Investors should consider Yalla Group, a forgotten tech stock with plenty of cash!

Yalla Group (NYSE: YALA ) is a Middle East-focused tech stock that hasn’t gotten the attention it deserves. Last week, the company posted its fourth quarter results, and it surprised some analysts. Despite registering year-on-year growth (YoY) in revenue and user growth, it is a company in transition.

A transition

Last week, Yalla reported that its non-GAAP net income has fallen from $27.5m in the fourth quarter of 2021 to $21.7m in the last quarter of 2022. This decline may have upset some investors, but, for me, it just reflects reality. that Yalla is a company in transition.

The stock soared during the pandemic, reaching $39 per share – 10 times higher than its current share price. Restrictions caused by the pandemic led to a surge in social media use, and the chat and casual game platform Yalla gained a lot.

In a more challenging macroeconomic environment, revenue growth is slower and earnings are declining. But we can generally attribute the lower net income to higher R&D spending as the company begins the transition to deploy 32m users and enter the mid-to-hard-core gaming market.

Yalla launched an internal studio for R&D in Q4, after introducing its first hardcore game, Join the Kingdomin q3.

The risk is low

Do I think this is a low-risk transition? Yalla has excellent income and solid cash reserves.

The company’s flagship applications, Yalla (chat service) and Yalla Ludo are mature business segments, generating reliable revenues throughout the year. Some analysts think that growth may slow down, but the number of users continues to grow.

In its Q4 report, Yalla stated that monthly paid users in the business increased from 8.4m to 12.4m, representing an impressive 47.8% YoY growth.

The second reason is cash reserves. At the end of Q4, Yalla said it had more than $407m in cash and cash equivalents. That’s up from $57m the year before.

That’s important because the company currently has a market value of $539m, making the company worth $122m. For a company that has generated around $80 million in revenue for two consecutive years, this is not very high.

Its sizable cash reserves and solid income stream make Yalla look like a low-risk investment. And right now, that’s very important with the level of volatility we’re seeing in the market.

Of course, there are concerns that the new game app will not replicate the success of Yalla and Yalla Ludo. There is no guarantee that a new game will be successful.

However, I believe the chances will increase with the size of the existing user base and the positive trends in the Middle East. The region is one of the fastest growing in the world, while GCC residents have seen rapid improvements in living standards in recent years.

In addition, this strong financial position provides Yalla with a lot of flexibility in terms of buybacks and dividend payments – both of which will benefit shareholders.

Because of the above, I want to add Yalla stock to my portfolio when I have the funds. Hopefully, I can hold the stock close to the current price – $3.66 – even if the pound remains weak.

After all, like any other investor, I’m always looking for the best companies to add to my portfolio.