DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU International Holding Limited Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a 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 our first speaker today, Ms. Lingling Kong, IR Director at DOEU. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our second quarter 2024 earnings call. Joining us today are Mr. Mingming Su, Chief Strategy Officer, Mr. Hao Cao, Vice President of Finance, and Ms. Su Mingjian, Vice President from Interim Management Committee. You can refer to our second quarter 2024 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 IRR 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's current expectations and observations that involve known and unknown risks and certainties 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 events or circumstances after the date of this conference call. I will now speak on behalf of our Interim Management Committee on our business updates. The call will then be handed over to our Vice President of Finance, Mr. Hao Chao, for financial discussion. In the second quarter, we undertook several initiatives under our strategy of portraying a healthy, vibrant, game-centric content ecosystem. Mainly, we focused on harnessing our robust assets in top-tier streamers and premium content and deepened our cooperation with game developers to explore more diverse and sustainable partnership models. At the same time, we worked closely with streamers to drive content innovation in more revenue-generating scenarios. As we optimize our revenue structure, we are introducing premium content that is more resonate with user preferences and enriching our game service line. All of these initiatives serve to consistently elevate user experience and refine our platform's game-centric content ecosystem. In the second quarter of 2024, our quarterly average mobile MAUs were 44.1 million, a decrease of 12.3% year-over-year. The decline was primarily due to competition from short video platforms. Our ongoing data tracking indicated that user attrition was predominantly from low-frequency users with short viewing hours and low sickness. While this shift places short-term pressure on our overall user base, co-user behavior has remained stable in terms of viewing hours and activity levels. We are joining in fresh users and re-engaging in active ones by rolling out game commercialization programs in waves, fostering a more vibrant ecosystem across our gaming segment. During the quarter, we broadcasted nearly 30 large-scale official tournaments, including the LPL Spring Split and MSI, alongside the Spring Tournament of KPL, PEL, and CSGO Blast, among others. Aligned with the strategy we introduced last quarter to refine our gaming event content operations, we ramped up our collaboration with game developers on promotional campaigns centered on game props, enhancing user engagement and driving monetization. For example, we launched an area of special initiative for our game-specific membership services during the PEL Official Tournament and offered time-limited game prop promotions during QQ Speed's Official Tournament. The organic integration of gaming event content with Gamepops has driven higher ROI of copyrighted content. Through Gamepops monetization, we are also elevating user interaction during live streams, and in turn, advance our healthy, vibrant gaming ecosystem. Regarding our self-produced content, we broadcasted over 50 self-produced esports tournaments during the quarter. We continued exploring cross-platform content sharing collaborations, leveraging our unique streamer assets to co-opt high-impact collaborative tournaments across diverse gaming segments, including King Pro League, Dota 2, and Valorant. If we look at the PL Center Glory Cup as an example, we enriched the KPL professional tournament experience with entertainment elements closely aligned with user preferences. This included enlisting popular co-streamers for live commentary to boost engagement and hosting show matches featuring professional teams and streamer face-offs beyond official gaming events. This enhancement brought our users more captivating and enjoyable content, generating lively discussions. We also launched targeted self-produced events tailored to different gaming audiences, including the Douyu Heroes Cup Season 5 for Team Fight Tactics, our signature Peacekeeper Elite Mount Hirona Cup, as well as the Valorant Cup, which we have held for four consecutive series. While managing large-scale gaming content, we also focused on refining our content operations within gaming verticals where we have a strong competitive edge. Harnessing our robust streamer network, the delicate user base we've nurtured over the years in our extensive experience in year-round operations we unveiled a wide range of personalized content and initiatives, including self-produced events, PGC programs, and in-game commercialization ventures. In the Bleared segment, we leveraged the momentum of this game's return to the domestic market by orchestrating engaging R&Cop gaming events. This sparks the substantial enthusiasm among streamers and users alike. Our initiative boosted engagement across the community and enhanced streamer user discussions, facilitating deeper cohesion community-wide. In the Dota 2 segment, we capitalized on streamers' reach and impact to launch offline PGC variety shows that blended local themes and culture IPs. This innovative approach fully showcased local culture, amplified the program's appeal, and fostered greater user engagement. In the Moonlight Blaze segment, we strategically aligned game port promotions with streamer content through targeted marketing campaigns and active streamer participation. This approach increased user engagement levels, promoting lively involvement and interaction, As a result, the campaign was a success. This innovative approach to content operations not only sustained the enduring appeal of classic games, but also cemented engagement and user-sickness across our platform, raising new life into our community ecosystem. Streamers are crucial to our content ecosystem. While enhancing the efficiency of streamer measurement, we launched various streaming recruitment initiatives. First, we widened our recruitment scope to cover all gaming segments, eased entry stress holes, and added additional streaming rights and benefits. Second, we diversified our recruitment channels by conducting promotional activities on multiple external platforms, reaching a broader audience of game enthusiasts. Third, we improved streaming incentives by accessing streamer performance across multiple metrics, such as streaming duration and efficiency. We also introduced a tiered incentive system to motivate our streamers and increase stream consistency. Overall, by increasing the content depth of top-tier streamers, and improving the stream frequency of mid-tier and long-tail streamers, we significantly enriched our content lineup, laying a solid foundation for refining our game-centric content ecosystem. Moving on to monetization. Our total number of paying users in the second quarter was 3.4 million, with a quarterly up-pull of RMB 243. The year-over-year decline paying users was caused by prolonged macroeconomic challenges and our strategic decision to scale back promotional activities and initiatives focused on paying user acquisition. Our long-term data monitoring revealed that these initiatives rarely resulted in sustained spending by the users they attracted. Instead, led to higher promotional costs. The number of total users remains stable quarter over quarter as we focused on maintaining our co-user spending habits. To address the macroeconomic impact on users' willingness to spend, in addition to promoting traditional affordably priced revenue-generating products, we introduced more budget-friendly paid products tied to platform rewards and gain points. This approach encourage spending among gamers, and help maintain the overall spending patterns of our paying users. As a result, while quarterly output was down year over year, it remained stable quarter over quarter. During the quarter, we continued to deepen our commercialization collaborations with game developers. We recently rolled out Douyu's game-specific membership program in the League of Legends Wild Rift. This offering was crafted to meet the characteristics and needs of Douyu users. Harnessing the appeal of our platform benefits, exclusive game props, and game prop discounts, we promoted this initiative through multiple channels, across and beyond our platform. and attracted the participation of more users. For games already backed by our commercialization collaborations, we have been experimenting with diversified promotional strategies aligned with game updates, new game pop rollouts, and seasonal or holiday events to boost the commercialization efficiency. Moving forward, we aim to broaden our collaboration with more game developers diversifying and advancing game commercialization avenues tailored to different gaming genres. Moreover, we have been expanding our partnership channels for game promotion. Our game center's integration with popular mini-game platforms like QQ enabled us to refine our operations and promotions to better suit user interests while earning a decent share of in-game purchases and advertising revenue. We are pleased with the impressive growth momentum in user engagement and revenue since the debut of QQ mini games on our platform. In summary, during the second quarter, we have stayed the course. We refined streamer management and optimized content while steadily diversifying our revenue mix. Our achievements have confirmed that the effectiveness of our strategy is fostering a healthy game-centric content ecosystem. Amidst the changing macro dynamics and industry shift, we will keep our finger on the market pulse and adapt our operational strategies to maximize those with co-competitive edge. We believe that by optimizing resource allocation living in collaborations with diverse stakeholders, and consistently investing in new ventures with promising growth prospects. We are well positioned to navigate short-term challenges and steadily advance our business, laying a solid foundation for 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. This quarter, we focused on strengthening new revenue streams and enhancing cost control measures to advance our long-term development strategy, while also increasing shareholder returns. Despite the second quarter's tough macro environment, Our revenue diversification efforts have already begun to yield positive outcomes. Let's look at our financial performance for the second quarter in more detail. Our total net revenues decreased by 25.9% year-over-year in the second quarter to RMB 1.03 billion. Live streaming revenues were RMB 0.79 billion. down 37.2% from RMB 1.26 billion in the same period of 2023. Live streaming revenues were primarily impacted by challenging macroeconomic conditions, which prompted us to reduce promotional activities aimed at acquiring paying users and offer lower-priced revenue products to encourage consistent spending. among our existing paying users. Consequently, we saw a year-over-year reduction in both the total number of paying users and our quarterly up, which declined by 25.5% to RMB 243 from RMB 326 in the same period last year. Meanwhile, Our accelerated exploration of a new revenue stream produced encouraging results. Innovative business, advertising and other revenues, formerly known as advertising and other revenues, increased significantly in the second quarter by 80.7% to RMB 242 million, up from RMB 133.9 million in the same period of 2023. The year-over-year increase was primarily driven by an increase in revenues generated through our innovative businesses, such as voice-based social networking service. Cost of revenues in the second quarter of 2024 decreased by 21.2% to RMB 0.95 billion. compared with RMB 1.2 billion in the same period of 2023. These cost reductions were largely due to a 18.1% decrease in our revenue share fees and accounting costs to RMB 0.8 billion from RMB 0.98 billion in the same period of 2023. Revenue share fees reductions were largely due to decreased live streaming revenues, which was partially offset by the increase in revenue sharing fees related to innovative business. Furthermore, the decrease in content costs primarily came from improved cost management in streamer payments and copyrighted content. Bandwidth cost in the second quarter of 2024 decreased by 33% to RMB $79.6 million from RMB $118.8 million in the same period of 2023, primarily due to year-over-year decrease in peak bandwidth usage. Gross profit in the second quarter of 2024 was RMB $80 compared with RMB 188.9 million in the same period of 2023. The decline in gross profit was primarily due to decreased live streaming revenues or pacing the reduction in cost of revenues. As a result, the disproportionate decrease in revenue led to margin compression. Gross margin in the second quarter of 2024 was 8.2%, compared with 13.6% in the same period of 2023. Sales and marketing expenses declined by 11.5% in the second quarter of 2024 to RMB 77 million from RMB 87 million in the same period of 2023. The decrease was mainly attributable to a decrease in staff-related expenses. Research and development expenses were reduced by 29.4% in the second quarter of 2024 to RMB 50.1 million from RMB 71 million in the same period of 2023. The decrease was primarily attributable to a decrease in staff-related expenses. General and administrative expenses increased by 3.4%, in the second quarter of 2024 to RMB 48.5 million from RMB 46.9 million in the same period of 2023. The increase was primarily due to increased expenses related to our employee streamlining initiatives. Loss from operations was RMB 119.6 million in the second quarter of 2024 compared with RMB 7.5 million in the same period of 2023. Net loss for the second quarter of 2024 was RMB 49.2 million, compared with net income of RMB 6.8 million in the same period of 2023. Adjusted net loss, which excludes share of loss in active method investments and impairment loss of investments was RMB 45.5 million in the second quarter of 2024, compared with adjusted net income of RMB 61.4 million in the same period of 2023. For the second quarter of 2024, basic and diluted net loss per ADS were both RMB 1.58, while adjusted basic and diluted net loss per ADS were both RMB 1.46. As of June 30th, 2024, the company had cash and cash equivalents, restricted cash in other non-current assets, and short-term and long-term bank deposits of RMB 6.56 billion, compared with RMB 6.86, as of December 31st, 2023. Finally, I would like to update you our commitment to shareholder returns. At the end of last year, we announced our 2024 share repurchase program for up to US dollar 20 million. As of June 30th, 2024, we had repurchased an aggregate of US dollar 11.2 million in ADS under this program. Additionally, we declared a special cash dividend of approximately US$300 million in early July. Moving forward, we will remain proactive amid macroeconomic headwinds and changing business environment, responding with innovative revenue diversification initiatives and tighter cost and expense controls to overcome short-term pressures on financial performance. By exploring new commercial pathways and strengthening our fundamentals, we aim to foster the long-term healthy development of our platform and consistently create value for our stakeholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.