DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU International Holdings Limited's third quarter 2024 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 conference over to the first speaker today, Ms. Lingling Kong, IR Director at DOEU. Please go ahead.

Thank you. Hello, everyone. Welcome to our third quarter 2024 earnings call. Joining us today are Mr. Mingming Su, Chief Strategy Officer, Mr. Hao Cao, Vice President of Finance, and Ms. Min Yan, Vice President from Interim Management Committee. You can refer to our third 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 IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the State 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, 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 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 to our Vice President of Finance, Mr. Hao Chao, for financial discussion. In the third quarter, we stayed closely aligned with market dynamics and preactively adopted our operational strategy. First, we focused on maximizing our co-competitive edge to enhance our commercialization capabilities and diversify our revenue streams. In addition, we further refined our business model and optimized our resources to reduce expenses. While solidifying our fundamentals, we continued to systematically invest in our stream of resources and new initiatives, further enriching the premium content and gaming service lineup across our platform. of this initiative reinforced our platform's game-centric content ecosystem. In the third quarter, our mobile MAUs were 42.1 million, a decrease of 18.6% year-over-year. We are seeing increased competition from short video platforms, particularly during the peak summer season when these platforms ramped up their user acquisition promotions. Our data analysis continues to indicate that user attrition was predominantly from low-frequency users with short viewing hours and low sickness. Despite certain short-term pressure on our user base, the engagement patterns of our co-user group, especially their viewing hours and activity levels, remained relatively stable. thanks to our consistent and strategic content operation optimization. Moreover, our gaming commercialization ventures have been actively joining in fresh users and re-engaging in active ones, fostering a more vibrant gaming ecosystem. During the quarter, we broadcasted nearly 30 large-scale official tournaments, including the LTL Summer Split, the KPL and CFPL Summer Tournament, the PEL Spring Tournament, the CSGO Black 4 Tournament, and the eSports World Cup, among others. Capitalizing on this official in-wind forecast, we regularly rolled out innovative derivative content. For example, during the eSports World Cup, we initiated targeted activities across gaming segments aligned with EWC events, curating distinctive content tailored to highlight our streamers' individual styles. This included a mix of streamer vlogs paired with live streaming, outdoor shows featuring streamers with event commentary, streamer coaching, and celebrations for Changping streamers. Through these activities, we enriched the user viewing experience and fostered more robust engagement between streamers and their audiences. Additionally, we have been actively expanding our gaming event content portfolio, recognizing our users' enthusiasm for hardcore esports titles. We exclusively forecasted the CSGO XSE Pro League this quarter, enriching the professional gaming content line-up for shooting games in series. With our self-produced content, we broadcasted close to 80 self-produced esports tournaments during the quarter. We expanded our course platform content co-creation partnership. Leveraging our platform's unique assets, we launched an array of collaborative tournaments across official event cycles, spanning a broad spectrum of gaming segments like League of Legends, King Pro League, Crossfire and Teamfight Tactics, as well as D&F Mobile. Another standout was our League of Legends event, the Legends League Cup. known for bringing veteran streamers and seasoned professional players together over the past decade in an innovative play format featuring a ban exception card, all while preserving streamers' distinctive play styles. This dynamic and engaging tournament format gathers enthusiastic user feedback, sparking widespread discussion and engagement. It not only sustained the buzz and appeal of our earlier collaborative tournament, but also facilitated user engagement, elevated streamer visibility, and breathed new life into our gaming segment. Blockbuster new games also boistered our gaming ecosystem, with the high-profile launch of the much-anticipated Black Mesa Wukong in August we rolled out promotional incentives and tapped into our robust network of PC game streamers to deliver exceptional streaming content. Thanks to the game's immune popularity, numerous streamers spontaneously took to live streaming, dramatically boosting the content supply during the initial launch phase. To expand our streamer content, We roll out waves of event-driven content, like gaming strategies and interactive challenges, which boosted user re-engagement and drew in new users, elevating the oral user activity across our platform. We have long been committed to optimizing our platform's content ecosystem by acquiring official tournament copyrights, signing top tier streamers, and innovating self-produced content. Each piece aims to provide users with high-grade content and viewing experience. With the shifting macro dynamics and the revenue pressure on the platform in mind, we needed to maintain adequate investment in premium content while simultaneously enacting new cost-saving strategies by improving content efficiency. To begin with, we enhanced the commercialization of our gaming event content. We have continually expanded our collaborations with game developers, harnessing GameCorp resources to explore and stage more diverse marketing initiatives. During the quarter, we continue to promote our game-specific membership program during the PEL official tournament. We also offered time-limited game prop promotions during broadcasts of official Crossfire events. In addition, we executed similar game prop commercialization initiatives in our self-produced events, such as the Douyu Commentary Cup and the collaborative events Gun King Cup, both in the crossfire gaming segment, all of which had successful outcomes and boosted our gaming content commercialization efficiency. We also focused on enhancing our streamer management efficiency to reduce costs, which promoted us to refine our streamer management strategy. we performed an in-depth ROI analysis for our existing streamers and modified their compensation assessment criteria. This new approach emphasized live streaming content quality and commercialization capabilities, motivating streamers to actively engage in more commercialization programs while pursuing their creative endeavors. So far, we have noted an uptick in the ROI for streamers after implementing the updated assessment criteria. Second, our summer recruitment campaign for streamers successfully attracted new streamers by widening the recruitment scope, diversifying recruitment channels, and improving streaming incentives with notable increase the daily average number of streams in the third quarter compared to June's daily average, coupled with substantially enhanced streamer retention rates. Overall, the ROI from our streamer recruitment initiative was higher than expected. Moving on to commercial monetization, our total number of paying users in the third quarter was $3.4 million with a quarterly approval of RMB 237. The year-over-year decline in paying users was caused by prolonged macroeconomic challenges and our strategic decision to scale back promotional activities and incentives that carry high operational costs. This initiative was unlikely to result in sustained spending by the users they attracted, as these users typically have low stickiness to our platform, consequently leading to low ROI and higher operational costs. The number of paying users remained stable quarter over quarter as we focused on maintaining our co-users' spending habits. To address the macroeconomic impact on users' willingness to spend, we introduced more budget-friendly paid products tied to platform rewards and game ports, while continuously promoting traditional, affordably-priced, revenue-generating products. This approach encouraged gamers' diversified spending and helped maintain the overall spending patterns of our paying users. As a result, well-quartered output was done year-over-year it remained relatively stable quarter over quarter. During the quarter, we deepened our commercialization collaborations with game developers, consistently promoting game prop sales through various models. The first model was a seasonal sales-driven approach based on collaborative promotions. We worked closely with game developers on large-scale promotional initiatives featuring Douyu's top tier streamers. Our promotional strategy prioritized fun and appealing marketing initiatives, as well as our platform incentives and benefits. We also harnessed core platform marketing channels to maximize outreach. Since piloting this sales-driven promotional model in late 2021, we have successfully attracted substantial external traffic and boosted gaming users' impressions of Douyu's GameCorp offerings. Whenever a similar promotion takes place, gamers associate it with Douyu's initiative, successfully positioning our platform as the to-go destination for GameCorp purchases and setting the stage for rolling out our diversified Game Corps sales models in the future. The second model is Don't Use Games-Specific Membership Program. We established long-term partnerships with game developers to market Game Corps. Our membership offerings integrated Game Corps with platform incentives aligning seamlessly with our streamer's marketing style and the needs of our users. Since its launch in the second half of 2022, this model has consistently driven stable revenue growth. The third model featured a multi-platform marketing approach led by game developers. Game prop stores were set up by game developers and embedded with links in our partners' live streaming channels. By leveraging our platform's content promotion and streamers' outreach efforts, we drew users into streamers' channels where they could click links to access GameProc stores and complete their purchases. This promotional model standardized streamer participation and better facilitated streamer engagement. bringing shared revenue opportunities for both streamers and the platform from GamePorp sales. In general, within these three models for GamePorp promotions, we strategically planned our marketing initiatives to capitalize on the timing of game updates, NewPorp launches, festivals, and seasonal events, increasing our GamePorp marketing visibility while expanding our diversified revenue streams. Moving forward, we will replicate these models for game promotions to a more comprehensive selection of gaming content scenarios, further reinforcing the commercialization capabilities across our platform. In summary, we proactively navigated various challenges during the first quarter. steadily advancing our revenue diversification strategy while reducing costs through adopted operational strategies and optimized resource allocation. We pursued balanced growth across traditional and new business segments, strategically allocating corporate resources to secure solid business fundamentals while consistently investing in new ventures with promising growth prospects. Each of these steps was underpinned by our commitment to our long-term development strategy for cultivating a vibrant, diverse, game-centric content ecosystem. We believe these initiatives position us well to overcome short-term challenges and lay 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 our new revenue streams and tightening cost control measures in line with our long-term development strategy. Despite a challenging macroeconomic environment, our revenue diversification efforts have already shown a promising growth trajectory. Let's take a closer look at our financial performance for the third quarter. Our total net revenues decreased by 21.8% year-over-year in the third quarter to RMB 1.06 billion. However, supported by increased revenue contribution from our innovative business, we achieved a 3% quarter of quarter increase in our total net revenues, making our first sequential growth in the past eight consecutive quarters. Live streaming revenues were RMB 0.75 billion. down 34.7% from RMB 1.15 billion in the same period of 2023. Prolonged macroeconomic challenges and shifts in user spending behavior primarily impacted live streaming revenues. In response, we continue to scale back paying user acquisition promotions and provide more affordable product offerings to promote ongoing spending from our existing PAN users. As a result, there was a year-over-year decline in both the total number of PAN users and our quarterly up, which decreased by 22.5% to RMB 237 from RMB 306 in the same period last year. Meanwhile, our efforts to enhance our innovative business segment delivered continued growth. Innovative business, advertising, and other revenues increased significantly in the third quarter by 49.4% to RMB 311 million, up from RMB 208.2 million in the same period of 2023, contributing 29.3% of our total revenue. The year-over-year increase was primarily driven by increased revenues from our VoIP-based social networking service and game membership service. Cost of revenues in the third quarter of 2024 decreased by 14.1% to RMB 1 billion, compared with RMB 1.17 billion in the same period of 2023. These cost reductions were largely due to a decline in our revenue sharing fees and accounting costs, which dropped 6.2% to RMB 0.87 billion from RMB 0.93 billion in the same period of 2023. Revenue sharing fees deductions were largely from decreased live streaming revenues, which were partially offset by increased revenue sharing fees related to increased innovative business In addition, the decrease in content costs primarily came from improved cost controls in streamer payments. Bandwidth costs in the third quarter of 2024 decreased by 32% to RMB $72.2 million from RMB $106.1 million in the same period of 2023, primarily due to a year-over-year decrease peak bandwidth usage. Gross profit in third quarter of 2024 was RMB 60.8 million, compared with RMB 192.4 million in same period of 2023. The decline in gross profit was primarily due to live streaming revenues decreasing faster than the cost of revenues, resulting in reduced gross margin efficiency. Gross margin in the third quarter of 2024 was 5.7%, compared with 14.2% in the same period of 2023. In line with our strategic initiatives to streamline our operations, we reduced staff-related expenses across the board, leading to a 23% year-over-year decline in total operating expenses. Breaking this down further, Sales and marketing expenses declined by 11.9 percent in the third quarter of 2024 to RMB 79.3 million from RMB 90 million in the same period of 2023. Research and development expenses were reduced by 42 percent to RMB 43.2 million from RMB 74.5 million in the same period of 2023. General and administrative expenses decreased by 18.7 percent in the third quarter of 2024 to RMB 41.5 million from RMB 51 million in same period of 2023. Loss from operations was RMB 94.2 million in the third quarter of 2024, compared with RMB 8.8 million in the same period of 2023. Net income for the third quarter of 2024 was RMB 3.4 million, compared with RMB 76.4 million in the same period of 2023. Adjusting net loss, which excludes share of loss or income in equity-based investments, gain and disposal of investment, and impairment loss and fair value adjustments on investments was RMB 39.8 million in the third quarter of 2024, compared with an adjusted net income of RMB 71.9 million in the same period of 2023. For the third quarter of 2024, basic and diluted net income per ADS were both RMB 0.11 while adjusting basic and diluted net loss per ADS for both RMB 1.32. As of September 30, 2024, the company had cash and cash equivalents, restricted cash, restricted cash in other non-current assets, and short-term and long-term bank deposits of RMB 4.38 billion. or US dollar $624.7 million, compared with RMB $6.86 billion as of December 31, 2023. The decrease was primarily due to our special cash dividend distribution of US dollar $300 million and the US dollar $20 million allocated to the Shell Repurchase Program. Finally, I would like to update you on Shell Repurchase Program. At the end of last year, we announced our 2024 Shell Repurchase Program for up to US dollar 20 million. As of September 30th, 2024, we have completed the program, repurchasing an aggregate of US dollar 20 million in ITS under this program. Looking ahead, We are committed to navigating macroeconomic challenges and our shifting business landscape with resilience and agility. We will continue to use our new revenue streams to drive growth and sharpen our focus on cost efficiencies to mitigate near-term financial pressure. By pursuing new growth opportunities and reinforcing our fundamental strengths, We aim to support sustainable development of our platform while delivering enduring value for our stakeholders. This concludes our prepared remarks for the day. Operator, we are now ready to take questions.