After becoming famous, Yalla finds a new role model on Facebook

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It burst onto investors’ radar screens with comparisons to the Clubhouse chat app that briefly captured the world’s attention early last year. But the highlights of her latest earnings report AC watch Yalla Group ltd. (NYSE: YALA) is focusing on other areas these days as it tries to create an integrated social networking platform inspired by much bigger names like Facebook and Tencent.

That’s the main message coming from a company trying to make a name for itself as a social media heavyweight in emerging markets, starting with its base in the Middle East and more recent moves in Turkey and America. Latin. In addition to its stronghold in the Middle East, the company also has a major R&D center in China separate from its headquarters in Dubai.

Meanwhile, Yalla’s other big story is its slower growth in the first quarter of this year as it faced headwinds created by geopolitical tensions and pandemic-related disruptions. Rising costs and continued investment in R&D also weighed on its results.

We’ll begin our final look at this company with some of the progress Yalla has made in areas outside of its core voice-related services that briefly made it an investor superstar last year on Clubhouse comparisons. The publicity stunt ignited a fire under the company’s stock that sent it soaring to over $40 in February last year, from an IPO price of just $7.50 five months earlier. early, as people swarmed in search of Clubhouse concept stock.

Since then, the world has evolved, and Yalla too. These days, it seems the company is more interested in comparisons with a more well-rounded social media player like Facebook, which changed its name last year to Metaplatforms (FB), in a nod to the great potential he sees in a future metaverse where users can interact across many types of applications and platforms in cyberspace.

Yalla first teased investors late last year when he said he was working on a “cutting-edge social app, which will feature the first-ever social metaverse.” It then launched the Waha app in the first quarter of this year. Company officials gave a brief update on the initiative in the latest report, saying they gathered feedback after the initial launch and have already launched a new iteration of the app.

Then there’s YallaChat, an instant messaging (IM) app designed for Middle Eastern users that resembles the WhatsApp and WeChat apps that are hugely popular in the West and China. The company has been experimenting with various pre-1.0 versions of the more text and photo-based product over the past year. It has upped its game with the recent launch of YallaChat 1.0, which, among other things, also provides users with a unified way to connect to the company’s various other products.

The company also hinted that some mergers and acquisitions may be in the works as it strives to further diversify its product offerings and geographic reach. “We are also actively pursuing various investment opportunities to continue to expand Yalla’s ecosystem flexibly and efficiently,” Chairman Yang Tao said during the company’s earnings call. Such a move could tug at the company’s hefty $367.5 million war chest in its coffers at the end of March.

Getting hardcore with games

The other expanding element of Yalla is gaming, which has seen strong growth over the past quarter – a stark contrast to the company’s larger voice services, whose revenue has actually declined over the period. .

Its games-based revenue rose 59% for the quarter year-on-year to $20.3 million, even as chat services revenue fell 5.3% to $51.9 million. These two top revenue streams combined to give Yalla record first-quarter revenue of $72.3 million, representing a modest 6.9% year-over-year gain. another that contrasts with the strong double- and even triple-digit growth the company has seen in 2021.

Yalla didn’t give too much color regarding its revenue growth, though Yang said 2022 is shaping up to be a “challenging year.” On the call to investors after the earnings release, Yang pointed out that the company’s Middle East base “has so far seen no significant effect” from the geopolitical tensions, and even added that “the rising oil prices are not bad news for us.”

So far, Yalla has focused exclusively on casual gamers who could shell out a dollar here and pennies there to play games like tic-tac-toe and chess in their spare time. But in a major shift, the company is gearing up to launch its first title for more hardcore gamers who are often willing to spend a lot more time and money on their favorite pastime.

Yang said the company would introduce a beta version of the game soon, calling it a “milestone” for Yalla.

With its major chat services slowing and most new initiatives just beginning to gain traction, it’s no surprise that Yalla’s net profit fell 11% in the quarter to $17.7 million, down from $19.8 million a year earlier. The company said it expects slower revenue growth to continue in the second quarter, forecasting revenue of $66 million and $70 million for the period, down from $66.6 million a year earlier. year earlier.

After their meteoric rise shortly after the IPO, Yalla shares have been more down to earth since the start of this year, perhaps at least partly punished for the company’s connection to China. The shares actually rose 7.5% after the May 16 earnings announcement. But at their last close of $3.46, they are now trading at just under half their IPO price. The company announced a $150 million share buyback last May to back the stock, and said in its latest results that it had extended the program for another year.

In terms of valuation, Yalla is offered at a fairly cheap price compared to its peers with a price to earnings (P/E) ratio of only 8. In comparison, Meta is twice that level with a P/E of 16, while the Chinese Twitter- Like Weibo (WB) (9898.HK) is also trading at a higher P/E of 11. Ultimately, it looks like a company with many irons in the fire that could finally come together to create a kind of Facebook for people. developing markets. . But that day is still at least a year or two away, and investors will be watching the performance of any new initiatives closely.

Disclosure: None

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

Rebecca R. Santistevan