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spk01: Hello, ladies and gentlemen. Thank you for standing by for the Liga, Inc.' 's first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Effie Kahn, head of capital markets for the company. Please go ahead.
spk07: Thank you very much. Hello, everyone, and welcome to Li Zhi Inc's first quarter 2022 earnings conference call. We released our financial and operating results via Newswire services earlier today, and they are available online. Participants on today's call will include our founder and CEO, Mr. Marco Lai, our COO, Mr. Ze Long Li, and our acting CFO, Ms. Chen Fang Lu. Mr. Li and Ms. Lu will begin with prepared remarks. and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, an earnest highlight presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.leach.fm. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These statements typefully contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risk and uncertainty. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company, its affiliates, advisors, representatives, and underwriters do not undertake any obligation to update this forward-looking information, except as required under the applicable law. Please also note that Li Zhi's earnings press release and this conference call includes discussions of unaudited gap financial measures as well as unaudited non-gap financial measures. Please refer to the Earnings Press release for reconciliation of unaudited non-gap measures to unaudited gap measures. I will now turn the call over to our COO, Mr. Zilong Li. Please go ahead.
spk02: Hello everyone. Hello everyone and thank you for joining our first quarter 2022 earnings conference call. and achieved a good business performance. Among them, the annual revenue increased by 4.4% to RMB5.17 billion. The net profit was raised by 32% from last year's period of 700 points. The company gained leverage at the GAAP level for the second quarter in a row. The net profit increased by 84% compared to last year.
spk07: After becoming profitable for the first time on a GAAP basis in the fourth quarter of 2021, we continued to optimize our organizational structure and technology platform in the first quarter of 2022, which boosted our operating efficiency and contributed to stable operating results. Notably, our first quarter revenue rose 4.4% year-over-year to RMB 517 million. Our gross margin increased by 700 basis points year-over-year to 32%. And we have achieved profit on a gap basis for the second consecutive quarter with net income surging 84% quarter-over-quarter to RMB 16.42 million.
spk02: In this record, we continue to focus on creating a competitive cloud-based ecosystem, deeply optimize product functions, comprehensively enhance user experience, and actively expand the overseas market, and promote globalization. At the same time, we also persistently use our own technology to innovate our products and develop our business. In terms of data, The average number of active users on the overall mobile platform is 51.5 million. Among them, the average number of active users in the audio and video entertainment business is 11% to 9.14 million. Benefiting from the continuous optimization of the operation strategy, in the first quarter, the average number of active users remained the same, reaching 48.2 million.
spk07: In the first quarter, we remain focused on building a competitive audio-centric ecosystem, improving product functionality, elevating overall user experience, and actively exploring overseas markets to implement our globalization strategy. Meanwhile, we continue to reinforce our in-house suite of technologies to empower product innovation and business development. In terms of operational data, total average mobile MAUs amounted to 51.5 million, and average mobile MAUs of our order entertainment business increased by 11% year-over-year to 9.14 million. Thanks to the continuous optimization of our operational strategy, average monthly paying users maintained year-over-year growth in the first quarter to reach 482,000. Next, I will share more color on the development of different business segments.
spk02: In terms of Indian entertainment business, we continue to deepen the construction of the Indian community ecosystem, focusing on core products and Indian entertainment segments, focusing on improving the user growth and commercialization of Indian entertainment business, In the first quarter of 2022, the penetration rate of our audio and video entertainment store has increased from 13.8% in the same period last year to 17.7%. At the same time, we continue to launch a series of operating activities that focus on popular topics and holiday topics. Through a diversified operating strategy,
spk07: With respect to audio entertainment, we continue to enhance the competitiveness of our audio-centric ecosystem by focusing on core content categories and the audio entertainment business to drive user growth and commercialization performance. In the first quarter of 2022, the user penetration rate of our auto entertainment business expanded from 13.8% in the same period last year to 17.7%. Furthermore, we continue to launch a series of operational campaigns featuring various trending topics and holiday themes. With our diversified operational strategy, More content creators were encouraged and motivated to engage in content creation, which in turn attracted more users to join real-time audio interaction, further unleashing the commercialization potential of our audio entertainment business.
spk02: In addition, we continuously enrich and optimize the form of product, as well as the form of interactive entertainment, In March, we cooperated with the online platform Colilico to integrate the image of Colilico's platform IP into the platform's audio entertainment interaction function. We developed the platform IP online interaction scene to provide users with a diversified online entertainment experience. In addition, we have been consistently enriching and optimizing our product features
spk07: and their entertainment interaction formats to facilitate business model innovation and expand the commercialization of high-quality content. In March, Li Zhi started collaborating with the designer toy brand QualiLeco to integrate QualiLeco's brand IP image into an area of interactive function in the audio entertainment section of the Li Zhi app, creating online interactive scenarios for the brand IP and providing users with a diversified online entertainment experience. The collaboration has gained traction among the Li Zhi app's younger generation of users and has effectively boosted close interactions between content creators and users on the platform. Going forward, Li Zhi expects to collaborate with more brand IPs to further diversify usage scenarios for online interactive entertainment. leveraging the strengths of both parties to maximize mutual benefits.
spk02: In terms of globalization expansion, we have further optimized the product function of globalized social products, TR. Since the introduction of the real-time interaction group space, we have focused on the interaction function in the real-time interaction space based on the needs of users, and improved the usability and usability of the products. provide users with a more convenient online connection and social interaction method. We continue to enrich the network of all spaces based on the user's diversified preferences. By acquiring the upgrade relationship chain, we simplify product strategies such as invitation path, optimize the invitation mechanism of products, and improve the social efficiency of friends. and use the support technology and AI capabilities to optimize the user experience from the recommendation end to achieve the one-off answer of the real-time interaction group, attracting more active users to join the group and enhance the atmosphere of real-time interaction. In addition, we have also launched more innovative features on DR, including the addition of voice converters,
spk07: turning to our global expansion, we continue to refine the features and functions of our global social product, QIA. Since launching QIA's real-time interactive group space, we have improved the product's versatility and usability by upgrading the group space's interactive functions based on our insights into user demands. making online connections and social engagement easier for our users. We also continue to enrich the features of the group space in line with our users' diversified preferences. Through product strategies such as upgrading the acquisition of brand connections and simplifying invitation pathways, we optimized the product invitation mechanism and boosted social efficiency among users. Notably, building on our in-house suite of technologies and AI capacity, we elevated user experience by improving the recommendation feature, giving users direct access to the interactive group with just one click, so that we can attract more active users to join the group space and promote real-time interaction and connectivity. Furthermore, we unveiled more innovative functions from TIA, including a voice changer that allows users to alter their voice using various vocal tones and effects, making real-time interactions more fun and lively.
spk02: 得益于产品功能的优化迭代和互动玩法的丰富创新, TIA 的用户参与度和活跃水平也得到进一步的提升, In this quarter, the number of people using the market per day increased by 42%, the number of people sending messages per day increased by 57%, and by the end of March, the number of users using the related series increased by 3.87 times in the same period last year. In addition, The continuous optimization of interactive functions within the group has also effectively improved the penetration rate of the group and the participation of users. In March, the penetration rate of the group increased by 2.57 times compared to the growth of active groups by 3.77 times. The penetration rate of new users continues to increase to nearly 70%. The proportion of new users to build their own groups has also been greatly improved. In the future, we will continue to rely on user experience to enrich TR's product functions, to introduce more innovative functions and interactive playlists, to accurately support users' online and social needs in various scenarios, to create more affordable, more user-friendly, and more easy-to-use global social products.
spk07: The optimization and integration of product features and the increased interactive functions have further boosted TIA's user engagement and user activity. In the first quarter, the average daily time spent on the app per user increased by 42% year-over-year, and the number of daily messages sent per user rose 57% year-over-year. As of the end of March, the number of pairs of friends connections grew 3.8%. 87 times compared with the same period of the last year. In addition, the continuous optimization of in-group interactive functions also effectively drove the group penetration rate and user engagement. In March, the group penetration rate grew 257% year-over-year, while the number of active groups grew 3.77 times compared with the same period of the last year. The group penetration rate of new users continues to rise, reaching almost 70%, along with a significant expansion in the percentage of new users who are setting up groups on their own initiative. Looking ahead, we will continue to enrich TS product features based on user experience and launch more innovative functions and interactive features to meet users' online social needs in a more diversified range of scenarios. and building a global social product with wider applicability, visibility, and usability.
spk02: By continuously building and upgrading the general platform of product technology, we have achieved stronger product usability, improved the efficiency of product development, and enhanced the application of the smart input system, optimized the product input and promotion strategy, and effectively improved the overall operating efficiency. In addition, we have also deepened the foundation of BNS core technology, and improved the number of key technical indicators. LIS, IAM, Vortex, and Doremi provide a variety of technical support for our products, including support for the location of relevant customization functions, and provide a real-time interactive and smooth experience. In the future, Alongside our substantial progress in product improvement,
spk07: During the first quarter, we also continued to advance the development of our core technologies, reinforcing our in-house technologies' contribution into business growth. For example, by building and improving our versatile product technology platform, we enhanced both product reusability and product development efficiency. Also, by strengthening our smart advertising system and optimizing our marketing campaigns, and promotional strategies, we effectively boosted our overall operating efficiency. Furthermore, we improved the various key technical metrics by solidifying our core technology foundation. Our in-house instant voice messaging platform, Vodax, and real-time audio and video streaming technology platform, Doremi, provide our products with technological support of multiple brands. including enabling the implementation of customized voice-related functions, while also offering a seamless real-time interactive experience. Going forward, we plan to continue expanding the coverage of our in-house technology. We expect to achieve a 100% application of Vodax on TIAA in the second quarter, which will lower our technology costs while also supporting the development of more innovative and customized functions and enhancing our product differentiation advantages.
spk02: officially joined Xiaomi's fast car application platform, and successfully launched the smart electric car, the car-driving system, which will bring the exclusive broadcast content and immersive audio experience to a wider audience. In the future, we will continue to deploy the audio field of car-driving. We hope that more users who cooperate with car-driving
spk07: Our leading in-house suite of technologies and product optimizations and innovations also bolstered Li Zhi's strategic multi-device product roadmap. In March, our in-car audio product was integrated into the vehicle operating system of LeapMoto, a technology-oriented smart EV automaker. through the InCore Xiaomi Quick App platform, bringing selected premium forecast content and immersive audio experiences to a broader user base. Looking ahead, we will continue to deepen our presence in the InCore audio market, hoping to provide more users with high-quality, wide-ranging, and customized InCore audio experiences.
spk02: The performance of the industry in the first quarter has established a solid foundation for the development of the whole year. Next, we will continue to effectively refine the operation strategy. We must focus on the excavation of commercialization potential. At the same time, dynamic adjustment of resource configuration to improve operation efficiency. In the international market, We will also make full use of core technology advantages and localization strategies to explore different markets, to dig up new business growth opportunities, to increase the size of overseas users and expand the commercialization space, and to bring more value to the overall development of the group. We are full of confidence in the long-term development of LiZ.
spk07: In summary, our performance in the first quarter laid a solid foundation for our four-year development. Going forward, we will maintain our effective, refined operational strategies and remain committed to tapping into more commercialization potential while adjusting resource allocation dynamics to boost operational efficiency. On the international market front, we will fully leverage our core technology advantages and localize the operational strategies to explore different markets, discover new business growth opportunities, expand our overseas user base, and boost commercialization, bringing additional upside to the Li Zhi Group's overall development. We are fully confident in Li Zhi's long-term development and will continue to dedicate ourselves
spk02: to creating great value for our users and shareholders.
spk07: Thank you all. With that, I will now turn the call over to our Acting CFO, Ms. Chengfeng Lu, who will discuss our financial results in more detail.
spk04: Thank you, Zilong, and hello everyone. Our first quarter results demonstrate our growth trajectory, driven by the continuous improvement in our operating efficiency. In the first quarter, our growth margin grew to 32%, up 700 basis points year-over-year. More encouragingly, we achieved the income of RMB 16.4 million in this quarter, representing an 84% success rate increase. Going forward, we will carry on building a more competitive OQ ecosystem, pursuing diversified commercialization avenues, and advancing our technology capabilities. We are confident that those endeavors will strengthen our core competencies and empower us to create greater values for our users and shareholders. Now, I'm providing a brief overview of our financial results for the first quarter of 2022. In the first quarter, our total net revenues were around 516.7 million. representing an increase of 4% year-over-year, primarily driven by the increase in the number of paying users and the average amount of spending on our audio entertainment products, partially offset by the decreased advertising revenues, which was mainly due to the increase in the number of advertising projects. Cost of revenue was only $348.6 million in the first quarter of this year, representing a decrease of 6% year-over-year, primarily due to the adjustment in the revenue-sharing policies resulting in the decrease in the revenue-sharing fees. Gross profit was RMB 168.1 million in the first quarter of 2022, representing an increase of 34% year-over-year. Gross margin, non-GAAP gross profit was RMB 170.7 million in the first quarter of 2022, representing an increase of 34% year-over-year. And our gross margin for the first quarter of this year increased to 32% from 25% in the first quarter of 2021. A long gap gross margin for the first quarter of this year grew to 33% from 26% in the first quarter of 2021. Operating expenses decreased by 22% year-over-year to RMB 153.5 million in the first quarter of last year. Research and development expenses were arming 71.1 million in the first quarter of 2022, representing a year-over-year increase of 25%. The increase was primarily due to the higher salary and welfare benefits expenses and rental expenses. Selling and marketing expenses were arming 16 million in the first quarter of 2022, representing a decrease of 50% year-over-year. primarily attributable to the decrease in the promotion and marketing expenses, and partially offset by the increased salary and welfare benefits. General and administrative expenses were added to the two-point formula in the first quarter of this year, representing a year-over-year increase of 14%. The increase was mainly due to increased salary and welfare benefit expenses and rental expenses. Our operating income was RMB 14.6 million in the first quarter of 2022, compared to a loss of RMB 72.2 million in the first quarter of 2021. Our long-term operating income was RMB 23.4 million in the first quarter of this year, compared to a loss of 64 million in the first quarter of 2021. Our long-term operating income was RMB 16.4 million in the first quarter of 2022, and compared to land loss of RMB 17 million in the first quarter of last year. And long-term income was RMB 25.2 million, compared to long-term land loss of RMB 61.8 million in the first quarter of last year. Basic and diluted lay income per ADS were RMB 32 cents in the first quarter of 2022, compared to basic and diluted lay loss per ADS of RMB 1.5 in the first quarter of 2021. Our long-term basic and diluted lay income per ADS were RMB 49 cents in the first quarter of 2021, and compared to 2022 compared to non-gap-based and diluting net loss of RMB 1.33 in the first quarter of last year. As of March 31, 2022, we had cash and cash equivalents, short-term investments, and restricted cash of RMB 514.5 million. Okay, this concludes all of our prepared remarks today, and we will now open the call to questions. Operator, please go ahead.
spk01: Thank you. If you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. 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. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to ask a follow-up question. Our first question comes from the line of Vicky Wee with Citi. Your line is open. Please go ahead.
spk06: 我的第二个小问题是,在我们互联网行业成本优化的趋势下,我们应如何看待励志海外投资和国内市场之间的平衡? 我自己翻译一下。 Thanks for management for taking my question. So what does management think of the live streaming regulations on tipping and how does that impact audio live streaming sector and 励志? My second question is a main cause of optimization trend in China internet sector. How should we think of the balance of 利之 between investment in overseas and domestic market? Thank you.
spk03: 好,谢谢Yiki的问题。 我来回答这两个问题。 我是Marco。 首先就是怎么看这个直播打场的规定。 Recently, the relevant payment agencies have proposed clearer regulations for online live broadcasts. In my opinion, the regulations are very good. It's like the shoes are on the ground. It's very clear. This is good for the long-term development of the audio and video broadcasting industry. It will also promote more standardized operating mechanisms. I will translate for Marco. Vicky's questions were answered by Marco and I will translate for him.
spk07: So for the first question, recently, competent authorities have further clarified regulatory guidelines on the tipping regarding live streaming. We think the rules were very clear, and we believe are beneficial to the launch and development of the audio live streaming sector, including promoting a standardized operation mechanism and strengthening the protection of minors. deliver long-term benefits?
spk03: For some of the details, we always have the appropriate optimization and adjustment to meet the relevant requirements. So we have been preparing for a long time. For example, we launched the youth mode a long time ago. For some specific rules,
spk07: We have optimized and adjusted products and operations to meet compliance requirements, and it takes us time to be prepared. We have launched a special mode for minor users earlier, including setting up the inclusive content pool for the minors. For auto-entertainment, we have also carried out identity verification steps for our host and established the risk control and processing mechanism. So overall, we are well prepared.
spk03: Overall, before the new regulations were introduced, we have made positive adjustments to products and operations. For some of the details, we will also carry out some perfecting of the relevant mechanisms. At the same time, the changes in the dynamic monitoring and monitoring of customers, we will actively optimize and adjust the product and the strategy for the user to serve better.
spk07: Generally, before the introduction of the new regulatory requirements, we have already made positive adjustments to the product and operations and will continue to improve our mechanisms according to the detailed requirements. We will dynamically monitor changes in the regulatory framework and actively optimize and adjust the product and operational strategies to better serve our users.
spk03: The other question is about how to achieve the balance between overseas investment and domestic market. In the first quarter of this year, we have gained profit at the GAAP level for the second consecutive time, and the net profit has reached 1642 million yuan, and the growth rate is 84%. The second question is about the balance between the investment in overseas markets and domestic markets.
spk07: In the first quarter of this year, we have achieved the profitability on a gap basis for the second consecutive quarter with a net profit of RMB 16.42 million, representing a quarter-over-quarter increase of 84%. So far, our domestic business is already profitable and providing support to the group's overseas business. Going forward, we will further improve the operational efficiency of our business and increase the profitability.
spk03: For the overall investment in overseas business, we are very cautious. We will adjust the dynamics according to the development stage of the product. In terms of customers, the strategy of user growth in overseas business is still based on natural growth. We also hope that through the optimization of products and operations, We have prudence according to the global business investment.
spk07: We will make dynamic adjustments according to the development of the product. In terms of customer acquisition strategy, from a long-term perspective, our user growth strategy for overseas business mainly focuses on organic growth. We hope to strengthen the network effect of the product through the optimization of products and operational strategies, and attract more users and achieve organic growth.
spk03: On the first hand, we will also develop the product according to the development stage and our target market. Taiwan Taiwan Taiwan Taiwan Taiwan
spk07: On the other hand, we will also find two marketing investments based on our product development stages and target market conditions. As to research and development, we have been accumulating and elevating our core in-house technologies which may enable us to reduce the cost of business expansion on scale while providing customized product technology support.
spk03: We are not just investing in overseas business. In the future, our overseas business will also be commercialized. It will bring us a diversified source of income. In general, we will continue to adjust the configuration of resources through the evaluation of different stages of business development and the investment scale of overseas business. For global expansion, it's not only about investments, but also the commercialization opportunities.
spk07: We are expecting that commercialization of our overseas business may diversify the revenue streams in the long term. In short, we will continue to adjust the allocation of resources through the evaluation of different development stages of the business and strictly manage the investment scale and timing and strategy to maximize operational efficiency and further improve overall business performance and profitability. and achieve a steady development.
spk03: Thank you. Thank you, Vicky.
spk07: Thank you.
spk01: Thank you. Thank you. And again, if you would like to ask a question at this time, please press star then 1. And our next question comes from the line of Carol with Southwest Securities. Your line is open. Please go ahead.
spk05: Hi, everyone. Thank you for accepting my question. Thank you, management, for taking my questions. My first question is about overseas business planning after the establishment of Thinkable headquarters.
spk03: Thank you. For overseas business, our current focus is still on the local market in the U.S. through social product TIA. The user experience is the core. Through those innovative product functions and We are also actively exploring and expanding some new markets, gradually enriching the governance of our products, using some of our successful experiences in the audio and video entertainment industry,
spk07: For overseas business, our current focus is to expand the U.S. market through social product PR with user experience as the core to meet users' social demands through innovative product functions and features and to promote organic user growth. Furthermore, we are also actively exploring and expanding new markets to launch a richer product matrix, reuse the successful experience of auto entertainment business, and explore new commercialization opportunities.
spk03: The establishment of the Singapore headquarters has helped us to attract more talent
spk07: to support the development of our globalization strategy and drive the business innovation. In addition, we have built local operational teams in various countries and regions, except Singapore. We are continuously supporting product optimization and innovation through localized operations to meet the diverse needs of local users as well as the global users.
spk03: Going forward, our overseas business is poised to provide an upside to the group's long-term revenue growth
spk07: Overall, we are confident in the long-term development of overseas business and will firmly implement the globalization strategy to achieve a sustainable business development.
spk03: Please go ahead.
spk05: I would like to follow up with a question about overseas business. Because I see that many Chinese Internet companies are also doing overseas business. I follow up a question about overseas business. I'd like to know the differentiation of TIA compared with competitive products.
spk03: Okay. From the perspective of product differentiation, our global strategic focus is on the expansion of social products on the line. The focus is also on the voice part. As for to create very easy-to-use language and social tools, strengthen the effectiveness of real-time interaction, to meet the needs of young people around the world in terms of diversification of social media. The core innovation of our product lies in our product innovation and our self-developed technology. Through continuous improvement of the product, we have introduced
spk07: From the perspective of product differentiation, our global validation strategy currently focuses on the expansion of online social products with the core of audio-centric and is committed to creating simple and easy-to-use audio social tools, enhancing the effectiveness of real-time interaction, and meeting the diverse social needs of younger generation users. The core differentiation lies in product innovation and in-house technology empowerment. Through the continuous product optimization and upgrading, we have enriched the interactive function to make real-time interaction more fun and lively.
spk03: Actually, I think the biggest difference is in terms of our self-developed technology. Because there are a lot of products on the market, including American products, that use third-party technology. This will lead to a lot of them being synchronized services. Through our self-developed IAM information cloud communication platform, WaterS, and the technical platform for audio and video streaming, Doremi. We have provided a very individualized technical support for the optimization and user experience of overseas businesses, which makes us have a lot of individualized expansion space in terms of products, including the use of artificial intelligence technology to launch individualized cloud tools to enhance the interaction experience,
spk07: I think the most important differentiation of our product is about in-house technology. We see there are many other products that are using the technology support from third parties and third agencies, which makes the product more homogeneous. And we have brought more customized technological support for the product optimization and user experience through our in-house developed instant voicing messaging platform like Vodax and the real-time audio and video streaming technology platform, DotRemy, so that we have more room to grow customized product features, including the personalized voice tools and enhance the interactive experience stable and premium real-time interaction to ultimately achieve the differentiated product performance. 当然我们在产品方面是非常注重用户互动的有效性,通过简化邀请的路径,优化邀请的机制,升级关系链的获取等等。
spk03: Online social media has become simpler and more efficient, fulfilling users' needs without being satisfied. It brings users a new experience of online social media. As mentioned earlier, we are also planning to have more new innovations and attempts in the business model to introduce a different mode of telecommunication.
spk07: We also prioritize the effectiveness of the user interaction, and by simplifying the invitation pathways, optimizing the invitation mechanisms, and upgrading the acquisition of friends' connections, we hope to make online social networking more simple, direct, and efficient, and meet the unmet social needs of users. while bringing them a new online social experience. As mentioned earlier, we also expect to have diversified innovations and attempts in the business model and the commercialization models to bring more diversified income sources to the group.
spk03: Thank you.
spk05: 好的,谢谢。我最后一个问题是关于那个毛利率的。 因为看到现在音频直播,它的这个分成比例还是比较高。 想了解的是毛利率何时以及会如何去进行改善。 如果我们讲到毛利率未来有一个爬坡的话,它的节奏大概会是怎样的? My third question is about the cost-profit margin. When and how will we improve the revenue share of audio entertainment? Thank you.
spk03: Thank you. Thank you. We have seen very positive progress. In the past several consecutive seasons, we have all achieved steady growth in net profit. The net profit of the first quarter of this year has increased to 32%, which is 700 points higher than last year. As for the income cost, it is mainly due to the cost of the content creators' distribution and incentive. QE's income distribution ratio In the previous course and earnings course, we've been talking about how we have improved the growth margin and we have been
spk07: always working on optimizing the cost of structure and have seen positive outcomes of achieving a steady increase in the growth margin over the past several consecutive quarters. The growth margin in the first quarter of this year increased to 32%, with a 700 basis points increase from the same period last year. As for the cost of revenue, it mainly comes from the the revenue-sharing fees to our content creators, and the cost of incentive fees. The revenue-sharing ratio in the first quarter was decreased by 700 basis points from the same period last year, which was primarily due to our timely adjustment of incentive policies and optimized the revenue-sharing mechanism.
spk03: For the long-term, We plan to reduce the proportion of income costs in both aspects to further increase the interest rate. On the one hand, we plan to continue to make dynamic adjustments to the subsidy policy in the audio and video entertainment business. By effectively setting goals and diversifying policy support, while adjusting the proportion of shares, we also ensure an incentive for creation. In the mid to long term, we plan to further reduce the cost of revenue ratio in two aspects to improve our overall growth margin.
spk07: First, we plan to continue to implement a dynamic adjustment strategy for incentive policies in the audio entertainment business. Through effective target setting and diverse supportive policies, we will keep motivating our content creators while also optimizing the revenue sharing ratio. Along with that, we aim to improve the engagement of me to long-tail content creators through diversified operational activities and optimize the cost of structure to achieve higher growth margin.
spk03: On the other hand, we also plan to implement the innovation of the transformation model through new markets and new products. We will also introduce some revenue sources with higher interest rates to improve our overall interest rate.
spk07: In addition, we also plan to realize the innovation of the monetization model through entering new markets and incubating new products, including the introduction of revenue streams with higher growth margins. to improve the overall performance. So in summary, we are confident that we are able to further optimize our cost structures in the medium to long term and improve the operational efficiency and the overall profitability. Thank you. That concludes Marco's answers. Thank you. Thank you.
spk01: Thank you. As there are no further questions, I'd like to now turn the call back over to the company for any closing remarks.
spk07: Thank you once again for joining us today. If you have further questions, please feel free to contact Leach's Investor Relations through the contact information provided on our website at ir.leach.fm or the Pianta Group Investor Relations. Thank you.
spk01: This concludes the conference call. You may now disconnect your lines. Thank you.
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