HUYA Inc.

Ladies and gentlemen, thank you for standing by for the 2020 First Quarter Earnings Conference Call for Huya Inc. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I will now turn the call over to Ms. Dana Cheng, Company Investor Relations. Please go ahead.

Hello, everyone, and welcome to Huya's 2020 First Quarter Earnings Conference. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website in a few hours. Participants on today's call will be Mr. Rongjie Dong, Chief Executive Officer of Huya, and Ms. Catherine Liu, Chief Financial Officer. Management will begin with prepared remarks and the call will conclude within a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public followings as followed by the U.S. SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable laws. Please also note that we ask earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. We ask press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Rongjie Dong. Please go ahead.

Hello, everyone. Thank you for joining our conference call today. Since the beginning of this year, COVID-19 has caused a lot of uncertainties worldwide. We remain hopeful and dedicated to helping people stay connected and providing them with rich online and payment content during this critical time. Despite the macro environment challenges brought on by the pandemic, Q1 was another solid quarter for us. We saw accelerated growth of mobile users in the first quarter, which further strengthened our leadership position and increased our market share. Average mobile MLs of Huya Life grew 39% year-over-year, reaching $74.7 million, exceeding our previous target and hitting an all-time high. We had over 13 million net additions to our mobile users from Q4. Selected growth was mainly driven by the rich content on our platform and our comprehensive and self-reinforcing ecosystem, as well as the lockdown periods and extended school holidays during the pandemic. coronavirus outbreak. Due to the closure of offline internet cafes during the coronavirus outbreak, our non-mobile users were negatively impacted. However, our total users still continued to grow. Average emails of who we are live Q1 increased 32% year-over-year, reaching 151.3 million, representing over 1 million net additions from Q4. While our user community experienced fast expansion, we were still able to achieve a high level of user retention and engagement. The next month The user retention rate for our Huya Life app remained over 70%, and the daily time spent by users on Huya Life app increased to over 107 minutes from 100 minutes in previous quarters, driven mainly by the accelerated growth of mobile users. our Q1 revenues grew 48% year-over-year, reaching IMB 2.4 billion. Our revenue growth was accompanied by margin improvement, again demonstrating our solid execution capabilities. Here, I would like to share another important update with you. As we previously announced in April, Tencent exercised its option to acquire 16.5 million CACI ordinary shares of Huya for U.S. $262.6 million in cash from JYY. The transaction made Tencent the largest shareholder of Huya, increasing its voting power in Huya to 58.1% on a fully diluted basis. Since the transaction took place, we have been strengthening our collaboration with Tencent, working closely across various areas such as games, esports, and AI technology. For example, we are developing new features, products, and services to help us step into Tencent's massive user community. We are also cooperating with Tencent to better serve our users and broadcasters, as well as Tencent users. In addition, Tencent and Huya will be jointly exploring new business models and business opportunities across the gaming and esports world chain. With Tencent's strong support and the massive user community, we believe we are well positioned to strengthen our leadership in China's game live streaming industry. We see this cooperation as a start of our new journey for Huya, and we look forward to being an active participant in a dynamic and growing market, as well as contracting more driven forces of game live streaming within the ecosystem of Tencent. With that, I will now turn the call over to our CFO, Catherine, to share her insights on the operating metrics and the financial details. Catherine, please go ahead.

Thank you, Mr. Zhang, and hello, everyone. Following Mr. Zhang's remarks, I would like to first elaborate on our content enrichment and diversification efforts, our key user growth pillars. Our major content creators are our broadcasters. In Q1, our broadcasters live streamed a total of 65 million hours of content on our platform, representing increases of 53% year over year and 21% quarter over quarter. The number of average monthly active broadcasters on our platform in Q1 also hit a record high of over 800,000. Other important content sources for us are third-party esports tournaments. Due to the coronavirus outbreak, some of these tournaments that were originally scheduled in Q1 were either postponed or canceled. As a result, in Q1, we only broadcasted 67 third-party esports tournaments. This is a decrease from the same period from last year. But the viewership of these tournaments remained flat year-over-year at approximately 380 million. In Q1, we broadcasted major tournaments such as LPL Spring Season, One of Kings Winter Champion Cup, and we exclusively broadcasted LOL Champions Korea and PGL Summit. As a reminder, esports tournaments are typically leveraged to attract user traffic but are not a major contributor to our direct live streaming revenue. Given that we have achieved a surge in mobile user traffic during the lockdown period, the negative impacts of the coronavirus outbreak to esports tournaments are limited in terms of both users and revenues. During this challenging period, we continue to build long-term relationships with the third-party esports partners. For instance, we partnered with ESL to exclusively live stream ESL One, Road to Rile in China. Also, we recently signed a strategic partnership with a UK company, a Russia esports organizer, and secured exclusive broadcasting rights for eight regions of CSGO tournaments and four regions of Dota 2 tournaments. In addition, many esports tournaments have started to transition to online forms. For example, After more than one month of delay, LPL's spring season was launched in March in the form of an online competition, with its final competition organized in an offline studio without an audience in May, as China began to emerge from the pandemic. As we move forward, we expect to see more alternative structures to this event. A continuous key focus for our content ecosystem is to build on and improve our self-generated content capabilities. In Q1, we organized 18 tournaments and events slightly lower than last year. However, the viewership increased 79% year-over-year, reaching over 113 million. Notably, Huya Destiny Cup, generated a substantial viewership of 27 million, more than doubled compared with our VR Destiny PUBG solo series in the same period last year. In terms of content diversification, we continue to cultivate non-gaming content such as talent shows, anime, outdoor activities, live chats, and online theater. Our increasingly diverse content is designed to help retain existing gaming users as well as attract new users. We believe this strategy is working. In Q1, the percentage of our users who watched non-gaming content increased to over 60%. For example, we organized Open Now, a talent show that combines real performers with virtual backgrounds. and the Night of China Comics , a music show performed by Kuyang's virtual broadcasters. Driven by our rich and diverse fountain offerings, as well as benefits from the lockdown period and extended school holidays during the coronavirus outbreak, the growth of mobile users accelerated in Q1. Average mobile MAUs of Kuyang Light grew 39% year-over-year in Q1, reaching $74.7 million and representing a net addition of $13 million from Q4. Our average total MA use of Punggye Life also increased 22% year-over-year in Q1, reaching $151.3 million and representing a net addition of $1 million from Q4. Along with the fast growth of mobile users, The paying users of Huya Live increased by 13% to 6.1 million in Q1, and also representing a net addition of close to 1 million from Q4. In Q1, mobile users contributed close to 50% of our MUs, but over 80% of our paying users. The live streaming revenue per paying user for Huya Live experienced a year-over-year growth, but decreased quarter-over-quarter due to seasonality. and accelerated growth of mobile users. Moving on to our overseas business, we reached the 24 million MEUs in Q1. We remain optimistic about the emerging markets that we are currently in and are likely to see positive impact to mobile users as users around the world continue social distancing practices to help limit the spread of the coronavirus. Despite the ongoing pandemic affecting all aspects of the world, we remain confident in our business and our prospects, but we will continue to closely monitor the evolving situation and assess its impact accordingly. Now let me walk you through our financial highlights. In Q1, our total net revenues grew by 48% year-over-year to RMB $2.4 billion. This is the eighth consecutive quarter that we exceeded our management guidance inside Peel. We continue to successfully diversify our revenue streams with our advertising and other business contributing 5.7% in Q1 compared to 4.8% in the same period last year. Our live streaming revenues increased by 47% year over year. to approximately RMB 2.3 billion in Q1. The increase was primarily due to the increased number of paying users and then the increase of revenue per paying user. The sequential decrease was due to seasonality. Our live streaming app pool increased year over year, but dropped quarter over quarter. As we discussed in the last earnings call, our year-end promotional activities drove up the app pool in Q4 and set a high base. Additionally, we have also welcomed a lot of new users and new paying users in Q1 and takes time to cultivate their paying behavior. Advertising and other revenues increased 74% year-over-year to RMB 137.5 million in the first quarter, representing 13% quarter-over-quarter growth, primarily due to higher demand from more diversified advertisers our new advertising distribution platform, and our strengthened brand recognition. On a quarter-over-quarter basis, while many advertising budgets declined due to the negative impact of COVID-19 in other sectors, we still experienced a high revenue growth rate, as most of our advertisers in Q1 are in the online gaming industry, which were less impacted from the coronavirus outbreak. We are particularly glad to be able to make continued investments in content and products while extending our growth margin and operating margin and net margins, which further reflect our increasing economics of scale and operating efficiency. Our non-GAAP growth margin improved to 20.3% compared with 19.5% in Q4 2019 and 17% in Q1 2019. Our non-GAAP operating margin improved to 9.4% compared with 7.4% in Q4 2019 and 5.9% in Q1 2019. Our non-GAAP net margin improved to 10.9% compared with 9.8% in Q4 2019 and 8% in Q1 2019. Now let me move on to financial details. Cost of revenues increased by 43% to RMB 1.9 billion for Q1, primarily attributable to the increase in revenue sharing fees and content costs, bandwidth costs, and personnel-related costs. Revenue sharing fees and content costs increased by 38% to RMB 1.5 billion for Q1, primarily due to the increase in virtual item revenue sharing fees in relation to higher live streaming revenues, and continued spending in content creators and e-sports content in both domestic and overseas markets. The year-over-year increase was partially offset by benefits from economies of scale. Bandwidth costs increased by 42% to RMB 240.1 million, or Q1, primarily due to an increase in bandwidth usage as a result of our larger user base and enhanced live streaming video quality, and partially offset by improved efficiency in bandwidth utilization through continued technology enhancement efforts. Growth profit increased by 74% to RMB 474.8 million for Q1, and growth margin increased to 19.7%, for Q1. Research and development expenses increased by 73% to RMB 156.1 million for Q1, mainly attributable to increased personnel related expenses. Staff and marketing expenses increased by 36% to RMB 106.5 million for Q1. The increase was primarily attributable to the increased marketing expenses associated with the promotions for our products and branding in both domestic and overseas markets, as well as increased personnel-related expenses. General and administrative expenses increased by 5% to RMB 90.2 million for Q1, mainly due to the increased personnel-related expenses. Operating income increased by 372% to RMB 133.2%. and operating margin increased to 5.5% for Q1. Non-GAAP operating income, which excludes share-based compensation expenses, increased by 137% to RMB $227.2 million for Q1. Income tax expenses increased by 98% to RMB $37.6 million for Q1. Net income attributable to Huya Inc. increased by 170% for RMB 171.2 million for Q1, and the net margin increased to 7.1% in Q1. Non-GAAP net income attributable to Huya Inc., which excludes share-based compensation expenses, gain on fair value change on investment, and income tax effects on non-GAAP adjustments, increased by 101% to RMB 263.4 million for Q1. Our diluted net income per ADS was RMB 0.73 for Q1, and our non-GAAP diluted net income per ADS was RMB 1.12 for Q1. As of March 31st, 2020, we had cash and cash equivalents short-term deposits and short-term investments of RMB 10.3 billion as of March 31st, 2019. As of March 31st, 2020. Net cash provided by operating activities decreased to RMB 135.1 million for Q1. The decrease was primarily attributable to the increase of annual cash bonuses paid to our employees, the increase of fees paid to broadcasters, and the increase of licensing fees paid to broadcasting esports tournaments. For the second quarter of 2020, we are currently expect the total net revenues to be in the range of RMB 2.6 billion to RMB 2.63 billion, representing a year-over-year growth of between 29.3% and 30.8%. This forecast considers the potential impact of COVID-19 pandemic, including the temporary suspension of public entertainment activities during China's National Day of Moring on April 4th, 2020, and reflect our current and preliminary views on the market and operational conditions which are subject to change, particularly as to the potential impact of the COVID-19 on the economy in China and elsewhere in the world. With that, I would now like to open the call to your questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up your handset to ask your question. 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. Your first question comes from Thomas Chong with Jefferies. Please go ahead.

Hi, good morning. Thanks management for taking my questions. I have two questions. My first question is about our user or our traffic trend in April and May as coronavirus is over. And my second question is about updates on Tencent cooperations. Remember in the prepared remarks, we have highlighted in gaming and esports as well as on AI technology, Can management further comment when we can see the synergies to come out to the industry, and would there be any changes in the competitive landscape? 谢谢管理长介绍我的提问。 我的问题主要有两个。 第一个就是疫情过去以后了, 就是我们最近看到4月份跟5月份, What is the development from traffic to number of users? Then the second question is our cooperation with Tencent. Just now Peter Remus also mentioned that there will be some in-depth cooperation in games, esports, and AI. Wang Yicheng, can you elaborate further? In the coming few seasons, we can probably see the co-reaction Thank you everyone.

I will answer the first question and Mr. Dong will answer the second question. I think after the pandemic in Q2, we still expect our users to continue to grow, especially in China. Since the recovery of the pandemic, we expect our non-mobile PC users will actually accelerate our growth. And to the second question, I will transfer to Mr. Hu.

Okay. Yes, with Tencent controlling Puyallu, we currently have these plans for further cooperation in the future. For the first one, we still hope to continue to improve the user experience. Yes, on the platform of Puyallu, in addition to live streaming, we want to improve some of the game content itself, The user can watch live videos while playing the game. Yes, this is the improvement of the experience. The second thing is that we hope to find some new business models together. For example, in addition to the versioning work, there are also some new business models. This is two big aspects. And then in terms of micro perspective, for example, this is what we are doing now. For example, this data is being opened. We can open the data of the live broadcast and the data of the game. And then in this way, we may have a lot more details of this operation. For example, we may get live data of the live broadcast of this game. And then similar data, we can use it in the live broadcast. It is more convenient for users to see real-time data in the game. For example, the process call can make it more convenient for users to switch between the game and the live broadcast.

Since Tencent became our controlling shareholder, the collaboration between the two parties has been strengthened in various ways. I'll talk from a macro respect first. Firstly, we will continue to improve user experience on our end. For example, in addition to the content for live streaming we will explore to provide additional forms of gaming content to our users. Also, we will like to optimize their viewing experience to satisfy them to watch the live streaming while they can also play in games. Secondly, we will explore innovative business models with Tencent, especially on the eSports cooperation content licensing side. We aim to work with them to find other innovative value-added services business model for the eSports cooperation. From a more detailed perspective, there are two aspects I will talk about. Firstly, is the data. Because we will work with Tencent on big data so that our database can be connected with Tencent. And for example, we can have the results of a broadcaster's gaming competition and share the results on a real-time basis with our viewers. And secondly, we will bridge between the gaming and live streaming so that the viewers can see a combined process while they can play and watching the gaming live streaming content on our end. A smooth switching process will be provided to them. That's it. We can move on to the next question.

The next question comes from Lei Deng. with Bank of America Securities. Please go ahead.

Hi. Thank you for accepting my question. I have two questions. The first question is that I would like to know the trend of our paid users, especially the growth of our ETO paid users. I don't know if you can help us break down some of the paying behaviors of our new users, such as the main content of their payment, or is there any difference between the old users and the new users? And after that, the epidemic may become an online activity. It has become a long-term trend that may be more abundant this year. Do we have a relatively large demand for continuous growth in the following quarters? And the second question is related to overseas. I would like to know if you can give us a new update overseas, especially as the epidemic has now become a global trend. for taking my question. First question is about the paying user. We see a pretty good number of paying user number in fourth quarter. Can you share more color on the paying behavior of new user with existing users, and what's the trend you can share in the following quarter? And secondly, about the overseas development, especially under the global coronavirus impact due to factor development in overseas business. Thank you. Our paying user has a pretty good user growth. The growth is mainly due to our increase of mobile users. our mobile users actually contribute over 80% of our paying users. So we expect as our mobile users continue to grow, our paying users should also continue to grow. In terms of new users, I think the The user behavior is similar to existing users, but our pool would be a little bit lower than the existing ping users. So in the next several quarters, we will continue to cultivate the ping behavior of those new users. And in terms of the esports tournaments and gaming events, the impact on the ping users would be would be less because those activities and the tournaments are mainly attracting sort of active users but not contributing too much to the paying users side. And in terms of overseas, we do see similar trends in overseas market as in China in February and March due to the social distancing activities. We do expect in Q2 our overseas users will have accelerated growth, but we are still monitoring sort of the trend of the coronavirus and how it will impact the whole world. Okay, hope this answers your question.

Next. Yeah, thank you. The next question comes from Vincent Hughes. with Needham and Company. Please go ahead.

Hi, management. Thanks for taking my question. My first question is on the recently launched gaming companion app. So as a separate app, is there any information we can share on there such as what the app needs to add to this business? My second question is on impact from schools as many of them are required students to go to school in weekends and also children in the summer vacation. What's our view on impact to our business, such as MAU? 没有关系,我想问两个问题。 第一个问题是关于我们最近单独上线的PayOneApp。 作为一个单独的App,我们有什么有关的信息可以分享吗? 比如说这一部分的paying users的,对这个业务的art pool是怎么样呢? Thank you. So we recently launched our companion

product called Xiaolu Peiwan. Since this is a very new product, we just launched it last month, so we probably will share more of the detailed information with investors in Q3. Currently, we see those users had a similar behavior as the users who were who are using this type of product and features in our main APP. In terms of the impact of schools, like students going back to schools, we think that currently our user retention rate is still kept pretty well. Our user retention rate is over 70%. and our user spending time is over 107 minutes, we think that we would still be able to retain most of the users that we attracted in Q1, and also the recovery of the economy, and we think some of the PC users will also increase. In general, we think our MAUs will continue to grow. But, of course, I think, you know, in terms of the mix of the users probably would be a little bit different, i.e. the mobile users probably will not be growing as fast as our non-mobile users in Q2. But I think we expect that both will still continue to grow. Hope this answers the question.

Got it. Thank you. Yes, thank you very much. I appreciate it.

The next question comes from Vinnie Wong with HSBC. Please go ahead.

Hi, good evening. Good morning, Andrew, and thank you for taking my questions here. So my first question is actually on the competitive landscape. After Tencent joined the controlling shareholder, I just want to follow up on whether any strategy for HUYA, how is it different, and any of the key KPIs have been setting for us. And also, how do you think that the competitive landscape will have changed? Example, if you have other competitors like Dolby, Bilibili, they are also investment of 10 cents. But, of course, with your closer relationship with 10 cents, how does that change in terms of the resources, opportunities allocated to HUYA here? And then just a follow-up here is that because of the competitive landscape, we looked at Bilibili also starting to recruit the talent agencies. How do you think that will further intensify the competition and might affect your sharing ratio? I'll quickly translate myself here. 谢谢管理层介绍的提问。 想提到一下就是长讯之后, 就是想问我们的大股东之后, 就是想问问这个对整个 What impact will it have on the environment? Will Huya get better resources? Because the relationship with Tengchun is more intimate. I also want to ask, because recently I saw the news that Bilibili has started to have a new union. They may have some actions on the union. I don't know if this will affect us, because more and more business partners are also bringing in a very large number of customers to believe in our anchorage. Will this make us more nervous in the current economic environment?

Thank you. Let me answer. First of all, from the point of view of Tencent, our cooperation with Tencent will definitely be deeper. And then from the point of view of Zhongtang, I believe that Tencent will definitely have a certain impact on the competitive structure of the entire industry in the future. Yes, this is the first one. Secondly, from the current competitive framework of the live broadcast industry, first of all, there has been no change in the big direction. After all, the fast Bilibili live broadcast is not a matter of this technology. This is the first thing. Secondly, we also see that with the emergence of platforms and Bilibili live broadcasts, we can still see some changes in the entire industry. Actually, the first change is that from the perspective of the broadcaster and the union, they pay more and more attention to the combination of live content and video content. So this is also a key point of Huya at the content level. We also hope that in addition to continuing to do this live content, Huya will continue to do this live content. Yes, the influence can also rise. This is the first business model. The second one is that we can see, for example, with the addition of this video platform, in fact, the diversification of the commercialization of the anchorage is greatly improving. That is to say, we can see that in the original income structure of the anchorage, right? In fact, there is still a contract change. And then it's not the fee, it's the reward. It's the reward, yes. And then we now see, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, for example, the income of the anchor, This is the first one. Yes, this is the second one. Yes, the third one just mentioned the division of Bilibili. We generally think that Bilibili has always been a competitive force. I think this also includes the adjustment of Bilibili's policy to the Bilibili. We have been adjusting the policy of the Bilibili platform to the Bilibili policy for a long time. We generally believe that the supply chain is an advantage of Huya. Yes, so we generally believe that the current main stream supply chain and platform ecosystem in Huya are relatively healthy. Yes, so we generally believe that we will not make major adjustments to the supply chain of Huya. Yes, we still hope that the supply chain is a machine operation thing. It's not just about Okay, I will translate.

Since Tencent became our controlling shareholder, the collaboration is getting towards a more deepened risk factor. And we think maybe from the mid to long term, with Tencent getting on board with us and with the collaboration business, it might be disruptive or having some sort of impact to the competitive landscape in future. From our perspective and from the industry itself, the main direction of the industry of the competitive landscape is actually stable given that whether it's billable or partial, it's not only this quarter that they enter into this PMI streaming industry. They were actually here for several quarters already. It is true that they have brought some changes to the industry. The first one is on the broadcaster and talent agency side. Currently, I think for broadcasters and talent agencies, they place more focus and more importance on the combination of content to include both game live streaming and the game videos. This will be one of the ongoing focus for GUI App in the future and we hope that the video content of GUI App platform will be prosperous with all the appers putting in. Secondly, we think the business model for broadcasters themselves is getting more diversified and more dynamic because in the old times, the income structure of broadcasters It's only sign-on bonus and the virtual 50 revenue sharing. But for now, apart from those two income sources, they are also enjoying revenues coming from advertising and live streaming e-commerce. I think with those newcomers getting into this industry, the income structure of broadcasters will be continued to optimize in future. Thirdly, regarding your question whether volubilious revenue sharing incentives to the talent industry is going to impact us. We have seen that Billabili is providing policies greater revenue sharing to the talent agencies and the degree of the adjustment is actually quite big. I think for HUYAG, it has been in the industry for long and the Synthesit Nation, it has been playing the talent agency model in the very beginning. It's actually one of HUYAG's competitive advantage to have started the talent agency model quite early. We think for the talent agencies, network is actually healthier and more optimized if we ask platform. Competitive adjustments to the revenue sharing isn't going to what we are sharing with the talent agency now because we have been maintaining a very good relationship within the network as we also provide a larger absolute amount in terms of revenue sharing despite the ratio change.

Thank you. The next question comes from Wendy Ching with Goldman Sachs. Please go ahead.

Thanks, management, for taking my question. I have two questions. One is about the diversification of monetization. We have seen peer platform launching other sort of monetization methods, such as e-commerce live streaming, cloud gaming, short-form video, et cetera. So I'm wondering how do management see the future monetization patterns for game live streaming platform, whether the non-tipping portion will further expand? And my second question is about the mobile user addition. We have seen a quite notable mobile user growth this quarter. Can management share some color on those incremental users as in, let's say, which city they come from, their age group, as well as the content category they tend to consume? Thank you for accepting my question. I have two questions. The first question is about multidirectional transformation. We have seen that many other companies have launched many new transformation methods during this period. For example, e-commerce live broadcasts, cloud games, short videos, and so on. So I would like to ask the management team about the path of our game live broadcast platform towards multidirectional transformation in the future. For example, will the part of non-rewarding be further improved? In terms of the revenue diversification, we do see and expect that the revenue diversification will continue

Currently, we are also exploring new opportunities, a lot of new opportunities in business model. I think in the next couple of months, we also probably will launch our live streaming e-commerce business, but we will be only serve as a platform for broadcasters to sell merchandises. We are going to be on the live light model instead of a pretty heavy model involves supply chain. So we do see there will be more revenue types and also the revenue diversification will continue. And for the new users that we attract in Q1, I think, you know, the characteristics are similar to the existing users in terms of age and area. Probably slightly more of the new users are coming from the lower tier cities. But in terms of the content that they're watching are similar to the existing users. Most of them are still watching the game content. And some of them are also watching non-game content. Hope this answers your question.

Yes. Okay, next. The next question comes from Alex Lu with China Renaissance. Please go ahead.

Okay. I'll translate myself. Could you mention, comment a little bit on the on the current cash allocation strategy and also any area for further reinvestment?

Thank you. Currently, we still plan to use our cash for sort of our internal investment in terms of products and content and also as well as potential investments or acquisitions. In terms of investments, I think there are a couple of areas that we would like to particularly focus on in terms of internal investment, such as I think one is content. We will continue to invest in content, including broadcasters and esports. And also this year, we will continue to keep investing and increasing our investment in self-generated content. And also, we will invest in some of our new products that we have already recently launched or plan to launch, including the Game Companion and video and cloud gaming, stuff like that. In terms of the potential investments and acquisitions outside, we will try to find good opportunities that along our value chain around game live streaming and games and live streaming, et cetera, to see if the good opportunity arise, we will do investments or acquisitions. Hope this answers your question.

Sure. Thank you.

Thank you. Next. The next question comes from Daniel Chin with JP Morgan.

Please go ahead. Hey. But we also see that more and more platforms are starting to do game live broadcasts, including cool music. We think that in the second half of the year, for example, when these new game streamers are recruited, do we need to spend more resources? The second question is about our advertising business. Now, e-sports is actually a relatively popular sport in the world. So have we seen more and more brand advertisers I will briefly translate. My first question is on the game course resource. We have some very promising titles such as D&F Mobile, League of Legends Mobile in the second half, but we also see more and more platforms doing game streaming such as Google Music. So do we think that it would take more resource for us to acquire new hoses for these top games in the second half? Secondly, can we have some update on the advertising business as esports is becoming an increasingly popular sport genre? Are we seeing more and more brand advertisers trying to allocate resources to game live streaming and Huya? And what's our future strategy on advertising overall? Thank you.

我来回答一下那个第一个问题, 就是这个新的游戏主播的获得, 就是我整体上认为, 这个游戏主播的竞争其实最重要的这个战场, 在成量的游戏的主播的竞争上面。 这一块呢,我们整体上认为, Huya 其实, I think the competitiveness accumulated over the years will continue to improve in the future. So this is the first thing. The second thing is that the most important thing for new game streamers is the ability to cultivate. Because you don't have any good streamers in the new game. So it's been so many years since Huya, our streamer's cultivation system, including our central team, I will translate. For your question regarding broadcast acquisition on the new games,

There are two respects to talk about. The first one is that I like to say the most important thing for the in-line streaming competition to acquire the broadcasters is no one focused on the existing broadcasters. Since we have been in the industry for long and haven't maintained a quite good relative advantage in the gaming industry, broadcaster pool, we think it actually sets us in a very strengthened place in terms of keeping up the gaming broadcaster pool. And secondly, it's regarding the new broadcasters. Because for the new games coming into the market, we think it is important for the platform to cultivate the broadcasters. For Huya itself, we have a matured mechanism to train and to cultivate the professional skills of the broadcasters and we also have a good incentive mechanism to the mid-tier broadcasters. We think for the new game broadcaster acquisition, we are quite ahead of the industry. Okay. To your next question, regarding to the advertising, we do see a lot of the sort of non-gaming advertisers start to advertise on our platform. So actually our, I think in terms of number of the advertisers, our non-gaming advertisers actually probably approximately 40% on our platform right now. However, in Q1, due to the The pandemic, actually, a lot of the gaming advertisers spent more advertising dollars on our platform, and the non-gaming sector advertisers spent less. But we think that along with the recovery of the economy, we think the non-gaming advertisers will continue to to increase their spending and we will continue to diversify our advertising. And in terms of advertising forms, we were also trying to explore new opportunities in terms of different advertising forms. For example, I think in what you call this is also sort of like a new type of advertising form for us and for the broadcasters. Okay. Thank you.

The next question comes from Tian Hu of TH Capital. Please go ahead.

Thank you, Manager Cheng. I also congratulate you on such a strong first quarter. There are two questions. One is that I see that your net profit rate and net profit rate have improved compared to the same period last year. So I want to ask, this year, at the level of Li Wenmei, do we have any expectations? This is one. There is another one. Last quarter, we also mentioned some of our overseas developments, such as NEMO TV. So I want the management to give an update on this overseas development. I will translate it myself. In the P&L statement, I saw Q1 growth margin and operating margin both improved on a year-on-year basis. So what is the company's outlook regarding the full-year, you know, growth margin and the profit margin? The second one is last quarter management mentioned overseas expansion such as the Nemo TV. So can management give us an update on that front? Thank you. In terms of the margin inspection, I think this year as we grow our revenue, we will still like to maintain or grow our margins in the next couple of quarters. In terms of the overseas development, our In terms of our overseas MAUs, in Q1, we have already reached about 24 million. And in Q2, we still expect a continued growth for our MAUs as the sort of the social distancing in overseas market. So in overseas, we also this year, we're also trying to explore new business models such as subscription and advertising as well. I hope this answers your question. Sure.

Thank you. Thank you. We've come to the end of our question and answer session. I'll now hand back to the company for closing remarks.

Thank you all for joining today's conference call. If you have further questions, please feel free to contact IR at guya.com. We look forward to speaking with you in the next quarter. Thank you.

This concludes the conference call. We may now disconnect your line. Thank you.