Why did YALA.US (YALA.US), whose annual report performance exceeded expectations, become a “lone hero” in US stocks?

Why did YALA.US (YALA.US), whose annual report performance exceeded expectations, become a “lone hero” in US stocks?

Recently, US stocks have plummeted, and YALA.US (YALA.US) stock prices have bottomed out.

The Zhitong Finance App observed that on January 10 of this year, Yale Technology's stock price started from a low of 3.84 US dollars and then went all the way up. On February 21, it reached an intraday high of 4.42 US dollars. The biggest increase in the past month and a half was only 15.10%. However, after peaking in the stock price range on February 21, Yale Technology experienced a flash crash in US stocks. The stock price fell back to a minimum of 3.83 US dollars in 8 trading days, taking back all the gains of the previous month and a half.

However, after March 4, Yale Technology's stock price did not continue to decline along with the US stock market, but instead rebounded against the market. After 6 trading days, it pulled back the stock price and broke through the previous high, taking a “roller coaster” ride.

Stock prices rebounded against the market, supported by fundamentals

On March 12, Yale Technology's stock price closed up 5.24%, the highest single-day share price increase since late November last year. The reason for this is that the company disclosed the 24Q4 results before the market on March 11.

The Zhitong Finance App learned that in 2024, Yale Technology's annual revenue was US$340 million, of which social services revenue was US$225 million and gaming services revenue was US$114 million. On the profit side, the company's current net profit was US$134 million, up 18.7% year on year, and the net profit margin was 39.5%; adjusted net profit was US$149 million, up 13.6% from US$131 million in the same period last year, and the corresponding net profit margin was 43.8%.

Judging from the 24Q4 quarterly data, Yale Technology achieved revenue of 908.28 million US dollars in the 24Q4 period, up 12.2% year on year. The quarterly year-on-year growth rate was higher than 4% in the previous quarter, thus exceeding the upper limit of the expected guidance range. In addition, Q1 and Q4 have a track record of low business seasons. For example, in 23Q4, Yale's month-on-month growth rate was -5%, but in Q4 this year, Yale's month-on-month revenue growth rate also corrected, reaching 2%, and there are obvious signs of improvement in business development.

Judging from key operating data, the company's average MAU for the current period reached 41.445 million, an increase of 14.4% year on year; however, the number of paying users on the platform increased 3.2% year over year to 12.309 million. Combined with the current operating data of Yale Technology, it is easy for investors to see that compared with the previous increase in the number of MAUs and the decline in paying users. Yale's user payment conversion efficiency in the 24Q4 quarter showed a fundamental improvement, which also confirmed its basic foothold in the core markets of the Middle East and North Africa

From the cost and expense side, unlike the main fee control strategy in 2023, Yale will slightly increase its market investment starting in 2024.

The data shows that in the 24Q4 quarter, the total cost and expenses of the company was 60.69 million US dollars, an increase of 5% over the previous year. Among them, the company's current cost-side expenditure was US$31 million, a slight increase of 1.5% year on year; marketing expenses were US$7.4 million, down 28.5% from US$10.4 million in the same period last year; management expenses were US$13.1 million, up 15.6% year on year; and R&D expenses were US$9.2 million, a sharp increase of 69.6% year on year.

Although the current social and gaming market environment in the Middle East and North Africa is still becoming increasingly intense, Yale's current development strategy is clearly different from the previous strategy of “securing profits” through more restrained fee control and market purchases. Instead, it chose to control purchases while increasing R&D investment to “seek growth.” Furthermore, the continued decline in marketing expenses, the steady increase in MAU, and the slight increase in the number of paying users indicate that Yale products have initially achieved word of mouth in the target market, reflecting strong market competitiveness. The above is the reason why Yale's stock price surged against the market on March 12.

However, this is not the reason for its reversal of the market since March 4. The reason why the decline in Yale's stock price came to an abrupt end on March 4 and rebounded 15.4% within 6 trading days was more because it was completely undervalued at the time.

The Zhitong Finance App observed that on March 4, Yale Technology's stock price fell to a minimum of 3.83 US dollars, corresponding to a market value of 609 million US dollars. According to its 24Q3 financial report, the company's current net assets were 670 million US dollars, which is completely undervalued. As a result, Yale Technology's stock price stopped falling and rebounded. With the release of the 24Q4 financial report, Yale's current net assets increased to US$698 million, and after closing on March 12, it corresponded to a market value of 702 million US dollars, which just crossed the net asset line. This also means that Yale Technology's current PB valuation is only 1 times, and the PB is still undervalued at 6.8 times the industry average.

From gaining a foothold to shareholder returns

In fact, Yale Technology was called “Little Tencent in the Middle East” back then because its “social+gaming” combo strategy was the same as when Tencent started back then. At the time, the market predicted that as long as the social and gaming market in the Middle East and North Africa region continued to expand, Yale only needed linear growth and could become the “Middle East version of Tencent.”

As expected by the market, in the past 4 years, the Middle East and North Africa market volume has continued to rise, but the ensuing market competition seems to have interrupted Yale's dream of linear growth.

However, from the end of 2023, Yala's local and global partners have hosted a series of Yalla Ludo online and offline tournaments in many parts of the Middle East and North Africa — getting closer to e-sports is an important part of Yale's dynamic since 2024. In view of industry trends such as Saudi Arabia hosting the e-sports Olympics, it has significant weather vane significance.

Looking at the market situation, according to the latest report from market analysis company Niko Partners, the Asia, Middle East and North Africa (MENA) game market reached US$85.5 billion in 2023, an increase of 4.6% over the previous year. The company expects MENA-3 revenue to grow to $2.65 billion by 2027, with a five-year compound annual growth rate (CAGR) of 8.2%. In 2023, the total number of players reached 68.4 million, an increase of 2.9% over the previous year. It is expected to reach 79.6 million by 2027, with a five-year CAGR of 3.7%.

In terms of market competition, with the addition of giants such as Tencent, Miha Tour, and Lilith, the Middle East game market has become more diverse. Chinese games occupy 8 seats in the Saudi App Store's top 10 list. While showing the competitiveness of Chinese games, companies such as Yale have also faced tremendous competitive pressure.

For Yale at this time, following the local trend of e-sports development and expanding its products to a wider market through e-sports channels is a viable strategy.

From a policy perspective, the United Arab Emirates and Saudi Arabia play a leading role in promoting the development of the local e-sports industry. The UAE's “Dubai Video Game Blueprint 2033”, under the guidance of the Crown Prince of Dubai, has a clear goal: to make Dubai one of the top ten e-sports cities in the world by 2033. It is expected to add 30,000 new jobs, directly contribute 1 billion US dollars to GDP, and show an ambitious blueprint for economic transformation.

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

On the market side, Asia, the Middle East and North Africa have joined forces to occupy more than half of the global e-sports market, accounting for more than 56%. According to research from the Middle East and North Africa Gaming and eSports Summit in 2023, the Middle East has built a huge community with over 377 million active players.

After stabilizing performance and clarifying the direction of development, Yale Technology also began to give back more to shareholders. According to the data, in 2024, the company repurchased a total of 7 million US dollars of shares for 2 consecutive quarters, setting the longest repurchase record since its establishment. In this financial report, the company also stated that it will repurchase at least 28 million US dollars of shares in 2025, accounting for about 4% of the company's current market value.