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Edited Transcript of YY earnings conference call or presentation 17-Mar-20 1:00am GMT

Q4 2019 JOYY Inc Earnings Call

Guangzhou Mar 19, 2020 (Thomson StreetEvents) -- Edited Transcript of JOYY Inc earnings conference call or presentation Tuesday, March 17, 2020 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bing Jin

JOYY Inc. - CFO

* Matthew Zhao

JOYY Inc. - IR Director

* Xueling Li

JOYY Inc. - Co-Founder, Chairman & CEO

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Conference Call Participants

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* Thomas Chong

Jefferies LLC, Research Division - Equity Analyst

* Lei Zhang

BofA Merrill Lynch, Research Division - Associate

* Brian Gong

Citigroup Inc, Research Division - Equity Research Associate

* Qi Chen

JP Morgan Chase & Co, Research Division - Research Analyst

* Li Zhong

Goldman Sachs - Analyst

* Yue Ang

CICC - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the JOYY Inc.'s Fourth Quarter and Full Year 2019 Earnings Call. (Operator Instructions) Please note, this event is being recorded. I'd now like to hand the conference over to your host for today, Mr. Matthew Zhao, IR Director of the company. Please go ahead.

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Matthew Zhao, JOYY Inc. - IR Director [2]

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Thank you, operator. Good morning and good evening, everyone. Welcome to JOYY's Fourth Quarter and Full Year 2019 Earnings Conference Call. Joining us today are Mr. David Xueling Li, Chairman and CEO of JOYY; CFO, Mr. 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 fourth quarter and full year 2019 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.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [3]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [4]

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Okay. Let me do the translation.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [5]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [6]

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[Interpreted] Okay. Thank you, Matthew. Hello, everyone. Welcome to our earnings conference call today. I hope everyone stays safe and sound and healthy in this particular coronavirus period.

On December 20, 2019, our shareholders approved the name change of YY to JOYY, which stands for joyful and youthful. This name change reflects our commitment to bringing joyful and youthful experiences not only to those inside of China but also to those around the world as we continue our global expansion. In line with our mission to connect people around the world and enrich their lives through video, we continued to make steady progress on both the domestic and international fronts in the fourth quarter of 2019, expanding our user bases, upgrading our products and further advancing our monetization capabilities.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [7]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [8]

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[Interpreted] Notably, our better-than-expected top line performance for the fourth quarter and full year of 2019 has illustrated our success in driving growth both at home and abroad. In addition to the strong financial performance, our video-based products and services, including Likee, BIGO LIVE, HAGO, YY Live and Huya, have all become leaders in their respective markets. Such success is a result of our dual engine expansion strategy, which enabled us to pursue the simultaneous development of both our short-form video and live streaming business segment to construct a truly global video-centric social media ecosystem.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [9]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [10]

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[Interpreted] First, let me share with you the progress we have made in developing our short-form video growth engine, Likee, as we continued to supercharge Likee's growth through geographic expansion, product updates and monetization enhancements.

During the quarter, Likee maintained its robust user base expansion momentum, which was largely driven by the growing user bases throughout [Southern] (corrected by the company after the call) Asia and developed world. Its total mobile MAUs swelled to 115.3 million, representing an increase of 208.3% on a year-over-year basis and 15.1% on a sequential basis. In addition, Likee continued to make headway in target markets such as Indonesia and Russia, capturing a substantial share of the markets during the period to catch up with the leading player in both countries.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [11]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [12]

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[Interpreted] Beyond growing our short-form video coverage through geographic expansion, Likee further enriched its features and content offerings to enhance its user stickiness. For example, we rolled out the FaceMagic function during the fourth quarter to augment Likee's user experience and stickiness. FaceMagic was developed using our proprietary AI technology to provide users with both face swapping and image cropping features. The addition of FaceMagic and other similar features enable millions of Likee users around the world to create and share short-form videos with their friends.

On the monetization front, Likee continued to make progress in the areas of brand partnerships and advertisement campaigns during the fourth quarter. In December, for example, Likee formed a partnership with a top Indian film studio to promote one of its most highly anticipated films. As part of this campaign, Likee utilized its online distribution network to help promote the movie throughout India garnering over 275 million views across social media. This initiative in a market with high-growth potential is very encouraging as it has not only enabled us to establish a unique cultural identity but also created a valuable monetization case study, which we plan to promote going forward.

In the same vein, we have completed the initial development and testing for Likee's advertising system, which we plan to launch in the first quarter of 2020. Leveraging this system, Likee will enable advertisers to place ads within Likee's short-form video feeds, allow content creators to promote their fee-based content across the platform and ultimately unleash another stream of monetization in addition to our live streaming virtual gift monetization.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [13]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [14]

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[Interpreted] Next, please allow me to share how we fueled overseas live streaming business, the second growth engine, by expanding the global footprint of BIGO LIVE and HAGO in the fourth quarter. In addition to our success with short-form videos, we also continue to expand our global live streaming ecosystem through BIGO LIVE, our flagship international live streaming platform outside China. In particular, during the fourth quarter, BIGO LIVE maintained its remarkable growth trajectory in developed markets around the world. As a result, the revenue generated by BIGO LIVE in developed markets such as the U.S., Japan, Europe and other regions represented 31% of BIGO LIVE's total revenues in the fourth quarter. Notably, this revenue growth was driven by a 50% increase in BIGO LIVE's paying user base in developed countries in December 2019 as compared to June 2019, resulting from our focus on the cultivation of the platform's operational efficiency, localization capabilities and cultural sensitivity in regional markets.

During the fourth quarter, BIGO LIVE also focused on promoting social features to enhance user engagement. In particular, our efforts to develop BIGO LIVE's Bar feed produced encouraging results with 42% of users on BIGO LIVE using that feature in the fourth quarter.

Beyond short-form video and live streaming, HAGO, our casual-game-oriented social media platform, also maintained its healthy growth trajectory through the introduction of new games and enhancement of social features. During the fourth quarter, HAGO continued to enhance user stickiness and foster new social interactions between users on its platform. For example, HAGO's interest-based user groups have become a key feature for users to initiate social interactions on the platform. The average daily penetration rate of HAGO's interest group function improved by 22% on a sequential basis in the quarter.

Meanwhile, the highly social nature of the platform has enabled us to accelerate the development of our innovative monetization capabilities as seen in our virtual gifting features for both voice chatrooms and interest-based user groups. As a result of these monetization upgrades, HAGO recorded a 20% plus increase in revenues on a sequential basis in the fourth quarter.

Importantly, India has become HAGO's second largest market to date. Going forward, we expect that HAGO's monetization capabilities will continue to grow in 2020.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [15]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [16]

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[Interpreted] Lastly, while we expanded rapidly overseas, we also maintained our leading position in the domestic market as YY Live continued to fortify its leadership in China's entertainment live streaming industry. As we closely monitor users' constantly evolving demands and preferences for live streaming environment, we further uncovered the growing user preference for variety shows with celebrities.

Beyond our partnership with Wowkie Zhang, which we mentioned on the previous earnings call, YY Live hosted 28 shows with other celebrities in the fourth quarter. Additionally, we also hosted our 2019 YY Annual Awards in Shanghai in January. This event collected more than 24.2 million views with an average user viewing time of 63.9 minutes and a total of 180 million bullet comments sent throughout the event, further showcasing the strength and scale of our live streaming social media ecosystem.

Notably, we utilized our experience from the past 7 years and replicated the success of our YY Annual Awards overseas. BIGO Gala Awards 2020 in Singapore in January served as a prime example. This event featured the attendance of approximately 1,000 of BIGO LIVE's top performers from around the world and successfully attracting more than 1.6 million fans who turned in to watch the event online.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [17]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [18]

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[Interpreted] In summary, we continued to focus on the growth and development of our short-form video and live streaming products to fuel our dual engine growth strategy during the fourth quarter and full year of 2019. Importantly, this expansion strategy has enabled us to transition from a leading live streaming platform in China to a global video-based social media platform in domestic and international markets.

Moreover, as we continue to cultivate synergies between business segments, upgrade our products through cutting-edge technology and enhance our localization capabilities, we are supercharging the network effects of our product matrix. As such, our ability to attract, create, distribute and monetize content both at home and abroad will continue to blossom, further enabling us to deliver long-term value for our shareholders.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [19]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [20]

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[Interpreted] With that, I will now turn the call to Bing Jin, our CFO, to go through the details of our financial results.

That concludes David's prepared remarks. Now as JOYY's CFO, I will talk about the financial results.

We maintained our strong momentum and delivered our robust financial and operating metrics during the fourth quarter of 2019. Our total net revenues for the fourth quarter increased by 64.2% year-over-year to RMB 7.62 billion, exceeding both the high ends of our previous guidance range and street consensus. In particular, our live streaming revenues for the fourth quarter increased by 62.7% year-over-year to RMB 7.15 billion driven by RMB 5.51 billion in live streaming revenues from both our YY and Huya segments and RMB 1.64 billion contribution from BIGO. Other revenues in the fourth quarter increased by 89% to RMB 471.6 million driven by higher advertising revenues from Huya and BIGO.

Cost of revenues for the fourth quarter increased by 69.3% year-over-year to RMB 5.1 billion. Revenue sharing fees and content costs increased to RMB 3.73 billion in the fourth quarter from RMB 2.56 billion in the same period of 2018, which was in line with the increase in live streaming revenues.

Bandwidth costs increased to RMB 505 million from RMB 246.5 million in the same period of 2018, mainly reflecting the continued expansion of our global user base. Gross profit for the fourth quarter increased by 54.6% year-over-year to RMB 2.52 billion. Gross margin in the fourth quarter of 2019 decreased to 33% from 35.1% in the same period of 2018. The decrease in gross margin was primarily caused by the fact that Huya and BIGO segments have lower gross margins but contributed significantly greater portion of our net revenues in the fourth quarter of 2019 as compared to the corresponding period of 2018.

Operating expenses for the fourth quarter increased to RMB 2.3 billion from RMB 931.2 million in the same period of 2018, primarily due to the increase in sales and marketing expenses, which reached RMB 1.03 billion in the same -- in the period. The increase in sales and marketing expenses was primarily attributable to our increased efforts in sales and marketing activities in overseas markets as well as the impact of depreciation and amortization related to the consolidation of BIGO. Our R&D expenses for the fourth quarter increased to RMB 802.3 million from RMB 332.5 million in the same period of 2018, mostly due to the increase in salaries caused primarily by the consolidation of BIGO.

Our GAAP operating income for the fourth quarter was RMB 362.2 million compared to RMB 718.6 million in the same period of 2018. Operating margin for the fourth quarter decreased to 4.8% from 15.5% in the prior year period as a result of a lower gross margin, the impact of depreciation and amortization related to the BIGO's consolidation and other overseas expansion initiatives.

Our non-GAAP operating income for the fourth quarter, which excludes share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions as well as gain on deconsolidation and disposal of subsidiaries was RMB 781.3 million compared to RMB 888.5 million in the same period of 2018. Our non-GAAP operating margin for the fourth quarter was 10.3% compared to 19.1% in the same period of 2018.

GAAP net income attributable to controlling interest of JOYY Inc. for the fourth quarter of 2019 was RMB 172.8 million compared to RMB 694.7 million in the same period of 2018. Net margin was 2.3% in the fourth quarter of 2019 compared to 15% in the corresponding period of 2018.

Non-GAAP net income attributable to controlling interest of JOYY Inc. was RMB 600.8 million compared to RMB 846.9 million in the same period of 2018. Non-GAAP net margin in the fourth quarter of 2019 was 7.9% compared to 18.2% in the same period of 2018.

Diluted net income per ADS in the fourth quarter of 2019 was RMB 1.87 compared to RMB 10.54 in the same period of 2018. Non-GAAP diluted net income per ADS was RMB 6.7 compared to RMB 13.03 in the same period of 2018.

Now turning to our results for the full year of 2019. Our total net revenues increased by 62.2% year-over-year to RMB 25.58 billion, driven by the same factors that led to this quarterly increase. Our net income attributable to controlling interest of JOYY Inc. for the full year of 2019 was RMB 3.45 billion compared to RMB 2.21 billion in 2018. Our non-GAAP net income attributable to controlling interest of JOYY Inc. for the full year of 2019 was RMB 2.25 billion compared to RMB 3.27 billion in 2018. Non-GAAP net margin for the full year of 2019 was 8.8% compared to 20.8% in 2018.

Diluted net income per ADS for the full year of 2019 increased by 69.5% year-over-year to RMB 43.01 from RMB 25.38 in 2018. And non-GAAP diluted net income per ADS for the full year of 2019 was RMB 27.11 compared to RMB 50.07 in 2018.

Looking forward to 2020, we are faced with immediate challenges of COVID-19 epidemic. In response to the outbreak, we announced a cash donation of RMB 22 million to procure medical supplies and equipment from all over the world for the hospitals in Hubei and Guangdong provinces that were involved in the treatment of COVID-19 patients. Our hearts go out to all those who have been impacted by this epidemic. Especially in times like this, we remain fully committed to our mission of connecting people and enriching their lives through video.

Beyond entertainment, many of our users are utilizing our live streaming services for regular casual and work-related communication purpose during this epidemic. We are formulating a support program to help our hosts and other performers to weather this challenging environment. We plan to continue leveraging our video-based social media platform to help mitigate the impact of the disease, rally charitable support, uplifting people's spirits and enrich their lives.

At the current stage, we expect our net revenues in the first quarter of 2020 to be between RMB 6.75 billion and RMB 6.85 billion, representing a year-over-year increase between 41.2% to 43.3%. We currently have limited visibility surrounding this epidemic's long-term impacts on our business and the markets in which we operate. Therefore, this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change.

That concludes our prepared remarks. Operator, we would now like to open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Thomas Chong from Jefferies.

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [2]

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Congratulations for...

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Matthew Zhao, JOYY Inc. - IR Director [3]

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Thomas, could you just -- sorry, could you just please [ask] (corrected by the company after the call) the question in Chinese firstly, then translate into English?

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [4]

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(foreign language) And congratulate the strong growth momentum for Bigo. I have a question about the 2020 outlook for Bigo, in particular, the revenue and the user trend across different geographies. And also, any expectations in terms of the time line for leveling the losses and achieving breakeven? And how should we think about the spending for Bigo across different geographies during the year?

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Bing Jin, JOYY Inc. - CFO [5]

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Thanks, Thomas. Let me address those questions. So first, on the trend towards monetization under different markets, Bigo has different components. I think let me talk about BIGO LIVE, first. BIGO LIVE has enjoyed tremendous user growth and monetization in 2019 and expect the similar pattern continue in 2020, the key driver coming from the developed markets.

As you can see from the fourth quarter number, the developed market accounts for more than 31% of the total revenue on the BIGO LIVE. That compared with 26% in the third quarter and 22% in the second quarter. You can see, obviously, continuous increasing trend, and we expect that trend to continue across different developed markets, including U.S., Europe, Japan, Korea and other parts of the world.

One of the beauty for those developed markets that the paying ratio and ARPU tend to be very high. And also, we have demonstrated that the paying ratio in the developed world has increased by 50% in December 2019 compared with June 2019. So that is -- it's always very encouraging. So we expect BIGO LIVE will continue to focus on developed world in 2020. That's on BIGO LIVE.

On the Likee business, we have also achieved a balanced approach, meaning, traditionally, we are very strong in South Asia, particularly in India. Starting from last year and also continuously into 2020, we will be more balanced approach, meaning we'll focus more on developing into other non-India markets, including Russia, Indonesia, where we are performing very well and catch up very quickly with the leading player. And also, we are continually expanding other parts of -- including developed world as well. So that's on the user growth for Likee.

Now on the monetization of Likee, we will also ramp up the live streaming capability as Bigo's live streaming, as I said, the middle-end capability can be replicated in different parts of the apps. So Likee will benefit from BIGO LIVE's monetization efforts and ramp up the live streaming capability.

On top of live streaming, we have also mentioned just now that Likee has built up its own advertising network and system. So we expect to introduce fee-based advertising campaigns within Likee, and hopefully, advertising will also gradually contribute more and more to Likee's ecosystem. So I think that's a long answer to your question.

In terms of the spending, I think we have communicated with the market before that this year, 2020, we are looking at a net loss on the total Bigo segment. On the total Bigo segment basis, it's a USD 150 million loss. But as you can see that Bigo's total revenue is growing faster than expected before. Before, we are telling market that Bigo will grow -- the revenue will grow 50% in 2020. Now we are forecasting more than 60% year-on-year growth. So as a result, the net loss margin will be narrowing compared with communicated before.

In terms of the breakeven point, we expect that total Bigo will be breakeven on a single-month basis by end of this year. That will remain to be the same. But I want to mention that we tend to be focusing more on ROI of the money spent, and we tend to focus more on profitability because I think that's one of the key differentiator for our overseas business compared -- with some of the leading players because we know how to monetize the existing and new user base across different parts of the world.

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Operator [6]

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(Operator Instructions) Your next question comes from the line of Lei Zhang from Bank of America Securities.

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Lei Zhang, BofA Merrill Lynch, Research Division - Associate [7]

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(foreign language) I will translate myself. First, I want to follow up the overseas effect, Xueling, on Likee's user trend. How should we look at user and monetization balance? And what's your target for Likee's user in 2020? And secondly, on the competitive landscape of domestic live streaming, how do we think the competitors like short video platform, even QQ music want to -- can you give us more color on the updated competition?

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Bing Jin, JOYY Inc. - CFO [8]

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Thanks, Zhang Lei. Let me address the questions. So on the global expansion strategy for Likee, as I mentioned, we will focus both on -- in terms of the user growth and monetization. So I don't think your comment is right in a way that if we focus too much on monetization, we will focus less on the user growth. But as I said, we focus on ROI. So as long as the user retention, meaning the 30-day user retention rate is good in some of the markets, we will continue to spend the money. But after we spend money, we also need to make sure that the user we attract and be converted to live streaming users. So we also pay particular attention in terms of the conversion of live streaming within the short-form video users in terms of the time spent, in terms of the gifting, et cetera. So that's for sure.

And you were also expecting -- on user growth, you would expect similar pattern that we have seen in 2019. If you track our quarterly performance, you can see that Likee is adding 15 million to 20 million users on a per quarter basis and we expect a similar pattern will continue. But as I said, we also need to make sure that the ROI makes sense and we will generate decent profitability for our Likee business. So that's the answer to the first question.

The answer to the second question, domestic competition is not a new thing. We have been operating under a highly competitive live streaming business in China for several years. However, we still continue to grow. Now if you look at the prospect of 2020 YY Live segment, I would say the revenue will continue to grow at a low single digit. The reason why it's low single digit, because we cut down some of the business, including the PC game business, which we sold and also we have scaled down the domestic small lending business given the uncertainty, particularly in the online lending business. So with those 3 businesses scaled back and scaled down, the -- YY Live's revenue will -- the growth rate will be down a little bit.

As we tell people before, it used to be 5% to 8% year-on-year growth. Now we're looking at low single-digit growth, reflecting the closedown of those 2 business. But for the main domestic live streaming business, I think, it's still solid. We -- YY Live, you can treat it as a traditional kind of PC game where the user base is very sticky and will continue to come back. We have seen a very sticky time spend and user behavior on our platform, both from the tipper perspective and from the broadcaster perspective. So I think domestic -- even amid this domestic competition, YY Live will continue to grow.

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Lei Zhang, BofA Merrill Lynch, Research Division - Associate [9]

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Okay. Can I have a 2 follow-up? First on the HAGO side, given you shared more color in the prepared remarks, can you remind us where is the HAGO revenue booked? Is that under YY Live, right? If HAGO grows around -- in 2020, so do -- that means the YY Live domestic live streaming actually are down on year-on-year basis. And also on the HAGO side, what's the key content and -- or the top -- of users of HAGO?

And secondly also on the domestic side, I know that e-commerce live streaming is quite popular right now and even some of your competitors actually ask the host to do e-commerce-related live streaming. I know we have e-commerce-related initiatives. But can you share more color with us on the e-commerce live streaming side?

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Bing Jin, JOYY Inc. - CFO [10]

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Sure, Zhang Lei. On the HAGO, it is booked under YY Live segment, but given the absolute scale of HAGO's revenue, it's still very small compared with the total YY domestic live streaming. So in terms of absolute dollar, it's not contributing that much yet. So if you strip out HAGO, YY Live domestic market, I think the business is still stable. Put it that way.

And then for e-commerce, we have been doing e-commerce live streaming for a while, but again, our strategy is different from the others. Our e-commerce is more focused on nonstandard products, meaning jewelries, art crafts, et cetera. And then we focus on introducing high-quality broadcasters to help improve the productivity of the traditional nonstandard product value chain. And hopefully, it will create a winning situation for both the seller and for the users. So that part of business is ramping up very quickly. But at the right time, we would start disclosing the right metric to the external investor. At this point, we still think that this is relatively early.

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Operator [11]

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Your next question comes from the line of Brian Gong of Citigroup. (Operator Instructions)

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Brian Gong, Citigroup Inc, Research Division - Equity Research Associate [12]

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(foreign language) Okay. I will translate myself. So for Likee, wondering how should we see the competitive dynamics with TikTok in different regions. And I think Likee probably made very limited contribution to Bigo's revenue in 2019, but I just wanted to see how much revenue contribution from Likee to Bigo would it be in 2020.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [13]

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(foreign language)

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Matthew Zhao, JOYY Inc. - IR Director [14]

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[Interpreted] Sorry, let me do the translation firstly. This is David. Let me answer your question. In terms of the Likee business as well as the short-form video competition in the global-wide. So firstly, as a company and founder or the management, we really look in favor of the short-form videos' future, right? So if you look at the past few years, we are actually committed to continue to invest into the Likee's business. So rather than the profitability, we're seeing the positioning as well as the market share for the short-form video is more important for us. And in the past several years, although we continue to suffer the loss from the Likee business, but after our effort, we're actually already gathering entry tickets for the short-form videos, especially in the outside of China.

At the beginning times in terms of the technology as well as the investment scale, we are much less than our competitors. But after 2 years' effort, currently, we actually are in a similar kind of level as our close competitors. So I truly believe the Likee business will enter to the second stage, which just means more healthy and more balanced development of the stage. So as we mentioned in the prepared remarks, so this year, Likee will focus on the monetization. So hopefully, at the end of this year, the overall Bigo business will achieve the single-month breakeven.

If that goal could be achieved, which means in the future, we have become more dynamically to control of the investment cycle especially in terms of the marketing or the user acquisition cost for the Likee business, so that will help us to build up more healthy model -- business model compared with our peers. And that can help us for the next 5 to 10 years long-run competition for the short-form video business global-wide.

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Brian Gong, Citigroup Inc, Research Division - Equity Research Associate [15]

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(foreign language)

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Bing Jin, JOYY Inc. - CFO [16]

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Yes, let me handle that question. I think we are still observing the progress. But I think, at this point, it's somewhere around 10% of Bigo's total segment will be coming from Likee. And that number can be changed depending on the progress, yes.

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Operator [17]

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Your next question comes from the line of Daniel Chen of JPMorgan.

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Qi Chen, JP Morgan Chase & Co, Research Division - Research Analyst [18]

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(foreign language) I will translate myself. So I have a housekeeping question regarding cash. So we have a very healthy balance sheet and a very rich net cash of over USD 1 billion. And so what is our key strategy in cash management in 2020?

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Bing Jin, JOYY Inc. - CFO [19]

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Let me address the question. Thanks, Daniel. In terms of cash offshore, we have around USD 900 million, which we'll put into a different tranche of savings and investment. I think it generates a decent return. And meanwhile, we're also observing the latest market turmoil, and obviously, our stock recently is very undervalued and particularly in the recent turmoil, continue to go down. So we will seriously consider share buyback and other methods of returning some of this cash to the shareholders.

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Operator [20]

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(Operator Instructions) Your next question comes from the line of Li Zhong from Goldman Sachs.

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Li Zhong, Goldman Sachs - Analyst [21]

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(foreign language) I'll translate myself. So I have 2 questions regarding the impact of the COVID-19 in overseas markets for Bigo. So the first question is have you observed any similar surge in user time spent or engagement in the developing markets given the fast spread of the virus. And the second question is on whether that will give us any refreshed thoughts on user growth strategy or new monetization method.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [22]

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(foreign language)

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Matthew Zhao, JOYY Inc. - IR Director [23]

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[Interpreted] This is David. Let me answer your questions. So firstly, in terms of the COVID-19's impact for outside of China, so we can look at the practice in China for the last quarter. So for YY's business in China, we don't see that significant of the negative impact from the COVID-19's outbreak in China. So from the China's practice, we actually forecast the overseas business also won't see any of the significant impact from the COVID-19 in the short-term period.

BIGO LIVE is currently in the very healthy growth stage. As I mentioned in the prepared remarks, rather than the monetization, actually Bigo also focus on the social features, especially its community operation has become one of the key focus for the BIGO LIVE in the recently stage. 42% of the users have started to use Bigo's part of the friends' moments of the functions within -- of the platform. So going forward, except for the revenue growth, the BIGO LIVE also will see the -- continuously user growth in the future.

And for Likee business, we -- as I mentioned before, so except for the very rapidly user number growth, we also will be more focused on the monetization for this year. If the true part can build up a more healthy cycle for the business, definitely, we will be more confident for the overall overseas business development for the future.

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Operator [24]

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(Operator Instructions) Your next question comes from the line of Thomas Chong from Jefferies.

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [25]

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(foreign language) And my question is about the domestic market. Given a lot of our peers are entering into the lower tier cities and have we thought of developing other applications to penetrate into Tier 3 and Tier 4 cities going into the future?

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Bing Jin, JOYY Inc. - CFO [26]

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Thomas, thanks. Let me address the question. So you are right that on top of YY Live as a main app, we are also developing different products. For example, we have audio-based live streaming products, several of them that's focused on third-tier cities and even to fifth-tier cities. We also have, as I said, e-commerce live streaming products. We're also developing other social media product, all based around video and audio-based because that's our core competence. But we're trying to penetrate into different demographics and trying to penetrate in different cities, some focus on lower tier cities. Some will focus on the first-tier cities. So -- but many of those products are in initial stage, so we haven't systematically disclosed to the external investor about the metrics, but we will do so at the right time. So you're right. We are strongly developing other applications.

By the way, I also mentioned that we have continued to partner with other big traffic platforms such as Xiaomi. And we have, right now, partnered with 2 and 3 additional big traffic platform, what I call, export our core live streaming competence and revenue share with those attractive platforms. So with that, I also hope that we can continue to enhance our monetization capabilities through our different platforms.

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Operator [27]

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Next question comes from the line of Yue Ang from CICC.

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Yue Ang, CICC - Analyst [28]

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(foreign language) I'm on behalf of Natalie Wu. We have 2 questions. The question -- the first one is that could management share some color on the promotion of Likee. What's your plan for the investments in content and user acquisition this year? And the second question is, could management share some color on the margin outlook for the domestic live broadcasting business of YY core this year.

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Bing Jin, JOYY Inc. - CFO [29]

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Thank you. Let me address those questions. First, in terms of the sales and promotion for the Likee, regarding content, as we said before, Likee focused on UGC, user-generated content. So by nature, we encourage user to voluntarily create and upload their short-form video content. As a result, we don't tend to spend that much money to acquire the PGC. But we will do so in some of the key markets to partner with some celebrities to produce, but I don't think that will cost that much money. We will also partner with some of the song copyright owners to sign a kind of long-term contract so that live broadcasters can live broadcast the songs, et cetera. So that will cost some money.

In terms of the direct user acquisition, again, we are closely tracking the user retention rate. And then, typically, in those markets, they are much lower than in China in terms of the per user acquisition cost. After user is attracted, we can to realize, as we said many times, to realize monetization for live streaming business. So that will create a constant loop from the user spending time to value. So that's on live TV.

On the domestic margin, if you look at 2019, our operating margin for domestic YY Live streaming business is around 22%. 2020, we're looking at somewhere around 20%. There might be some further decrease of the margin for YY Live. But again, it's not only about domestic but because YY segment also show the responsibility of HAGO and other extension. So we will continue to invest the sales and marketing, plus we'll continue to recruit some of the high-caliber AI expert technologies with R&D as a percent of revenue, and sales and marketing as a percent of revenue will increase a little bit, resulting to somewhere like 20-something percent for the margin -- operating margin domestic for YY segment.

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Operator [30]

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There are no further questions at this time. Now I hand the call over back to Matthew. You may go ahead.

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Matthew Zhao, JOYY Inc. - IR Director [31]

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Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you, operator.

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Operator [32]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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Xueling Li, JOYY Inc. - Co-Founder, Chairman & CEO [33]

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Thank you.