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.

Thank you. And we will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star and then 2. And our first question today will come from Lee Zhang from Bank of America Securities. Please go ahead.

Hi, 管理層,晚上好,謝謝接受我的提問,我有兩個問題,第一個問題可能主要是和監管相關的吧,可以請管理層介紹一下近期監管發展的一個大方向,還有對我們公司業務和收入有沒有什麼影響? Thank you, management, for taking my question. Two questions here. First, can you share with us some updates on the regulatory change recently and the impact to our business? Secondly, notice that we have adjusted our content investments in eSports licensing content. And can you hear with us the logic behind this? Thank you.

Let me answer your first question. There have been continued advance in regulatory guidelines for the live streaming industry, encouraging industry players to properly implement measures and refine operations to comply with regulatory requirements. No new rules were introduced recently. We have made internal operational adjustments, feature updates, adopted a more prudent operational strategy, and implemented strict internal review to improve the platform's community building. and to promote the long-term development of our platform. For example, for unlicensed games, we have been gradually redirecting traffic and streamers to licensed games of similar genres since the third quarter of 2021 to ensure proper traffic allocation between different game segments. maintain streamer income levels and their willingness to stream. The initial impact of these adjustments was reflected in our first quarter performance. We will also pay close attention to any regulatory changes and adjust our operational strategies in a timely manner. Thank you.

Regarding the second question about copyright, I will answer it here. As mentioned in the earlier talk, the cost of copyright in the competitive market is currently at a very rapid pace. We have also carried out a detailed analysis and calculation of the data. We now believe that the increase in game traffic and income brought by the large-scale competition is far lower than the current price increase. On the one hand, we believe that the new competition will drive traffic. On the other hand, we also analyzed the historical data of the previous few years of the competition. We found that a large number of users are watching the competition content while watching the live broadcast. And the number of users who are completely watching the content of the competition is actually relatively low. And we are gradually decreasing the number of users who are pulling old users back through the competition. On the other hand, historical data has shown that the impact of income has always been a negative one during the large-scale competition. It is mainly because watching the competition is a completely immersive experience, and interaction is the basis for the growth of double income. During the competition, the user is in the process of watching an immersive competition, so the interaction with the anchor has become less, and it has affected the return of wishes. Therefore, we have gradually determined that although this is very important in terms of content, But the value it brings is decreasing, and the cost of copyright is increasing rapidly. This has also become a great burden on the platform to improve operating efficiency. Therefore, we have decided to adopt a selective market strategy to fully evaluate the value of each market copyright flow and the variable end, and then finally determine the price of the copyright. At the same time, we also discussed the price of copyright with the copyright parties. We will actively communicate with the board of directors to explore a reasonable and long-term return mode. Therefore, we hope to improve the return rate of investment through innovative operating methods. In addition, our selective purchase of 30 boards does not mean that we will reduce our investment in platform content in the future. Given our understanding and years of experience in the game industry, Okay, I will translate Mr. Chen's answers. So as we previously mentioned in the prepared remarks,

We have conducted extensive analysis and calculations in the context of the increasing tournament content license fees. We concluded that the traffic, the growth in game traffic or revenue generated by this large tournament has been outpaced significantly by the growth in corporate costs. Our analysis of user behavior data found that a majority of our users primarily watch games livestreamed by individual streamers. So, within comparison, the proportion of users who mainly watch the tournaments is relatively low. Meanwhile, the return rate of inactive users through tournament content has been declining. So in addition, historical data always shows that large-scale esports tournaments do not drive revenue growth. They can even have a negative impact on our platform's revenue. This is due to different user experience delivered by these two content segments. While watching tournaments is a complete immersive experience, virtual gifting revenue is generated by interactions between users and streamers. During the tournament, users are immersed in watching the game and therefore tend to spend less time interacting with streamers, which negatively impacts their willingness to pay. So based on this, we have adopted a selective copyright procurement strategy. We conduct comprehensive evaluation on the deliverable value of each tournament. both in terms of traffic and monetization, to determine an appropriate copyright bid price. We will continue ongoing dialogue with copyright owners regarding copyright prices and explore more rational and long-term models for cooperation. For those purchased accounting licenses, we aim to improve the return on investment through innovative operational methods. So we would like to emphasize that our selective purchase of tournament copyright does not mean that we will reduce our investment in content. Based on our in-depth understanding of the gaming industry, years of operational experience, we will deepen our cooperation with game developers and increase our investment in original content, operations, and community building in order to keep our competitive advantage in the premium content and game operation. Thank you.

Operator Nancy.

Thank you. Our next question today will come from Yuwen Deng of China Renaissance. Please go ahead.

Good evening. Thank you for your question. I have three questions to ask. First of all, we just talked about the adjustment of our copyright policy. This issue has caused a lot of discussions in the industry. I would like to ask Mr. Guo to comment on the current pattern of our game streaming industry. Secondly, we have seen some live streamers pay taxes recently. I would like to ask if this will have any impact on the company's share price. Thanks, Benjamin, for taking my question. So three questions. First thing in prepare remarks, you mentioned some adjustment on license content procurement, which actually generates a lot of discussion. So I want to check, how do we see game live streaming competition landscape now? And then, secondly, Recently, there were some streamers who reported to be fined for tax evasion, and many more were paying for bad tax rates and late fees. So just wondering if this has any impact on our learning-sharing policy. And lastly, we know that we have a game content-centric strategy. So what are the implications for our marketing strategy and also expenses? Thank you.

I would like to answer the first question, which is about copyright acquisition and the financial structure of this industry. As we mentioned earlier, the adjustment of the policy of copyright acquisition is mainly due to the increase in the price of copyright and the mismatch of its current value. The current cost of the entire platform is too high, so we made a policy adjustment. This is the most direct reason. But at the same time, there are some changes in the live broadcast industry. We also made some considerations about the background of this strategy. As Zhirong said earlier, the speed of getting high-quality new users from a simple game stream is now decreasing. Taking Dying Scythe as an example, Dying Scythe has brought a lot of new users in the early stage of game stream development, especially in the field of e-sports. But with the introduction of game stream, these high-quality users have become stable users of the platform. There is more dependence on the public market for stable broadcast content on the platform. As a result, we have been able to increase the flow of live matches. It seems that it is very difficult to go directly through live matches. However, we have also seen that this tendency is more visible after the continuation of the content of the game on the medium-term video platform. It has also led to a large number of diverse user groups to pay attention to the game live broadcast field, which has improved the field of game content. That is to say, the industry we are facing now, from the previous simple game live broadcast, Now, the competition has gone beyond the entire game content competition. Our users have also gone from heavy game users gradually to stable heavy users, and to increase the stage of new medium and light users. For Douyu, our platform users are mainly heavy game users. They have a high degree of depth in live streaming services, and the quality requirements for live streaming content and live streamers are relatively high. They are the core users of Douyu. Currently, these users are relatively young. In signing a live streamer, In this relatively stable situation, the overall gaming environment is relatively stable, which also constitutes the stable flow of platform bottom-up traffic. However, we have a relatively low access rate to middle-sized game users, and these users have more diversified game content and product needs. We believe that comprehensive game content such as light-weight video, graphics, etc. and community operation can attract these middle-sized users more. This is also the reason why we will carry out more comprehensive content expansion and community construction. In the case of more and more users choosing, we believe that the difference between the content and the detailed operation will gradually increase the stable growth of the platform. This is the most critical work. We have also set up in advance about the video and picture ecology and community and other parts other than the live broadcast, and then attract more of these medium-sized users to enter this field.

As I mentioned earlier, we adjust our copyright procurement strategy because we believe the value delivered to us by copyright is not in line with their increasing costs. Another factor behind this strategic adjustment is the involving environment of the live streaming industry. As previously mentioned, the growth rate of new user acquisition through game live streaming is decreasing. Take large-scale esports tournaments as an example. They delivered a substantial amount of new traffic in early stages of game live streaming, especially high-quality users in the esports segment. With the development of gaming live streaming, high-quality users have become regular users of live streaming platforms. So these users have certain preferences for the platform's regular streaming content so that their viewing hours and stickiness to the platform are relatively stable. Therefore, it is very difficult to drive additional traffic growth by only broadcasting esports tournaments. However, we have seen that the continued expansion of short video platforms have attracted more diverse user groups to consume gaming content. while enlarging the potential user base for the entire gaming content industry. So that is to say, our industry has already transitioned from a competition in gaming live streaming to gaming content. At the same time, our user acquisition strategy has also transitioned from a stage of capturing hardcore gamers to stabilizing our hardcore gamer base while attracting new casual and meet core gamers. Our platform primarily consists of hardcore gamers whose live streaming service penetration rate is high. They have high expectations for the quality of our content and our streamers. These users are our core users and exhibit high level of stickiness. When contracted, streamers cannot frequently switch between different platforms the overall competitive environment is relatively stable. This user group is very stable and provides steady traffic for our platform. The live streaming penetration rate for casual and mid-core users is relatively low, as they have more diversified needs for game genres and game content. We believe that short video, graphics, and other comprehensive game content and community-centric features can attract casual and mid-core gamers. This is the reason why we expand our content offerings and build our community. So as viewing options for users consistently grow, we believe that differentiated content, refined operations, and improved profitability are the keys to stable and healthy growth for the platform. Therefore, starting last year, we have been implementing platform strategy upgrades to continuously refine our live streaming, video, and graphic content so as to we can enlarge our user base to more casual and mid-core gamers. Thank you.

Regarding the second question about taxation, First of all, we have strictly and continuously adhered to all relevant laws and regulations regarding taxation. As a result, investigations into tax irregularities of individual streamers did not negatively impact our platform. For streamers who are directly contracted with us, we withhold their income taxes to ensure their tax obligations are fulfilled separately There are a large number of streamers who signed their contracts with third parties, as the obligation to pay income taxes lies with these third parties. We strongly advise those partners to comply with the taxation laws. At present, our streamer engagement models have not changed, as I just mentioned, because we consistently uphold these strict tax compliance requirements. Investigations into tax irregularities of individual streamers have not negatively impacted our platform. Therefore, we will not adjust our revenue share fee structure as a result of the recent investigations into tax evasion. About the last question on the sales and marketing strategy, as I mentioned previously, our high quality traffic generation has been slowed down by pure gaming live streaming. Competition within the industry has switched from gaming live streaming to gaming content. Our user acquisition strategy has also changed from hardcore gamers to stabilizing hardcore gamers while attracting new casual and mid-core gamers. Hardcore gamers are our core user group. For a long time, this user group has preferred specific game genres and live streaming with higher stickiness to our platform. Based on our long-term operating experience and accumulated user behavior data, we will maintain stable streamer resources to ensure a continuous supply of high-quality content. We will also produce more exclusive, self-produced content and launch additional marketing campaigns to increase user activity. and build a healthy game-centric community. Casual and mid-core gamers are user groups that we are increasingly targeting. This group is relatively large and has more diverse needs in terms of gaming content and categories. By targeting this user group, we enhance our cooperation with game developers to attract new users through our innovative operations and traffic acquisitions. Meanwhile, we leveraged our high-quality content to produce short videos to promote our platform and acquire users, while improving users' thickness, utilizing our active community. Both approaches delivered encouraging results, demonstrating our platform's competitive advantages in our rich content library and a vibrant, game-centric community. Thank you.

Our next question today will come from Thomas Chong of Jefferies. Please go ahead.

Thank you. Thanks, management, for taking my questions. My first question is about the gaming approval. Does the slowdown in gaming approval affect our operations? And my second question is about our shared repurchase plan. Can management comment on our thoughts and the progress that we should anticipate in coming quarters? Thank you.

Let me answer your first question. We have not seen any significant impact on our existing users from the slowdown of approvals for new games as our business is based on the conversion of gamers into viewers of game-centric content. There are a large number of players of many high-quality games who are our existing or potential users. Following successful conversion of gamers into viewers of our game-centric content, operational metrics such as user stickiness, time spent per user, and user engagement have remained very stable. The primary impact from the slowdown in approval for new games has been on new user growth, which is reflected in our recent momentum. The approval of new games is not on hold. Rather, the slowdown has been caused by strict standards for approval of new games, which we believe will be advantageous for the gaming industry in the long run. As for game-centric content platforms such as Douyu, we will also benefit from these strict standards, since high-quality games and their users are the most important resources for our content generation and user growth. Recently, the quality of the games launched on our platform has been very high. Through the integration of live streaming, video content, graphic content, community discussion, and our customized operations for each game segment, we have been able to successfully promote these premium games and attract new users. This has further demonstrated the effectiveness of our operational strategy of cultivating a diversified game-centric content community. Time, Ms. Tao, answers the second question.

Okay. About the second question, by the end of August, we had announced share repurchase program for a total amount of US dollar 100 million. As of December 31st, 2021, we had repurchased an aggregate of US dollar 16.7 million worth of ADS. Due to the impacts of certain SEC rules, and restrictions, a large portion of the repurchase funds has been set aside for further repurchase but has not been settled yet. Thank you.

Our next question today will come from Alex Poon of Morgan Stanley. Please go ahead.

Hello, Manager Teng. Good evening. Thank you for accepting my question. My first question is, how does Manager Teng evaluate the performance of our platform after the strategic upgrade? My second question is, can you introduce the operating mechanism of this new game? Can you give some examples and some performance of some operating data? Thank you. I have two questions. My first question is related to the performance after our strategic change. Is there any performance data that we can share? And my second question is related to for new games launch. What is our operating policy for new games launch? And is there any data that you can share with us at this stage. Thank you very much.

Let me ask you the first question. In the past year, we have been focusing on the game as the core of the content platform. We will expand the content to the video and community format, and we will integrate the video and community format into the live broadcast. We have also collaborated with game developers in various areas of planning and content supply. to meet the needs of more and more users. In terms of the product, we have made multiple replacement upgrades on the mobile side. On the one hand, we have highlighted the features of video, text, content and community. On the other hand, we have also highlighted the creation of a separate area for games. Through individual games, the individual area's individual content display and operation activities enhance the interaction of the areas, and thus enhance the atmosphere of the community. In the traditional e-sports game field, based on our leading position in the traditional e-sports field, we still maintain a relatively deep cooperation with e-sports manufacturers. Through deep cooperation, we held official competitions and self-developed activities. At the same time, we continued to strengthen the content of the game area, to encourage users' feedback, and to increase the activity and connectivity of users. At the same time, on the basis of traditional e-sports games, we also expanded the coverage of the game, and expanded it to non-e-sports games. Non-e-sports games have also been mainly based on new games. In the construction of new game areas, we adopted an upgraded content system, During the past year, we have upgraded our content product offerings centered around our Game Century content platform. On the content side, we expanded our content to include video and community segments,

while integrating live streaming, video and graphic content, communities, and other content forms. We have also cooperated with game developers to carry out multi-faceted promotions and content offerings to meet the diversified needs of our users. On the product side, we made multiple upgrades to our mobile interface. On one hand, we highlighted our video content graphic content, and community functions. On the other hand, we refined our customized operations to highlight each game's features. We were able to increase community in the activity and the user engagement through our customized content layout and promotional activities for different game segments. For our marketing-leading traditional esports, we continue to foster our close relationship with game developers to jointly host tournaments and launch self-held promotional activities. Furthermore, we are refining our content offerings and operations to improve retention rate, user activity, and user stickiness. Building on our advantages in the traditional esports games, we expanded our gaming coverage into non-esports games. Non-esports games addition mainly came from newly released games, to which we have applied our upgraded content system and game segment-based operating strategy. We have achieved promising results and devised an operating mechanism that is both effective and efficient. We have achieved encouraging results for new games launched in 2021, including Naraka Bladepoint, LOL Mobile, and the recently launched Tower of Fantasy by successfully executing our upgraded operating strategy. As a content platform, the evolution of our content ecosystem and changing user perceptions of our platform are both cumulative processes. We are confident that we will continue to implement our operating strategy. The viewing time for non-traditional gaming content will increase as a proportion of overall viewing time. Our platform content will become more diversified and will cover more user groups. Thank you.

Let me answer your second question. Following a year of implementing our game-centric operations, we have produced a major system with established procedures for new game segments and their respective operating strategies. For a new game, we attract top streamers to stream and promote the game during the launch stage. We also recruit and cultivate a large number of new streamers to ensure content supply. In terms of videos and graphics, we collaborate with game developers and streamers to produce content such as multiple PGC videos and graphics, secondary guides to actively promote games. Through this means, we increase user viewing time and enhance user engagement. For our gaming communities, we invited influencers such as KOL to create hot topics and boost the interaction between streamers, game developers, and users. At the initial stages of our games launch, we established an integrated gaming segment This combines live streaming, promotional events, and gaming strategy discussions to provide comprehensive game content to other users. For newly released games, gamers usually have many questions. We summarize and analyze these questions and assign solutions and content creation tasks to streamers. By doing this, we gradually form our game-centric, helpful, and friendly discussion-based environment. Take Tower of Fantasy as an example. Each day, over 50% of its players on our platform not only view livestreams, they also participate in our gaming activities and game-related discussions. During our game's growth stage, we collaborate intensely with the game's developers, Take LOL Mobile as an example. We encourage users to complete certain tasks for offering virtual rewards, such as in-game items. Both user growth and viewing time increased impressively. Meanwhile, we produced a variety of game-centric PGC content, such as a chat-based talk show that was tailor-made for Naraka Blood Point to effectively enhance user engagement and community experience. In addition, based on each game's features, we improved our production and marketing of in-house tournaments. The WLL Wild Rift Master Series mentioned in the prepared remarks is a great example. Among the new games released in 2021, NARACA Black Point was launched in July, LOL Mobile was launched in November, and Tower of Fantasy was launched in December. The performance of these three games demonstrates our platform's sound operating strength. Both live streaming volume and user activity during the month after each game's launch at least doubled. Operating data shows slid momentum, and the ranking for these games on our platform steadily increased. Total viewing time for Naraka Bladepoint was ranked within the top 10 games on our platform for two quarters. Total viewing time for LL Mobile also ranked within the top 10 during the quarter of its launch. We are leading the market in terms of the proportion of self-activated streamer live streaming volume and user engagement for these new games. Overall, we see pleasing results for our full lifecycle operation for new games. We have attracted additional users to our platform, demonstrating that we are on the right track with implementing our diversified game content ecosystem. Furthermore, the systematic establishment of game segments has enabled us to build a solid foundation for improving our operating efficiency. Time is up.

Thank you. That's all. Our next question today will come from Ritchie Sun of HSBC. Please go ahead.

Good evening. Thank you for accepting my question. I have a question about the sales cost. I see that the sales cost of the fourth quarter has increased significantly, but the income is faster than the income of the government. I would translate it myself. So I noticed that the sales and marketing expenses growth is much faster than the top-line growth. Can management comment on why is that and How do we assess the effectiveness of traffic acquisition and how will this sales and marketing expand trend in the next few quarters? Thank you.

Okay. Sales and marketing expenses mainly consisted of staffing costs, channel promotion costs, expenses for online and offline events, and sponsorship fees for e-sports teams. The year-over-year growth was mainly due to increased promotions for our new product features and increased costs from utilizing additional promotional channels for user acquisition, along with the upgrade of our content offerings. As previously mentioned in our discussion regarding our platform strategy, we need to expand our promotional efforts to increase our coverage and influence to attract more casual and mid-core gamers. We will carefully select appropriate marketing channels based on continued data analytics to increase our marketing efficiency on a dynamic evaluation basis. We will continue to increase spending on channels delivering high-quality users and cut back or stop spending on those channels whose acquisition efficiency or user quality does not meet our standards. Thank you.

Great. Thank you. Okay, and ladies and gentlemen, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to management for any closing remarks.

Thank you for joining our call. We look forward to speaking with every one of you next quarter. Bye.

Ladies and gentlemen, the conference is now concluded, and we thank you for attending today's presentation. And you may now disconnect your lines.