On November 21, Yalla Group, the largest online social networking and gaming company in the Middle East and North Africa, released financial results for the third quarter of 2023. The report shows that Yalla Group achieved excellent results after successively handing over a number of excellent financial reports. In particular, it increased revenue and profits, and its contribution to the game business continued to increase.

At the same time, the author noticed that since this year, the Middle East venture capital market has been unprecedentedly hot, gradually forming a market consensus that “it is time to invest in the Middle East.” Yalla Group, a concept stock in the Middle East, has also achieved a steady rise in stock prices, rising by more than 60% during the year. As of press release, it is $5.94 billion, with a total market value of US$928 million.

Source: Futu

Judging from this, Yalla Group may have experienced a double hit by Davis in terms of performance and valuation, and as Yalla Group released its latest financial report, once again sending a positive signal, this kind of double click may continue to be interpreted. You might as well start a discussion on this and sort out its latest investment highlights.

Fundamentals: Revenue continues to reach new highs, and the results of “key layout” are gradually highlighted

In the third quarter of 2023, Yalla Group achieved revenue of US$85,187 million, exceeding the upper limit of the expected guidance range and reaching a record high. Also, judging from previous financial reports, its revenue for the first two quarters of this year both reached record highs for the same period, and its performance was both steady and growing.

At the same time, Yalla Group continued its excellent profit performance, achieving a non-GAAP net profit of US$38.28 million in the third quarter, an increase of 30.3% over the previous year, and a non-GAAP net profit margin of 44.9%.

By business, Yalla Group achieved revenue from social services of US$53.915 million during the same period; revenue from game services was US$31.183 million. The growth rate returned to more than 30%, and the second growth curve was strong.

Behind this, Yalla Group continues to optimize its product matrix, focusing on medium and heavy gaming sectors since the end of last year, fully leveraging the incremental global game market represented by the Middle East (Snapchat data shows that the potential mobile game market in the Middle East accounts for nearly a quarter of the global mobile game market). Furthermore, two major games owned by Yalla Group progressed positively this quarter, entering the top game revenue rankings of app stores in countries in the Middle East and North Africa region, such as Saudi Arabia and the United Arab Emirates.

It's not hard to see that the global mobile game market as a whole has remained under pressure since this year, and competition is fierce. According to the “Global Mobile Game Market Data Report for the First Half of 2023", global mobile game downloads and revenue both declined year-on-year; according to the “2023Q3 Global Mobile Game Marketing Trend Insight”, global mobile game advertisers increased 72.3% year-on-year in 2023.

This further confirms Yalla Group's racetrack advantage and product advantage.

In terms of operating data, the average number of monthly active users of Yalla Group reached 35.96 million, maintaining a double-digit year-on-year increase of 13.6%. Among them, the number of paying users was 11.26,000, which declined slightly due to recent game product mechanism adjustments, but positively, the average revenue per paying user increased to 7.35 US dollars (6.89 US dollars in the same period last year), offsetting its impact on performance and still reflecting its strong monetization capacity.

Looking ahead, Yalla Group expects fourth-quarter revenue to be between 73 million US dollars and 80 million US dollars, and said it will gradually increase investment in the medium to heavy gaming business in the future to unleash growth potential.

Market side: Middle East concept stocks heating+authoritative index “endorsement” boosts potential

On the one hand, as mentioned in the beginning, the Middle East market has become a hot spot for venture capital, and gaming is also one of the more definitive segmentation tracks, which is conducive to promoting value discovery by Yalla Group.

Recently, an industry insider said at the Financial Street Forum, “Since this year, our Middle East Office has hosted more than 1,000 Chinese companies interested in the Middle East. This is something we have never seen in the five years since our establishment.”

Looking at the segmented circuit, the prospects for the gaming sector in the Middle East market are relatively clear. Saudi Arabia, the largest economy in the Middle East, has made it clear that Saudi Arabia will become a global center for the gaming and e-sports industry by 2030. In order to accelerate the achievement of this goal, Saudi Arabia has begun a “heavy financial support” model.

Accordingly, it is also expected that this enthusiastic atmosphere will spread further to the secondary market, especially in fields such as games. As a result, Middle Eastern concept stocks represented by Yalla Group are likely to attract more investors' attention and participation.

On the other hand, Yalla Group was newly selected for the S&P Global BMI Index, which had a positive impact on its performance in the capital market.

The S&P Global BMI Index series is the only global index series with high transparency and a modular structure, covering more than 14,000 stocks in 25 developed markets and 25 emerging markets. It requires listed companies to have a market value of more than 100 million US dollars in circulation, and a certain level of activity in 6-month and 12-month stock trading averages, etc.

Therefore, to a certain extent, this means that the development potential of Yalla Group has been recognized by authorities, forming an “endorsement” of high-quality assets.

Accordingly, Yalla Group can also attract more attention, so it has more opportunities to enjoy the liquidity premium in the capital market, expand the high-quality shareholder base, etc.

Under the combined effects of these two major factors, Yalla Group's valuation center may continue to move upward.

epilogue

Overall, the current Yalla Group is in a period of good opportunity, where fundamentals and markets resonate, and a new round of revaluation may begin. In the future, as it gradually increases investment in medium to heavy gaming businesses, its growth potential will be further verified, and its value potential will be further unleashed.