DouYu International Holdings Limited

And good evening, ladies and gentlemen. Thank you and welcome to DOW U International Holdings Limited's first quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note this call is being recorded. I will now turn the call over to the first speaker today, Ms. Mao Mao, Vice President of Capital Markets of DOW U. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our first quarter 2021 earnings call. Joining us today are Mr. Shao Diecheng, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our first quarter 2021 financial results on our IR website at ir.soe.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 four looking statements made pursuant to the safe harbor provision for the Private Securities Litigation Reform Act of 1995. These four looking 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 the forward-looking statement. All forward-looking statements are expressly qualified in their entirety by the cautionary statement with factors and details of the company's filing with the SEC. The company undertakes no duty to revise or update any forward-looking statement for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Shao-Zi Chen. In the first quarter of 2021, we upgraded our operational system and steadily improved our operational performance, with our average MAUs reaching 191.9 million and average mobile MAUs reaching 59.1 million. Meanwhile, our quarterly paying user count was 7 million, and total revenues were on the 2.15 billion. In this quarter, without the influence of COVID-19, users' tipping habits have normalized, which caused our overall revenue growth to be relatively subdued in the period. Nevertheless, the breadth and depth of our game-centric live streaming platform continues to perform well attracting more users and fueling our platform expansion. During the quarter, our total average MAUs increased by 21.3% year-over-year to 191.9 million, while our average mobile MAUs increased by 4.5% year-over-year to 59.1 million. Such MAU growth was mainly driven by five factors. First, our broadcast of large-scale esports tournaments such as LPL Spring 2021, KPL Spring 2021, and Crossfire Pro League Spring 2021 continued to drive our user-based expansion. Secondly, we explored deeper partnerships with game developers and refined our operations through jointly produced events for different game titles, such as Peacekeeper, Honor of Kings, and League of Legends. Third, we explored more organic synergies between game and entertainment segments. For example, during Chinese New Year, we facilitated streamer collaboration with both movie crew and celebrities to produce premium live streaming content in our Peacekeeper and PUBG segments. Fourth, we ramped up our efforts to provide a broader content mix through our video and communities business and thus provided users with better viewing experience through diverse content. In addition, as the pandemic subsided and China successfully brought the virus under control, the reopening of in-person internet cafes led to a year-over-year uptick in our PCM use. Now, turning to our content updates, during the quarter we continued to expand our influence up and down the esports industry value chain. Moreover, to fuel the growth engine of our content ecosystem, we further refined our game-centric live streaming business while diversifying our video and community content initiative. In order to develop more quality esports content, we utilized the large-scale esports tournament broadcast, self-organized events and programs and sponsored and invested more in top esports teams. We achieved superior results during the quarter by broadcasting over 50 large-scale esports tournaments and self-producing over 40 high-quality esports tournaments. We also implemented several innovative features for large-scale tournament broadcasts to better satisfy users' wide range of content viewing demands, differentiate our platform offerings and boost user engagement. During KPL Spring 2021, for example, we provided users with a diverse set of viewing options around video, community, and live streaming. Such options included watching games with celebrity groups, tournament highlight reporting, specialized programs designed for key game streamers, as well as video and text posts on game progress. Additionally, during the LPL Spring 2021 broadcast, we supplied users with exclusive game commentary and a supplemental live streaming room through which our exclusive top tier streamers delivered high level analysis and commentary to provide better user experience and enrich their content broadcast viewing options. And finally, we also added more interactive events to our Crossfire Pro League Spring 2021 broadcast, which helped to better circulate traffic between tournaments and pregame shows, create better viewing experience for our users, and stimulate user engagement. Beyond such platform innovation, we also worked to develop more in-house tournament IPs Consider our self-produced Douyu DNF all-star tournament, for example. Through this event, we maintained high level of user engagement during the quiet period after the official tournament ends, supplied DNF segment streamers with a large repository of tournaments, and provide users with more premium and differentiated content. As we continue to accumulate more quality video content we have also established a pyramid structure consisting of three contents here. Our top-tier video content features PGC content produced through our partner collaborations and by top-tier streamers periodically, while our mid-tier content features those produced by mid-tier streamers and platform-signed video content creators. At the bottom is video content produced by long-tail streamers and video content creators, as well as other high-quality UGC content. Meanwhile, by leveraging the monetization and engagement advantage of live streaming, we encourage video content creators to live stream on our platform, which helps them improve their overall income and increase the user engagement. we also recognize video's advantage in content accumulation, distribution, as well as extension, and encourage our streamers to build up their video content profiles on our platform. For our community's business, the two main functions are exploring games and facilitating more interaction between players, game developers, streamers, and video content creators. with our particular emphasis on game developer collaboration and increasing our influence among gamers. In fact, during the quarter, we organized several events, such as to bring gamers, streamers, video content creators, game media outlets, and game developers together, foster the community engagement, and better facilitate interaction. Now turning to monetization. In the first quarter, our quarterly paying users were 7 million, with our paying ratio reaching 3.6%. Meanwhile, our ARPPU increased steadily on a year-over-year basis to RMB 285. Although we saw the revision of users' tipping behaviors to that of pre-pandemic levels, as the pandemic was gradually brought under control in China, we continue to execute a proactive operating strategy centered on increasing user interaction to further stimulate users' paying habits and grow ARPPU. Going forward, we will work to further optimize our product matrix, diversify our paying scenarios, and enhance our users' overall paying experience. Through such measures, we should be able to better attract and retain a base of high-quality paying users and achieve a healthy ARQPU growth rate. Finally, we remain committed to refining our content operations across different segments, which should help to further boost our segment monetization efficiency. We are also making good progress on the R&D front. During the quarter, we released a new feature that allows streamers to live stream directly through their internet browsers. By eliminating the process of downloading applications in advance, such as OBS and the Douyu live streaming tool, we have further reduced the threshold for new streamers to start live streaming on our platform. For cloud games, we tested cloud-based live streaming tool which made it easier for regular game users to simultaneously play and livestream games in Blu-ray video quality on our platform, thereby lowering the hardware barrier traditionally in place for the streamer. We have also continued to fortify our foothold overseas. During the quarter, we continued to explore and increase our investments in the overseas market. As a result, Our Japanese game live streaming product, Milden, currently maintains its leading position in Japan. In summary, during the quarter, we maintained a rigorous operating strategy and continued to develop an integrated content operation system around our three core business, live streaming, video, and community. Such efforts have helped us to better position our platform for more sustainable growth over the long term. By successfully implementing these strategies, we have provided our core user group with significant benefits and thus paved the way for their steady growth. Looking ahead, we remain committed to refining our video and community business models to create an integrated content ecosystem with our game-centric live streaming business as its foundation. We also plan to further execute several initiatives in product, streamer, and content to consciously improve our overall monetization capabilities in the long run. With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao, to go through the details of our financial performance in the first quarter.

Thank you, Momo. Hello, everyone. Total net revenues in the first quarter of 2021 were RMB 2.15 billion. Live streaming revenues were RMB 2 billion, compared with RMB 2.11 billion in the same period of 2020. Advertising and other revenues were RMB 154.1 million, compared with RMB 165 million in the same period of 2020. The year-over-year decrease in live streaming revenues was mainly due to the reversion of a user's tipping behavior to that of the pre-pandemic level, as the pandemic was gradually brought under control in China. This decline was partially offset by our implementation of more effective operational strategies, which helped to improve the engagement level and paying behavior of key paying users on platform in the period. The year-over-year decline in advertising and other revenues was mainly due to the trend of getting advertisers normalizing their marketing expenditures, which were relatively higher in the same period last year due to the COVID-19 pandemic. As China has gradually brought the pandemic under control, advertisers' expenditures have also returned to their pre-pandemic level. Cost of revenues in the first quarter of 2021 increased by 5.6% to RMB 1.89 billion from RMB 1.79 billion in the same period of 2020. More specifically, revenue share fees and the content cost increased by 5.4% year-over-year to RMB $1.66 billion. This was because of the company's increased investments in the broadcasting rights for esports tournaments, in-house production of proprietary content, and quality streamers in the overseas market. Fenway's cost in the first quarter of 2021 increased by 12.6% to RMB 172.1 million, from RMB 152.9 million in the same period of 2020. This was mainly due to the promotion of more high-quality viewing options and was partially offset by our ongoing development of P2P and CDN technologies, which have helped to improve our bandwidth efficiency. Gross profit in the first quarter of 2021 was RMB 260.2 million, compared with RMB 485.9 million in the same period of 2020. Gross margin in the first quarter of 2021 decreased to 12.1% from 21.3% in the same period of 2020. This was mainly due to the decrease in our total net revenues. which resulted in an increased proportion of revenue share fees and current cost to total net revenues in the period. Sales and marketing expenses in the first quarter of 2021 increased by 95.5% to RMB 209.9 million. This was mainly due to our increased sponsorships and promotions of eSports tournaments as compared to the same period of 2020 during the COVID-19 pandemic, as well as our increased promotional activities for user acquisition. Research and development expenses in the first quarter of 2021 increased by 19.8% to RMB $111.3 million from RMB 92.9 million in the same period of 2020. This increase was primarily due to additional investments in technical personnel, particularly in the overseas market. General and administrative expenses in the first quarter of 2021 increased by 4.1% to RMB, 88.1 million from RMB 84.6 million in the same period of 2020. Adjusted operating loss in the first quarter of 2021, which excludes share-based compensation expenses, was RMB 91.8 million, compared with an adjusted operating income of RMB 259.5 million in the same period of 2020. Net loss in the first quarter of 2021 was RMB 101.8 million, compared with net income of RMB 254.5 million in the same period of 2020. Adjusting net loss in the first quarter of 2021, which excludes share-based compensation expenses, share loss in equity method investments, and impairment loss of investments, was RMB 70.7 million, compared with an adjusted net income of RMB 296.9 million in the same period of 2020. For the first quarter of 2021, basic undiluted net loss per ADS were RMB 0.19 and RMB 0.19, respectively, while adjusted basic undiluted net loss per ADS or RMB 0.10 and RMB 0.10 respectively. Going forward, we plan to continue exploring new methods of upgrading our monetization capacity and efficiency. Additionally, as we continue to grow, we will focus on further utilizing our operating leverage and fueling the sustainable development of our platform. This concludes our prepared remarks for today. Operator, we are now ready to take questions.