Investors in this growth stock have endured a tough year as the share price has tumbled. Yalla Group (NYSE:YALA) shares gained after its September 2020 IPO but started falling in early 2021. The stock is now trading at $3.79 a share, down from highs of over $39 a share last February. Disappointing trading updates coupled with the tech sell-off have accounted for much of the drop. However, for me it’s fallen too far and this stock looks dirt cheap.
The Dubai-headquartered social media firm, operates a voice-centric social networking and entertainment platform in the Middle East and North Africa. Its software provides group chatting and gaming services.
Performance
The firm, which is valued at a little over $540m, posted net income of $82.6m in 2021 compared with net income of US$3.2m in 2020. The firm grew revenues and earnings year-on-year while producing cash flow growth and pressing forward with its expansion plans.
Data from the last reporting period demonstrates positive year-on-year growth despite the falling share price. Revenue was $273.1m in 2021, representing an increase of 102.4% from 2020. Meanwhile, net income was $82.6m and net margin was 30.2%. That compares with net income of $3.2m in 2020.
Another important metric for the company is average monthly active user (MAUs). These users increased by 71% to 28.1m in the fourth quarter of 2021 from 16.4m in Q4 2020. However, and perhaps more importantly, there was significant growth in the number of paying users, which increased from 5.2m in the fourth quarter of 2020 to 8.4m in the fourth quarter. The main growth driver was the platform’s Ludo game offering. There was a 52% increase in the number of Yalla Ludo’s paying players – from 4.0m to 6.2m over the course of the year.
However, it’s worth noting that Q4 2021 saw a fall in both revenue and income. Although the difference between Q3 and Q4 revenue was only $4m, it was certainly not a positive development.
Headwinds
A number of risks have been weighing on the company’s share price. First among them is declining revenue in the final quarter of 2021. It may be the case that the pandemic and the accompanying lockdowns contributed to its growth. But outside of the pandemic, such growth may be unsustainable as normal life returns. Another point is that higher interest rates and inflation can call a halt to growth plans as the cost of borrowing increases. Although it’s worth noting that Yalla has sufficient cash reserves for growth.
There’s also a matter of competition. Yalla has found something of a niche so far, but social media giants could well move into this space.
Should I buy?
For me, the Yalla share price has fallen far enough. And with a price-to-earnings ratio below 10, it’s starting to look rather cheap. Management also has ambitious plans for growth. The firm intends to start delivering a “more immersive” social experience area, with users seeking “metaverse”-type interactions with each other. Furthermore, Yalla is expanding into the South American market with its Parchis app.
I’m looking to add Yalla to my portfolio.
