DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU International Holdings Limited Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. We'll be hosting a question and answer session after management's prepared remarks. I will now turn the call over to the first speaker today, Ms. Mao Mao, Vice President of Capital Markets of DOEU. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our fourth quarter and full year 2020 earnings call. Joining us today are Mr. Shao-Jie Chen, Chairman and Chief Executive Officer, Mr. Ming-Ming Su, Chief Judge Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our fourth quarter and full year 2020 financial results on our IR website at ir.souyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forwarding statements made pursuant to the safe harbor provision for the Private Securities Litigation Reform Act of 1995. These forwarding statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations implied by these forwarding statements. All forwarding statements are expressly qualified in their entirety by the cautionary statement with the factors and details of the company's filing with the SDC. The company undertakes no duty to revise or update any following statements for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Shaojie Chen. During the fourth quarter of 2020, both our financial and operating results maintained their steady growth momentum as our total revenue rose up by 10% year-over-year to reach RMB 2.27 billion in the period. At the same time, our average mobile MAU increased by 6.9% year-over-year to 68.2 million, and our quarterly paying users expanded by 4.6% year-over-year to 7.6 million. While the residual impacts of COVID-19 persist throughout the macro environment, our game-centric live streaming platform continues to flourish and attract additional users in the period. In the fourth quarter of 2020, our total average MAUs grew by 5.2% year-over-year to 174 million. Such healthy expansion was mainly due to four factors. First, broadcasting large-scale esports tournaments, including League of Legends Season 10 and KPL4 2020, along with the rising popularity of our self-organized tournaments, including PUBG Gold Grant Tournament Season 11 and Peacekeeper Gold Grant Tournament Season 1, continue to fuel our user-based expansion. Second, the releases of multiple new titles, including Call of Duty Mobile, World of Warcraft 9.0, Moonlight Blade Mobile and DNS Hill Rock further enriched our platform's content and attracted new users. Third, our in-depth cooperation with game developers such as Peacekeeper, Dawn of Kings, and League of Legends for the joint operation of tournaments and requirements of platform operations for different games helped to cultivate an increasingly engaging and active platform environment. Finally, our efforts to build diverse communities and provide a wider range of content viewing options through our video segments serves to better satisfy the full spectrum of users' demands. Now let's turn into our content updates. During the quarter, we remained committed to cementing our industry leadership, building the growth of our game-centric livestreaming business and expanding the depth and breadth of our content offering across all segments. Not counting to maintaining the failed calls, we also launched the version 7.0 of our Zouyu app, through which we have established our video content and further refined our community segments to develop a fully integrated system along the eSports value chain. In the fourth quarter, Our efforts to sponsor high-quality esports teams delivered exceptional results. Crucially, esports teams have continued to occupy a key role in the broader esports industry, and therefore, we have continued to invest in this area. During the quarter, our sponsored LL Team TES won the Demacia Cup 2020 Championship and our self-developed owner of King team, EYG, won the King Pro League for 2020 Championship. We were pleased to see our cooperating team deliver first-rate performances and believe that such efforts will continue to both supercharge our brand influence and compound our differentiated esports advantages going forward. Beyond this success, we also continue to take our tournament broadcasting and self-produced events to the next level. As such, during the quarter, our game developer collaboration swelled, reaching more than 90 large-scale esports tournaments in total and featuring the 2020 League of Legends World Championship, King of Pro League. More specifically, through our close collaboration with the Crossfire Mobile team during the Crossfire Mobile League, we developed a joint membership system which pioneered a more creative way to cooperate with game developers. For in-house events, our self-produced Peacekeeper Gold Grand Tournament Season 1 proved to be so popular that it became one of the most widely anticipated and commented on Peacekeeper tournaments in December. As an event split of 30 PEL and PEN League teams came together to compete. Viewers were brought to the edge of their seats during this one-of-a-kind tournament experience. Importantly, we self-produced more than 50 tournaments, which enabled us to establish a solid foundation for future growth in this area, and we plan to organize more tournaments in-house to drive growth going forward. Looking ahead, In terms of content operation strategy, we plan to continue building our community and video business on top of our solid gaming live streaming foundation. By leveraging these strengths, we will drive parallel business development and build an integrated ecosystem. For live streaming, we remain focused on developing more fast-imposed esports content. which will include both partners and self-produced esports tournaments and programs. For videos, we have already completed the initial stage of infrastructure development and experimented with multiple quality PGC content. Going forward, we plan to engage with more quality short-form video content creators in order to further enrich and expand our library of video offerings. Finally, For our community, we plan to further amplify users' daily discoveries, introductions, and discussions through the cultivation of more interest groups based on our previous Yuba. Now let's turn to our monetization progress. During the quarter, as we continued to refine our monetization products and introduce more paying scenarios to enhance our user-paying experience, we increased our quarterly paying users by 4.6% year-over-year to 7.6 million and grew our paying ratio to 4.4%. Our quarterly approval also increased by 4.6% year-over-year to RMB 273. Looking ahead, we plan to continue rolling out more innovative initiatives and events to enlarge our paying user base. Furthermore, we remain committed to the ongoing of innovative product functions and monetization events, as well as refining each segment of our content operations. Such efforts will help to augment our platform's operating efficiency and boost the monetization efficiency of our content segments and live streaming rooms. We also continue to make good progress on the R&D front. As a result of our collaborations with Tencent, for example, we became one of the first content platforms to utilize the video streaming protocol, RMTP over SRT, on our mobile application in the quarter. This technology enabled streamers to live stream smoothly regardless of weak network environments, activating package loss rates of up to 40%, and has thus significantly expanded the range of live streaming scenarios available to users on our platform. For example, With the support of the new technology, our outdoor streamers are able to diversify their content scenarios, live stream and deliver high quality frames in the environment of bad internet connection. On the international front, we have continued to invest in and explore the potential of the Japanese market. Mildom, our Japanese game live streaming product, continues to benefit from the inroads we are making in Japan. our ongoing investments in the platform, and our deep expertise in the game live streaming space. As a result, Milton has continued to perform well, maintaining its leading position in Japan. In summary, during the fourth quarter of 2020, we continued to enhance our operational and financial performance at a healthy pace. Going forward, We plan to leverage our established foundation in live streaming to further develop and refine an integrated ecosystem for our three core business, live streaming, video, and community. In order to advance our platform's monetization capability and financial performance, we will continue to implement initiatives in several areas, including product development, streamer management, and content operations. Such efforts will not only help to fuel our long-term business growth, but will also serve to unlock the additional value up and down the gaming live streaming industry value chain while providing our shareholders with lasting value. With that, I will now turn the call to our Vice President of Finance, Mr. Hao Tao, to go through the details of our financial performance in the fourth quarter.

Thank you, Momo. Hello, everyone. Overall, total revenues in the first quarter of 2020 increased by 10 percent year-over-year to RMB 2.27 billion, while total revenue in the full year of 2020 increased by 31.8 percent year-over-year to RMB 9.6 billion. Additionally, in the full year of 2020, Adjusting net income was RMB 541.6 million, and adjusting net margin reached 5.6%, implying a net increase of approximately 80 basis points from prior year. Total net revenues in the first quarter of 2020 increased by 10% year-over-year to RMB 2.27 billion, with around 91.3% of total revenues generated from live streaming and the remaining portion generated from advertising and others. Live streaming revenues in the first quarter of 2020 increased by 9.4% to RMB 2.07 billion from RMB 1.89 billion in the same period of 2019. This increase was primarily attributable to our platform's improved user-paying experience, which continues to be driven by our ongoing product refinement efforts, as well as our stimulation of user-paying habits resulting from our increased application of platform-paying scenarios. As a result, paying users in the first quarter of 2020 increased to 7.6 million from 7.3 million in the same period of 2019. In addition, the enhanced diversification of our content ecosystem helped to improve the monetization efficiency of both game and non-game segments on platform. As such, our up increase to RMB 273 in the first quarter of 2020 from RMB 261 in the same period of last year. Advertising and other revenues increased by 16.5% year-over-year to RMB 198.5 million, mainly driven by our expanded brand influence and corresponding increase in advertising demand for competitive advertising and promotion solutions. Cost of revenues in the first quarter of 2020 increased by 23.7% to RMB 2.09 billion from RMB 1.69 billion in the same period of 2019. More specifically, revenue share fees and content cost increased by 25.6% year-over-year to RMB 1.85 billion which could generally be explained by the following drivers. First, our content cost increased as we invested more in the broadcasting rights for esports tournaments and the in-house production of proprietary events to further enrich content on our platform. Second, our revenue share fees increased, which was in line with our total revenue growth. we continue to invest quality streamers in the overseas market. Bandwidth costs in the first quarter of 2020 increased by 12.7 percent to RMB 170.7 million from RMB 151.4 million in the same period of 2019. This was mainly due to our introduction of more high-quality viewing options. such as 4K high-definition live streaming content, which provided users with better viewing experiences and further satisfied users' viewing demands. Cost profit in the first quarter of 2020 was RMB 182.2 million, compared with RMB 375.2 million in the same period of last year. Gross margin in the first quarter of 2020 was 8%, compared with 18.2% in the same period of 2019. The decrease in gross margin was mainly due to the increase in revenue share fees and accounting costs as a percentage of our total revenues. Sales and marketing expenses in the first quarter of 2020 increased by 27.3% to RMB 170.7 million from RMB 134.1 million in the same period of 2019, mainly driven by the increase in the promotional activities of key tournaments as well as the increase in prizes for self-produced events. Research and development expenses in the first quarter of 2020 increased by 18.6% to RMB 118.9 million from RMB 100.2 million in the same period of 2019. This increase was primarily due to our development and improvement of video-related technologies as well as our application upgrades. General and administrative expenses in the first quarter of 2020 increased by 54% to RMB 117.7 million from RMB 76.4 million in the same period of 2019, mainly due to the increase in professional service fees related to our potential merger with HUYA. Adjusted operating loss in the first quarter of 2020, which excludes share-based compensation expenses, was RMB 199.1 million, compared to adjusted operating income of RMB 141.5 million in the same period of 2019. Net loss in the first quarter of 2020 was RMB 228.7 million, compared to net income of RMB 157.4 million in the same period of last year. Adjusting net loss in the first quarter of 2020, which excludes share-based compensation expenses, share loss in equity method investments, and impairment loss of investments, was RMB 176.9 million. compared to an adjusted net income of RMB 186.4 million in the same period of 2019. For the first quarter of 2020, basic and diluted net loss per ADS were RMB 0.61 and RMB 0.59, respectively, while adjusted basic and diluted net loss per ADS were RMB 0.11 and RMB 0.45 respectively. Going forward, we will continue to explore our monetization capacity and efficiency. We will also further utilize our operating leverage while staying faithful to the sustainable development of our platform. This concludes our prepared remarks for today. Operator, We are now ready to take questions.