Yalla Group Ltd. (NYSE: YALA) tumbled 15% in early trading Tuesday, to $11.44 per share, on lower-than-expected revenue growth in the second quarter.
The Chinese company, an audio-focused social app popular in the MENA region, booked $66.6 million in revenue in the three months through June, up 110% year-over-year. Net income was $18.4 million, or 10 cents per share, a 15% increase from a year ago.
Still, the strong growth was lower than analysts expected, and investors were disappointed, with the trading volume nearly doubled from the average on Tuesday. Year-to-date, Yalla has witnessed a 25% decline in its stock value – while still at a significant upside from its IPO issue price of $7.50 and the lowest of $6.26 per share nearly a year ago.
And it wasn't just the company's financials that have sent its stock on a wild run down from the peak of $41.35 per share it had hit in February. In May, Yalla Group was hit by a short-seller report by Swan Street Research LLC, which claimed, among other things, the voice-chat app faked its user numbers.
Swan Street listed several red flags in its 31-page report called "Is Yalla Group a Multi $B Fraud? The 'Clubhouse of the Middle East' UAE Tech Unicorn that Never Was." These red flags were: "Too-good-to-be-true numbers that are irreconcilable with channel checks," history of fraud by company's auditors, new CFO, long distance between headquarters and accountants, and "cash stowed around the world."
Yalla quickly turned up a statement denying the allegations and launched a $150 million stock buyback program in a show of confidence.
Still, a dozen investor's rights litigators in the U.S. have begun investigations into Yalla to determine "whether Yalla and certain of its officers and/or directors have engaged in securities fraud or other unlawful business practices," as Pomerantz LLP wrote in a June statement.
In today's report, Yalla said its average MAUs increased by 77% year-over-year to 22.1 million in the second quarter. The number of paying users grew nearly 20% to 6.4 million, according to the report.
Yalla Group became publicly traded on Sep. 30, 2020, in a deal worth about $140 million. Based in Dubai, Yalla is headed by Chinese entrepreneur Tao Yang and thus makes the list of China-owned companies covered by CapitalWatch. At the time of IPO, the unicorn's valuation came close to about $1.1 billion.
Chairman and CEO Yang said in a statement posted after markets closed Monday that the company's marketing and promotion campaign to attract new users has paid off. The company has also launched operations in South America and Turkey, it said.
Yang added, "Our increasing popularity with users assures us that we have our fingers on the pulse of the market, and drives us to develop new products."