROI-driven growth strategy and further enhance the overall operational efficiency and drive the further improvement at each of our product lines.
And so for BIGO segment, we expect gross margin will remain stable in the year '22. And cost savings would be achieved on various items to further -- due to further improve operating efficiency. And we expect BIGO segment's non-GAAP profitability for the full year to be further improved based on the full year level in the year '21. And for the other segments, we're still steadily proceeding to narrowing losses on various product lines and also improving its operating efficiency.
We're also expecting other segments to continue to narrow losses in the year '22. Thank you.
Operator
Our next question will come from Yiwen Zhang at China Renaissance. Please go ahead.
Yiwen Zhang -- China Renaissance Securities -- Analyst
[Foreign language] Thanks for taking my question. So I have a question regarding cash usage. We know there's abundant cash on our balance sheet. How should we think about the usage priority, namely, how do we balance business investments in overseas share repurchase or even dividend payout? Thank you.
David Xueling Li -- Chairman and Chief Executive Officer
[Foreign language]
Jane Xie -- Senior Manager, Investor Relations
Thank you for your question. In terms of cash usage, we will continue to be prudent and plan based on the long-term business development needs. I believe that based on our current cash position, we should be able to balance between keeping a sufficient cash flow for our earnings and also enhancing return for our shareholders. So in terms of our business, we will continue to invest in our global business to fuel organic growth and also execute -- continue to execute ROI-oriented growth strategy to create more value.
And in the meantime, to reward our investors for their long-term support, we have been actively enhancing shareholder returns via dividends and share buybacks. In the year 2020, we have announced dividend plans with a total size of $500 million to be quarterly distributed in the following three years. And as of the end of the first quarter, we have already declared approximately $250 million of cash dividends under such dividend plan. And in the third quarter in the year 2021, we have expanded our share repurchase program by $1.2 billion.
And by the end of the first quarter, we had repurchased approximately $320 million under these plans. So if you look at our overall capital return to shareholders as a percentage of our current market cap, that is a very sizable amount. We believe that our investors can see our sincerity from our actions as well. And that's the end of our call.
Thank you for joining, and we look forward to speaking with everyone next quarter. Thank you.
Operator
[Operator signoff]
Duration: 60 minutes
Call participants:
Jane Xie -- Senior Manager, Investor Relations
David Xueling Li -- Chairman and Chief Executive Officer
Alex Leo -- General Manager of Finance
Alex Poon -- Morgan Stanley -- Analyst
Thomas Chong -- Jefferies -- Analyst
Yiwen Zhang -- China Renaissance Securities -- Analyst
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