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And beyond Cluster (NYSE:YALA) is a Middle East-focused tech stock that doesn’t get the attention it deserves. Last week, the company released its fourth-quarter results, pleasantly surprising some analysts. Despite posting year-over-year (YoY) growth in revenue and user growth, it is a company in transition.
a transition
Last week, Yalla reported that non-GAAP net income had fallen from $27.5 million in the fourth quarter of 2021 to $21.7 million in the last quarter of 2022. This decline may worry some investors, but, for To me, it purely reflects the fact that Yalla is a company in transition.
Shares skyrocketed during the pandemic, hitting $39 per share, 10 times the current share price. Pandemic-induced restrictions led to a surge in social media usage, with Yalla’s casual gaming and chat platform gaining hugely.
In a more challenging macroeconomic environment, revenue growth is slower and revenue has fallen. But we can largely attribute lower net income to higher R&D spending as the company embarks on a transition to leverage its 32 million users and enter the mid-to-edge gaming market.
Yalla launched an internal R&D studio in the fourth quarter, after releasing its first hardcore game, merge kingdomin the third trimester.
Low risk
Why do I think this is a low-risk transition? Well, Yalla has impressive revenue generation and solid cash reserves.
The company’s flagship apps Yalla (chat services) and Yalla Ludo are mature parts of the business and generate reliable revenue year-round. Some analysts think that growth may have slowed here, but the number of users continues to grow.
In its fourth quarter report, Yalla noted that quarterly paying users across the company increased from 8.4 million to 12.4 million, representing an impressive year-over-year growth of 47.8%.
The second reason is your cash reserves. At the end of the fourth quarter, Yalla said he had more than $407 million in cash and cash equivalents. That’s up from $57 million a year earlier.
That’s significant because the company currently has a market value of $539 million, which puts the value of the company at $122 million. For a company that has generated about $80 million in profit two years in a row, that’s not particularly high.
These sizeable cash reserves and strong income streams make Yalla look like a relatively low-risk investment. And right now, that’s particularly important with the levels of volatility that we’re seeing across the market.
Of course, there are concerns that new game apps won’t bring the success of Yalla and Yalla Ludo. There is no guarantee that new games will be successful.
However, I think the chances are enhanced by the size of the existing user base and the positive trends in the Middle East. The region is among the fastest growing in the world, while the citizens of the GCC have seen rapid improvements in the standard of living in recent years.
In addition, this strong financial position gives Yalla a lot of flexibility with respect to share repurchases and dividend payments, both of which would benefit shareholders.
Due to the above, I am looking to add Yalla shares to my portfolio when I have the funds available. Hopefully, I can buy shares near the current price ($3.66) even if the pound remains weak.
After all, like other investors, I’m always looking for high-quality companies to add to my portfolio.
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