DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU's International Holdings Limited's third 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. I will now turn the call over to the first speaker today, Lingling Kong, IO Director at DOEU. Please go ahead.

Thank you. Hello, everyone. Welcome to our third quarter 2021 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Chao, Vice President of Finance. You can refer to our financial results on our IR website at ir.doi.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 forward-looking statements made pursuant to the Safe Harbor Provision for the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks and certainties 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 this forward-looking statement. All forward-looking statements are expressly quantified in their entirety by the cautionary statement, risk factors, and details of the company's filing with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selecting inventive circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Xiaojie Chen. In the third quarter, we made solid progress in exploring new growth drivers for user traffic and revenue generation. while maintaining steady development of our COVID initiatives. Total net revenues were 2.35 billion RMB and quarterly average paying user count reached 7.2 million. Notably, our average of mobile MAUs for the quarter sustained the growth momentum from the previous quarter, reaching 61.9 million, representing a 3.9% year-over-year growth. Two key factors drove our continued user growth. First, as mentioned in our last earnings call, we continued to benefit from the broadcast of several large-scale esports tournaments, such as the LTL Summer Grand Final 2021. This broadcast not only attracted new esports users, but also galvanized inactive users to return. We deepen our collaboration with top tier game developers while also increasing our investments in new game content. In the third quarter, we partnered with a wide range of developers to bring more mid-tier and long-tail games to our platform, while strengthening our promotional and operational efforts on this new game. For example, in the quarter, we introduced two mobile games, including Battle of Golden Specter and Harry Potter Magic Awakens. Through a series of content and operation related activities, we collaborated with game developers in the launch and marketing phases for this game to increase user awareness. By recruiting top streamers to create quality content for this game, we effectively highlighted each game's features utilizing various game formats. Successful attracts many light and moderate gamers to our platform. Now, turning to our content updates. The solid foundation of our comprehensive content ecosystem underlies our user-based expansion. In the quarter, we continued to enrich our highly comprehensive content library with expanded game genres. generate personalized content for each game to cater a variety of user needs, refine our platform operations, and cultivate a vibrant, game-centric content community for our users. To elaborate, in the domain of large-scale esports tournaments, we retained our close partnerships with developers, continued to provide high-quality esports content, and fostered growing interaction between our top streamers and our esports content. Focusing on live forecasting as a core operation for large-scale esports tournaments, we provide multi-channel live sessions and in-house produce the PGC content to meet the wide viewing needs of our users. In the quarter, we forecasted over 60 large-scale esports tournaments and produced over 70 esports tournaments in-house. Notably, we broadcasted the LPL Summer 2021 tournament, which is the highest-level League of Legends professional tournament in China, with related content produced in-house. On the mobile front, we successfully attracted new mobile users through incentivized operational and marketing initiatives. Moreover, for the Peacekeeper Elite League 2021 Season 3 tournament, officially the highest tier professional Chinese league, we invited a number of influencers who are also our Peacekeeper Elite streamers to participate in the tournament coverage and analysis to boost the streamer user interaction and improve the overall viewing experience. Meanwhile, for the CFML Summer 2021 tournament, a professional league for crossfire mobile. We work with game developers to launch promotional programs featuring high-value in-game items to drive user growth, stimulate user engagement, and improve the viewing experience. Furthermore, we attracted and retained new users and galvanized the retention of old users through a number of marketing campaigns and related topic exposure our self-produced esports events, such as League of Legends China vs South Korea Duel. During this large-scale esports tournament, we also incorporated an on-demand playback function and produced a series of relevant video clips, graphics, and community discussions to further enhance user engagement in the non-live forecasting time frame. For non-esports games, We endeavored to cover more game genres, deepen cooperation with more game developers, and strengthen the operation of each game's full life cycle. Given that non-esports gaming content is better viewed in the graphic and video format, we upgraded our product features with content integration of live streaming, video, graphics, and community interactions. to attract more high-quality gamers and content producers to our platform. In addition, we continue to refine our operations, hold relevant events on hot topics, and guide interactive discussions among developers, streamers, content creators, and users. Through our high-quality content and optimized product features, we are able to meet various user needs for entertainment, learning, and interaction. and thus attracting more users to our platform. More importantly, we have made good progress in tailoring our offering strategy for each segment, including live streaming, video, graphic, and community, especially for our recent launch non-eSports game. For example, our flagship game launched in the last quarter, Naraka Blade Point, retained its growth trajectory in the third quarter, showcasing high user-sickness on our platform. For other new games, long-standing supporters, Battle of Golden Spatula and Harry Potter Magic Awakens also performed well, as a result of growing user engagement and increasing live streaming volume. These improvements are a result of our continued commitment to cultivating and supporting top-tier streamers, customizing content offerings, optimizing our segment operations, and upgrading our platform with more interactive product features. During the quarter, to augment our content production efficiency, we committed additional resources to our research and development capabilities. For example, in the fourth quarter, we launched a new content production tool and a one-click video production function in the live streaming room on our website. With this tool, users can easily edit the latest two minutes of a live streaming session and automatically upload the edited content to our video and community segments. We expect that this update will increase UGC content creators' enthusiasm and stimulate interactions within our community. Going forward, we will continue to execute our game-centric content ecosystem strategy. We will continue to enrich our offerings of game content to meet the diversified needs of our users and attract more users through our refined operations of new and existing popular games. Now, turning to monetization. In the third quarter, our quarterly paying users totaled 7.2 million, with an output of 307 . We were able to sustain the size of quarterly paying users as we continue to execute our proactive offering strategies to improve user engagement and paying user consumption. We also keep exploring new monetization methods while maintaining stable revenue contribution from the traditional virtual gift team model. Let me also touch briefly on our development in overseas markets. Meldum remained one of the top-ranking mainstream video game live streaming apps in Japan for the last two quarters, according to App Annie. Given that the user base is achieving scale, we enhanced Meldum commercialization during the quarter and made meaningful progress. In the future, we will further solidify our market position in Japan and strengthen the monetization capabilities of Meldum. while optimizing operation efficiency to maintain healthy growth. In summary, during the four quarters, we made firm headway in exploring new growth initiatives while maintaining the steady development of our core businesses. Building on our industry leadership in live streaming, we deepened our collaborations with game developers in multiple dimensions. and provided gamers and users with comprehensive game content offerings, combining live streaming, videos, graphics, and interactive communities. Leveraging our competitive strengths in paying user consumption and virtual gifting, we will continue to explore diversified monetization models and improve our financial performance through effective product development, streamer engagement, and content operations. With that, I will now turn the call over to our Vice President of Finance, Mr. Hao Chao, to go through the details of our financial performance in the quarter.

Thank you, Lingling. Hello, everyone. Total net revenues in the first quarter of 2021 were RMB 2.35 billion. Live streaming revenues were RMB 2.21 billion, compared with RMB 2.35 billion in the same period of 2020. Our live streaming business remained relatively stable under our long-term sustainable operating strategy. The year-over-year decrease in live streaming revenue was due to several notable fund engagement events we launched in the summer of last year, led to the increases in paying user conversion, resulting in a higher revenue base in comparison. This decline was partially offset by organic growth revenues per paying user, driven by our implementation of more effective operational strategies. Advertising and other revenues were RMB 107.5 million, compared with RMB 197.8 million in the same period of 2020. The year-over-year decrease was primarily due to trial testing of our new commercialization model with a portion of our advertising traffic instead of monetizing all our traffic through traditional advertising channels. As a result, we forfeited some potential short-term revenue gains to improve sustainable long-term growth. Cost of revenues in the third quarter of 2021 decreased by 5% to RMB $2.07 billion. from RMB 2.18 billion in the same period of 2020. More specifically, revenue share fees and accounting costs decreased by 5.6 percent to RMB 1.84 billion from RMB 1.95 billion in the same period of 2020. The decrease is mainly in line with the decreased live streaming revenues. This decrease was partially offset by higher spending on esports tournament broadcasting rights and additional investments in proprietary content production as we continue to invest in high-quality gaming content. Finance costs in the third quarter of 2021 decreased by 3.4% to RMB 163.4 million from RMB 69.1 million in the same period of 2020. This decrease was mainly due to lower unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers, and partially due to lower bandwidth usage costs as a result of the continued technology upgrades in-house. Cross-profit in the third quarter of 2021 was RMB 278.5 million, compared with RMB 369.4 million in the same period of 2020. Price margin in the third quarter of 2021 was 11.9%, compared with 14.5% in the same period of 2020. This decrease was primarily due to the decline in revenues exceeding the decrement of revenue share fees and content cost. Sales and marketing expenses in the third quarter of 2021 were RMB 218.9 million, an increase of 36.6% from RMB 160.3 million in the same period of 2020. This increase was mainly attributable to the increased costs from utilizing additional promotional channels for user acquisition. Research and development expenses in the third quarter of 2021 were RMB 123.2 million, which represented an increase of 12.4% from RMB 109.6 million in the same period of 2020. This increase was primarily due to increased investment in technical personnel to continue our overseas expansion and technology infrastructure upgrades for enhancing our user experience. General and administrative expenses in the third quarter of 2021 were RMB 86.5 million, decreased by 8.1% from RMB 94.2 million in the same period of 2020. Adjusted loss from operations in the third quarter of 2021, which adds back share bid compensation expenses, was RMB 91 million, compared with an adjusted operating income of RMB 71.2 million in the same period of 2020. Net loss in the third quarter of 2021 was RMB 143.5 million, compared with a net income of RMB 39.6 million in the same period of 2020. Adjusted net loss in the third quarter of 2021, which excludes share-based compensation expenses, share of income in active method investments, and impairment loss of investments, was RMB 72.7 million, compared with the adjusted net income of RMB 98.7 million in the same period of 2020. For the third quarter of 2021, basic undiluted net loss per ADS were RMB 0.37 and RMB 0.37, respectively, while adjusted basic undiluted net loss per ADS were RMB 0.16 and RMB 0.16, respectively. As of September 30, 2021, the company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of RMB 7,078 million, compared with RMB 7,622 million as of December 31, 2020. We would also like to provide an update on execution of our share repurchase program announced on August 30, 2021, in which the company may repurchase up to US$100 million of its shares until August 2022. As of September 30, 2021, the company had repurchased an aggregate of US dollar 4.3 million worth of its ADNs under this program. Going forward, we will continue enhancing our monetization capability while further improving our monetization efficiency. Additionally, as we continue to grow, we will focus on further utilizing our operating leverage to support the sustainable development of our platform. This concludes our prepared remarks for the day. We are now ready to take questions.