DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DALU International Holdings Limited's fourth quarter and full year 2022 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, Ms. Lingling Kong, IR Director at Zhaoyu. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our fourth quarter and three-year 2022 earnings call. Joining us today are Mr. Xiao Jieqian, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our fourth quarter and full year 2022 financial results on our IR website at ir.doey.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 State Harbor provisions for the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on measurement, 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 filing with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selective events or circumstances at the stage of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Xiaojie Chen. Throughout 2022, against the backdrop of a complex and volatile macro environment. We remain committed to our long-term growth strategy of fostering a vibrant game-centric content ecosystem. We ended the year with a stable business performance achieved through a mix of operational adaptation and innovation that included optimizing our revenue structures, streamlining our operations, creating new services, and enhancing monetization capabilities. In the fourth quarter, we continue to produce premium gaming content, upgrade our content operating model, and improve the interactive features on our platform to further enhance user engagement. Our mobile MAUs grow slightly on a sequential basis to 57.4 million during the quarter, with the total number of paying users of 5.6 million and our adjusted net loss was RMB 4.3 million. Through a couple of strategic adjustments over the past few quarters, our ecosystem has been shown to be healthier, which we believe it will empower us to deliver long-term sustainable growth. As we progress further into 2023, we are continuing to enrich our content with community interaction playing a key role in our ecosystem. We are shifting the focus of our user growth strategy from increasing scale to improving quality without being overly concerned about the short-term growth of our business. Furthermore, we will optimize our marketing strategy through strengthened partnership with game developers, coupled with our interactive gaming content community to enhance user engagement. In addition, with the price level of copyrighted tournaments gradually returning to a reasonable range, we believe that prudently purchasing some co-corporate tournaments will help us cement our overall competitiveness in the industry. This investment will also foster the ecosystem of our game-centric community and enhance our co-users' engagement and retention rate. thereby facilitating the company's long-term development. Next, I'd like to share with you our business update from the fourth quarter in more detail. For software, our average mobile MAUs for the quarter were 57.4 million, a slight sequential increase despite a year-over-year decline of 8 points. The main reasons for the year-over-year and quarter-over-quarter MAU changes include, first, Due to the implementation of our selective copyright procurement strategy in early 2022, we experienced a decline in OOMAU since the fourth quarter of the year. Nevertheless, in the fourth quarter, despite the negative impact on user traffic from the absence of the LOL World Championship tournament, our creative event campaigns and operations on existing copyright tournament events effectively attracted and engaged our core users. As a result, mobile MAUs on our platform achieved growth for the third consecutive quarter. Second, we continue to advance our innovative membership business, extending our game-specific membership services to broader game segments. By combining game features with users' needs, This initiative has gained traction among both new and existing users. Moving on to our content ecosystem. Capitalizing on the widespread popularity of eSports, we continued to sharpen our products and operations, including the consistent upgrades of our game content. Based on gaming features, we continuously created an even broader selection of more interactive and engaging premium content. On top of that, we built a healthy and vibrant interactive ecosystem for users through innovative services, providing them with a community-based platform and a novel membership business. This effort can not only ensure long-term retention by meeting certain gamers' needs for upgraded game content but also increase overall user engagement and thickness on our platform. That's driving user growth in the long run. In the fourth quarter, we continue to improve our diversified self-produced tournament system and organize more than 90 esports tournaments. Leveraging our top-tier streamer resources, we focused on promoting IP content in partnership with Stargame streamers. In this effort, we created a series of premium gaming content combined with entertainment-oriented activities in our game segment, such as League of Legends and Order of Kings. This content in general, coupled with the training topic, is proven to increase users' motivation to engage in interactions and liven up our game community, appealing to both new and existing users. Self-produced tournament has become one of our main avenues to promote esports popularity across the board. For example, based on Honor of Kings' large gamer base, we held the Zhaoyu Honor of Kings Junior Cup National Challenge. This competition opened enrollment to all Honor of Kings players and boosted easy access to rewards and wider user participation. Specifically, we integrated the tournament content with our user community. Users were able to enroll, participate, and advance in rank within our community channel, while other users could take part in a series of fun activities such as a quiz, a single-player competition, and interactive rewards. Combining game content with our user community captivated my life gamers. And at the same time, it tightened bonds with heavy users. As we improved our self-produced tournament system and fully enhanced its value, we launched a series of eSports talent selection mechanisms based on this tournament. In the EUA Cup mentioned earlier, we unveiled the eSports star project. We've seen growth opportunities to discover high-potential streamers and fortify users' dignity. In the fourth quarter, we launched the Douyu Esports School Team Selection Season for Colleges. The competition covered three mainstream esports games and attracted more than 2,000 college teams from 11 provinces, providing more college esports fans with a platform to showcase their skills. It has also helped us to discover potential esports talent and enhance Douyu's appeal and brand influence among colleges and universities. In terms of copyright determinants, we reinforce user engagement and stickiness through rich derivative content and diverse operational activities. In the honor of King's Champions Cup KIC, we added auxiliary functions such as home team support and a working reminder to further elevate our user experience. Moreover, the team Wuhan E-Star, which we signed and invested in, maintained its excellent performance throughout the years and became the champion of the Champions Cup. With the purchase of some co-corporated content, we continue to deepen cooperation with game developers fully integrating tournament content with our platform's operational characteristics to provide differentiated tournament-derived content and customized user services. Meanwhile, aligning with this tournament content, we will explore more commercialization channels to improve the ROI of tournament copyright. Moving on to our monetization strategy. Our total number of paying users in the fourth quarter was 5.6 million, with a quarterly average up-full of RMB 293. We continued our paying user segmentation strategy from last quarter, which included canceling marketing activities for new paying users with low rates of return, maintaining our co-users' willingness to pay, and promoting more consumption of mid-range paying users. We also made progress in generating revenue from non-virtual gifting. Fourth of all, we continue to refine and promote our platform-wide membership service system, strengthen the companionship and interaction between streamers and platform members, and consistently iterated membership features. In the fourth quarter, we launched sound effects and privilege gifts for members, leading to a sustained study increase in members' renewals compared with the third quarter, demonstrating high user-sickness among our fans. Furthermore, we extended our game-specific membership service to multiple segments. Based on the characteristics of each game, we launched customized game membership services to meet users' needs for in-game items. Going forward, we will strengthen our cooperation with game developers delve deep into users' gaming needs and explore more commercialization channels. In terms of our product R&D and function innovation, we continue to deepen cooperation with game developers. In compliance with laws and regulations and based on our partial game-based sharing partnership with game developers, we integrated gaming data, content, and functions with those content and gameplay. making live streaming content close-fit with this game. For example, in Arnold King's live streaming channel, users can easily team up with streamers and other users to play the game through the Join with One Click function, making user-streamer interactions significantly simpler than before. In the past, users had to manually add friends into the game to form teams. In addition, we displayed more game-related data and gaming strategies through partial game data sharing in games such as Battle of the Golden Spatula and Peacekeeper Elite, further optimizing our user experience and stimulating live streaming engagement. Overall, in the challenging year of 2022, we created a healthy and vital gaming content ecosystem through various operational strategies, including adjusting revenue-generating activities and increasing investments in self-produced content, thereby maintaining stability in the company's overall business and financial performance. Going forward, we will continue to execute on our diversified, game-centric content strategy and focus on maintaining the scale and quality of our core users. By further improving game content and strengthening our connection with co-users, we will enhance user-sickness on our platform and elevate those values as a gaming content ecosystem. Meanwhile, we will continue to explore more commercialization channels and new growth avenues to maintain our leading position in the domestic game live streaming industry. 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. For the full year 2022, we focused on optimizing costs and developing revenue quality in order to improve financial performance. As we continue to invest in high-quality, self-produced content, and improve our revenue structure. We enhanced operating efficiency through adjusting our live streaming business together with effective cost and expense controls. For the four year 2022, our gross margin expanded to 13.9%. Adjusting net loss narrowed significantly to RMB 7.6 million. Let's now look at our financial performance for the fourth quarter in more detail. Total net revenues in the fourth quarter of 2022 decreased by 27.8% year-over-year to RMB 1.68 billion. Live streaming revenues were RMB 1.6 billion, a decrease of 27.7% from RMB 2.21 billion. in the same period of 2021. The decrease was mainly attributable to two factors, a continued implementation of prudent operating strategies and the one-off impact of a decline in streamers' activities following the end of COVID-19 restrictions. As a result, virtual gifting interactions were partially impelled, which caused a year-over-year decrease in quarterly up. Our quarterly up was RMB 293, down 4% from RMB 305 in the same period last year. Advertising and other revenues were RMB 84.3 million, compared with RMB 118.5 million in the same period of 2021. The year-over-year decrease was primarily attributable to the soft demand for brand advertising amid the challenging microeconomic environment. The decline was partially offset by the increase in other revenues contributed by game-specific membership services. Cost of revenues in the fourth quarter of 2022 was RMB 1.5 billion, a decrease of 28.2% compared with RMB 2.08 billion in the same period of 2021. Revenue share fees and content costs decreased by 31.2% to RMB 1.27 billion from RMB 1.85 billion in the same period of 2021. The decline was primarily driven by the following two factors. First, The decrease in revenue sharing fees was mainly in accordance with the decrease in live streaming revenues. In addition, the lower revenue sharing ratio, which was achieved through the implementation of our prudent operating strategies, led to a further reduction in revenue sharing fees. Second, the copyright costs decreased significantly as a result of a selective copyright procurement strategy, whereby we ceased acquiring overpriced content rights for esports tournaments. The decrease was partially offset by an increase in self-produced content costs driven by additional year-end events launched during the quarter. Benefit costs in the fourth quarter of 2022 decreased by 17.6% to RMB $138.4 million, from RMB 167.9 million in the same period of 2021. The decrease was mainly due to the year-over-year reduction in peak bandwidth usage in the absence of the purchase copyright of major esports tournaments. Gross profit in the fourth quarter of 2022 was RMB 186.1 million compared with RMB 244.7 million in the same period of 2021. Gross margin in the fourth quarter of 2022 was 11.1%, compared with 10.5% in the same period of 2021. This margin improvement was mainly driven by the decrease in both revenue sharing fees and copyright costs as a percentage of revenues. The improvement was partially diluted by the rising percentage of revenues attributed to self-produced content costs. Sales and marketing expenses in the fourth quarter of 2022 were RMB 123.9 million, a significant decrease of 45.9% from RMB 229.2 million. in the same period of 2021. This was mainly attributable to a decrease in both marketing expenses for user acquisition and branding expenses. Research and development expenses in the fourth quarter of 2022 were RMB 80.6 million, representing a 39.2% decrease from RMB 132.6 million. in the same period of 2021. This decrease was primarily due to a decrease in personnel related expenses. General and administrative expenses in the fourth quarter of 2022 were RMB 55.2 million, a drop of 44.1 million percent from RMB 98.8 million in the same period of 2021. The decrease was primarily due to decreased service compensation expenses as the vast majority of shares and our share incentive plans were fully vested as well as decreased professional service fees. Adjusted operating loss, which aspect service compensation expenses was RMB 56 million in the fourth quarter of 2022. compared with RMB 168.7 million in the same period of 2021. Net income in the fourth quarter of 2022 was RMB 41.8 million, compared with net loss of RMB 193.2 million in the same period of 2021. Adjusting net loss, which excludes service compensation expenses share of loss or income in equity method investments and impairment loss of investments was RMB 4.3 million in the fourth quarter of 2022, compared with RMB 150.7 million in the same period of 2021. For the fourth quarter of 2022, basic and diluted net income per ADS were RMB 0.14 and RMB 0.14, respectively, while adjusted basic diluted net loss, or ADS, were RMB 0.003 and RMB 0.003, respectively. As of December 31st, 2022, the company had cash and cash equivalents, restricted cash, and short-term and long-term bank deposits of RMB 6.81 billion, compared with RMB 6.64 billion as of December 31st, 2021. Moving forward, as part of our strategic focus on healthy long-term growth, our revenue may experience some immediate impact, which we believe is critical to our balanced growth. We will also strive to explore more commercialization channels and fine-tune our operations, supporting the sustainable long-term development of our platform while also delivering greater value for our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. 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. To withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause for a moment to assemble our roster. And our first question today will come from Li Zheng of Bank of America Securities. Please go ahead.

Then the second question is, I would like to ask, because recently the beginning of the game is very hot, and then I want to see how this works on our game live platform. At the same time, we know that this year there may be a lot of popular games. Thanks management for taking my question. My first question is mainly on your strategy. We noticed that you have invested in esports content this year. Can you share with us your strategy for 2023 and how to deliver operating efficiency while have additional in content cost? Secondly, we noticed that X-Party gained traction this year, and can you share with us its performance in live streaming? And we also know that there are more new games to be launched this year. Will those games help our user growth and game streaming in Europe? Thank you.

Let me answer the first question. The company has been working hard to promote a multi-faceted content ecosystem, a long-term strategy, and build a game content system. We are focusing on economic operation and service innovation. We are also building a game content ecosystem. In the past two years, we have made some adjustments to the changes in the macro situation. Mr. Chen will take the first question.

As a leading game live streaming platform in China, we remain committed to our long-term goal strategy of fostering a vibrant game-centric content ecosystem. We continue to establish a diversified gaming platform by streamlining our operations and creating new services, propelling a vibrant game content ecosystem. Facing the ever-changing macro environment in the past two years, we've made some adjustments to pursue long-term sustainable development. Those adjustments include actively modifying our operating strategies to optimize our revenue structure and controlling business spending through fine-tuned operations. All the measures we've taken has not only stabilized the overall company's business, but also improved our financial performance. and significantly narrowed our adjusting net loss for the full year 2022.

We will continue to adopt a stable operation strategy in the next two or three years, and we will focus on long-term development. We have reduced the investment in low returns for traditional businesses, and we will focus on new business growth. We will also pay more attention to the improvement of user quality when we focus on user scale growth. Through high-quality platform content and some upgraded product structures, Looking ahead to 2023, we will continue to execute crude and operational strategies and focus on the long-term business prospects. We will reduce our investment in traditional business lines with low ROI

and focus on exploring new growth avenues. While pursuing growth in user skills, we will target improving user quality. By delivering high-quality content, upgrading our product structure, and strengthening our interactive features, we are able to enrich our platform's ecosystem so that we can enhance our user experience and retention rate.

In terms of cost investment, we have evaluated the return rate of cost investment in detail. The reasonable dynamic distribution of the company's current resources, such as limited resources, is concentrated on more potential increases. For example, we have seen the way of acquiring users. If we compare it through content acquisition users, previously we used market promotion, we found that the market promotion has a certain effect in the short term. However, for the overall flow of users and the low transfer rate of data, At the same time, with the diversification of user demand, market promotion is no longer a viable means of sustainable development. Therefore, in 2023, we adjusted the marketing strategy and insisted on driving content as a logic of growth, by continuously optimizing the quality content and investing in the cooperation of game manufacturers to attract and attract users. We also know that the content investment in market promotion is a long-term process.

In terms of cost allocation, we conducted a detailed evaluation of the LI of each of our expenses and allocated company resources rationally and dynamically, dedicating limited resources to business lines with greater potential. For example, in terms of our user acquisition strategy, When we compared it with content-driven user acquisition, we noticed that channel promotion drove user growth in the short term, but with lower retention rate and conversion rate. As users' needs have become more diversified, focusing on channel promotion is no longer a sustainable user acquisition strategy. Therefore, we have adjusted our overall marketing strategy adhering to a content-driven approach to growth by continuously investing in high-quality content and cooperating with game developers to attract and engage users. Although investing in content is a more long-term process than channel promotion, we believe it's beneficial for our platform's sustainable development.

As I mentioned earlier, regarding the issue of heavy market share rights, as we have discussed before, market share rights are a top priority, and they have a certain value. If the price of market share rights can return to a reasonable period, then we will still restore the purchase of this part of the market share rights. So in 2023, through the balance with the supplier, we restored the balance of the price, and restored the purchase of the market share rights of LPL and other core market share rights of the Medical Association. In terms of our co-corporate procurement, as we mentioned before, copyright tournaments are still of great value, and we would

repurchased some co-corporate tournaments if the price level returned to a reasonable range. On that basis, we repurchased some co-corporate events in 2023, such as the LPL and the LOL World Championship Tournament. High-quality streamers' content, diversified and self-produced game-centric content, along with copyright tournament content, enabled us to enrich our content ecosystem and foster our game-centric community, thereby solidifying our overall competitiveness in the industry.

In terms of revenue, we will build up the platform's user-healthy and sustainable welfare. This is the main focus of the operation. Although the revenue may be affected in the short term, we believe that such adjustment will further improve the overall operating efficiency of the platform, thus ensuring that the company's profitability can last for a long time.

Meanwhile, in terms of revenue, we will focus on ensuring that our users' willingness to pay on our platform is on a sustainable basis. Such focus shifts will have a short-term impact on our revenue. However, our offering leverage is expected to improve in the long run, which in turn supports the company's long-term profitability. At the same time, We are continuously exploring more innovative commercialization avenues. Thank you.

Let me answer your second question about Edgy Party. Edgy Party is a casual interactive mobile game. The game is easy to operate and highly interactive features. For this game, we prepared experienced streamers in advance and adopted attractive incentive merit to encourage more players to engage in the game's live stream. Meanwhile, leveraging the functionality of our user community, we organized various daily clocking in and teaming up activities within our community channel. We also provided plenty of in-game items as rewards. to increase players' engagement and interaction. This helps us effectively promote the game's popularity and improve overall user-sickness on our platform. From January until now, AG Party's live streaming volume has ranked as the top of the industry. More than half of the segment's users participated in activities within our community channels during the promotional event. In terms of new games, we eagerly anticipate the launch of more blockbuster games. For game-centric content platforms such as Douyu, high-quality games and their users are the most important source for content generation and user growth. Based on game features, we will continue to create premium gaming content with greater interactive and engaging features, as well as a wide-ranging selection. We can't predict the exact schedule of the launch of this game, but according to our practice, we will cooperate with game developers to promote the new game during the pre-launch stage. We will also select experienced streamers and reach game content for players to watch and discuss and then provide interactive content such as game tutorials and tournament events to increase user engagement, elevate user experience, and enhance user stickiness. Thank you.

Thank you. Okay, and our next question today will come from Thomas Chong of Jefferies. Please go ahead.

Thanks management for taking my questions. My first question is regarding our strategic direction. Given that the company has made a number of strategic adjustments in the past two years, How should we think about the industry trend? Or may I put it in this way that how should I think about the management force regarding the game live broadcasting overall industry environment? And my second question is about the user scale for this year, if there's any qualitative color. Thank you.

Let me answer this question. As mentioned in the previous conversation, the industry we are facing is already in competition with game content from game live broadcast to game content. Game content consumption is a larger market. Its user base is expanded from watching game live broadcast to a larger scope. Then the scope of industry users is expanded, which means that there are more changes in the demand of these users. Mr. Chen will take the first question. As we mentioned before, the competition we face in our industry has already transitioned from

gaming live streaming to gaming content. Gaming content is a much larger market with a broader user base expanding beyond hardcore gamers watching live streaming, watching video game live streaming. This means users' needs are evolving, which is both an opportunity and a challenge for us. Given the large scale of our existing user base and revenue base, the challenge is how to adjust our products and operations to acquire new users and explore new commercialization channels.

We have always insisted on winning with content, and then acquiring new users through good content. By building a diversified product system, we can meet the needs of different users to improve the visibility of users. Through rich content, we can attract better users. Then, through various kinds of interactions, we can create our own We insist on achieving success with premium game content. Specifically, we leverage high-quality game content to acquire new users

and build a diversified product system to meet users' diverse needs and improve users' thickness. Attracted by wide-ranging content, high-quality users can also generate content through interacting and self-producing, fostering a virtual cycle on our platform of content production and user development. Thus, we have emphasized to build a healthy and sustainable platform. It's what we've done in the past, And what will we continue to do in the future?

The live streaming platform is relatively close to the transformation line, and the transformation line is relatively easy. This has also led to excessive over-earnings for a long time. We still have excessive over-earnings. Therefore, we think that objectively, the environment of the platform may be deteriorating, which is not conducive to the long-term development of the platform. So in the past period, we have also reduced a lot of revenue-raising activities. We chose We also know that these adjustments require a certain amount of time, so we need to Furthermore, for a long time, we paid considerable attention to our revenue scale based on our live streaming platform's easy monetization features. However, we think this may harm our platform's ecosystem and healthy development in the long run.

Therefore, we have recently reduced our marketing activities that target revenue growth. Instead, based on our virtual gifting revenue mode, we provided diversified products to cater different users' paying habits and demands while also emphasizing our product's sustainability. In addition, we are exploring new initiatives such as a membership business. It took time to make these changes. Therefore, we focused on refining our operations and improving our cost and expenses control. In this way, while making the above adjustments, we still managed to maintain our platform's long-term profitability. Thank you.

Let me answer your second question about MAO. As we have consistently communicated before, SOE is a game-centric, container platform that attracts and retains users by providing high-quality game-centric content and adopting user acquisition strategies to fit different business environments. In 2023, to navigate the volatile macro environment with agility, we prioritized long-term business prospects, reduced our investment in traditional with low ROI. Focused on our user growth strategy of improving user quality, we strive to strengthen our content operations as well as explore commercialization avenues. Our total revenues are mainly contributed by our content-driven users with steady pin habits. We plan to largely cut our promotional expenses this year, which will directly affect our platform's MAO in the short term. Nevertheless, since most of these lost MAOs are short-term users on the platform, this strategy won't affect our content operations or our monetization efficiency. In addition, with the purchase of copyrighted content we expect to gain some tournament users. By observing the traffic on our LOL game segment, we found that the increased traffic that it brought couldn't offset the decline in user skill resulting from sustainability decreased promotional expenses. We believe that Operational adjustments will enable us to increase our resource allocations in order to build a more sustainable content ecosystem. Although the return on these investments takes time, they will ultimately enhance our overall competitiveness and support our platform's long-term development. Thank you.

Our next question today will come from Yawen Zhang of China Renaissance. Please go ahead.

Hi, I'm Yawen Zhang. So I have a couple of questions. First question regarding our license content procurement. So can you share our plan on how we plan to improve ROI on game content? And then secondly, can you give us an update on the 2022 whole year cash flow? Have we achieved a positive operating cash inflow? Thank you.

Thank you for your questions. As to the first question on copyright procurement, copyrighted tournaments played an important role in stabilizing a platform's traffic and improving our user engagement. In the past year, we adopted a selective copyright procurement strategy due to the overpricing of some copyrighted tournaments. With the price level of copyrighted tournaments gradually returning to a reasonable range, We have increased our investments in purchasing core copyrights in 2023. Major copyrighted tournaments we have purchased so far include League of Legends, Honor of Kings, Peacekeeper Elite, Crossfire, CSGO, and Dota 2. For the tournament copyrights we purchased, we will improve our return on investment through innovative operations. In terms of enhancing user engagement, we will continue to upgrade interactive features on platform to meet users' diversified needs by building on our accumulated experience in live streaming and operating copyrighted tournaments. For example, in LPL, by leveraging our top tier streamer resources, we selected 12 streamers to do a co-streaming of the tournament events. These streamers included both official tournament commentaries and top tier streamers with massive fan base in these tournaments and our platform. This co-streaming initiative achieved good results. The DAU, our live streaming channel, is on par with that of our official channel. In addition, the number of booty chats is several times higher than that of our official channel. Furthermore, we featured more user-friendly access to videos and community channels, our live streaming channel, thereby gaining more exposure for our diverse gaming content and attracting more users to join. In terms of commercialization, We continue to integrate our copyrighted tournament's content with more refined operations. For example, we promote or gain specific membership services to tournament viewers. Meanwhile, we will explore more direct monetization opportunities based on copyrighted tournament's content. In addition to discussing the copyright price with copyright owners, we will communicate more proactively with them to explore reasonable long-term cooperation. So on the second question of cash flows, as of December 31st, 2022, our overall cash balance, including cash and cash equivalents, restricted cash and deposits amounted to RMB 6.81 billion, an increase of RMB compared with RMB 6.64 billion in the same period of 2021. This is mainly due to two factors. First, the increase in our cash balance is primarily a result of reporting currency translation as the appreciation of the US dollar increased the value of the large amounts of US dollar denominated cash assets we hold. totaling RMB 480 million. Second, in terms of cash outflow, we used a total of RMB 110 million in cash for the share we purchased. Other total cash outflow was RMB 210 million, of which the operating cash outflow was RMB 77.8 million. Thank you.

Our next question today will come from Rafael Chen of BOCI. Please go ahead.

Thanks for taking my question. My question is regarding the paying user trend. could mainly elaborate on how the current operations strategy will impact the paying users going forward. It would be great if management could share more insights on the paying user trend, especially in the year of 2036.

Thank you for the question. As mentioned previously, improving user quality is our key focus this year. In the second half of last year, we canceled some marketing activities for new paying users with low rates of return. That reflects the high quality of our current paying users with consistent paying behaviors for our services. In 2023, we plan to further reduce our marketing expenses and acquisition expenses for paying user acquisition, which will have an impact on paying user base. In 2023, we will continue to improve revenue quality and maintain a core paying user's thickness and also their willingness to pay, shifting the focus of revenue generation to the following two areas. First of all, we will put more emphasis on maintaining core paying users to ensure core business stability. We launched various tiers of paying products based on users' different abilities to pay. in order to sustain and improve their willingness to do so. Meanwhile, we rolled out more companionship-oriented functions and activities for our fans, not only maintaining the day-to-day interactions between streamers and fans, but also enhancing the fans' willingness to pay. Last year, we upgraded our user benefits and strengthened our interactive functions substantially improving fans' stickiness and steadily increasing members' renewal rates. Second, we will explore more new non-virtual gifting business models based on game characteristics to improve our revenue mix. The game-specific membership service that we launched in the second half of 2022 is progressing smoothly. Despite its relatively small revenue currently, we believe this business can satisfy some gamers' demands for the games themselves. It not only attracts large number of game fans, thereby adding new users to our platform, but also appeals to existing users, so promoting a virtuous cycle in our game content ecosystem. In short, Developing our membership business will be a priority for 2023. Specifically, we will continue strengthening our platform-wide membership service while reinforcing our close cooperation with game developers to delve deep into users' gaming needs and extend our game-specific membership service to multiple segments. Thank you.

Thank you. That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter.

The conference has now concluded. We thank you for attending today's presentation You may now disconnect your lines.