DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU International Holdings Limited's fourth quarter and full year 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. I will now turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DOEU. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our fourth quarter and full year 2023 earnings call. Joining us today are Mr. Mingming Su, Chief Strategy Officer, Mr. Hao Cao, Vice President of Finance, and Mrs. Siming Ren, Vice President from the Interim Management Committee. You can refer to our fourth quarter and full year 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 the safe harbor provision for the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management 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 the details of the company's filings with the SEC The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Interim Management Committee on Business Updates, and the call will be handed to our Vice President of Finance, Mr. Hao Cao, for financial discussion. the year 2023 continued to be filled with challenges. Amid this backdrop, we remained firmly committed to executing our long-term goal strategy of fostering a vibrant, diverse, game-centric content ecosystem while prioritizing content across our platform. We deepened our cooperation with game developers to enhance commercialization while adjusting our revenue and marketing strategies to be more ROI-driven. At the same time, we continuously optimized costs and expenses. At the adjusted net level, we successfully transformed losses into gains, achieving an adjusted net profit of RMB 154 million for the full year of 2023. In addition, we continued to place a significant emphasis on compliance management and regulatory improvements across the platform. These efforts are dedicated to continue to nurture our platform's ecosystem with enhanced compliance, healthy growth, and sustainability. Navigating the complex and evolving macroeconomic dynamics and operating landscape, we proactively tackled short-term platform challenges in the fourth quarter. We further enhanced our compliance efforts to ensure a steady stream of premium content output and effectively maintained the overall stability of our business operations. In the fourth quarter of 2023, our mobile MAUs were 51.7 million and our quarter paying users were 3.7 million. With 2024 underway, we are zeroing in on harnessing our three core strengths, deep rooted streamer resources, a rich content ecosystem, and close cooperation with game developers. In doing so, we can ensure operating stability and advance healthy development across our platform. First, we are building on our deep rooted streamer resources by intensifying our cooperation with game developers on content and operation fronts. There, we are continuously producing premium content and upgrading content operations, cementing and elevating domain value as a vibrant game-centric content ecosystem. Additionally, we will heighten our efforts to diversify our revenue streams. We will accomplish this by collaborating with more game developers on commercial endeavors and by bringing promotions and Game Corp sales to even more gaming segments through diverse business partnership models. At the outside of the year, we also streamlined our organizational structure, transforming our pivotal content ecosystem business unit into three core divisions, encompassing streamers, content and events, and game developers. With the formation of this primary unit, we believe we can further improve our operating efficiency by integrating and utilizing our key resources. Moreover, leveraging our ongoing efforts to enhance compliance standards and execution across the platform, we will further refine our revenue structure to improve the quality of our revenue streams and continuously optimizing cost and expenses. This initiative provides us with better agility to navigate the evolving market dynamics and challenges, fortifying our company's foundation for long-term development. With that overview, I'd like to review some details of our business operations during the quarter. In the fourth quarter, Of 2023, our mobile MAUs were 51.7 million, showing stability on a sequential quarter basis and a decrease of 9.9% year-over-year as we fine-tuned our user acquisition strategy. As you may recall, beginning in early 2023, we began emphasizing user quality and cutting back on low ROI marketing spending. which greatly reduced customer acquisition expenses. On a year-over-year basis, this led to a lack of user acquisition from promotional channels and a decline in MAUs. Quarter-over-quarter, on the other hand, MAU performance exceeded our expectations, given the high base in the third quarter's summer peak season. Our effective content-driven growth strategy continued to attract and retain high-quality users, supporting MAU stability quarter over quarter. Specifically, we were able to attract new users and boost user retention through the continued development of our platform's diversified commercial initiatives. Promotions of game version updates and new game teams and operational activities featuring high-quality streamers. Second, we rolled out an array of exclusive features and content offerings during official gaming events broadcasts, which elevated user engagement. This quarter, we broadcasted over 30 large-scale official esports tournaments, including the S13 League of Legends World Championship, Dota 2 TI12 International Championship, King Pro League Challenger Cup and Championship, Course 5 Stars 2023 China Regionals and World Championships, as well as the exclusive Water Run Championships Tour 2023. In terms of tournament content operations, in addition to our derivative commentary and review programs, we upgraded real-time interactive features to further boost user engagement. For example, During the League of Legends World Championship, we introduced a professional data scoreboard in our live streaming sessions, allowing hardcore gamers to quickly access the strengths of players and teams. Moreover, we have intensified our investment in interactive features. Alongside the MVP fall list, a best and worst player voting feature initiated during the LPL summer split we added a player rating section, enabling users to rate and comment on players after each game, fulfilling users' desire for frequent interactions. In addition, during the official gaming event's co-streamed live commentary, the player rating feature garnered highly positive feedback from streamers. enabling streamers to rate players, enhance user immersion and enjoyment during the viewing experience, fostering lively discussions and heightened engagement. Moreover, we have proactively expanded our presence in new official esports tournaments. For instance, with Valorant, a new game known for its competitive appeal and captivating gameplay, thanks to our attentive operations during the game's initial launch and our hardcore user base. In addition to regular tournaments like Valorant CN Evolution Series, we secured the exclusive live streaming rights to TAE and Valorant Global Invitational, featuring top-tier stream teams and enriched user experience with a wide array of premium esports content. Upon comprehensive evaluation of our esports content offerings across the platform, we promptly adjusted the balance between copyrighted tournaments and self-produced content, achieving synergistic integration of our premium content offerings while effectively balancing overall content costs. Throughout the fourth quarter, we produced over 60 gaming events, including the KPL Academy tournament 2023 aligned with KPL official events, the S10 Teamfight Tactics Grace tournament highlighting female streamers, and the EBITS BP tournament of Jinxing Impact Continuous Series, alongside other high-caliber self-produced events. Beyond bridging content gaps during official event off-seasons, our self-produced events serve as pivotal platforms for talent discovery, streamer cultivation, and enhancing user engagement and interaction. In terms of premium content promotions, we reinforced this synergy between platforms' online content and offline initiatives. During the quarter, we organized offline activities at 13 Offline Watching for the League of Legends World Championship and Peaceful Adventure for the Peacekeeper segment. Leveraging the momentum of high traffic events of League of Legends in 2023, we curated an area of offline game watching and gathering featuring top tier gaming streamers and entertainment streamers. This innovative model integrated pre-game variety show live streaming, offline esports fight challenges, and immersive offline game viewing. presenting gamers with a fully immersive all-inclusive esports content journey. Furthermore, it capitalized the convergence of gaming and prime entertainment fan select. We also capitalized on in-person engagement for the Peacekeeper gaming segment to enhance promotions. By introducing new redemption in-game items for gaming members, streamers completing offline tasks gained the ability to unlock limited offerings on in-game items. Through those targeted content offerings and interactive user experience, we advanced the promotion of our game-specific membership service. Let's turn to our monetization. Our total number of paying users in the fourth quarter was 3.7 million, with a quarterly approval of RMB 278. The decrease in the number of paying users stems from our strategic shift at the start of 2023 to deliberately reduce revenue-generating activities and low-margin sales promotions. Instead, we began focusing on enhancing the operating efficiency of revenue streams while fostering a healthy and sustainable game-centric community ecosystem. This transition resulted in a year-over-year decline on our paying user base. Furthermore, with the macro-level consumer sentiment gradually waning in the latter half of 2023, we strategically scaled back on platform-wide promotion activities in the fourth quarter. This adjustment also impacted the scale of paying users for the period. While we continue to maintain our co-paying user base, given the current consumer sentiment, we offered some modestly priced revenue-generating products to accommodate the spending habits of mid- and long-tail users. Therefore, our quarterly output marginally declined year-over-year and quarter-over-quarter. Over the past few years, we have been exploring ways to diversify our revenue streams Thanks to our innovative commercialization initiatives, the contribution from other revenues in 2023 significantly increased year-over-year. In 2024, revenue diversification remains one of our focuses, and we will prioritize collaborative commercialization ventures with game developers. Most W users are hardcore gamers with great appetite for game ports. Second, previous sales campaigns for game ports not only diversified our revenue streams, but also boosted traffic on our platform. This suggests strong user interest and engagement in these activities, highlighting the robust alignment between user demands and sales for in-game items. Given these insights, we intend to deepen our partnerships with more game developers, determining and promoting various approaches to commercialization for game ports tailored to diverse game genres. Moving on to our technology R&D, we introduced a major version update to the Douyu app in November in 2023. The update strengthened interactive functionalities between streamers and users within our game-centric content ecosystem, further enhancing overall engagement. We introduced a new tab called the Buzz on the main interface, providing users with real-time updates on streamers they follow, such as live streaming status and access links, as well as non-live streaming updates on streamers and Yuba posts. This feature allows users to engage with streamers and leave comments even outside of live streaming sessions. Additionally, it fosters interaction among users who follow the same streamer within that streamer's Yuba community. Furthermore, we have continued to strengthen our compliance self-assessment procedures and further standardize compliance management across the platform. This ongoing effort includes enhancing compliance standards on various fronts, such as products, operations, and content moderation. We have been implementing strict compliance efforts. In particular, starting this year, we have intensified efforts to combat behaviors violating our platform's rules and policies. This remedial measure showed very good results with regular public announcements on our website. In the meantime, we will continue to comprehensively implement project risk provision and control mechanisms while establishing product tracing procedures. Additionally, we have enhanced our interactive anti-addiction systems, prioritized the distributed compliance resolution, conducted regular reviews of bridge risks across the platform, and ratified irregular behaviors, reinforcing risk awareness among all relevant staff. In summary, throughout 2023, we fine-tuned our operating strategies to align with the evolving market dynamics and effectively maintain the overall stability of our business operations while improving profitability. We believe that by sharpening our focus and capitalizing on the platform's core competitive edge, we can effectively foster a vibrant, healthy, diverse, game-centric content ecosystem while continuing to uphold regulatory compliance. We remain unwavering in our commitment to the company's long-term sustainable growth. 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. Looking back on 2023, despite ongoing macro headwinds, we diversified our revenue streams with advertising and other revenues contributing 13.2% of our total revenue. Meanwhile, we successfully executed our cost-effective strategy, adjusting our live streaming business to prioritize healthy margins and prudently managing our costs and expenses to enhance our earnings. For the fall year of 2023, we achieved an adjusted net income of RMB 154 million. Let's now look at our financial performance for the fourth quarter in more detail. Total net revenues in the first quarter of 2023 decreased by 22.9% year-over-year to RMB 1.3 billion. live streaming revenues were RMB 1.02 billion, a decrease of 36.1% from RMB 1.6 billion in the same period of 2022. The decrease was primarily due to soft macroeconomic conditions and our deliberate reduction in revenue generating promotions during the quarter. These factors affected the spending wellness of some new and price-sensitive paying users. Additionally, our strategic decrease in marketing spending led to a smaller user base, resulting in a year-over-year decrease in total paying users. In response to the soft consumer sentiment, we continue to offer lower-priced revenue products to maintain the spending habits of our mid- to long-tail paying users. leading to a decrease in quarterly up. Our quarterly up was RMB 278, down 4.9% from RMB 293 in the same period last year. Advertising and other revenues were RMB 275.2 million, a significant increase of 226.5% from RMB 84.3 million in the same period of 2022. The year-over-year increase was primarily driven by other revenues generated through our new innovative businesses, such as a game-specific membership service and a voice-based social networking service. Cost of revenues in the fourth quarter of 2023 was RMB 1.17 billion. a decrease of 21.8% compared with RMB 1.5 billion in the same period of 2022. Revenue share fees and accounting costs decreased by 30.3% to RMB 0.89 billion from RMB 1.27 billion in the same period of 2022. The decrease was primarily driven by two factors. The decrease in revenue sharing fees, which was largely in line with decreased live streaming revenues. Second, the decrease in content costs, which was primarily attributable to improved cost management in our self-produced content and streamer payments. However, this decrease was partially offset by higher copyright costs related to the LOL World Championship Tournament. Bandwidth costs in the fourth quarter of 2023 decreased by 27.4% to RMB 105.5 million from RMB 138.4 million in the same period of 2022. The decline was primarily due to a year-over-year decrease in peak bandwidth usage. Cross-profit in the fourth quarter of 2023 was RMB 126.2 million, compared with RMB 186.1 million in the same period of 2022. The decline in gross profit was primarily attributable to decreased live streaming revenues. Gross margin in the fourth quarter of 2023 was 9.7%, compared with 11.1% in the same period of 2022. the decrease in gross margin was mainly attributable to the increase in other costs and copyright costs as a percentage of revenues, which was partially offset by the decreased percentage of revenues attributed to revenue sharing fees. Sales and marketing expenses in the fourth quarter of 2023 were RMB 84 million, a significant decrease of 32.2% from RMB $123.9 million in the same period of 2022. This was mainly attributable to a decrease in marketing expenses for user acquisition, as well as a decline in staff-related expenses. Research and development expenses in the fourth quarter of 2023 were RMB $59.1 million representing a 26.7% decrease from RMB 80.6 million in the same period of 2022. This decrease was primarily due to a decrease in staff related expenses. General and administrative expenses in the first quarter of 2023 were RMB 80 million, an increase of 45% from RMB 55.2 million in the same period of 2022. The increase was due to higher salary expenses associated with management position adjustments, increased expenses related to our organizational streamlining initiatives, as well as an increase in the provisions for assets. Loss from operations was RMB 120.4 million in the first quarter of 2023, compared with RMB 56 million in the same period of 2022. Adjusted operating loss, which asked back impairment loss of goodwill and intangible assets, was RMB 86.4 million in the first quarter of 2023. compared with RMB 56 million in the same period of 2022 Net loss in the fourth quarter of 2023 was RMB 62.2 million compared with net income of RMB 41.8 million in the same period of 2022 Adjusted net loss which excludes share-based compensation expenses The share of income or loss in equity method investments, gain on disposal of investment, impairment loss of investments, and impairment loss of goodwill and intangible assets was RMB 5 million in the fourth quarter of 2023, compared with RMB 4.3 million in the same period of 2022. For the fourth quarter of 2023, basic and diluted net loss per ADS were both RMB 0.19, while adjusted basic and diluted net loss per ADS were both RMB 0.02. As of December 31, 2023, the company had cash and cash equivalents, restricted cash in other non-current assets, and short-term and long-term bank deposits of RMB 6.86 billion, compared with RMB 6.81 billion as of December 31, 2022. Moving forward, we are committed to enhancing revenue diversification, optimizing operating efficiencies, and prudently managing costs and expenses. By remaining agile, In our responses to market dynamics and diligently executing a core growth strategy, we are confident we can overcome the short-term challenges and foster the long-term healthy development of our platform while also delivering value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.