DouYu International Holdings Limited

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.

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.

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.