DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Dolu International Holdings Limited fourth quarter and full year 2021 earnings conference call. At this time, all participants are in listen-only mode. We will be holding a question and answer session after management's prepared remarks. I would now like to turn the call over to your first speaker today, Ms. Lingling Kong, IR Director at W. Please go ahead, ma'am.

Thank you, operator, and hello, everyone. Welcome to our fourth quarter and full year 2021 earnings call. Joining us today are Mr. Xiao Jiechen, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our financial results on our IR website at ir.w.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 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 forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors, and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected 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 fourth quarter, we made further headway on our efforts to explore new growth drivers for user traffic and revenue generation as we maintained the stable development of our core businesses. Total net revenues were 2.33 billion RMB, and average paying user count reached 7.3 million in the fourth quarter. Mobile MAU for the fourth quarter increased by 7.2% year-over-year to 62.4 million. The MAU growth was mainly driven by three factors. First, During the traditional esports tournament season, we produced and acquired a range of high-quality content to capitalize on the elevated enthusiasm surrounding tournament events. We also rolled out a series of promotional events in cooperation with game developers to drive MAU growth. Second, the mobile version release of the blockbuster game LOL Wild Rift helped drive additional traffic to our platform. leveraging our industry-leading LOL streamers, extensive operational experience, and comprehensive content library, we were able to successfully develop and launch a range of exclusive content and promotional campaigns in collaboration with the game developers. By connecting our platforms, streamers, developers, and distributors, we were able to develop a comprehensive content ecosystem to secure leading traffic inflows for LOL Wild Rift. Finally, we leveraged the advantages of our integrated content platform to further drive MAU growth through our production and promotion of high-quality short videos. Turning to our content updates. During the quarter, we continued to refine our content offerings for both esports and non-esports categories. As the continued development of our integrated content ecosystem, combining live streaming, videos, graphics, and interactive communities, we also refined customized operations for each game to highlight its unique features. Even as we continued to offer traditional live streaming content services, we also experimented with innovative content formats and operating methodologies to further improve our game-centric content system. Meanwhile, we continued to collaborate closely with game developers to enrich various content formats, improve user engagement, and enhance the viewing experience by providing high-quality, large-scale esports content and fostering interactive communities. These collaborations and efforts enabled us to enhance match engagement and attract new users by establishing an integrated ecosystem, combining official tournaments, live streaming content, on-demand video playback, infographics, and real-time community discussion. With the continuing development of the gaming industry, we are seeing increasing prices on content rights for large-scale eSport tournaments. Meanwhile, the growth in traffic and revenue from these events have lagged far behind the associated copyright cost increases. Following a series of data analyzes and simulation studies, we find that although esports tournaments continue to be important, the value they bring has been declining, and the rapid rise in copyright costs have become a burden for our platform operation. Therefore, we decided to adopt a selective copyright procurement strategy starting in 2022. For each tournament, we will analyze and evaluate ROI based on its expected traffic contribution, revenue contribution, and related costs to determine an appropriate copyright bid price so we can ensure the best allocation of our resources. As a game-centric platform, We deliver value to our users through consistent production of high-quality content and our exceptional operational capabilities. Thanks to years of accumulated experience, we have established an industry-leading gaming content management team and streamer cultivation system. Furthermore, we have amassed unmatched streamer resources and game operation expertise which are the keys to maintaining and growing our platform traffic. Regardless of our acquisition of broadcasting rights for certain tournaments, we will continue to deepen our collaboration with game developers and distributors while increasing investment in our self-produced content to further increase our competitive advantage in the industry. During the fourth quarter, we boosted our investment in proprietary content production, self-producing over 110 esports tournaments. Notably, we hosted the DOL World Rift Must Legend series, a nationwide tournament supported by the game's developer, illustrating our ability to produce high-level tournaments in-house. We continue to recruit and cultivate a large number of potential professional gamers by hosting self-produced tournaments. Our tournaments are highly regarded by both game developers and esports teams, and are expected to be part of the official professional tournament system. We also continue to make innovative developments with our video content. For instance, we produce a number of PGC-related offerings, such as variety shows featuring player preparations for the KPL tournament as a warm-up for the KPL Finals. In addition, we invited all Dota 2's top tier streamers to participate in our self-produced outdoor show, Go Fishing, held in conjunction with the International Dota 2 Championships. The show proved to be very popular and boosted community engagement within this game segment. Meanwhile, we produced exclusive content for mega-hit games such as Naraka Bladepoint, further improving user engagement and stickiness. We invited game producers, gaming media editors, and streamers to participate in an online talk show, which further boosted user participation and enhanced community experience. Along with the continued improvement of our game-centric content ecosystem, we also deepened our cooperation with game developers, especially for newly launched games. For example, we worked closely with the developers of the blockbuster mobile game LOL Wild Rift. Our participation in the game's launch, including the initial stream by the official spokesperson and various task-based incentive user campaigns raised the profile of both the game and our platform. In addition to official collaborations, we also offered various feature content, such as guides teaching streamers how to host game-related QA sessions to create a supportive and engaging gaming environment for the community. As a result of this effort, our platform's LOL Wild Rift viewing traffic has maintained a leading position in the industry. Going forward, we will continue to deliver and integrate a variety of game content and enhance operations to create a game-oriented community to provide a better user experience and to maintain our industry-leading position. Furthermore, We will analyze the ROI for each game segment, evaluate optimization opportunities, and improve our platform's overall operating efficiency by enhancing ROI for each game. Now, turning to monetization. Total number of paying users in the fourth quarter was 7.3 million, with an average quoted output of 305 RMB. we continue to enhance engagement and consumption levels from our core users through sustainable operating strategies and promotional campaigns, enabling us to sustain a health range for our R pool. While maintaining the stability of revenue from virtual gifting, we will continuously endeavor to explore new revenue streams. In terms of products and technology, As we built our game-centric comprehensive content ecosystem, we added additional innovative features to existing functions and continue to upgrade our streaming platform's products. For example, the variety and interactivity of the live bully chat commentary are highly valued by our users. However, an inherent limitation of live bully chat is the difficulty in retaining the content that it generates. To resolve this, we launched the live streaming hot chat channel. This feature is either manually analyzed or used AI to process trending discussion topics generated during a game stream from resources including live bully chat commentary and non-real-time content within the community. Trending topics are then aggregated and delivered to users through this channel, thereby increasing time spent on viewing video content and community engagement. Successful rollout of these features further enhanced user experience and bolstered the sense of community on our platform. To summarize, we have been ever more innovative on both the content and operations fronts. even as we executed our strategy upgrade that has maintained our leading position in the traditional live streaming industry. As a result of our multidimensional collaboration with every more game developers, we have developed customized features for different game segments and provided users with content that integrates live streaming, video, graphics, and interactive communities. We have continued to explore commercialization initiatives, leveraging our competitive strengths in user engagement and paying behavior. Going forward, we will continue to execute on our product, streamer, and content strategy to further explore and strengthen our monetization capabilities and optimize our financial performance. With that, I will now turn the call over to our Vice President of Finance, Mr. Hao Cao, 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 increased by 2.6% to RMB $2.33 billion. Live streaming revenues were RMB 2.21 billion, an increase of 6.7% from RMB 2.07 billion in the same period of 2020. While the size of our core paying users largely remained stable, our effective operational strategies helped to improve our monetization efficiency, resulting in an 11.7% increase in up to RMB 305 in the first quarter from RMB 273 in the same period last year. Advertising and other revenues were RMB 118.5 million, compared with RMB 198.5 million in the same period of 2020. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by using a portion of advertised traffic that could have been directly monetized. Simultaneously, we were also partially impacted by soft demand for advertising caused by a challenging microenvironment and regulations related to the gaming industry. Cost of revenues in the first quarter of 2021 was RMB 2.08 billion, remaining relatively flat compared with RMB 2.09 billion in the same period of 2020. Revenue sharing fees and accounting costs were RMB 1.85 billion unchanged from RMB 1.85 billion in the same period of 2020. More specifically, There was an increase in revenue share fees, which is in accordance with increased live streaming revenues. Such increase was offset by the decrease in the cost of broadcasting rights. Other content costs remained stable on a year-to-year basis as we continued to optimize in-house production efficiency. Bandwidth costs. in the first quarter of 2021 decreased by 1.6% to RMB 167.9 million from RMB 170.7 million in the same period of 2020. This decrease was mainly due to lower per unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers. Gross profit in the first quarter of 2021 was RMB 245.7 million, an increase of 34.3% from RMB 182.2 million in the same period of 2020. Gross margin in the first quarter of 2021 was 10.5%, compared with 8% in the same period of 2020. This increase was primarily due to higher revenues generated during the quarter, while cost of revenues remained flat. Sales and marketing expenses in the first quarter of 2021 were RMB 229.2 million, an increase of 34.3% from RMB 170.7 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 first quarter of 2021 were RMB 132.6 million, representing an increase of 11.5%. from RMB 118.9 million in the same period of 2020. This increase was primarily due to increased technical staff costs as we continue to invest in product upgrade to support our game-centric content strategy. General and administrative expenses in the first quarter of 2021 were RMB 98.8 million decreased by 16.1% from RMB 117.7 million in the same period of 2020, primarily due to decreased professional service fees. Adjusted operating loss in the first quarter of 2021, which aspect share based compensation expenses was RMB 168.7 million. compared with RMB 199.1 million in the same period of 2020. Net loss in the first quarter of 2021 was RMB 193.2 million compared with RMB 228.7 million in the same period of 2020. Adjusted net loss in the first quarter of 2021, which excludes share-based compensation expenses, shelf income in equity method investments, impairment loss of investments, and settlement of class action losses was RMB 112 million, compared with RMB 176.9 million in the same period of 2020. For the fourth quarter of 2021, basic and diluted net loss per ADS were RMB 0.53 and RMB 0.53, respectively, while adjusted basic and diluted net loss per ADS were RMB 0.29 and RMB 0.29, respectively. As of December 31, 2021, the company had cash and cash equivalents, restricted cash, Short-term and long-term bank deposits of RMB 6,643 million, compared with RMB 7,622 million as of December 31st, 2020. We would also like to provide an update on execution of our Shell Repurchase Program announced on August 30th, 2021. in which the company may repurchase up to US$100 million of its shares until August 2022. As of December 31, 2021, the company had repurchased an aggregate of US$16.7 million worth of its ADS 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. Operators, we are now ready to take questions.