Yalla Group Limited (NYSE:YALA) Q3 2025 Earnings Call Transcript

Yalla Group Limited (NYSE:YALA) Q3 2025 Earnings Call Transcript November 11, 2025

Operator: Good morning, and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited’s Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Today’s conference call is being recorded. Now I will turn the call over to your speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead, ma’am.

Yuwei Gao: Hello, everyone, and welcome to Yalla’s Third Quarter 2025 Earnings Conference Call. We issued our earnings press release earlier today, and it is now available on our IR website as well as on Newswire outlets. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in our earnings press release and our annual report filed with the SEC. Yalla does not assume any obligation to update any forward-looking statements, except as required by law.

Please also note that Yalla’s earnings press release and this conference call include a discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Yalla’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Today, we hear from Mr. Tao Yang, our Chairman and Chief Executive Officer, who will provide an overview of our latest achievements and growth strategies. He will be followed by Mr. Saifi Ismail, the company’s President, who will briefly review our recent business developments. Ms. Karen Hu, our Chief Financial Officer, will then provide additional details on the company’s financial results and discuss our financial outlook.

Following management’s prepared remarks, we will open the call to questions. Mr. Jeff Xu, our Chief Operating Officer, will join the Q&A session. With that said, I would now like to turn the call over to our Chairman and Managing Executive Officer, Mr. Tao Yang. Please go ahead, sir.

Tao Yang: Thank you, everyone, for joining our third quarter 2025 earnings conference call. We delivered another strong set of results in the third quarter of 2025. Our total revenue grew to USD 89.6 million, once again beating the high end of our guidance. Net margin came in at 45.4%, up 1.4 percentage points year-over-year, thanks to continued operational efficiency improvement and our commitment to high-quality growth. The Middle East digital economy continues to gain momentum in the third quarter. According to [ Newswires’ ] latest report, the region’s gaming market is expected to reach around USD 7.1 billion in 2025 with 75% year-over-year growth, the highest among all regions globally. The increases we are seeing in a number of our mobile users and their interest, including more diverse game content, reflecting MENA gaming markets vast potential.

Our strategic direction positions us to capture the trend and foster a more mature, more robust digital entertainment ecosystem across the region. Meanwhile, we’re also looking for opportunities to leverage our value and growing product portfolio to deliver more exceptional experience to MENA users. Our strategy in game pipeline currently serves as our primary market expansion driver. In the third quarter, we soft launched Turbo Match, a match-free title featuring car-modification, simulation, operations on Android. We were pleased to see the initial user acquisition and retention metrics meeting our expectations. With 2 years of cumulative experience in the match-3 genre, we are confident in our team’s ability to create games that resonate within our targeted audience.

Furthermore, we expect to launch our self-developed roguelike game, Boom Survivor, in late this month. Meanwhile, we continue to advance our game distribution initiatives, we are collaborating with the leading gaming studio on the distribution of [ newly focused ] SLG title. The hard-core title is well on track for year-end launch for the recent testing. We remain dedicated to providing MENA users with an ever growing selection of gaming and content tailored to MENA’s local culture. For our future MENA hard-game collaboration, we will continue to leverage our existing gaming user value for precise targeting and efficient conversion to steadily deepen penetration of MENA mid-core and hard-core game markets. Moving on to our AI initiatives. We are proactively developing AI to fuel our growth, led by CMIS, our in-house developed multi-modal AI module.

CMIS is now fully deployed across our product line, serving as the intelligent backbone of our content moderation and security, supported by our experienced R&D games and extensive ad language and visual data set. CMIS delivered regional — leading accuracy in annualized impact and images and detecting inappropriate content. Another self-developed AI tool, our automated creative packing model has significantly improved advertising and user acquisition efficiency. Furthermore, our in-house AI event orchestration engine has doubled the frequency of modular in-app campaigns for our flagship products, including Yalla Ludo, driving the leap in operational efficiency. Together, these technological breakthroughs have elevated user experience and boosted in-app purchases, serving as a powerful driver for revenue growth.

Next, an update on our USD 150 million shareholder return program, which we continue to execute sales with this plan. As of November 7, 2025, the company has repurchased a total of more than 7.7 million ADS or Class A ordinary shares totaling USD 51.9 million, achieving our full year 2025 repurchase commitment of USD 30 million, well ahead of schedule. As we mentioned on our last call, we will cancel all shares repurchased in 2025, and we have canceled a total of more than 6.2 million shares that as of August 11, the aggregate valued that remained available for purchase under the current share repurchase program with USD 48.6 million as of November 10. For next year, we expect to maintain a similar level of share repurchases as in 2025. We are on track to complete our current USD 150 million share repurchase program within the next year, at which point, we plan to launch a new program.

As always, I want to emphasize that we will continue to play shareholder interest as the core of our capital allocation decisions and optimize our shareholder return strategy to generate long-term value for our shareholders. Last but not least, I’m happy to share that Yalla Group celebrated the fifth anniversary of its public listing at the end of September, capped by a bell-ringing ceremony at NYSE. This past five years have been an incredible journey, one of growth, learning, persistence and achievement. Yalla is now the largest MENA-based online social networking and a gaming company. We are proud of the leading position we’ve established in this dynamic market. But our journey is [ far from over ]. Looking ahead, we will remain dedicated to maximizing the synergy between our social and gaming ecosystem and enhancing our AI-fueled technological edge, bringing us ever closer to our vision of becoming a lot in the most popular platform, for online social networking and entertainment activities in MENA.

Now I will turn this call over to our President, Saifi Ismail, for a closer look at our recent development.

Saifi Ismail: Hello, everyone. Thanks for joining us today. Let’s take a closer look at our third quarter operations and our product performance. First, I would like to share our operational highlights in the third quarter. We increased average MAUs by 8.1% year-over-year to 43.4 million. Following last quarter’s user acquisition channel optimization, our user growth [ delivered ] us again as expected, supported by AI-powered upgrades and innovation across our product portfolio. Our flagship products saw a fresh wave of momentum with the introduction of new gaming modules, users can now play a variety of popular mini games directly within the Yalla platform, significantly boosting engagement and user stickiness. These innovative initiatives also served as a springboard for integrating more interactive entertainment features into our core products going forward.

This quarter was also backed with engaging and precisely targeted online activities. A key operational strength for Yalla that demonstrates our keen user insights and content creativity. For example, our original event series, Yalla Ludo Carnival just completed its third consecutive quarterly run with record high revenue. Its thoughtfully crafted gameplay paired with stunning visuals, drove strong growth in in-game purchases and gifting activities. On Saudi National Day, Yalla launched the Yalla Season campaign, creating a [ richly ] immersive atmosphere online to resonate with the Riyadh Season, a major national festival developed under Saudi Arabia’s Vision 2030. Meanwhile, thanks to a diverse lineup of in-game and chatroom events. 101 Okey Yalla delivered its highest quarterly revenue ever in the third quarter.

Yalla innovation reach continues to extend well beyond our business. In honor of our contribution to the local tech industries development, we recently received our third award in the audio tech, media and entertainment category at Asian Business Review Magazine Middle East Technology Excellence Award 2025. These prestigious awards judged by a panel of esteemed regional industry leaders, recognized companies that drive innovation through transformative products. To sum up, I would reiterate what our CEO said. We are immensely proud of Yalla Group’s achievements over the past years. Our deep cultural resonance with users in the MENA region and the resonance products innovation are the cornerstones of our sustained growth moving forward. We will remain committed to those values, honoring the trust our users and stakeholders place in us while fostering a driving mutually beneficial ecosystem.

With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.

Yang Hu: Thank you, Saifi, and hello, everyone. Thank you for joining us today. In the third quarter, we continued to pursue high-quality growth and profitability enhancement. Through our excellent execution of ongoing cost management and efficiency improvement initiatives, including AI development and application, our net income grew by 3.9% year-over-year to USD 40.7 million. And our net margin increased by 1.4 percentage points, supported by the solid performance and the fundamentals. We have strengthened our efforts to return value to stakeholders. As of November 7, we have returned a total of USD 51.9 million in 2025 to our shareholders through our share repurchase program. We will deepen our commitment to shareholder returns going forward, delivering sustainable long-term value to all stakeholders.

Let’s move on to our detailed financials for the third quarter of 2025. Our revenues were USD 89.6 million in the third quarter of 2025, a 0.8% increase from USD 88.9 million in the same period last year. The increase was primarily driven by our broadening user base and enhanced monetization capability. Turning to our costs and expenses. Our total cost and expenses were USD 55.9 million in the third quarter of 2025, a 1% decrease from USD 56.4 million in the same period last year. Our cost of revenue was USD 28.4 million in the third quarter of 2025, a 10.7% decrease from USD 31.8 million in the same period last year, primarily due to lower commission fees paid to third-party payment platform as a result of diversified payment channels and lower share-based compensation expenses recognized in the third quarter of 2025.

Cost of revenues as a percentage of total revenue decreased to 31.7% in the third quarter of 2025 from 35.8% in the same period last year. Our selling and marketing expenses were USD 9.6 million in the third quarter of ’25, a 30.3% increase from USD 7.4 million in the same period last year, primarily due to higher advertising and marketing promotion expenses attributable to our continued user acquisition efforts and expanding product portfolio. Selling and marketing expenses as a percentage of total revenue increased to 10.7% in the third quarter of 2025 to 8.3% in the same period last year. Our general and administrative expenses were USD 9.2 million in the third quarter of 2025, a 9% decrease from USD 10.1 million in the same period last year, primarily due to a decrease in incentive compensation and professional service fees.

G&A expenses as a percentage of total revenue decreased to 10.3% in the third quarter of 2025 from 11.4% in the same period last year. Our technology and product development expenses were USD 8.6 million in the third quarter of 2025, a 21.4% increase from USD 7.1 million in the same period last year, primarily due to an increase in salaries and benefits for our technology and product development staff, driven by an increase in the headcount to support the development of new businesses and expansion of our portfolio. R&D development expenses as a percentage of total revenues increased to 9.6% in the third quarter of 2025 from 8% in the same period last year. As such, our operating income was USD 33.8 million in the third quarter of 2025, a 3.9% increase from USD 32.5 million in the same period last year.

Interest income was USD 6.3 million in the third quarter of 2025 compared with USD 7.8 million in the same period last year. Investment income was USD 2.2 million in the third quarter of 2025 compared with USD 0.1 million in the same period last year, primarily due to increase in investments in wealth management products. Income tax expense was USD 1.6 million in the third quarter of 2025 compared with USD 1.3 million in the same period last year. As a result of foregoing, our net income was USD 40.7 million in the third quarter of 2025, a 3.9% increase from USD 39.2 million in the same period last year. And our non-GAAP net income in the third quarter of 2025 was USD 43.1 million, a 1.2% increase from USD 42.6 million in the same period last year.

Moving to our liquidity and capital resources. Our cash position remains solid and healthy. As of September 30, 2025, we had cash and cash equivalents, restricted cash, term deposits and short-term investments of USD 739.5 million compared with USD 656.3 million as of December 31, 2024. We continue to retain value through our share repurchase program as of November 7, 2025. The company had cumulatively completed cash repurchases in the open market of 15,021,621 ADS represents Class A ordinary shares for an aggregate amount of approximately USD 101.4 million, since the inception of the current share repurchase program. The aggregate value that remained available for purchase under the current share repurchase program was USD 48.6 million as of November 7, 2025.

In addition, the company decides to cancel all share repurchase in 2025. As of August 11, 2025, the company has canceled 6,230,299 ADS Class A ordinary shares. Moving to our outlook. For the fourth quarter of 2025, we expect our revenue to be between USD 78 million and USD 85 million. The above outlook is based on the current market conditions and reflects the company management’s current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. In the interest of time, please refer to our earnings press release for the further details on our third quarter 2025 financial results. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Xueqing Zhang with CICC.

Xueqing Zhang: Congratulations on another strong quarter. My question in regards on your game business. Can management brief us on the advancements in mid-core and hard-core games.

Jianfeng Xu: Thank you for your question. During the quarter, we soft launched two match-3 titles as planned, marking a significant step forward in our mid- and hard-core gaming portfolio. Turbo Match stood out in multi-region test worldwide with the unique blend of car modification and simulation operations gameplay, achieving retention rates that met our criteria for product expansion. As a result, we decided to invest more resources to focus on Turbo Match in the next stage. Based on the test data, we’re adding levels and diversifying size gameplay options, set stage for the next wave of large-scale using acquisition. Meanwhile, our localized product is expected to launch officially bigger this month or next. We have also recently completed a round of testing for our collaborative project, SLG.

Given our high expectation for this title, we are working closely with the content provider to refine its gameplay, visuals and other details. We expect to launch it by the end of this year. It will take some time for this new product to generate meaningful revenue. For those expecting notable revenue impact from these new games, we see the second quarter of 2026 as a key inflection point.

Operator: Your next question comes from Chloe Wei with CICC.

Chloe Wei: This is Chloe Wei from CICC. So I have a follow-up question about game. So how should we think about the strategic role of our match game? And can we think of it as an indicator for your push into the new regions? That’s it.

Tao Yang: I’ll take — to answer this question. Match-3 games do have a broad global user base, making an ideal entry point for us to explore diversified regional markets. Our recent testing has shown that Match-3 titles are particularly well received in markets like Europe and North America. Given this positive user feedback, we certainly plan to increase marketing budgets for markets where performance is strong. Looking back at our growth journey, Yalla Parchis has been steadily performing for years in South America, providing us with valuable cross market experience. Additionally, the Yalla Ludo support 8 languages, reaching diverse countries worldwide. We are open to expanding our market boundaries as we explore product net MENA users may be interested. In that side, I want to emphasize that the Middle East remains our key strategic region. We will continue to deepen our engagement in key markets across MENA, while selectively expanding into new ones.

Operator: Your next question comes from Lincoln Kong with Goldman Sachs.

Lincoln Kong: I also like to follow up on the gaming business. So could management share our company’s upcoming gaming strategy, including one of the choices around the content and the market?

Jianfeng Xu: Lincoln, thanks for your in-depth question. The company has identified gaming as one important inner for our strategic priorities for future growth and established a clear dual-track strategy featuring self-developed titles and game distribution. For self-developed games, we are focusing on casual and mid-core gaming segments, such as Match-3 and board games. Our team has built substantial experience in the Match-3 category over the past 2 years. If our Match-3 titles show positive results in the coming months, we look forward to consistently deepen our presence in this segment. On the game distribution side, we’re building a strategic partnership with leading global developers, leverage our strengths in product localization, user acquisition and local operations to bring more high-quality gaming content for the Middle East.

We continue to explore game distribution opportunities to further enrich and accelerate our product pipeline. We believe that the dual track strategy will enable us to quickly build a competitive edge for mid- and hard-core games.

Operator: Your next question comes from Sarah Hu with Haitong International.

Unknown Analyst: So can you please get management’s view on the quarter performance of our flagship products, Yalla and Yalla Ludo, as well as they’re also going forward.

Saifi Ismail: Thank you, Sarah Hu. During this quarter, both flagship titles achieved significant breakthroughs in product innovation and operational activities. For example, Yalla added an in-app minigame modules to enrich users’ entertainment experience. Meanwhile, Yalla Ludo [indiscernible] 1 versus 1 mode, quickly become a hit with users, driving overall community engagement to a new high. Operationally, Yalla Ludo tournaments and Yalla’s Riyad Season theme initiatives amplify the connection between our products and off-line entertainment scenarios in the Middle East. Looking ahead, we expect both mature products to remain stable in terms of business scale, and we will continue to pursue incremental growth by introducing new features and strengthening operational activities and initiatives.

Operator: Your next question comes from Tianhao Liu with Citic.

Tianhao Liu: I have two questions on your future plan. So firstly, I think Yalla has completed a sizable share repurchase this year. So could management outline the plans for future shareholder returns? And I have a quick follow-up question.

Yang Hu: Okay. Thanks, Tianhao Liu. This is Karen. I will take this question. As we just discussed, we successfully completed the previously announced minimum full year 2025 repurchase commitment of USD 50 million. As of November 7, 2025, the company had repurchased over 7.7 million ADS for an aggregate amount of USD 51.9 million. Among that, over 6.2 million ordinary shares previous repurchases was canceled. And we will notify everyone once the remaining issues have been fully canceled. With this year’s repurchase commitment achieved, the company continues to execute its share repurchase program based on market conditions. For next year, we expected to maintain a similar level of share repurchase as in 2025. We are on track to complete our USD 150 million share repurchase plan within the year of 2026 before we launch the new plan.

The company remains committed to prioritizing shareholder interest in all capital allocation decisions, maximizing shareholder value through a consistently optimized return strategy.

Tianhao Liu: That’s very helpful. And could also — the management also share your revenue and the profitability outlook for Q4 and 2026.

Yang Hu: Okay. Given the revenue from new initiatives is expected to have a limited contribution in the fourth quarter and based on current business trends, we maintain our guidance that full year 2025 revenue will be broadly in line with 2024, or with low single-digit growth. We expect revenue from our new business initiatives to become more visible over the next 1 to 2 quarters. Regarding profitability, we expect our full year 2025 net margin to reach about 40%. Looking ahead to 2026, we expect R&D spending to follow a similar trend as in 2025, assuming broadly similar business conditions. On the market side, we will dynamically adjust our investments based on the performance of our new products. While maintaining a healthy financial position, we will continue to invest in innovative business initiatives to view the company’s long-term growth and ensure stable profitability through refined operations. I hope I answer your questions.

Operator: As there are no further questions now, I’d like to turn the call back over to management for closing remarks.

Yuwei Gao: Thank you once again for joining us today. We look forward to speaking with you in the next quarter. If you have further questions, please feel free to contact Yalla’s Investor Relations or Piacente Financial Communications. Both parties contact information is available in today’s press release as well as on our company website. Thank you.

Operator: This concludes the conference call. You may now disconnect your lines. Thank you.