How did Yalla, with annual report performance exceeding expectations, become the "lone warrior" of the US stock market flash crash?

Why did Yalla Technology (YALA.US), which exceeded expectations in its annual report, become a "lone warrior" in the flash crash of U.S. stocks?

Recently, U.S. stocks have plummeted, and Yalla Technology (YALA.US) also saw its stock price hit a low.

According to Zhitong Finance APP, on January 10 of this year, Yalla Technology's stock price started from a low of $3.84 and then climbed all the way up, reaching a high of $4.42 during intraday trading on February 21, with a maximum increase of only 15.10% over the past one and a half months. However, after hitting the peak on February 21, Yalla Technology encountered a flash crash in U.S. stocks, and within 8 trading days, its stock price fell back to a low of $3.83, giving back all the gains from the previous one and a half months.

However, after March 4, Yalla Technology's stock price did not continue to decline with the U.S. stock market but instead rose against the trend, pulling its stock price back and surpassing the previous high after 6 trading days, experiencing a "roller coaster" ride.

Stock Price Rebound Against the Trend Supported by Fundamentals

On March 12, Yalla Technology's stock price rose by 5.24%, marking the highest single-day price increase since late November last year. The reason lies in the company's disclosure of its Q4 2024 performance before the market opened on March 11.

Zhitong Finance APP learned that in 2024, Yalla Technology's annual revenue was $340 million, with social service revenue of $225 million and game service revenue of $114 million. On the profit side, the company's net profit for the period was $134 million, a year-on-year increase of 18.7%, with a net profit margin of 39.5%; adjusted net profit was $149 million, up 13.6% from $131 million in the same period last year, corresponding to a net profit margin of 43.8%.

From the Q4 2024 quarterly data, Yalla Technology achieved revenue of $90.828 million in Q4 2024, a year-on-year increase of 12.2%, with the quarterly year-on-year growth rate exceeding the previous quarter's 4%, thus surpassing the upper limit of the expected guidance range. Additionally, the historical Q1 and Q4 quarters are usually off-seasons for business; for example, in Q4 2023, Yalla's quarter-on-quarter growth rate was -5%, but in this year's Q4, Yalla achieved positive quarter-on-quarter revenue growth of 2%, indicating a clear sign of business improvement.

From the key operational data, the company's average MAU reached 41.445 million, a year-on-year increase of 14.4%; however, the number of platform paying users increased by 3.2% year-on-year to 12.309 million. Considering Yalla Technology's current operational data, investors can easily see a fundamental change in user payment conversion efficiency in Q4 2024 compared to the previous state of MAU growth and declining paying users, which also confirms its solid footing in the core markets of the Middle East and North Africa.

On the cost and expense side, unlike the cost control strategy emphasized in 2023, Yalla has started to slightly increase market investment in 2024 Data shows that in Q4 2024, the company's total costs and expenses amounted to $60.69 million, a year-on-year increase of 5%. Among them, the company's current period cost expenditures were $31 million, a slight year-on-year increase of 1.5%; marketing expenses were $7.4 million, down 28.5% from $10.4 million in the same period last year; management expenses were $13.1 million, a year-on-year increase of 15.6%; and R&D expenses were $9.2 million, a significant year-on-year increase of 69.6%.

Although the social and gaming market environment in the Middle East and North Africa is still becoming increasingly competitive, Yalla's current development strategy is clearly different from its previous strategy of "protecting profits" through more restrained cost control and market spending. Instead, it has chosen to increase R&D investment while controlling market spending to "seek growth." The continuous decline in marketing expenses, along with stable growth in MAU and a slight increase in the number of paying users, collectively indicate that Yalla's products have initially achieved word-of-mouth marketing in the target market, reflecting strong market competitiveness. This is the reason for Yalla's stock price surge against the market trend on March 12.

However, this is not the reason for its rise against the market trend since March 4. The decline in Yalla's stock price came to an abrupt halt on March 4 and rebounded by 15.4% within six trading days, largely because it was in a completely undervalued state at that time.

According to the observation of Zhitong Finance APP, on March 4, Yalla Technology's stock price fell to a low of $3.83, corresponding to a market value of $609 million. According to its Q3 2024 financial report, the company's net assets at that time were $670 million, indicating a completely undervalued state. Therefore, Yalla Technology's stock price stopped falling and rebounded. With the release of the Q4 2024 financial report, Yalla's net assets increased to $698 million, and after its rise on March 12, its corresponding market value reached $702 million, just surpassing the net asset line. This also means that Yalla Technology's current PB valuation is only 1 time, which is still undervalued compared to the industry average PB of 6.8 times.

From Establishing a Foothold to Shareholder Returns

In fact, Yalla Technology was referred to as the "Little Tencent of the Middle East" that year because its "social + gaming" strategy was very similar to Tencent's rise. At that time, the market expected that as long as the social and gaming market in the Middle East and North Africa continued to expand, Yalla would only need linear growth to potentially become the "Middle Eastern version of Tencent."

As the market expected, four years later, the market size in the Middle East and North Africa has continued to grow, but the ensuing market competition seems to have interrupted Yalla's dream of linear growth.

However, starting from the end of 2023, Yalla has partnered with local and global partners to hold a series of Yalla Ludo online and offline tournaments in multiple locations in the Middle East and North Africa. Aligning with esports has become an important part of Yalla's dynamics since 2024. Considering industry trends such as Saudi Arabia hosting the esports Olympics, this has significant indicative meaning.

From a market perspective, according to the latest report from market analysis company Niko Partners, the gaming market size in Asia, the Middle East, and North Africa (MENA) reached $85.5 billion in 2023, a year-on-year increase of 4.6%. The company expects that by 2027, the revenue of MENA-3 will grow to $2.65 billion, with a five-year compound annual growth rate (CAGR) of 8.2%. In 2023, the total number of players reached 68.4 million, a year-on-year increase of 2.9%. It is expected to reach 79.6 million by 2027, with a five-year compound annual growth rate of 3.7% In terms of market competition, with the entry of giants like Tencent, miHoYo, and Lilith Games, the Middle Eastern gaming market has become more diverse. Chinese games occupy 8 out of the top 10 spots on the Saudi App Store, showcasing the competitiveness of Chinese games while also posing significant competitive pressure for companies like Yalla, which have long established a presence in the Middle East and North Africa.

For Yalla at this time, aligning with the local trend of developing esports and expanding its products into a broader market through the esports sector is a feasible strategy.

From a policy perspective, the United Arab Emirates and Saudi Arabia play a leading role in promoting the development of the local esports industry. The UAE's "2033 Dubai Video Game Blueprint," under the guidance of the Crown Prince of Dubai, has clear goals: to shape Dubai into one of the top ten esports cities globally by 2033, expecting to create 30,000 new jobs and contribute an additional $1 billion directly to GDP, showcasing a grand economic transformation blueprint.

The Saudi Public Investment Fund has established Savvy Gaming Group and plans to build the world's largest game development center in the future city of Neom.

In terms of the market, Asia, the Middle East, and North Africa together account for more than half of the global esports market, with a share exceeding 56%. According to research from the 2023 Middle East and North Africa Gaming and Esports Summit, the Middle East has built a large community with over 377 million active players.

With performance stabilizing and a clear development direction, Yalla Technology has also begun to return more to its shareholders. Data shows that in 2024, the company repurchased a total of $7 million in stock over two consecutive quarters, setting the longest repurchase record since its establishment. In this financial report, the company also stated that it would repurchase at least $28 million in stock in 2025, accounting for about 4% of the company's current market value