The company expects to start generating meaningful revenue in the second half of this year from two new mid- to hardcore games, including an SLG title launched in April



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<h4>Key Takeaways:</h4>



<ul>
<li>Yalla expects its new mid- to hardcore gaming initiative to contribute to total revenues gradually starting in the second half of this year</li>



<li>The new initiative could lift the company back to double-digit revenue growth as early as 2027, according to management</li>
</ul>



Do more happy days lie just around the corner?



That's the big question hanging over social media and gaming company Yalla Group Ltd. (NYSE:YALA), which dangled the tantalizing possibility of a return to double-digit growth from an earlier era as soon as next year. The engine for that jumpstart is two new mid- and hardcore games that are currently revving up, representing the company's first major move beyond its legacy casual games business.



The coming buildup for Yalla's two new titles was most apparent in its growing spending on the initiative in its latest financial report released on Monday. Leading that charge was a 40% jump in its sales and marketing expenses during the first quarter, lifting that part of its spending to 12.3% of revenue from 8.3% a year earlier. Such an increase is quite aggressive for the fiscally conservative Yalla, showing it sees the new gaming initiative as key to its future development.



At the same time, the company acknowledged recent uncertainty in its core Middle East and North Africa (MENA) region. To broaden its base, Yalla noted its new mid- and hardcore gaming initiative is likely to include a diversification drive into other global markets like the U.S. and Europe later this year.



Yalla posted double- and even triple-digit revenue growth for much of its early history, feasting off a fast-growing Middle Eastern market where local governments strongly encouraged development of the social media and gaming services that are its specialty. But that growth has slowed considerably as its business matures, even as strict fiscal discipline has helped the company to keep its profits stable and cash reserves growing.



The company's latest financial report shows Yalla's revenue fell slightly in the first quarter. But as the company's new gaming initiative takes hold, it expects that business to start contributing significant revenue in the second half of this year. That should offset slowness for its legacy social media chat services and casual gaming business, helping the company to post roughly flat revenue for all of 2026 compared with last year, CFO Karen Hu said on Yalla's earnings call.



&#34;Looking into 2027, as the two new titles mature in terms of scale and revenue generation, there is potential, if everything progresses well, for us to move toward double-digit year-over-year growth,&#34; she said.



Yalla's stock fell 6.7% after the results came out. The stock is down slightly this year, but has rallied since late March as the new gaming initiative gets closer to bearing fruit. At its current levels, the stock trades at a price-to-earnings (P/E) ratio of 8, ahead of the 5 for Chinese social media site Weibo (WB.US; 9898.HK) but behind the 12 for the larger Pinterest (PINS.US). The relatively low figures reflect growing maturation for social media companies in general, which is accelerating for some as they lose advertising traffic to AI.



Yalla is looking to midcore and hardcore games to combat the slowdown, banking on serious gamers' greater willingness to pay for their hobby than the titles under its legacy casual games business. That part of its business recorded a small gain in the first quarter, rising to $30.3 million from $30.1 million a year ago.



<h4>‘Encouraging early feedback'</h4>



On the mid- to hardcore gaming front, a highlight from the latest report was the official launch of Yalla's desert-themed SLG game. It also introduced BlazeAerie Interactive Entertainment as its development parter for the title, with Yalla providing customization and marketing for the game. Yalla described Hong Kong-based BlazeAerie as &#34;a top SLG game studio whose gross billing in the SLG category has ranked among the top five globally over the past five years.&#34;



Yalla said it rolled out an Android version of the SLG game in April, while it debuted an iPhone version in early May. The company said the game has received &#34;encouraging early feedback,&#34; and has done well in terms of downloads in both Android and Apple stores.



&#34;This partnership harnesses our complementary respective strengths: the BlazeAerie team leads R&amp;D, leveraging its proven game development expertise to craft a game rooted in MENA's heritage and visual tastes, while Yalla Group leads distribution, using its deep local know-how and accumulated gamer community to deliver the title across MENA,&#34; Yalla founder and Chairman Yang Tao said on the earnings call.



The other title in the new initiative, a match-3 game called Turbo Match, is &#34;progressing smoothly&#34; and &#34;also performed well in its early stage&#34; following its launch in the third quarter of last year, company officials said. Unlike the SLG game with its MENA-oriented desert theme, company officials pointed out that &#34;Turbo Match,&#34; which Yalla developed in-house, is more designed for global users, and thus more suitable for other global markets like the U.S. and Europe.



&#34;We continue to see significant growth potential for SLG and Match-3 games and will continue to invest in these two genres,&#34; Yang said. &#34;In addition, we continued to expand our games team over the past year and have been exploring additional gaming verticals, including the casual and hyper-casual sectors, across more overseas markets.&#34;



As it builds up its in-house team for more game development, Yalla's R&amp;D spending rose 16.2% year-on-year in the first quarter to account for 11.5% of its revenue, up from 9.3% a year earlier. Yalla was able to offset some of the higher marketing and R&amp;D expenses through savings in its cost of revenue from lower commission fees paid to third-party platforms. But its net margin still dropped year-on-year as it posted a $28.4 million profit in the latest quarter.



Reflecting its strong cash position, the company's cash and short-term investments totaled $806.7 million at the end of March, up from $754.6 million three months earlier, even as it repurchased nearly $10 million worth of its stock during that time under a $150 million share buyback program.



Yalla is based in Dubai, but is also setting up a second base in adjacent Saudi Arabia, in a nod to the latter's importance in the region. On that front, it unveiled a partnership as a title sponsor with the Saudi Esports Federation earlier this year. In its latest report it announced it was named as presenting partner of Yalla Saudi eLeague Women 2026, one of the esports league's four categories.



Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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Yalla Group Ltd. anticipates a return to double-digit revenue growth by 2027, driven by two new mid- to hardcore games launched this year. The company is increasing its sales and marketing expenses significantly to support this initiative, despite recent revenue declines. Yalla aims to diversify into global markets, including the U.S. and Europe, as it seeks to offset slowdowns in its legacy casual gaming business. Early feedback on its new SLG game has been positive, indicating potential for future growth.

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Yalla Expects Return To Double-Digit Revenue Growth Next Year As New Gaming Initiative Gains Momentum