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spk03: Good morning and good evening, ladies and gentlemen. Thank you and welcome to Do You International Holdings Limited's second quarter 2023 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. As a reminder, this call is being recorded. I will now turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at Do You. Please go ahead, ma'am.
spk06: Thank you. Hello, everyone. Welcome to our second quarter 2023 earnings call. Joining us today are Mr. Xiaojie Chen, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our second quarter 2023 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 state public provision for the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks. 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 this forward-looking statement. 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 selected environmental circumstances after the date of this conference call. I will now speak on behalf of our chairman, CEO, Mr. Xiaojie Chen. In the second quarter of 2023, the company's top priority was to foster a healthy ecosystem across our game century community. We stepped up the production of premium content to diversify our content matrix and enrich interactions across the community. We also heightened the importance of content management and strengthened the content review procedures on our platform. By ensuring the health of our ecosystem, we have solidified the foundation for our strategic long-term sustainable growth. On the operations side, we placed a heavy emphasis on improving the quality of our users. We actively refined our monetization and marketing strategies and deepened our cooperation with game developers with a focus on refining how we promote new games and their operations. The combination of these adjustments supports the overall stability of our business operations, healthy user metrics, and promote our improved profitability. In the second quarter, our mobile MAUs were 50.3 million, quarterly average paying users were four million, and our adjusted net income was RMB 61.4 million, surging 138% quarter over quarter. To begin with our user base, our mobile MAUs for the quarter declined 9.8% year over year. but were on par with the last quarter. The main reasons for the year-over-year change include, first, early this year, we refined our operating strategy to focus on improving user quality. This means that we have cut back on our low ROI marketing spend. As a result, our user acquisition expenses for the quarter significantly decreased year-over-year. The quality of our users has improved, however, The lack of user acquisition from promotional channels led to a year-over-year decline in quarterly MAUs. Second, we adhered to our content-driven approach to user growth. We attracted and retained users through continuous investment in high-quality content. We expect the regular updates we make to revenue-generating products and deeper cooperation with game developers to drive organic and better quality MAU growth over time. With our expanded entertainment content offerings, innovative membership services, and the launch and promotion of new games, we successfully attracted new users in the second quarter, which partially offset the year-over-year decrease in mobile MAUs, resulting from the adjustments we made in our marketing strategy. Moving to our content ecosystem. In the second quarter, we also continued to refine our diversified tournament system. We broadcasted over 20 large-scale official events and organized almost 60 self-produced esports tournaments. This included major worldwide official gaming events, such as the spring tournaments of LPL, King Pro League, and the Peacekeeper Elite League, as well as CSGO Blast Majors. As the peak season for mainstream esports spring tournaments came to an end in the second quarter, we offered an array of premium self-produced tournaments for the off-season, including the Douyu Honor of Kings National Challenge S7, which has now been held for seven consecutive seasons, the League of Legends Follower Contest led by StarStreamers, and the Peacekeeper Elite Mount Harunaka. With this rich and exciting off-season content offering, we have kept users actively engaged on our platform. In addition to tournaments, in the second quarter, we rolled out more interactive entertainment content by leveraging our top-tier streamer resources. For example, we worked with top LOL streamers on fan club activities, such as singing competitions featuring streamers and users. Building upon the profound influence of top tier streamers, a powerful effect was generated by fan club activities, which attracted many streamers and users. We also adopted the bullet chat format to enrich our event scoring system. This format's addition greatly elevated user participation and the frequency of user interactions. The fan club activities got incredible visibility across and beyond our platform. Its success gained traction among both new and existing users, further increasing overall user engagement. We continued to deepen our cooperation with game developers, particularly on the launch and promotion of new games. Justice Online, the launch at the end of June, is a major game that we're working on this year. We build momentum for it across our game segments and through multi-channel promotions, capitalizing on our outstanding streamer resources, rich game-related content such as game news and game guides. We were pleased to see a good deal of downloads and game activations. The month that follows a game's launch is considered the golden season for game promotion. As such, we use this time to work with game developers to promote our diversified live streaming content, community discussions and activities, generating traffic and engagement across our platform. We also did a second round of promotions of select live streaming content on multiple external channels, driving traffic beyond our platform. Additionally, we worked more closely with game developers on the development of customization tools, such as the game guide library and the character customization, building a comprehensive game segment that incorporate multiple content formats. Furthermore, while we were promoting the new AGC game, Honkai Star Rail, we were deeply involved in the game developer's large-scale offline activities, and we were the only live streaming platform invited to join the undertaking. Based on the game's product features, we tailored an area of game segment activities specifically for AJC users. Through online-offline interactions and audience benefits, we successfully attracted more users to our platform. In the second quarter of 2023, we optimized our content matrix while also enhancing our content management, review, and progress across the platform. First, we upgraded the review criteria, adding and refining over 30 items. Second, we applied innovative review technology, improving technical features such as content monitoring, filtering, and event trigger handling. Third, we strengthened our management system and staff training and elevated the awareness of content management and regulatory guidelines. we will further enhance the company's procedural and operational compliance programs to provide our users with better content and service offerings, improve user experience, and continuously optimize the healthy system of our game-centric community. Moving on to our monetization strategies, the number of quarterly average paying users in the second quarter was 4 million, with a quarterly approval of RMB 326. The reasons for the change in the number of paying users are threefold. First, as we executed our strategy of fostering a healthy, sustainable, game-centric community ecosystem, we reduced some of our revenue-generating activities to level up the platform, including canceling marketing activities aimed at attracting new paying users. Second, on the revenue side, we improved our operating efficiency by scaling down low gross margin operating activities. Third, the decrease in our overall user base was partially the result of reduced marketing spend. To some extent, this adjustment affected our users' willingness to pay, including both new users and price sensitive users, resulting in an overall decline in paying users. Nevertheless, we shifted our focus to upgrading our revenue-generating products and maintaining our co-paying users. Internal data show that in the second quarter, our co-paying users maintained stable spending habits, as reflected in our quarterly op-through, which shows both year-over-year and quarter-over-quarter. In terms of traditional virtual gifting, We launched our brand new user profiling system based on how much they spend. Any user that spends over a certain threshold is automatically entitled to exclusive user privileges, such as identity marks and exclusive services. These identity-based privileges are automatically granted each month, which improved our paying users' experience and fortified their stickiness. Apart from traditional virtual gifting, we continue to iterate and upgrade membership functions and benefits. Our membership business, which represents a sustainable source of revenue for us, is also on track towards steady growth. This added benefits to our members are a testament to how much we care about our co-paying users, as well as our sustainable relationships with them. Over the past quarters, we have developed a dual service system featuring platform-wide membership and game-specific membership. Based on our platform-wide membership service in the second quarter, we offered additional cost-sale membership benefits to users. Specifically, with each purchase of a platform-wide membership in certain game streamers' live streaming channels, users get certain in-game items and game-specific benefits for free. Owing to the complementary benefits of our dual membership system, our users became more actively engaged and willing to pay. We also rolled out innovative privilege gifts, such as gifts with sound effects customization, rewinding our revenue-generating products to elevate user interaction with streamers. and to maintain good vibes across our live streaming channels. In general, our membership renewal rate has been steadily on the rise for several consecutive quarters, demonstrating our consistent optimization of the co-paying users ecosystem. In terms of our product R&D and functionality innovation in the second quarter, we launched our own new big data system for stream analysis featuring real-time collection, statistics, and analysis of data on their live streaming content, hours, bullet chats, user traffic changes, et cetera. The system enabled our operations support team to provide timely measure of the streamer's performance against the various indicators so that we can better support our streamers with more precise feedback data. The system's built-in algorithms enable visualization of the streamer's live streaming data from multiple perspectives, providing data support for operational decision-making. With the system, our operation support team can directly capture high-quality content, of course, videos, images, and the bully chats from the streamer's live streaming channels, which helps us identify content that best appeals to audience for more effective recreation, enhancing the visibility of high-quality content. In conclusion, we remain committed to executing our core core strategy of fostering a vibrant game-centric content ecosystem. Our key objective is long-term sustainable growth. As we work to enhance our ecosystem, we remain focused on maintaining the scale and quality of our co-users, attracting more high-quality users to our diverse and growing content, fortifying user interaction and stickiness through innovative operations, and stimulating community-wide interactions. Looking forward, we will continue to explore more commercialization channels and new growth avenues, while maintaining our leading position in the domestic gaming content 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.
spk08: Thank you, Lingling. Hello, everyone. In the second quarter, we continued to implement our refined growth strategy aimed at ensuring our healthy and balanced business outlook. Emphasizing the development of a healthy margin business and optimizing operations, we continue to adjust our revenue-generating activities and streamline operating efficiencies, including those that optimized content cost and further reduced marketing spending. As a result, despite some short-term impact to our revenue, we once again grew out adjusted net profit showing a solid increase quarter of quarter. Let's now look at our financial performance in more detail. Total net revenues in the second quarter of 2023 decreased by 24.1% year-over-year to RMB 1.39 billion. Live streaming revenues were RMB 1.26 billion. a decrease of 28.8% from RMB 1.77 billion in the same period of 2022. The decrease was mainly attributable to ongoing operational adjustments in our live streaming business to promote a healthy and sustainable ecosystem in a more cost-effective manner, as well as the challenging microenvironment These adjustments impacted spending from new PAN users and price-sensitive PAN users. Combined with a lower user base caused by our scaled-back promotions, we saw a year-over-year decrease in the total number of PAN users. Amid these changes, our core PAN users exhibited relatively stable PAN behavior, contributing to an 18.3% increase in up to RMB 326 in the second quarter, up from RMB 276 in the same period last year. Advertising and other revenues were RMB 133.9 million, an increase of 106.5% from RMB 64.9 million in the same period of 2022. The year-over-year increase was primarily attributable to the increase in other revenues contributed by game-specific membership services. Cost of revenues in the second quarter of 2023 was RMB $1.2 billion, a decrease of 21.1% compared with RMB $1.52 billion in the same period of 2022. Revenue sharing fees and the content costs decreased by 25.4% to RMB, 0.98 billion from RMB, 1.31 billion in the same period of 2022. The decline was primarily driven by a decrease in revenue sharing fees, which were largely aligned with the decrease in live streaming revenues. The decrease was partially offset by an increase in copyright costs resulting from the purchase of LPL tournament copyright. Bandwidth costs in the second quarter of 2023 decreased by 17.3% to RMB 118.8 million from RMB 143.7 million in the same period of 2022. The decrease was mainly due to enhanced efficiency of peak bandwidth usage. Despite a year-over-year increase in peak bandwidth usage as a result of the rising tournament viewing demand, we managed to control bandwidth costs through dynamic bandwidth allocation strategies and other optimization measures. Cross-profit in the second quarter of 2023 was RMB $188.9 million, compared with RMB $309 million in the same period of 2022. The decrease in gross profit was mainly attributable to decreased net revenues and increased other costs. Other costs include the cost of game-specific membership services, which grew largely in line with the increase in other revenues. Gross margin in the second quarter of 2023 was 13.6%. compared with 16.9% in the same period of 2022. The decrease in gross margin was mainly attributable to the increase in other costs as a percentage of revenues, which was partially offset by the decreasing percentage of revenues attributed to revenue sharing fees. Sales and marketing expenses in the second quarter of 2023 were RMB 87.1 million, a significant decrease of 48% from RMB, 167.5 million in the same period of 2022. This was mainly attributable to a decrease in marketing expenses for user acquisition. Research and development expenses in the second quarter of 2023 were RMB 71 million, representing a 30.2% decrease from RMB 101.9 million in the same period of 2022. This decrease was primarily due to a decrease in personnel-related expenses. General and administrative expenses in the second quarter of 2023 were RMB 46.9 million, a drop of 48.2% from RMB 90.7 million in the same period of 2022. The decrease was primarily due to decreased share-based compensation expenses as the shares and out-share incentive plans were fully vested. Loss from operations significantly narrowed to RMB 7.5 million in the second quarter of 2023 from RMB 30.6 million in the same period of 2022. Net income in the second quarter of 2003 was RMB 6.8 million, compared with a net loss of RMB 38.8 million in the same period of 2022. Adjusted net income, which excludes share-based compensation expenses, the share of loss or income in equity method investments, and impairment loss of investments was RMB 61.4 million in the second quarter of 2023, compared with RMB 23.5 million in the same period of 2022. For the second quarter of 2023, basic and diluted net income per ADS were both RMB 0.02, while adjusted basic and diluted net income per ADS were both RMB 0.19. As of June 30, 2023, the company had cash and cash equivalents, restricted cash, and short-term and long-term bank deposits of RMB 7.06 billion, compared with RMB 6.81 billion as of December 31, 2022. Going forward, we remain committed to stabilizing our core business operations while actively seeking opportunities to enhance our monetization capabilities and explore more commercialization channels. By improving revenue quality and maintaining a prudent cost management approach, we aim to support the long-term healthy development of our platform with sustainable profitability. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk03: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If your question has already been addressed and you would like to remove yourself from queue, please press star then 2. 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. Today's first question comes from Lei Zhang with B of A Securities. Please go ahead.
spk05: Thank you, manager, for taking my question and questioning me. on the regulatory enrollment. Notice that we have a regulator on-site review in May. Any updates on this? And how do we look at the current regulatory enrollment and the impact to our business? Thank you.
spk01: Let me answer this question. As I mentioned, in Huowei Province, the Internet Information Office team has done a one-month intensive supervision work. The team has provided some supervision assistance in various matters. Then our team did our best to cooperate and provided the company with information such as the content review system, program, and the content review process. We also took this opportunity to continue to strengthen the overall ability and quality of the relevant intelligence departments. During the process, the company's operation was all normal. After the process, we continued to improve the relevant rules and programs of the entire platform. During the one-month on-site inspection by the Hubei Bureau of China's Cyberspace Administration Working Group, the working group provided supervision and guidance on various matters.
spk06: Our team was in complete cooperation and readily represented any company information that was requested, such as our policies and procedures for content review and our content approval review process. We also took this opportunity to continue to enhance the capabilities and skill sets of DOE's content-related support team. During the inspection period, our business operations continued at zero. After the conclusion of the inspection, we have continued to make improvements to relevant rules and procedures across our platform. More specifically, as we discussed earlier, we improved our content management procedures, particularly on those related to content monitoring, review, and approval. We are now back in our normal internal supervision mode, which has been strengthened by the continued improvements we have made to our internal progresses.
spk01: Overall, the monitoring department has been strengthening and perfecting the monitoring of the live broadcast industry. Our goal is long-term monitoring development of the platform, and we are actively cooperating with the monitoring work and taking on the monitoring responsibilities of the platform, such as monitoring the content of the platform and ensuring the safety of users. Then we actively participated in the multi-faceted and specialized monitoring activities of the monitoring department. For example, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the network environment in the scope of the country, the purification of the In general, regulators have been strengthening and improving their supervision of the live streaming industry. Our goal is the long-term healthy development of our platform.
spk06: We actively cooperate with regulatory authorities and are committed to fulfill regulatory responsibilities for the safe operation of our users, such as content monitoring across our platform. We have actively participated in and examined multiple special remediation actions by regulators, including the nationwide chainline campaign to purify the online environment fight against the cyber bullying and cyber rumor mongering, the cyber protection initiative to provide a clean online environment for minors, and the remediation programs that flag streamers and associated accounts engaged in prohibited activities. Our regular internal supervision mainly includes the review, approval, and control of content on a daily basis. as well as enacting special remediation actions, regular disclosure of typical cases, et cetera. Through the DOE Security Center, we regularly disclose the results of sections that we've implemented and announce and update any special remediation actions that we've taken. We have also built compliance awareness across the platform through compliance training Adobe Classroom, and Antifold Lectures. And we are continually optimizing the cyber environment across the platform.
spk01: Going forward, we will continually strengthen our compliance programs
spk06: and regulate our operation across the platform. We will also continue to optimize the content ecosystem and increase our investment in high-quality tournaments and programs that spread positive energy and other quality content. These combined efforts are aimed at fostering a harmonious and healthy live streaming environment. Thank you. Next question, please.
spk03: Thank you. And our next question comes from Thomas Chong at Jefferies. Please go ahead.
spk07: Thanks, management, for taking my questions. My question is that there's a number of hit games coming online this year. Just want to get a sense about how these new games can drive our user growth as well as our revenue. Thank you.
spk10: Thank you for your question. Starting early this year with the public testing, pre-launch promotions, and the official launch of many new games, we saw more growth opportunities. New games bring not only increased content supply to attract new users, but also provide more content choices for our existing users. New games are more aligned with current gamers' demands and interests. They also provide us with more opportunities to harness content in diverse formats across different game genres. We expect the addition of new games to mainly benefit us in two ways. First, new games provide great opportunities for us in game promotion. For new games, we are actively involved in the earliest stages from the selection of streamers and content build-up. all the way through securing in-depth cooperation with game developers. We provide content offerings that best fit the game, new game exclusive benefits, and various innovative operational solutions to effectively attract users early in the process. Let's take Justice Online as an example. We promote Justice Online through multiple channels, including joint promotion with star streamers, building momentum for the game through live streaming sessions, videos, graphics, such as gaming strategies, as well as gaming community operations. We are pleased to see the positive effects on promotion. And the second, new games have a positive effect on game operations. We have rolled out various activities based on the features of different games. Take Edgy Party as an example. With its strong social attributes, leveraging key timing like gameplay updates, we launched the same tournament activities and enhanced community operations, keeping users active and engaged. For the operations of Honking Stereo, we captured its ACG attribute and participated in MiHoYo Anime event. Our combined online and offline content operations help us attract more user attention. Looking ahead to the second half of the year, the domestic launch of Valorant and its official tournaments offer a major operations project for us. As users typically enjoy watching competitive games, Valorant is a great fit for live streaming. Empowered by our resources of high-quality streamers and self-produced tournament content, we were glad to see a remarkable surge in both segment-specific traffic and viewing hours after the game's initial release. We have thoroughly assessed the new games that are scheduled to be released in the second half of the year and have operation plans in place to ensure proper allocation and the rapid integration of our resources to support this new game launch. Our planned promotions and operational support for the new game placed us in a strong position to capitalize on the game promotion's golden ceiling to acquire more users. Thank you. Please, next question.
spk03: Thank you. And our next question comes from Henry Sun with JP Morgan. Please go ahead.
spk09: Good evening. Thank you for accepting my question. My question is about operation strategy. Thanks management for taking my question. My question is about your operating strategies. Could management share the progress and the target of your operating strategy adjustment? Thank you.
spk01: As I have mentioned in our previous earnings calls,
spk06: Considering the changing market dynamics across our industry in the past two years, we remain committed to our key objective of long-term sustainable health growth. For our traditional business, we ensured stable fundamentals, optimized our operating efficiency, and successfully improved profitability. And for new business, we have been exploring potential areas for growth based on user needs. After two years of exploration and implementation of our opening strategy, we have made meaningful progress.
spk01: First off, user acquisition.
spk06: We transitioned from channel promotions that target growing markets to a content-driven approach that attracts users in mature markets. We have been building a diverse product system since 2020. By strengthening our in-depth cooperation with game developers, we have evolved from a single content live streaming format to a successfully developed multi-layer content system that includes live streaming videos, graphics, and community interactions. And we continue to enrich our content to enhance our content operations. Adobe has gradually formed a positive cycle of content production and user growth. Based on the content system, we have directed more attention to maintaining our co-users. In the first half of 2023, the average monthly viewing hours of mobile users showed an increase from the second half of 2022. This reflects the positive effect of our strategy to focus on improving user quality and the gradual optimization of our platform's ecosystem.
spk01: uh, uh,
spk06: Second, on the revenue front, to achieve our goal for the platform's long-term development, we have been making adjustments to our operating strategies for some time. We have reduced our operating activities that target revenue growth. so that our streamers can concentrate on the production of high quality content. As a result, our users found it easier to consume content and have become more willing to engage in paying behaviors, which has also invigorated our platform's ecosystem. We have also upgraded our revenue generating products to help maintain our co-paying users and keep our overall revenue stable. Additionally, to improve the company's revenue structure, we explored new potential sustainable revenue streams. By stabilizing our revenue scale, we were able to further reduce our low ROI virtual gifting activities and improve the platform's overall operating efficiency by optimizing our costs and expenses. We are glad to see progressive improvements in both gross margin and adjusted net margin as a result. In addition, over the second half of 2023, we plan to improve our gaming community ecosystem in various ways. This includes increasing our investment in algorithms used for content-based recommendations to provide more targeted content that better fits our users' diverse preferences, thereby improving the efficiency of content utilization. We will also prioritize operations that enhance community features through product updates, operational innovation, et cetera, to foster a positive community atmosphere for gamers across the platform, further enhancing user engagement and stickiness.
spk01: Product updates, content investments, and the exploration of new models
spk06: all require time and patience to bear fruit. Through trial and error and subsequent improvement, we believe the effectiveness of our operational strategies will become more evident. Of course, adjustment to revenue and expenses have an immediate impact on our financial performance, especially amidst the current macro uncertainties. Against this backdrop, we expect our revenue to experience short-term pressure but we are prepared for this and will control costs and expenses to secure our long-term profitability. Thank you. Next question, please.
spk03: Thank you. And our next question today comes from Raphael Chen with BOCI Research. Please go ahead.
spk02: Thanks management for taking my questions. I have two main questions. Firstly, we have noticed recently a top host left the platform after his contract expired in end July. Could management share some latest updates on the stability of other hosts on the platform? Also, could we have more color on the measures that platform takes to motivate these hosts? My second question is related to MAU and paying user trend. Could management give some color regarding the MAU and paying user trend in the near to mid-term given current visibility? Thanks.
spk10: Thank you. Let me answer your first question. With high-quality call streamers, we sign long-term exclusive cooperation agreements. The binding agreements are governed by law and supported by game developers and publishers. Therefore, streamer stability is secured during the contract period. For call streamers, whose agreements are about to expire, we actively discuss renewals with them ahead of time. We have been doing this for many years and the non-renewal rate is very low. Overall, Douyu has a robust and high-quality mode of streamers. As an established game content platform, we have worked with 3MOS on a win-win base for many years. Building 3MOS individual IP and enhancing DOI's competitive edge as the industry environment evolved and our users' game consumption needs became more diverse, we began introducing new innovative streamer cooperation model here are what we have been working on first under our overall stream operation strategy we are strengthening three more collaborations and depending our cooperation with game developers we regularly roll out innovative high quality content and operational activities to maintain and increase user activity in our game segments, and the streamers have become more willing to go on live streaming sessions. With notably more new games launched in the first half of the year, we worked on an array of streamer recruitment, recall, and
spk03: Pardon the interruption everybody. This is the conference operator and I do apologize. It looks like we've lost our speaker connection. I'm going to place music in the call and we will be right back with you. Please stand by. And pardon me, everyone. This is the conference operator. We have reconnected our speaker line. Please proceed with your answer. Thank you.
spk10: Let me continue to answer your first question about the streamer stability. With notably more new games launched in the first half of the year, We worked on an array of streamer recruitment, recall, and growth programs through operating activities supported by game developers. We have added new resources to the platform's stream pool, offering additional content for new games so that the streamers can grow and prosper in more diverse ways. As part of our normal course of operations, we launched the most streamer-driven programs, as well as various offline activities fetching streamers. We effectively promoted user interactions, made our streamers more popular, and enhanced our live streaming sessions. Our second effort has been on the commercialization front. Through multi-dimensional product upgrades, We enhanced the interaction between streamers and users and further optimized our ping users ecosystem. For example, we added the gift collection and display functions such as gift collection display and gift photo booth. Users giving gifts for the first time and the user who gives the most gifts are immediately on live streaming channels, and all the gifts given to streamers are displayed on the user interface. We also upgraded our user profiling system in the second quarter, highlighting ping user privileges and further improved ping user experience. This product upgrades facilitated better streamer user interactions, expanding our monetization opportunities. Additionally, we provide streamers with more live streaming support and management tools. Our content production tools help streamers improve their live streaming quality and efficiency. Our big data analysis enables us to best support our streamers with more precise and quick data feedback to optimize live streaming content and operations. Overall, streamers are the heart of our valuable high-quality content. We implemented a comprehensive system for streamer recruitment, training, growth, management, and cooperation, making sure that our streamers are actively engaged and well-compensated. Our enhanced operations have also strengthened our relationships with streamers.
spk08: Let me answer the second question about the user trend. Our operating strategy is focused on long-term sustainable growth across the platform. Regarding revenue, we reasonably adjusted our live streaming revenue generating activities and reduced promotion frequency. which may squeeze out some users and some paying users in the short-term. Let me explain this in more detail. First, the quarter-of-quarter decline in MAU was mainly the result of our significant reduction in marketing expenses for promotions and, consequently, the loss of some low-quality users. Our analysis indicates that most of the user accretion was from users who spent a short time on the platform. As a result, the changes in MIU will not significantly affect our platform's content operations and monetization efficiency. Looking at the second half of the year, we will continue to execute a prudent marketing strategy. As the impact of our upcoming product upgrades on user behavior is still unknown, we expect MAU to remain at the current level in the second half of the year with some degree of fluctuation. Second, regarding pain users, the number of pain users was influenced by both internal operations and the external microenvironment. According to our analysis, the change in pain users in the first half of the year was mainly attributable to our internal operational adjustments. These adjustments included reduced marketing expenses for customer acquisition and decreased purchasing from some users relying on low ROI marketing activities that we cancelled. These changes resulted in a decline in the overall number of users and paying users. We believe that the upgrades we have made to our revenue generating products will enhance our ability to maintain a core paying user. That being said, we have stabilized the number of paying users within a comfortable range. Looking into the second half of the year, we believe that the macro environment could further affect our paying user base. So far, there is still no sign of a strong macro recovery. Users' purchase readiness has declined and the users are more cautious about discretionary spending. Therefore, we anticipate that in the second half of the year, macro uncertainties may lead to slight fluctuation in the number of paying users. As we see it, based on operational adjustments, we can focus on investing in content which offers more sustainable growth. However, it may take more time to see the benefit of these investments. Meanwhile, we will continue to closely track operational adjustments progress, and we look forward to keeping you updated. Thank you. Next question.
spk03: Thank you. And our next question comes from Kathy Tang and Morgan Stanley. Please go ahead.
spk04: Good evening. Thank you for answering my question. I mainly want to ask if the adjustment of our operation I will answer this question. As we have constantly noted,
spk08: A company's operating strategy habits long-term sustainable growth across our platform. To this end, we have continuously fine-tuned our live streaming business, improved the platform's ecosystem, and fostered a healthy spending landscape. We have also significantly elevated the company's overall operating efficiency by investing in high-quality content, refining our business operations and improving ROI of operations. With these meaningful operational adjustments underway, we have successfully achieved net income and adjusted net income for two consecutive quarters. Let me elaborate on the two primary areas where we have improved our operating efficiency. Regarding our cost of revenues, The offset increased copyright costs and the cost of our innovative business. We optimized the cost of our traditional businesses to effectively keep our overall cost stable. For revenue sharing fees and common costs, we made an array of adjustments to live streaming activities that help us maintain overall revenue sharing ratio at current healthy level. facilitating the continued healthy development of our sustainable live streaming ecosystem. We also enhanced the production efficiency and ROI of self-produced content and managed to control payments to streamers, which reduced our related content costs year over year. Overall, we expect our total costs as a percentage of revenues to remain flat year over year in 2023. Regarding our operating expenses, we actively optimized each core expense and significantly reduced our channel-related user acquisition expenses. We also improved staff efficiency by optimizing the company's organizational structure, further boosting our operating efficiency. Our goal, of course, is to achieve sustainable adjusted net income. To summarize, We are managing the macro uncertainties by more effectively controlling our costs and expenses. And we plan to further stabilize and improve the profitability of our traditional live streaming business. We will also focus on identifying and developing new areas within our innovative business. We plan to work with game developers of all fronts fully leveraging the traffic and content resource advantages we have accumulated within our traditional live streaming business to further diversify and empower our commercialization capabilities. These coordinated efforts are aimed at fostering long-term sustainable profitability and development across our platform. Thank you.
spk03: Thank you. And this is all the time we have for questions. I will now turn the call back over to management for closing remarks.
spk06: On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter.
spk03: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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