Yalla Group Limited Q4 2025 Earnings Call - New MENA-focused games, AI and $150M buyback set stage for H2 growth

Operator: Morning and good evening, ladies and gentlemen. Thank you for standing by for Yalla Group Limited’s fourth quarter and full year 2025 earnings conference call. At this time, all participants are in a listen only mode. After management’s prepared remarks, there’ll be question and answer session. Today’s conference call is being recorded. I turn the call over to your speaker host today, Ms. Kerry Gao, IR Director of the company. Please go ahead, ma’am.

Kerry Gao, IR Director, Yalla Group Limited: Hello everyone, welcome to Yalla’s fourth quarter and full year 2025 earnings conference call. We issued our earnings press release earlier today and it is now available on our IR website as well as all news file 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 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, you will 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. Mrs. 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. Jianfeng Xu, our Chief Operating Officer, will join the Q&A session.

With that said, I’d now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Tao Yang. Please go ahead, sir.

Tao Yang, Chairman and Chief Executive Officer, Yalla Group Limited: Thank you, everyone, for joining our fourth quarter and full year 2025 earnings conference call. We capped off 2025 with a solid fourth quarter thanks to continued execution excellence. Our fourth quarter revenues reached $83.9 million, approaching the high end of our guidance. For the full year, total revenues rose to $341.9 million, driven by exceptional performance across our product ecosystem. Our revenues from game services started to gain significant traction in 2025, growing 9.1% year-over-year. Benefiting from our deep dedication to our gaming business and effective marketing campaigns. We also continued to enhance profitability with net income growing by double digits, up 10.4% to $148.1 million.

Our solid balance sheet and healthy cash flows enabled us to actively pursue new opportunities across the Middle East, while also consistently enhancing shareholder returns. As highlighted in Sensor Tower’s latest report, 2025 marked a year of structural divergence in the global mobile gaming industry, moving away from broad-based market growth towards sub-markets with distinct economies, growth drivers, and competitive dynamics. Industry performance varied significantly by region. MENA’s digital entertainment market continues to surge, while mature gaming markets growth pace has moderated. Amid this favorable trend, Yalla is poised to seize emerging opportunities in the MENA region and drive its next phase of growth. Several of our highly anticipated new game titles are advancing according to plan, led by official launch of our first match-three title, Turbo Match.

During the initial rollout, we strategically leveraged the group’s internal traffic resources to cost effectively drive user acquisition for the first stage, efficiently establishing the initial user base across the Middle East. The team is now diligently working to ensure our readiness for serving users at a potentially significantly larger scale. We will gradually scale our investment in external marketing to research a broader pool of potential users and progressively build this revenue stream. Meanwhile, our better themed SLG title, co-developed with a top-tier studio and featuring rich Arabian aesthetics and strategic gameplay will start official promotion in Q2. As is typical in the gaming industry, monetization and growth will ramp up in stages over time. We expect to see revenues from these two new games come in the second half of this year.

We appreciate your patience with our team, and we will provide more specific guidance on revenue scale once we have better visibility. We’ve been investing consistently in match-three and SLG games over the past few years and have built strong fundamental capabilities in both. We see great growth potential for these two genres in the Middle East and across global markets. Sensor Tower data shows that strategy games and puzzle games, which include the match-three game category, were the two highest grossing genres worldwide in 2025, each generating annual revenues exceeding $10 billion. Given this industry trend and our expertise in these genres, we will remain focused on systematically expanding our match-three and SLG pipeline over the long term.

Our development process is guided by data and learning from each iteration, strengthening our execution over time and positioning us to capture new opportunities and generate sustainable returns for the group. Moving on to our AI initiatives. We continue to proactively enhance our AI tools, including Simis, our in-house developed multimodal AI model. Simis is constantly learning from massive Arabic language data sets and the user behavior data, continuously refining content recognition accuracy, cultural context understanding, and risk anticipation. Simis’ performance in analyzing text and images and detecting inappropriate content continues to lead the industry in MENA. Our team is also researching and testing AI-related integrations for our products to encourage engagement and interactions in our online community and drive users’ enthusiasm. We will keep you posted on any meaningful progress.

Additionally, Yalla is strategically deepening its engagement in key regional markets as part of its growth strategy. In Saudi Arabia, we have entered into a strategic partnership with the Saudi Esports Federation to drive the continued expansion of the kingdom’s national esports system in line with Vision 2030 and the National Gaming and Esports Strategy. Under this partnership, Yalla has been appointed official event partner of the Saudi eLeagues 2026, the kingdom’s premier national esports competition, which enhances our brand visibility and local market engagement in one of the region’s most important growth markets. We support for the Women’s Saudi eLeague will be a key focus of the partnership, aligning with Yalla’s dedication to promoting inclusion, community development, and broader participation in digital entertainment.

In addition, Yalla will launch a talent development program in collaboration with the SEF, Saudi Esports Academy, designed to foster local esports talent through training, mentorship, and competitive experience. We view this partnership as a disciplined approach to market development in Saudi Arabia, strengthening our connection with the local users and increasing our regional impact, while positioning the company to capture sustainable growth opportunities and deliver long-term value. In early 2025, we committed to accelerating the execution of our share repurchase program. We have delivered on that co-commitment. In 2025, we executed $56.6 million of our $150 million share repurchase program, eliciting a positive market response. The company has also decided to cancel all shares repurchased in 2025 as part of our commitment to generating sustained benefits for our shareholders.

The aggregate value remaining available for purchase under the existing share repurchase program is $44 million. The company’s board of directors has authorized a new share repurchase program or the 2026 program for up to $150 million of the company’s shares, effective from March 9, 2026, through March 8, 2028. Once again, I would like to emphasize that we constantly place shareholders’ interests at the core of our capital allocation decisions, maximizing shareholder value through a continuously optimized return framework. 2026 will be a pivotal year for Yalla as we focus on executing our strategy for sustainable growth. We plan to unlock deeper synergies between our social and gaming ecosystems, boosting cross-product engagement and user lifetime value. We are embedding AI across content creation, risk management, and operations to drive efficiency.

With a pipeline of new products, we are diversifying our ecosystem to lead in the rapidly growing MENA market. We are confident Yalla is well-positioned to deliver consistent growth and generate lasting value for our shareholders. I’d like to turn the call over to Seifi for a closer look at our operational achievements. Seifi, please go ahead.

Saifi Ismail, President, Yalla Group Limited: Hello, everyone. Thanks for joining us today. First, I would like to share our operational performance highlights in the fourth quarter. We increased MAUs by 8.2% year-over-year to 44.8 million. Refined operation and a wider variety of engagement initiatives drove user growth while also leverage data-driven insights to enrich monetization scenarios. For paying users, we implemented targeted tiered strategies to fully unlock their spending potential. These efforts supported sustained improvements in overall user life value, highlighting and expertise and precision in guiding users throughout their life cycle. In the fourth quarter of 2025, we celebrated 101 Okey Yalla’s fifth anniversary with a special campaign that achieved recorded high single event participation and drove both quarterly revenue to all-time high, up more than 20% year-over-year.

As the group’s third self-developed title to reach 5 years of operation, 101 Okey Yalla’s success demonstrates our deep understanding of MENA’s culturally diverse user segments and validates our ability to replicate the gaming plus social model across MENA. In the late of last year, we received the Strategic Alliance Award at AppGallery HDC 2025 MEA Summit, recognizing our strength in technology and localization, as well as our active role in promoting a more diverse, higher quality digital entertainment ecosystem in the Middle East. This marks the second consecutive year we have earned this recognition, highlighting the depth of our commitment to technology, synergy, localization, and joint user ecosystem development. Going forward, we will continue to work closely with our channel partners to drive tech innovation and product excellence, creating an ever-growing variety of digital experience tailored to local cultural preferences for users across the Middle East.

In 2026, we will continue to optimize our core product experience and deepen localization and community operations in a new and existing market, supported by keen cultural insights and an effective data-driven approach. We are confident that Yalla is well-positioned to strengthen its leadership of MENA’s digital entertainment market. With that, I will now turn the call over to our CFO, Karen, who will discuss our key financial and operational results.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Thank you, Saifi, and hello, everyone. Thank you for joining us today. In the fourth quarter, we continued to focus on efficiency enhancement to strengthen profitability. Our net income increased by 6.2% year-over-year to $34.5 million, with a net margin of 41.2%, up 5.4 percentage points year-over-year. For the full year, we delivered both top and bottom line growth through our strong strategic execution and effective cost control. Our consistent efforts in the game businesses are bearing fruit, driving a 9.1% year-over-year increase in the segment’s revenue.

Our solid balance sheet and healthy cash flow position to continue returning value to shareholders, highlighted by $56.6 million returned in 2025 through our existing share repurchase program and the launch of a new share repurchase program for up to $150 million over the next 24 months. Looking ahead, we will continue to invest in long-term growth opportunities, delivering high-quality growth and maximizing value for all stakeholders. Let’s move on to our detailed financials for the fourth quarter of 2025. Our revenues were $83.9 million in the fourth quarter of 2025, compared with $19.8 million in the fourth quarter of 2024.

The decrease was primarily due to a decrease in paying users as a result of few promotion events, held by third-party payment platforms in the fourth quarter of 2025, compared with those held in the fourth quarter of 2024. Turning to costs and expenses. Our total costs and expenses were $57.2 million in the fourth quarter of 2025. 5.7% decrease from $60.7 million in the same period last year. Our cost of revenues was $26.3 million in the fourth quarter of 2025. 15.1% decrease from $31 million in the fourth quarter of 2024, primarily due to lower commission fees paid to third-party payment platforms as a result of diversified payment channels.

Cost of revenues as a percentage of total revenue decreased to 31.4% in the fourth quarter of 2025 from 34.2% in the same period last year. Our selling and marketing expenses were $9.4 million in the fourth quarter of 2025. A 26.5% increase from $7.4 million in the fourth quarter of 2024. 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 percentage of total revenues increased to 11.2% in the fourth quarter of 2025 from 8.2% in the same period last year. Our G&A expenses were $12.1 million in the fourth quarter of 2025.

A 7.8% decrease from $13.1 million in the fourth quarter of 2024, primarily due to a decrease in incentive compensation. G&A expenses as a percentage of total revenues was flat at 14.4% in the fourth quarter of 2025 compared with the same period last year. Our technology and product development expenses were $9.5 million in the fourth quarter of 2025. A 3.2% increase from $9.2 million in the fourth quarter of 2024. Primarily due to an increase in the salaries and benefits for our technology and product development staff, driven by an increase in the headcounts to support the development of new businesses and the expansion of our product portfolio.

Technology and product development expenses as percentage of total revenues increased to 11.3% in the fourth quarter of 2025 from 10.1% in the same period of last year. Our operating income was $26.6 million in the fourth quarter of 2025 compared with $30.1 million in the same period last year. Interest income was $6 million in the fourth quarter of 2025 compared with $7.1 million in the same period last year. Investment income was $1.1 million in the fourth quarter of 2025 compared with an investment loss of $1.7 million in the same period last year, primarily due to changes in the fair value of wealth management products.

Income tax benefit was $0.6 million in the fourth quarter of 2025 compared with income tax expense of $3.4 million in the fourth quarter of 2024. Primarily attributable to the preferential tax rate applicable to a subsidiary since the fourth quarter of 2025. As a result of foregoing, our net income was $34.5 million in the fourth quarter of 2025, a 6.2% increase from $32.5 million in the same period last year. Our non-GAAP net income in the fourth quarter of 2025 was $36.9 million, a 3.2% increase from $35.7 million in the same period last year. Moving to our liquidity and capital resources. Our cash position remains solid and healthy.

As of December 31, 2025, we had cash and cash equivalents, restricted cash, term deposits and short-term investments of $754.6 million compared with $656.3 million as of December 31, 2024. Moving to our outlook. For the first quarter of 2026, considering the impact of Ramadan, which falls completely within the first quarter of this year. We expect our revenues to be between $75 million and $82 million. The above outlook is based on the current market conditions and reflects company’s 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 further details on our first quarter and the full year 2025 financial results.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. There may be a short pause as we compile the Q&A roster. We will now take our first question from the line of Xueqing Zhang from CICC. Please ask your question. Xueqing, your line is open.

Jianfeng Xu, Chief Operating Officer, Yalla Group Limited1: Thanks management for taking my question. My question about your esports strategy. Could management brief us on the company’s partnership with the Saudi Esports Federation, including the strategic focus and the key initiatives? Thank you.

Tao Yang, Chairman and Chief Executive Officer, Yalla Group Limited: Thank you for this question, Xue Qing. I will take this question. Our strategic partnership with the Saudi Esports Federation, also known as SEF, represents a key step in deepening our presence in Saudi Arabia while aligning with the Saudi government’s Vision 2030. Serving as the official event partner of the Saudi eLeagues 2026 will meaningfully enhance our brand availability in Saudi, one of our most important growth markets. Moreover, we will also support Women’s Saudi eLeague, helping cultivate female esports role models and encouraging significantly broader participation by Saudi women in digital entertainment. This closely aligns with our commitment to promoting inclusion and community development. In addition, we will collaborate with the SEF Saudi Esports Academy to launch a talent development program designed to foster local esports talent through training, mentorship, and competitive experience. The Saudi eLeagues 2026 is now in progress.

We look forward to sharing further details on our partnership as the event unfolds. We believe this will enable us to cultivate deeper connection with the users in Saudi market and strengthen our regional influence, positioning the company to capture sustainable growth opportunities and deliver long-term value. Notably, this collaboration is not limited to a single tournament. It opens the door to broader possibilities. Looking ahead, we plan to explore additional partnerships with the esports tournament operators, top-tier game publishers and content creator ecosystem players across the Middle East and other high-growth emerging markets to jointly build a cross-regional digital entertainment ecosystem. Thank you.

Operator: Thank you.

Jianfeng Xu, Chief Operating Officer, Yalla Group Limited1: Thank you.

Operator: We will now take our next question from Chloe Wei from CICC. Please ask your question. Chloe, your line is open.

Chloe Wei, Analyst, CICC: Okay. Really appreciate the opportunity to ask the question. My question is about the microenvironment. Could management maybe share the perspective on the evolving macro dynamics in the Middle East and its implications for the company? Thank you.

Saifi Ismail, President, Yalla Group Limited: Thank you, Chloe. This is Saifi. I will take this question. The recent developments in the Middle East are top of mind of investors. We do not have any operations in Iran or Israel. In the Gulf countries, we have responded promptly to government guidance and have arranged for our employees to work from home. Our immediate priority is ensuring the safety and well-being of our employees throughout the region. Operationally, based on our recent performance data, there has been no material revenue variation over the past two weeks. The overall impact appears limited at this stage. Given that our business operates online, user demand for community engagement and real-time emotional connection during these periods may still persist based on our recent observation. We will continue to closely monitor the situation. We stand ready to adjust our strategy as the situation evolves. Thank you.

Operator: Thank you. We will now take our next question from the line of Tianhao Liu from CITIC. Tianhao, please ask your question. Your line is open.

Tianhao Liu, Analyst, CITIC: Okay. Thanks for taking my question. I would like to follow up on the pipeline. Could management provide an update on the product rollout and the marketing schedule? Thanks.

Tao Yang, Chairman and Chief Executive Officer, Yalla Group Limited: Thank you, Tianhao, for the question. For our first match-three title Turbo Match. During the initial rollout, we strategically leveraged the group’s internal traffic resources to cost-effectively acquire first group of users. We saw encouraging test data and our team is now diligently preparing to serve users at a potentially large scale. Starting Q2, we gradually increased our investment in external marketing to reach a broader pool of potential users and progressively build through this revenue stream. Meanwhile, our desert-themed SLG title collaborated with the top-tier studio, is currently in the final stage of product optimization. We’re targeting its official on scale.

Jianfeng Xu, Chief Operating Officer, Yalla Group Limited: Promotion in Q2 as a typical in the gaming industry. For these two new games, monetization and growth will ramp up in stages over time. At this point, we expect our mid-core and hardcore games to start generating more meaningful revenue contributions in the second half of this year. We’ll keep you updated. Thank you.

Operator: Thank you. We will now take our next question from Xiaoyue Hu from Haitong. Please go ahead.

Jianfeng Xu, Chief Operating Officer, Yalla Group Limited0: Hello management. Thank you for taking my question. Could management share more details on the company’s proprietary AI model and its future direction in the AI domain? Thank you.

Tao Yang, Chairman and Chief Executive Officer, Yalla Group Limited: Thank you, Xiaoyue. We continue to ramp up our AI investment and have made notable progress. Our in-house developed multimodal AI model, SIMIS, is constantly learning from massive Arabic language datasets and user behavior data, continuously refining content recognition accuracy, cultural context understanding, and risk anticipation. SIMIS has achieved industry-leading performance in MENA in analyzing text and images and detecting inappropriate content, significantly enhancing our content moderation efficiency and platform safety. The integration of AI in marketing also significantly help us to optimize our marketing budget and reduce expenses. Beyond multimodal AI model, our team is also actively researching and testing AI-related integrations for our products, including AI-assisted content creation tools to encourage engagement and interactions in our online community and drive user enthusiasm.

Looking ahead, we will deepen the integration of AI across product development, risk management, and end-to-end operational workflows to improve efficiency and drive innovation. We will share additional product level development, ones which we achieve more substantive breakthroughs. Thank you.

Operator: Thank you. We will now take our next question from Lincoln Kong of Goldman Sachs. Please ask your question, Lincoln. Your line is open.

Lincoln Kong, Analyst, Goldman Sachs: Thanks for taking my question. The first one, could management share your guidance for revenue and the profitability for 2026? I have another question, what’s the company’s medium term to longer term strategy for the gaming business? Thank you.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Thank you, Lincoln. This is Karen. For the first question, looking ahead to 2026, our flagship products remain highly resilient and we expect revenue from our mature existing businesses to remain flat, and the margin to remain stable at around 40%. As we gradually launch and promote new gaming products, we expect our mid-core and hardcore gaming businesses generating revenue in the second half of this year, and image as a new growth driver. Regarding profitability, we will adopt a more dynamic management approach to optimize margins. We expect R&D spending to follow a trajectory similar to that of 2025, where our marketing investments will be flexibly adjusted in line with new products performance. Our current sales and marketing budget for new game is 5% of group’s revenue, so we will adjust it flexibly based on ROI and market feedback.

We will continue to drive long-term growth through innovative business initiatives, ensuring a disciplined approach for margin stability. For the second question, I will leave Jeff. Thank you.

Jianfeng Xu, Chief Operating Officer, Yalla Group Limited: Hi, Lincoln. For the second question, thank you for this insightful question. From a medium to long-term perspective, our gaming strategy is built on the dual approach of consolidating our core portfolio. We’re also expanding into new growth segments. On the core side, we continue to strengthen our casual gaming foundation. Beyond our flagship titles, Yalla Ludo and 101 Okey Yalla, we’re adding new casual product lines and driving ongoing feature innovation to optimize user cycle value. On the expansion side, we remain committed to investing in mid-core and hardcore games under a clearly defined two-pronged roadmap. Utilizing in-house development for mid-core titles and partnership-based publishing for hardcore games. In mid-core categories such as Match Three and board games, we are leveraging years of accumulated expertise to scale in a systematic and disciplined manner. In hardcore genres, particularly SLG, we are collaborating with top-tier global developers.

We are capitalizing on our competitive strengths in localized publishing, distribution, and operations. From market selection standpoint, we remain highly focused on the Middle East as our core strategic market, fully tapping in its monetization upside. We’re not ruling out global markets, like North America and Europe markets for categories with global appeal, such as Match-three, once product market fit and operating tractions are validated. We believe this targeted-

Karen Hu, Chief Financial Officer, Yalla Group Limited: Yet flexible strategy positions us to build sustainable competitive advantages over the long term. Thank you.

Operator: Thank you. We will now take our next question from Tianyu Guo from Nomura. Please ask your question. Tianyu, your line is open.

Tianyu Guo, Analyst, Nomura: First for management, taking my question. My question is about share capital return. Could management share more details on the share repurchase program announced earlier? Thank you very much.

Karen Hu, Chief Financial Officer, Yalla Group Limited: Thank you. Thank you, Guo, for highlighting shareholder returns. In 2025, we efficiently delivered on our share repurchase commitment, executing a total repurchase of $56.6 million for the full year. The company will cancel all share repurchased in 2025, a process that is underway and has been well received by the market. Entering into 2026, we will first execute the remaining $44 million repurchase value available under the existing program before it expires. Additionally, the company’s board of directors has authorized a new share repurchase program effective from March 9, 2026 through March 8, 2028 for up to $150 million for the company’s shares. This large-scale authorization reflects our commitment to maximizing shareholder value directly underscoring management’s strong confidence in the company’s business outlook and the immediate to long-term value.

We will consistently place shareholder interests at the core of our capital allocation decisions, returning value to investors through a continuously optimized return framework. Thank you for your question.

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

Karen Hu, Chief Financial Officer, Yalla Group Limited: 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 this conference call. You may now disconnect your lines. Thank you.