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spk04: of quarter, we collaborated with a game developer to develop and launch various promotional content and events, starting in the testing stage. These efforts have gradually attracted high-quality players to our platform. Now, coming to our content updates, during the quarter, We continued to expand our content ecosystem, both upstream and downstream, to cover the entire esports industry value chain. We also wrapped up our efforts to construct a highly comprehensive content library focusing on various game genres. By broadcasting and self-producing esports tournaments, and events in various formats, we continued to develop more high-quality esports content. At the same time, we also continued to actively sponsor and invest in a number of top esports teams. During the quarter, we broadcast over 50 large-scale esports tournaments, and self-produced more than 80 high-quality esports events. Among them, we leveraged LOL pre-season challenger matches to actively cultivate new high-quality streamers and organized matches between streamers and young streaming teams to enrich the content on our platform. during the off-season for premier esports events. In addition, the LPL Summer 2021 tournament, which is the highest-level LPL professional tournament in China, kicked off in June. We broadcast the tournament through our platform in concert with other related self-produced programs for complete live streaming coverage of the event from start to finish. For our PLS1 tournament, the highest level professional league for peacekeepers, we wrote out a series of promotional events, such as live watch parties for tournament matches, anchored by popular live streamers. to further improve user engagement. Meanwhile, we continued to further the development of our content library by introducing additional game developers to make our content library more comprehensive and cover additional game genres. First, we utilized esports tournament broadcasts to further enrich coverage for our blockbuster games. During the quarter, we hosted over 20 tournaments for games of various genres, including LOL, Honor of Kings, and Peacekeeper. Second, we utilized the IP of popular streamers to create more high-quality PGC content and meet the diverse content demand of users. Finally, We further enhanced user engagement based on their interest in high-end strategy and gameplay by delivering content related to real-time strategy and advice from streamers and high-ranking professionals on matching in-game encryption and equipment selection. We also implemented systematic marketing programs for new, mid, and long-tail games. These campaigns are multi-step processes, which include the development and delivery of promotional content and events based on individual game lifecycle. We began cooperating with game developers prior to the launch of beta testing. for new games to foster anticipation and excitement among target consumers. We utilize the influence of our top streamers to increase brand awareness for this new game. Meanwhile, by recruiting new streamers for games in advance, we are able to quickly fill the gap in game content after the game's official launch. Furthermore, we actively cooperated with game developers to launch a series of events to foster development of engaging video content. Through the broadcast of this content, more potential players are attracted to viewing gaming broadcasts. Additionally, our platform generates game-related hot topics introduces customized programs and content to promote the game, and allows the player to have interactions with KOM, enabling us to attract new users and improve user thickness. Now, turning to monetization. In the second quarter, our quarterly ping users were 7.2 million. with an ARPPO of IMB 303. The slight year-over-year decrease in ARPPO was primarily due to openly high user activity and ARPPO during the second quarter of 2020. Released to stay at home, others from the pandemic. During the quarter, user behavior normalized to pre-pandemic levels. Through our operating strategy and execution, we continue to focus on improvement in user engagement and paying user consumption. Going forward, we will work to further optimize our products, diversify our paid user scenarios, and enhance our overall paid user experience to achieve a healthy ARPPU growth rate. Finally, we remain committed to refining our operations across different segments, which should help to further boost segment efficiency. We are also making good progress on the R&D front. During the quarter, we launched AV1 decoding technology becoming the first platform in China to support AV-WAN decoding in live streaming. Compared with our previous decoding technology, AV-WAN has lower bandwidth costs and can eliminate lag while maintaining the same video quality. In terms of product function innovation, our platform upgrades revolve around the evolution in our game content. Starting from live streaming, we have expanded to into producer video and graphic content. With our popular and new game segment as a primary subject, we have forged an integrated game segment that combines live streaming, videos, visual graphics, friendly guides, interactive communities, and in-game gifts. We have also adapted our platform's search function to support these multiple forms of content. By providing support for searching and accessing historical live streams, videos, and videographic content on our platform, We can now better satisfy users' search queries for specific game content. We also continued to fortify our foothold overseas. During the quarter, we continued to increase our investment in overseas market. In particular, I would like to highlight our achievements in Japan. According to the latest app ending statistics, Mildom is one of the mainstream video game live streaming app in Japan and maintains an industry-leading user base in the country. In terms of future strategy, we will continue to strengthen the monetization capabilities of Mildom. in order to further solidify its market position in Japan, and also expect to achieve better economies of scale in Japan. In summary, during the second quarter of 2021, we leveraged our platform advantages to achieve success on numerous fronts. We expanded our multi-dimensional collaborations with more game developers. We also provide the gamers and viewers with comprehensive content offerings combining live streaming, videos, video graphics, and an interactive community. Looking ahead, we plan to continue executing our product streaming and content strategy to further augment our monetization capabilities. and improve our overall financial performance. 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 second quarter.
spk06: Thank you, Mingming. Hello, everyone. Total net revenues in the second quarter of 2021 were RMB 2.34 billion. Live streaming revenues were RMB 2.18 billion, compared with RMB 2.32 billion in the same period of 2020. Advertising and other revenues were RMB 158.7 million, compared with RMB 188.3 million in the same period of 2020. The year-over-year decrease in live streaming revenues was mostly due to the abnormally high user activity and up in the prior year period caused by the stay-at-home orders during the pandemic. In the second quarter of this year, as the pandemic was gradually brought under control in China, user behavior had largely normalized, reverting to pre-pandemic levels. This decline was partially offset by our efforts to improve the spending by our core paying users. The year-over-year decline in advertising and other revenues was mainly due to the fact that game advertisers increased their marketing budget in the second quarter of last year due to the pandemic and related stay-at-home measures. As a result, our overall advertising revenue in the second quarter of last year reached a relatively high level During the quarter, as the pandemic was continuously brought under control in China and the number of hit games featured on platforms was reduced, our game-related advertising revenue decreased accordingly. Cost of revenues in the second quarter of 2021 increased by 2.3% to RMB 2.03 billion from RMB 1.99%. in the same period of 2020. More specifically, revenue share fees and content costs increased by 3% to RMB 1.81 billion from RMB 1.75 billion in the same period of 2020. This increase was mainly due to increased investment in overseas streamers as we continued to expand overseas markets. Higher licensing costs due to more investment in esports tournament broadcasting rights and additional investment in proprietary content production. Bandwidth costs in the second quarter of 2021 decreased by 3.9% to RMB 161.8 million from RMB 168.4 million in the same period of 2020. This decrease was mainly due to the successful execution of our ongoing in-house technology upgrades, which led to higher bandwidth efficiency and lower bandwidth usage costs during the period. Gross profit in the second quarter of 2021 was RMB $306.5 million, compared with RMB $522.9 million in the same period of 2020. Gross margin in the second quarter of 2021 was 13.1%, compared with 20.8% in the same period of 2020. This decrease was primarily due to the decrease in revenues, resulting in an increase in revenue sharing fees and accounting costs as a percentage of total net revenues. Sales and marketing expenses in the second quarter of 2021 were RMB 295 million, compared with RMB 142.1 million in the same period of 2020. This increase was mainly attributable to the increased costs from utilizing additional promotional channels for user acquisition and continuous spending on both official and self-produced and corresponding sponsorship fees as the pandemic was gradually brought under control in China. Research and development expenses in the second quarter of 2021 were RMB 123 million, which represented an increase of 29.6% from RMB 94.9 million in the same period of 2020. This increase was primarily due to additional investments in technical personnel as we continued our overseas expansion and technology infrastructure upgrade to enhance user experience. General and administrative expenses in the second quarter of 2021 were RMB 102.6 million, compared with RMB 79.5 million in the same period of 2020, primarily due to the increase in professional service fees during the quarter. Adjusted operating loss in the second quarter of 2021, which aspects show based compensation expenses was RMB 165.1 million, compared with an adjusted operating income of RMB 272.7 million. in the same period of 2020. Net loss in the second quarter of 2021 was RMB 181.7 million, compared with net income of RMB 319.3 million in the same period of 2020. Adjusting net loss in the second quarter of 2021, which excludes share-based compensation expenses share of income in active method investments and impairment loss of investments was RMB 145.1 million, compared with an adjusted net income of RMB 322.9 million in the same period of 2020. For the second quarter of 2021, basic and diluted net loss per ADS were RMB 0.45 and RMB 0.45, respectively, while adjusted basic and diluted net loss for ADS were RMB 0.35 and RMB 0.35, respectively. Going forward, we will continue exploring new methods of improving our monetization capability and efficiency. Additionally, as we continue to grow, We will focus on further utilizing our operating leverage to fuel the sustainable development of our platform. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk07: We will now begin the question and answer session. To ask a question, press star then 1 on a touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And the first question comes from Lee Zhang with Bank of America Merrill Lynch. Please go ahead.
spk02: Hi, 管宇晨,晚上好,谢谢接受我的提问。然后呢,我主要是想看一下我们游戏直播这一块,一个是在二级部有没有一些表现得比较好的游戏可以给我们分享一下,然后如果从下半年来看的话,有没有一些特别值得关注的新游戏呢? Thank you very much for taking my question. Two questions here. First is, can you give us some color on a new game that has good performance in the second quarter? And if we look at it into the second half, any new game that we can expect? Secondly, I want to hear your opinion on the traditional esports game. What is the trend of the game in terms of time span or user that you can share? Also, how do we look at the trend of the hardcore esports game in the future? Thank you.
spk04: Thank you. Let me answer these two questions. According to our platform data, new games such as Naraka, Bladepoint, and CFHD, Crossfire HD, have performed well since the second quarter of this year. From June to July, we observed that the overall live streaming volume and user engagement for Naraka Bladepoint increased by more than We have continued to generate PGC videos and built our content ecosystem for this new game. Such efforts have played an important role in promoting these games and elevating our users' platform's tickling. Based on expected launch schedule for games in the second half of this year, we expect that new catalysts for the gaming market will include LL Mobile, Pokemon Unite, and Justice Online. Prior to the launch of new games, we plan to collaborate with game developers to foster anticipation and excitement among target consumers and to deliver sufficient and rich game-related content for gamers. and users on our platform. And the second question. The majority of our top 10 platform games are from traditional esports game genres, such as MOBA and FPS, which are characterized by long life cycles and high entertainment quality. According to our platform data, our top 10 game genres have remained largely similar in the past several quarters. The data also suggests that users' time spent on non-top 10 games over the past two quarters has gradually increased compared to the same period a year ago. We believe the primary reason behind this trend was the strategic upgrade of our platform. In the past, as a pure B2C platform, we used to only offer game-related live streaming content to gamers and users. However, starting from this year, we have focused more on non-exposed games. we have tried to create a separate segment for each new game on our platform. We are also collaborating with game developers to develop more comprehensive plans and quality content for game promotion through live streaming, video, and graphic text content as well as our user communities. Such as in terms of live streaming, we can leverage our top streamers to foster anticipation and excitement among target consumers prior to the launch of new games. By working with game developers, we can create multiple PGC videos and increase our number of promotional channels. For user communities, we can invite KOLs to have real-time interactions with our users, thus generating more related hot topics and engaging content. As we continue to execute this product strategy, we expect that the time spent by users on non-esports game segments will increase. and our platform content will become more diversified in the long run. Thank you.
spk02: Thank you. Very helpful.
spk07: The next question comes from Yiwen Zeng with China Renaissance. Please go ahead.
spk03: Thank you. Good evening, Mr. Guo. I also have two questions to ask. The first is that we just mentioned that there are more than 80 games in the second quarter. Then we observed that the price of the entire competitive version of this year has also increased. I just want to ask if it is possible to strengthen some competitive investment in the second quarter to respond to such a trend in the price of the copyright. Then the second problem is about the preparation of the new game. I just mentioned that the first half of the year may be a big game. First question is regarding the self-produced tournament. In the prepared remarks, you mentioned there were over 80 self-produced tournaments. And we also know that this year, there was an upward trend in the pricing of the license tournaments. That means the U.S. stepped up the self-produced content investment in order to tackle the increasing licensing cost trend. And then, similarly, on the new game preparation, you mentioned a few in the previous question. For example, the League of Legends Mobile. How is our latest progress on the streamer recruitment And in what way will we build up the top cohort streamers in the new game for the new game preparation? Thank you. .
spk05: It's been a year since it was launched, and there are a lot of big versions that have been on sale for a long time. The movie industry is relatively mature at the moment. The main version is relatively stable in the next few years. On the other hand, in the private market, it has always been an important part of Douyu's content strategy, including Douyu's Golden Awards, and D&F's All-Star Awards. They have all achieved excellent data and results on the platform. Especially the 11th season of the World Championship has become an important platform for the semi-final match. In the future, we will continue to strengthen the semi-final match and use the current platform's live resources and video creator resources, as well as some non-movie matches to strengthen the self-development of the PEC content. As for the preparation for the first game of the League of Legends, because the League of Legends has been delayed for a certain period of time, so the time we entered was very early. And that will be translated
spk10: So basically this year we have witnessed an increase in licensing costs for our esports tournament broadcasting rights across the industry. So however, we expect the licensing costs for the broadcasting rights of major esports tournaments to remain relatively stable over the next couple of years. And our expectation is based on our observation of current market conditions and the fact that the e-sport industry has reached a pretty mature stage of development. And in addition, self-produced tournament content has been a pretty important part of our content strategy as well. And the self-produced tournaments, such as the Golden Grand Tournament and the DNF All-Star, they both have produced outstanding results on our platform. and especially the Douyu Golden Grand Tournament, which has been held for around 11 seasons already, and now has become one of the most important brands of Douyu as well. And going forward, we will definitely continue to bolster the organization of our own eSport events and focus more on the generation of PGC content for non-eSport games. And we are pretty confident that we will be able to leverage our enormous amount of quality streamer and video creator resource to execute this strategy.
spk04: Thank you. Next question, please.
spk07: The next question comes from Alex Pong with Morgan Stanley. Please go ahead.
spk01: Thank you, Director, for accepting my question. I have two questions. The first one is about the trend of this quarter's income share and content cost. What kind of trend is it? Including the transfer fee, share, copyright, purchase, etc. How should we view the future? How should we view the future? How should we view the future? How should we view the future? How should we view the future? I have two questions. First question is regarding the revenue share and content cost trend in second quarter. including the different components, including the sign-up bonus, revenue share, and content procurement costs, et cetera. And how should we forecast this segment costs in the future given we have a little bit of revenue decline? My second question is related to the PCMAU number. This time we have not disclosed the PCMAU number. What is the reason behind this? And if we remove the duplicated users, how many PC users do we actually have? Thank you very much.
spk06: About the first question, revenue sharing cost, we will maintain our 50-50 revenue split sharing policy for our platform and streamers, as well as for our platform and tenant agencies. During promotional periods, promotional periods, we also offer certain incentives to streamers and agencies. Therefore, while the overall revenue sharing ratio may fluctuate slightly quarter-over-quarter, it will also remain stable in general. The increase in content cost in the second quarter of 2021 was primarily associated with higher licensee costs and increased investment in self-produced programs. The increase in licensing costs was due to more investment in esports tournament for casting files across the industry starting from this year. As tournament density becomes higher, we expect licensing costs in the second half of this year to increase slightly from the first half of this year. For our self-produced programs, as we invest more in programs to produce PGC content, to support the upgrade of the content and functions of our new businesses. We expect associated costs to continue increasing at a moderate pace throughout the second half of this year.
spk04: Let me answer your second question. First of all, our PCMAOs have remained relatively stable within the range of 110 to 130 million. Since our IPO in July of 2019, the quarterly functions were mainly driven by such factors as our periodic collaborations with PC game developers. In addition, the revenue contribution from live streaming on our PC portal has stabilized over the past several quarters. In the long run, we expected our mobile portal to be the primary driver for attracting users and generating revenue. As a result, we have decided to stop disclosing our PC emails starting from this quarter. With user groups for non-esports blockbuster games still relatively under-penetrated, we believe there is plenty of opportunities in the mobile market. In the future, we will deepen our collaborations with non-export game developers to better cultivate user spending habits and create a more welcoming content ecosystem for our users. Thank you.
spk07: The next question comes from Daniel Shen with JP Morgan. Please go ahead.
spk08: Good evening, Mr. Guan. I have two questions. The first question is about our revenue. In the second quarter, our revenue dropped more than before. Mr. Guan, can you talk more about the reason behind this? And how do we see the trend of the number of paid users and up in the second half of the year? I would translate myself. My first question is on the revenue side. We actually see that the second quarter revenue has declined on yearly basis. Could management provide some more color on the rationale behind? And what's the paying user and an output trend for the second half of this year for live streaming. Secondly, it's on cash. So currently, I see as a second quarter of this year, we still have over $1 billion in terms of $1 billion of net cash. So how are we going to use this cash in the future? Thank you.
spk06: The year-over-year decrease in revenues was mostly due to the abnormally higher use activities and up in the prior year period caused by the stay-at-home orders during the pandemic. In the second half of this year, to further stimulate our paying users' purchase willingness and enrich their consumption scenarios, we will continue to focus on monetization activities and products. Through our continuous focus on improving the engagement and consumption of our existing PAN users, we hope to further elevate our app. As to the cash on hand, we are focused on effectively using a strong balance of cash going forward. We will prioritize the sufficient allocation of cash to operational initiatives. That drives the steady development of our game-related business. These initiatives include exploring strategic content upgrades more actively, developing new business segments, and continuing to invest in new growth drivers. For example, at the end of last year, we wrote out a strategic plan to further enrich the content on our platform. We also increased investments in non-esports game segments to attract new users. Finally, we escalated our R&D spending to further explore new monetization models, which was in line with our aim to make games a major monetization channel for our game-centric platform. On the other hand, we will take more initiative in the of suitable investment and acquisition opportunities in our game-related segment, as well as downstream and upstream the esports value chain. Through these investments and acquisitions, we will expand the depth of our exposure to a wider range of industry segments and generate more synergies within our existing businesses. Thank you.
spk07: Thanks. The next question comes from Thomas Chong with Jefferies. Please go ahead.
spk09: 晚上好,谢谢管理层介绍我的提问。 我有两个问题,第一个是针对我们最近就是跟虎牙那边的M&A就是因为反垄断就停止了。 想问一下就是未来的话对我们的运营会有什么的影响? Thanks management for taking my questions. I have a question relating to the haunt of the M&A with Huya. What should we expect the cancellation of the deal to our operations? And can management comment about our business strategy as an independent platform? And the second question is relating to the competitive landscape. How should we think about The competition, is it going to be more intense after the merger is canceled? Thank you.
spk05: The first question is about the result of the anti-corruption monitoring. In the past few years, the domestic Internet has been a process of rapid development. Related policies and regulations are gradually improving. We believe that this is the country's hope to promote the entire Internet industry to a healthier direction. Therefore, all Internet platforms can compete more fairly and in a positive way. Therefore, in order to fully respect the decision of this supervision, we will actively cooperate with the supervision requirements and carry out the operation in accordance with the law. And Douyu has always been independent and independent decision-making and independent development. Therefore, FanLong has made this decision not to have a significant impact on Douyu's current operating and financial situation. In addition, Douyu, as an independent operation and management company, management will continue to maintain stability. As usual, in the expansion of the game industry, the influence of the financial chain continues to grow, live broadcasts, and then there are videos and pictures and other content of this kind of design ecosystem. In addition to maintaining the traditional advantage of e-sports, in non-e-sports games, we will also strengthen the operation and gradually expand the growth, and establish a content balance with games as the core. The second question is about the competition pattern. Since the second quarter, we have seen that the overall competition pattern in the e-sports world has not changed significantly. Since the whole industry has no malpractice, And then the game live stream has always been a two-way street. And then, based on our perfect support and the system of medium-term recovery, from the live stream content and broadcast resources, these two aspects have established a kind of barrier. So we have always maintained the leading position in the industry. And then, as a platform, we are also basically surrounding the game to carry out a more comprehensive content expansion and community building to develop new users. On the other hand, in addition to continuing to cooperate with traditional e-sports players, Douyu is also working hard to strengthen cooperation with other e-sports players. In non-e-sports games, we not only strive to achieve full coverage, but also focus on the characteristics of non-e-sports games that are more suitable for picture, text, and video viewing, especially in encouraging the connection between live broadcast, video, and community functions, strengthening the operation of games from testing to completion, and strengthening the interaction between users and platform content creation. Okay, thank you for your question.
spk10: So since the rapid development of the domestic Internet industry over the past few years, so the authority has gradually improved the industry policy and regulation as well. So we believe that the antitrust regulations are in line with the government's goals. of promoting positive and fair competition among the internet industry participants, and thus to encourage a level playing field across the industry. Therefore, Soyou fully respects this regulatory decision, actively cooperates with the regulatory requirements, and operates in compliance with the law. Soyou has been an independently operated and managed company since its inception. As a result, we don't expect the decision to prohibit our proposed merge with Huya by SAMMR, which stands for the State Administration for Market Regulation of the People's Republic of China, to have a material impact on our operational and financial performance. As an independently operated and managed company, we will make continuous efforts to maintain our steady growth momentum and also expand our content ecosystem, both on upstream and downstream, to cover each link of esports industry wallet chain. In addition to bolstering our industry leadership in the traditional esports live streaming industry, we will continue to fortify our operations in non-esports segments to accelerate our growth and cultivate a game-centric content ecosystem on our platform. The second question, so the game live streaming industry competitive landscape have not changed scientifically since the second quarter of 2021. Since the streamer were barred from moving between the platforms, competition and the industry has remained pretty healthy. So on top of this, our premium top and mid-tier Also, the long-tail streamer resource has helped us to create a strong competitive advantage in terms of both content and number of premium streamers. So therefore, enabling us to continuously maintain our industrial leadership. So we have increased our focus on leveraging our unique competitive advantage to create more game-centric content and also build esports content community to attract new users. In addition to our continued effort in actively cooperating with traditional esports game developers, we have left no stone unturned in extending our cooperation with other games developers. In our non-esports segment, we have not only covered the entire industry value chain, but also reinforced our leading position as a game-centric and community-based platform in China. So this achievement is primarily attributable to our execution of operation initiatives based on the unique feature of non-eSports games, such as user performances for graphic tasks and video content. Our initiative included encouraging live streaming, video, and community function integration, so strengthening our operations for the full live circle games. enhancing platform interactions between user and content creator, and also creating a high-quality preparatory content. Thank you for your question.
spk09: Thank you.
spk07: The next question comes from Richie Sun with HSBC. Please go ahead.
spk09: Good evening, Manager Cheng. I have two questions. First, the growth of sales expenses in the second quarter is relatively fast. I would like to ask the main reason is the increase in customer costs. What is our main customer channel at present? What will be the future cost trend? Then the second question is that Manager Cheng can talk more about the progress of the second quarter in the Japanese market. I will translate it myself. Thank you for taking my questions. So the first one is the sales and marketing expense was growing very rapidly in second quarter. Why is that? And what are the major traffic acquisition channels for us? And how would the traffic acquisition cause trend in the future? Second question is, can you share our expansion progress in the Japanese market in more detail, and when will the monetization kick in? Thank you.
spk06: The marketing expenses include staff salaries, the channel promotion costs, e-sports team sponsorship fees, and expenses for online and offline activities. In the second quarter of 2021, The increase in sales and marketing expenses was primarily due to our promotional activities for new product functions and increased marketing budget to attract new users, which was in line with the development of our new business. Our primary promotional channels for user acquisition are through those advertising agencies associated with Tencent and Deezer Affiliates. We also leverage other newsfeed platforms and content libraries as additional user acquisition channels. We are quite positive about development of the eSports industry in the long run and we will continue to increase our investments in eSports related activities and eSports team sponsorships going forward. Meanwhile, we will upgrade our product features to improve efficiency or traffic conversion. We intend to continue enhancing our channel promotions. Therefore, in the future, we expect our sales and marketing expenses to remain at a relatively high level.
spk04: Let me answer your second question. During the second quarter of 2021, we continued to invest and explore in the Japanese market. For our Japanese live streaming platform, Mildom, we were able to maintain its market leading position in product functionally. And content general diversity. Driven by its high quality content offering, Mildom continues to quickly attract new users. According to the latest APB&E statistics, Mildom is the one of the mainstream video game live streaming APBs in Japan and maintains an industry-leading user base in the country. In terms of future strategy, we will continue to strengthen our monetization capabilities of Mildom in order to further solidify its leading position in Japan. and also expect to achieve better economies of scale in Japan. No more questions? Okay. Thank you again for joining us today. If you have any further questions, please feel free to contact us or request through our IR website. Thank you. Have a good day.
spk07: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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