David Xueling Li - Chairman, Chief Executive Officer Bing Jin - Chief Financial Officer Ting Li - Chief Operating Officer Matthew Zhao - General Manager of Investor Relations

Ladies and gentlemen, thank you for standing by and welcome to JOYY Inc.'s First Quarter 2020 Earnings Call. At this time all participants are in a listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note, this event is being recorded. I'd now like to hand the conference over to your host for today, Mr. Matthew Zhao, General Manager of Investor Relations of the company. Please go ahead.

Thank you, operator. Good morning and good evening everyone. Welcome to JOYY's first quarter 2020 earnings conference call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; CFO, Bing Jin and COO, Ms. Ting Li. For today's call, management will first provide a review of the quarter, and then we will conduct a Q&A session. The first quarter 2020 financial results and webcast of this conference call are available at ir.yy.com. A replay of this call will also be available on our website in a few hours. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi. I will now turn the call over to our Chairman and CEO, Mr. David Xueling Li. Please go ahead, sir.

[Foreign Language] Thank you, Matthew. Hello everyone! Welcome to our first quarter 2020 earnings call today. First of all, all of us at JOYY Inc. hope you and your loved ones stay safe and healthy. As the COVID-19 pandemic sweeps across the globe, we're experiencing unprecedented disruptions to our normal way of life. For those who combat the pandemic on the front lines, including doctors, nurses and volunteers, you are the unsung heroes of this extraordinary time. We think highly of your courage, compassion and dedication. [Foreign Language] I would also like to thank all of our own employees around the world. You have demonstrated remarkable resilience and adaptability during this time of uncertainty and change. Because of your hard work and ingenuity, we were able to continue delivering strong operating and financial results in the first quarter of 2020 despite the challenging macro environment. As such, during the period we grew our total revenues by 49.6% year-over-year to RMB7.15 billion, thus validating our strategy in the three key areas. Number one, supercharging our live streaming and short-form video duel growth engine; number two, boosting the social nature of platforms for the development of new product features; and number three, qualifying our leadership in the domestic entertainment live streaming industry via content innovation. [Foreign Language] First of all, I would like to share some updates regarding the remarkable progress we have made in implementing our globalization strategy. As many of you have noticed, with a revenue contribution of over RMB2.1 billion in the first quarter, BIGO is catching up to YY Live in terms of revenue generation. Even more striking is that BIGO’S revenue is increasing at a rate of 99.3% year-over-year. This achievement is a result of our determined pursuit of our globalization strategy which we set up several…

That concludes David’s prepared remarks. Now as the JOYY’s CFO, I will talk about the financial results. We maintain our strong momentum and delivered robust financial and operating metrics during the first quarter of 2020. Our total net revenue for the first quarter increased by 49.6% year-over-year to RMB7.15 billion, exceeding both the high end of our previous guidance range and street consensus. In particular, our live steaming revenues for the first quarter increased by 50.6% year-over-year to RMB6.76 billion, driven by live steaming revenues growth from both Huya segment and BIGO segment. Other revenue in the first quarter increased by 33.0% to RMB393.2 million, mainly driven by higher advertising revenues on BIGO. Cost of revenues for the first quarter increased by 56.5% year-over-year to RMB4.95 billion. Revenue-sharing fees and content costs increased to RMB3.55 billion in the first quarter from RMB2.52 billion in the same period of 2019, which was in-line with the increase in live streaming revenues. Bandwidth costs increased to RMB528.1 million from RMB297.4 million in the same period of 2019, mainly reflecting the continued expansion of our overseas user base and time spent following the BIGO acquisition. Gross profit for the first quarter increased by 36% year-over-year to RMB2.2 billion. Gross margin in the first quarter of 2020 decrease to 30.8% from 33.9% in the same period of 2019. The decrease in gross margin was primarily caused by the fact that Huya and BIGO segments had lower gross margins, but contributed significantly greater portions of net revenues in the first quarter of 2020 compared to the corresponding period of 2019. Operating expenses for the first quarter increased to RMB2.05 billion from RMB1.22 billion in the same period of 2019, primarily due to the increase in sales and marketing expenses, which reached RMB1.04 billion in the period…

[Operator Instructions] Our first question comes from Thomas Chong from Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my questions and congratulations on the strong set of numbers for BIGO. Given the strong Q1 involve top line and bottom line, how should we think about the full year KPI for BIGO in revenue, as well as the bottom line in 2020? And on the other hand we have seen the geographical revenue contribution from developed market is also gaining traction. May I ask about what we should expect by the end of this year in terms of our geographical revenue mix? Thank you.

Thank you, Thomas. Let me address those questions. So first question is regarding the revenue and profitability for BIGO. As you can see, in the first quarter we did achieve very good growth in terms of user and revenue, as well as profitability for BIGO, so we expect that trend to continue. So in total I think the revenue focus for BIGO will be higher than previously forecasted. So I think we're looking somewhere around 65% year-on-year growth for BIGO in total for the revenue growth. In terms of the probability, as you can see BIGO Live’s profit is well above 25%. I think in the next few quarters we expect that probability to continue or even to further optimize. And then on the Likee side, as we grow the user base of Likee, we will also enhance the monetization of Likee through the live streaming, as well as the advertising. So we expect the total BIGO profitability will also be better than we previously guided the market. So I think that's very encouraging for the next few quarters. In terms of the composition of the different markets, as you can see in the first quarter the developed markets contribution for BIGO’s revenue is well over 33%. We expect that trend to continue, so if you look at the end of this year, we think the revenue from those developed markets will be even higher. It will be higher on a quarter-by-quarter basis, so it definitely will be higher than the current rate, and then we will also continue to expand in other markets, including the developed and emerging markets as well. Thanks.

Thank you.

Our next question comes from Lei Zhang from Bank of America. Please go ahead.

[Foreign Language] Congrats on a strong quarter, especially in overseas. My two questions is mainly about overseas. First is about the users having the following quarter amid the global pandemic, and also could you give us any color on the gross trend in different countries in terms of users. And secondly, is the thing about competition. Besides the competition with TikTok, do you see any new player or some potential player from the Chinese company that is growing overseas may have a potential impact to our short-form video business in overseas? Thank you.

Thank you, Lei. Let me address the questions. So first one is about the user growth trends in overseas and the impact on the COVID-19. I think in general COVID-19 is positive for our global business, because we see many countries that have implemented a very strict indoor policy and insulation policy, so as a result, people tend to have longer time watching online entertainment content, including live streaming and short form video. As a result, we do see good user traffic, user time spent, as well as the user retention rate plus our live streaming and sort form video platform. We’re also seeing increasing percentage of iPhone penetration, because as I said, our key strategy for both BIGO Live and Likee focus on the new user growth from developed markets. So I think given the continuous COVID-19 situation, we will continue to benefit from that trend. So as I said, in general our user growth profile from developed markets will continue to be higher than the rest parts of the world; that's the first question. The second question, I will address first and see whether David has anything to add. In terms of competition, I think apart from TikTok we don't see any other major kind of competitor on the short-form video side. There is some regional player that is coming from China, but in terms of the use-of-scale, in terms of absolute revenue scale, it is soo much smaller than BIGO, and then apart from short-form video also for live streaming, BIGO Live has achieved tremendous growth, over 90% year-on-year growth. We don't see any other competitor that is coming along, even to the similar growth profile as BIGO Live. So we’re not afraid of the competition at all.

[Interpreted] This is David. Let me add based on Bing’s comments. So firstly, in terms of the short-form video conversation, I would like to say, you know after two years effort, actually Likee's overall user scale has been grown very big, you know actually our mobile MAU has been grow over 100 million users. So in the future we intended to have more differentiated approach in terms of the competition. We will make a well, healthy balance between the investment into the short-form video business as well as the growth speed, so in order to make our more healthy model to support more longer time or sustainable of the competition. [Foreign Language] In terms of the live streaming business, we actually didn't see any of the established competitor you know outside of China. You know after four years of effort, BIGO already set up more than 30 offices in outside of China and in terms of those kind of scale of the business, as well as operational expertise, we don't think other – you know the local based peers can compete with us. [Foreign Language] In terms of the short-form video arena, we truly believe it really depends on our company’s comprehensive capabilities, comparative capabilities, including technical capabilities, operational capabilities, the user acquisition capability, as well as other brand promotion capabilities. So if you look at the global short-form videos business market outside of China, only Likee and TikTok are two of the major established platforms. So going forward we don't think you know in terms of the short-form video business we will see very established competitor came out in the short-form period. Thank you.

Thank you.

Our next question comes from Natalie Wu from CICC. Please go ahead.

[Foreign Language] So I have two questions regarding BIGO. First one is, when you acquired BIGO earlier last year, the aim was to create another YY in global markets. Now that the target has almost achieved, it seems that BIGO revenue could surpass that off that YY later this year at current run rate. So just curious if there is a longer term target that management can share with us regarding the overseas endeavor, say user or revenue, etcetera in two years, both in terms of BIGO and BIGO Life and Likee respectively. And second one is regarding Likee. Just curious how do you differentiate Likee versus other short-form video social platforms in overseas market like TikTok, let’s say in two to three years in terms of regions, position, user target, etc. Thank you.

Thank you, Natalie. Let me address the first question and David can address the second one. In terms of the overseas potential, we see enormous potential out there. As I said in the script, that we look at BIGO Live first of all. BIGO Live’s penetration into developed market is going very well and we think in each of those big four developed market areas, including North America, Europe, Middle East and Japan, Korea, we think there's opportunity to create another similar scale of YY Live in each of those four areas in the next several years. So when we put those together, that means they will be at least four times of the current YY Live revenue scale in overseas market for BIGO Live. So that’s very exciting market potential. For Likee, we think Likee’s user will continue to grow, and as I said, we will convert those users to live streaming and also going forward we also implement advertising dollars. So we think given the market user potential and the spending power in those markets, Likee can generate another similar scale of BIGO Live, right. So a short answer to you, that we there is a multiple times opportunity in overseas, and actually we’re at a turning point that you can see as the acceleration of BIGO Live’s revenue demonstrates we can capture that enormous market opportunities.

[Foreign Language] This is David, let me add on that. So firstly, in terms of BIGO Live as I said in my prepared remarks, so going forward we will continue to focus on four key areas to continue increase live steaming revenue and each of the market we were quite confident we can build up a revenue size which is at least in the same as our China streaming business. So generally speaking, in terms of the overseas live steaming business, we were quite optimistic on that. And in terms of the short-form video business, Likee, you know since Likee is starting from a short-from video editing tool apps and will also continue being one of the best in terms of the short-from video editing capabilities, and that is why if you look at the Likee’s daily usage upload rate for the short-form video actually have been continuously exceeded 10%, which is much higher than other similar peers in the market. So Likee has very obviously community features compared to rest of the short-form video platform in the market, and we truly believe in the future we’ll continue to focus on to develop of the community features for Likee and to improve the user stickiness as well as the user interaction. And after the Chinese New Year, for this year you know we started doing the Likee’s monetization. We truly believe approaching to the end of this year, definitely Likee can build up a sizeable revenue for this year and next year we’ll continue to growth healthily. You know obviously everybody knows we have a very strong competitor in this arena, right, but since Likee will continue to focus on build up a more healthy business model in this year. So we are still quite confident we can continue being a very established competitor in the next three to five years for the short-from video competition. Thank you.

Got it. That’s very encouraging. Thanks David and Bing Jin for the color.

Thanks.

Our next question comes from Tian Hou from T.H. Capital. Please go ahead.

Yeah, so David and Bing Jin and Matthew, good morning. [Foreign Language] So as we extend our overseas practice you know rapidly, so the marketing dollar will also matching up. So I want to get some clarification on the full year operating margin trends. The second one is specifically regarding the split between the platform and the host overseas. Is that a similar to what we do in China? Thank you.

Thank you, Tian. Let me address those two questions. First one regarding user acquisition, in general the overseas user acquisition cost in many markets are lower than in China, that’s the first point. Secondly, give the coronavirus situation, some of those countries, the acquisition cost is actually even lower, so which is good for us. But looking to the second quarter, third quarter if the coronavirus, COVID-19 situation is getting better, then the user acquisition cost might increase a little bit, but still in general it’s much lower than in China. So if you look at the operating margin profile for BIGO, BIGO Live is hugely profitable. As I said, its well over 25% and then in the future I think that margin can trend up as well, given the economy of scale, and then the enhancement of payment channels etc. For Likee, it’s still burning money, but as David surely mentioned that we focused on ROI, we focused on self-sustained growth, so we are expecting the breakeven for the total BIGO segment will come sooner than we previously guide. So which means the operating margin, the net margin profile for the total BIGO will be better than expected this quarter. That’s the first question. Second one for the revenue sharing percentage for the host, in general overseas its lower percentage than in China. China typically we are sharing 45% revenue with the host and the deals. In overseas because BIGO Live has no competitor as we said, so its negotiation power is much stronger as a platform compared with individual host and then the deal is still very early state in overseas market. As a result the host rely more on the platform rather than the other way around, that’s why we share less revenue with the host. Thanks.

Thank you.

Our final question will come from Daniel Chen from JPMorgan. Please go ahead.

[Foreign Language] I would translate myself. So my question is related to top spender behavior in overseas market. So I know the COVID is still very – is still ongoing. So I was just wondering if the top spender in our top revenue contribution areas like Middle East, U.S., Europe is going to be impacted or if our revenue in the overseas market is more diversified. So more long term payers, so it would be less impacted due to the pandemic. Thank you.

Let me address the question.

[Foreign Language] This is David. Thank you for your question. Let me address that. So I mentioned during my prepared remarks, which is you know average 13% of BIGO Live DAU actually hosts the live steaming session every day in the first quarter. So this level is actually much higher than the percentage then of its counterpart in China and it would even compare with short-form video platform. In generally speaking, even for the short-form video platform we have a much lower ratio compared with us in terms of the host of who opens the live steaming session. So that actually demonstrates the overseas live steaming ecosystem. It’s actually quite different compared with China live steaming ecosystem. The host actually are more diversified. It actually covers a different part of the live topics and also the ecosystem is very different. So based on that, we are still quite confident we will have a very limited impact from the other environment impacts such as COVID-19. Thank you.

Thank you.

Thank you. I will now pass back to management for closing comments.

Yeah, thank you operator. Thank you for joining our call. Again, we wish everyone to stay safe and sound. We look forward to speaking with everyone next quarter. Thank you.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude the call today. Thank you so much for you attendance. You may now disconnect.