HUYA Inc.

Hello, ladies and gentlemen. Thank you for standing by for the 2020 Second Quarter Earnings Conference Call for Huya Incorporated. 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 Chang, Company Investor Relations. Please go ahead.

Hello, everyone, and welcome to Huya's 2020 Second Quarter Earnings Conference Call. 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. Katherine Liu, Chief Financial Officer. Management will begin with prepared remarks and the call will conclude with a Q&A session. Before we continue, please note that this discussion will contain forward-looking statements under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's 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 filings as filed with the US 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. HUYA's press release contains the 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. HUYA has achieved outstanding results across our core businesses in the second quarter of 2020. Our total net revenues grew 34% year-over-year to RMB 2.7 billion, continuously exceeding our previous expectations. Our gross profit grew 71% year-over-year to RMB 575 million, further demonstrating our faster growth and improved profitability. With respect to the user traffic, despite the fact that people in China have largely resumed their daily work and school schedules, we maintained the momentum that we built during the pandemic period in Q1 on the mobile end. We accomplished year-over-year growth of 35% for the mobile MAUs of Huya Life, reaching 75.6 million in Q2. As China's commutes and people's activities move toward normalcy, Many offline internet cafes have also reopened, supporting the rebound of our non-mobile emails in Q2. As a result, the average emails of Huya live increased by 17% year-over-year to 168.5 million in the second quarter. representing a net addition of over 17 million from Q1. The growth was primarily driven by our dedication to continuously enriching our content offerings while further improving the content quality. Next, I would like to share with you some updates about the preliminary cooperation that we have started with Tencent since Tencent became our controlling shareholder in April. Whereas live streaming content is now available within an increasing number of Tencent games and products, which will help us tap into an extended pool of users. Users who watched our live streaming content within Tencent Games and products such as WeGame, WeChat Game Center, and QQ Mobile Game Center were not counted in Huya Live's MAUs. In addition to our Huya Live's MAUs, average MAUs who watched Huya Live's streaming content found these external linkers within Tencent games and the products increased by 16% in Q2 from Q1. We are also in the process of building exclusive one-click streaming services within some of Tencent games to attract more broadcasters. With the new service, Tencent gamers can see new tenuously stream their gaming experience through the click of a button and essentially became our broadcasters. In terms of the esports tournaments, we are also working together with Tencent in various dimensions, such as cooperation in esports tournament content, traffic exposure for live streaming content, advertising, of opportunities, as well as innovative products to improve users' viewing experience of the esports tournament. Finally, but importantly, we have always been trying to stay nimble to meet the ever-growing demands of users while continuously developing and expanding our product. offerings for long-term growth. Most recently, in June, we launched our cloud gaming platform called Yova, offering over 40 game titles. The platform made easier access for a broader audience to enjoy the fun of games. And our long-term prospect for Yova is to enable our users to play together with our broadcasters and enjoy unique, interactive, fun experiences. We have also strengthened our efforts for videos mainly focused on mid-length game videos. In the second quarter, average MLs who watch the videos on our platform increased by 60% year-over-year to approximately $20 million. Our business is more diversified, and all of these efforts will help us seize future opportunities and emerge in an even stronger position in the game live streaming market. With that, I will now turn the call over to our CFO, Catherine. to share her insights on our operating metrics and the financial details. Catherine, please go ahead.

Thank you, Mr. Dong. And hello, everyone. Following Mr. Dong's remarks, I will start with updates on content enrichment and diversification. From the broadcaster side, we have kept the momentum we built during the pandemic period in Q1 the number of average monthly active broadcasters remained at over 800,000, representing a 12% year-over-year increase. In the second quarter, we broadcasted 102 third-party esports tournaments, among which the top performers include LCK Spring Season, which we have gained three-year exclusive broadcasting rights. as well as LPL spring and summer season, PEL and KPL. Total viewership for this tournament reached a historical high of over 770 million in the second quarter, representing a 24% year-over-year growth. Another key part of our continued commitment is our self-produced content in the second quarter. we organized 34 esports tournaments and entertainment shows, generating a total viewership of 112 million, representing a 36% year-over-year growth. During the first half of this year, the scale of new users that were attracted to our platform by this self-generated content was comparable to third-party esports tournaments we broadcasted. Among the esports tournaments that we produced, Huya Destiny Cup Season 6 and then the fifth Huya Mobile Game Arena were the top ones. The scale of their viewers and then the new users they brought to our platform is comparable to some S-rated third-party official esports tournaments. On the entertainment show front, we produced a series of original PGC shows on our path to content diversification in this quarter. For instance, we produced Attitude, a reality show discovering the in-depth stories of the game live streaming industry. Spring Expert, a music talent show that attracted great enthusiasm and participation among our broadcasters. And High Streaming, a news show focused on e-sports broadcasters and professional leagues. Thanks to our dedicated efforts to drive quality content offerings, in the second quarter, our average mobile MAUs and MAUs reached record high of 75.6 million and 168.5 million, respectively. At the same time, our live APP's next month retention rate still remained over 70% in the second quarter. In line with the continued growth of our users, the paying users for WHOA Live also increased by 27% year-over-year to 6.2 million in the second quarter. The live streaming revenue for paying users for WHOA Live also increased year-over-year as we continued to unlock the monetization potential of our core user assets by effective operations of activities, such as Huya Fence Party, the online event we organized in June. As we continue to grow globally, we reached over 27 million MAUs for our overseas business in the second quarter. The growth was partially driven by increased internet usage as people were confined at home during the COVID-19 outbreak, similar to what we have experienced domestically in the first quarter. Now let me walk you through our financial highlights. In the second quarter, our total net revenues grew by 34% year over year to RMB 2.7 billion. This is the ninth consecutive quarter that we exceeded our expectations since our IPO. One thing I would like to point out here is that our gaming companion business revenue is booked after deducting the revenue sharing fees for the broadcasters, while our virtual gifting revenue is booked before deducting the revenue sharing fees for broadcasters. We started the gaming companion business in the second quarter of last year, so the difference in accounting treatment previously had minimal impact to the revenue growth. In recent quarters, it has grown more sizable. In the second quarter, the growth billing generated from our businesses actually grew faster than our recognized net revenues. Our live streaming revenues increased by 34% year over year to around RMB 2.6 billion in the second quarter. The growth was primarily due to the increased number of paying users and then the increase in revenue per paying user, both of which have expanded year over year and quarter over quarter. Advertising and other revenues increased by 49% year over year to RMB 132 million in the second quarter, primarily driven by the increasing and diversifying number of advertisers. There's a slight decrease in advertising revenue from Q1, mainly because of the higher user base set by COVID-19 for gaming advertisers in the first quarter. Our profitability continued to improve in the second quarter as we benefited from the savings in optimizing our broadcaster signing fees while we continue improving our operational efficiencies. Our non-GAAP growth margin improved to 21.9% compared with 20.3% in the first quarter and 16.9% in the second quarter last year. Our non-GAAP operating margin improved to 12.1% compared with 9.4% in the first quarter and 5.8% in the second quarter 2019. Our non-GAAP net margin improved to 13% compared with 10.9% in the first quarter, and 8.5% in the second quarter, 2019. Now let me move on to our financial details with year-over-year growth rates. Cost of revenues increased by 27% to RMB 2.1 billion for the second quarter, 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 24% to RMB 1.7 billion for the second quarter, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues and increased spending in content creators, esports, and self-produced content. The year-over-year increase was partially offset by benefits from economies of scale. Bandwidth costs increased by 35% to RMB 265 million for the second quarter, primarily due to an increase in bandwidth usage as a result of our larger user base and enhanced live streaming video quality. This was partially offset by improved efficiency in bandwidth utilization through continued technology enhancement efforts. Growth profit increased by 71% to RMB 575 million for the second quarter, and growth margin increased to 21.3% for the second quarter. Research and development expenses increased by 71% to RMB 180 million for the second quarter, mainly attributable to increased personnel related expenses. Sales and marketing expenses decreased by 4% to RMB 150 million for the second quarter. The decrease was primarily attributable to lower spending in marketing activities due to the impact of COVID-19 and partially offset by the increased personnel related expenses. General and administrative expenses increased by 61% to RMB 120 million for the second quarter, mainly due to the accelerated share-based compensation expenses recognized in April 2020 in the event of a change of control. In terms of the total share-based compensation expenses, we also have a recent update to share with you In April 2020, we recognized RMB 57.7 million of share-based compensation expenses in our cost of revenues and operating expenses from the accelerated lasting schedule of HUYA's pre-IPO options in the event of a change of control pursuant to our 2017 Share Incentive Plan and Option Agreement. Operating income increased by 198% to RMB 201 million for the second quarter, and operating margin increased to 7.5% in the second quarter. Non-GAAP operating income, which excludes share-based compensation expenses, increased by 180% to RMB 326 million for the second quarter. Non-GAAP operating margin increased to 12.1% for the second quarter. Income tax expenses increased by 137% to RMB 51 million for the second quarter. Net income attributable to Huya Inc. increased by 86% to RMB 227 million in the second quarter. And non-GAAP net income attributable to Huya Inc. which excludes share-based compensation expenses increased by 106% to RMB 351 million for the second quarter. Diluted net income per ADS was RMB 0.96 for the second quarter and non-GAAP diluted net income per ADS was RMB 1.49. As of June 30th, 2020, We had cash and cash equivalents, short-term deposits and short-term investments of RMB 10.7 billion compared with RMB 10.3 billion as of March 31st, 2020. The increase was primarily due to net cash provided by operating activities of RMB 512 million for the second quarter. That concludes the review of our second quarter financials. As you may have noticed, we did not provide specific quantitative revenue expectation for the third quarter. This change is in line with the practices of our largest shareholder Tencent and its consolidated subsidiaries. However, directionally, we still expect our revenues to continue to grow in third quarter, both year over year and quarter over quarter. Also, here to update that we received a non-binding proposal letter from Tencent yesterday, proposing that Huya and Douyu enter into a stock-for-stock merger to be affected pursuant to applicable laws. As a result of such proposal, Huya or its subsidiary would acquire each outstanding ordinary share of Douyu, including ordinary shares represented by ADS. in exchange for a to be agreed number of newly issued Class A ordinary shares of Huya, including ordinary shares represented by ADS. The independent and disinterested members of the board will review and evaluate the proposed transaction. The board just received the non-binding proposal letter from Tencent yesterday and thus no decisions have been made with respect to the company's response to the transaction. With that, I would like to open the call now to your questions.

Ladies and gentlemen, we will now begin the question and answer session. 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 the pound or hash 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. To give more people the opportunity to ask questions, please keep yourself to no more than two questions at a time, and you may press star one again if you have a follow-up question. Thank you. Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

晚上好,谢谢管理床介绍我的提问, 恭喜这么强劲的业绩。 我有两个问题, 第一个问题是看到我们跟腾讯 开展在直播跟eSports方面的合作, 在未来一段的时间, 在下半年还有明年的话, 我们会跟腾讯呢, 在哪方面还是会加强合作,或者是我们有没有什么KPI可以分享呢? 第二个问题是关于第二半,就是下半年我们对MAU跟部分用户数的展望。 Thanks management for taking my questions and congratulations on a strong set of results. I have two questions. My first question is about the cooperation with Tencent. in the second half, and any KPI that can be shared in the next few years, given the solid progress is made in live streaming and esports. And my second question is about the user trend. Can management share about the MAU and the paying user outlook in the second half? Thank you.

Okay, let me answer the first question. . . . . . . . . . . Another thing is about the training of the streamers. We are now trying to expose the function of one-click streaming in some Tencent games. In this way, the user can turn on one-click streaming at any time while playing the game to play the game live on this side of Huya. Yes. Another thing is that in terms of e-sports, whether it is in the copyright content, as well as commercial cooperation and the improvement of the new user experience. We have a deep discussion with companies such as Tencent. The rest is in terms of technology. In terms of big data and AI, we have also used a lot of Tencent's data on games and so on, which can help the users of the Huya platform to recommend in a more precise way. In addition, in terms of cloud games, our games are also cooperating with Tencent. We also hope that our cloud game platform can try to find a new mode of combining live streaming and cloud games.

Okay, as a translation, regarding the cooperation with Tencent, actually before Tencent became our controlling shareholder, we have already got the existing deep cooperation with them. After they became the largest shareholder of Tencent, the cooperation has been deepened in various aspects. So it's been expanding over the past few months. In terms of the respect of the cooperation, firstly, I would like to say that We have already been connecting to Tencent's games and the products in the second quarter, and there will be more to come connecting with more of Tencent's games and products in the next few quarters. And secondly, actually WHOA's live streaming content has already been connected in Tencent's WeGame, WeChat Game Center, and QQ Mobile Game Center. And the traffic that we gained from those channels has now been counted to the reported total MAUs. And this traffic from those external links actually got a quarter-over-quarter growth of 16 in the second quarter from Q1. And thirdly, in terms of the cultivating of the broadcasters, Actually, we have been cooperating with some of Tencent's games to test an exclusive service built within Tencent Games, which is called One Click Streaming Service, just so that when Tencent's gamers play games, they can simultaneously live stream their gaming experience through a click of a button, and essentially they will become our broadcasters. And on the fourth respect, actually we're also working with Tencent in terms of cultivating the esports tournament side. In addition to copyright licensing, commercialization, optimizing the viewers' experience by upgrading the product features. We are also in cooperation and communications with TGA Sports to see if any more of the new products or new features or new business models can be applied to the esports tournaments. And on the technology side, We are working with Tencent to drive the development of big data and artificial intelligence technology. And also we are trying to connect it to Tencent's database just so that with the data at hand that we can optimize viewers, personalize the experience by personalize the recommendations provided to them. And lastly, As you have noticed, we have recently launched our cloud gaming platform called YUA. And currently, the game titles that is covered by YUA is of great support from Tencent. So these are all the respects of cooperation with Tencent. And Catherine will take your next question. As to your second question, in terms of user growth and paying user growth, as Mr. Dong just mentioned, along with the strengthening cooperation with Tencent, as well as our investments in content such as broadcasters, third-party esports tournaments, as well as self-generated content. We believe that our users and paying users will continue to grow in the second half of this year. Hope this answers your question, and thank you, and next.

Your next question comes from the line of Lei Zhang. Please ask your question.

管理层晚上好,恭喜强劲的业绩。 我第一个问题可能还比较老生常谈, 就是还想听一下管理层对竞争这方面最新的一个看法, 尤其是我们的这个短视频的 peers 像快手最近也公布了一些游戏直播相关的数据。 Then there is also Bilibili, which also has a gambling right in the second half of the year. So will this have a little impact on our growth in the short term and the medium term? How do we look at this? Then the second one is in terms of finance. I see that we have quite a lot of profit this quarter. So I want to know if you can provide us with a little more profit, especially our main cost, such as content cost and some of the division. Thank you for taking my question. Congrats on strong results. My first question is still regarding competition. Could you share with us your update on the competition with short video players, especially like Kuaishou, which announced certain game streaming-related numbers, and Bilibili, which have a broadcasting rights for League of Legends Championship. Do you see any near-term or long-term impact to our business? And secondly, it's about our profitability, which is much better than expected in second quarter. Can you give us more color on this, specifically the trend of your key cost items like content cost and revenue sharing? Thank you.

Okay, let me answer the first question, which is about short videos and Bilibili. It's been a long time since I've done a live stream on Bilibili. Of course, it's been a long time since I've done a live stream on Bilibili. And we can see that these two companies have invested a lot in live streaming this year. But you can see that, first of all, in terms of data, the development of Huya . . . . . . . . . . . This live broadcast and this peaceful live broadcast, we see that it doesn't have a big impact on Huya. This is the most important part of the video. The other part is the competition. We are still discussing with the relevant parties about Huya's broadcast. It should be Yes, we are still in the process of communication. In general, the first thing we hope is that we can win such a good tournament. This is the first thing. The second thing is that we have evaluated. Based on the current situation this year, we think that the SI tournament is controllable for our influence on Huya. Because just like we mentioned earlier, our own tournament, The amount of our own content, in fact, we see from many channels, including DOA, Laxin, we actually add up the amount with our third-party sites. Yes, in fact, it's the same quantity. So we generally think that the first one, of course, we have to fight to win the SIS. The second one, even if we can't win the SIS, I don't think it will have a big impact on Huya.

As a translation, regarding your question about the competitive landscape in relating to Kuaishou and Bula Bula, actually the two parties have been doing game live streaming for long, and recently we have noticed that they have increased their investments in producing and preparing for such content. But I would like to answer your question from two respects. Firstly, from the data that we have observed and monitored, I think the impact from either question or billability is quite limited to Huya. And secondly, we also noticed that they have an inclination to livestream more focused on the mobile games. And as you might know, we are quite strong in terms of streaming the mobile game titles. And we believe our competitive advantage of streaming mobile game titles is absolute, especially in broadcasting Honor of Kings and Peacekeeper Elite. So we don't really think the impact is that much. And about your question regarding the broadcasting rights for the World's Final of 2020 League of Legends, what we can say right now is that we are still in active communications with such parties to... to get the sub-licensing right of broadcasting such esports tournaments. But firstly, of course, we would like to get the sub-licensing rights of broadcasting World Final of 2020 League of Legends, because it's a very excellent esports tournament. But secondly, I would like to say that From what we have observed in the data monitoring, the new traffic or the user or the DAUs brought by the, if we don't get the sub-licensing right from the world's final, the impact would be limited, especially considering that as we have disclosed in the prepared remarks, the self-produced content, whether in PGC or esports tournaments, the new users and the DAU, those traffic brought by our self-generated content is already comparable to some of the athletes in the esports tournaments. So as a conclusion, we will try our best to get the sub-licensing right, but if we don't get it, we think it's still manageable. So Catherine, we'll take your second question. As regarding to the margin improvement, Our gross margin improvement is primarily from the savings in optimizing our broadcaster signing fees. In the second quarter, we have cut cost of the broadcasters who have relatively low price-to-performance ratio, both domestically and overseas, and thus we have pretty significant savings from the broadcaster signing fees. And in terms of operating margin improvement, that was partially due to the operating efficiency improvement, and also we have received more government subsidies in the second quarter compared to the first quarter. Hope this answers your question. Thank you. And next.

Your next question comes from the line of Yuwen Zhang of SIPI, please ask your question.

Hey, good evening. Thank you for answering my question. I have two questions. First, I would like to ask about our cooperation with Tencent on the user side. As I mentioned, we have some users on WeGame, SoQ, and WeChat games. Do we have any plans to turn them into our app users? Thanks management for taking my question. So the first question is regarding terms of collaboration on user side. You mentioned we have viewers on WeGame, WeChat Game Center and also Google Game Center which are not included in our reported MAU. So any plan to convert these users into our app users? And also in terms of the user behavior, do we see any difference among these two user groups? And my second question is a hypothetical one. If we do not consider competition factor, how do we view the future of China's in-line streaming? For example, the GS4 user base and the new business model. Thank you.

I would like to answer this question. As mentioned earlier, the content of Huya is based on the game and product of Tencent. Uh, uh, uh. uh, uh, This is what I mentioned before. From what we've seen so far, since the video platform, especially the short video platform, joined the game live broadcast, we can see that the scale of our new users and the volume of the market is growing rapidly. So I think, first of all, we want to thank this short video platform for educating a lot of new users of domestic live games. Yes, I think this is the first one. Secondly, we also saw that in the last hundred years, in fact, China's domestic game revenue growth is the highest in recent years. So to summarize, we actually think that I think the domestic gaming industry will develop very well in the future. In my opinion, the game streaming industry will definitely develop well. This is the second point. The third point is that we can see that as e-sports grows, e-sports will gradually become a standard for gaming. Yes, and then, with the continuous development of e-sports, I think this is a big advantage for the entire gaming live broadcast industry. Yes, this is the second point. Yes, and then the last point is, actually, from the inside, we hope that in the future, we can combine the business model of gaming live broadcast with the business model of gaming video. In this case, Okay, as a translation regarding your first question about the

resources and the traffic that we gain from Tencent external links. As we have just said, WHOYA's live streaming content is now connected to some of Tencent's games and products, and the major difference of the experience that you will have in those external links and within WHOYA's core app is that within those external links, those Tencent games or products the interactive feature and the virtual gifting feature will be limited. So the experience is not comprehensive. Based on this, we didn't count all the external links traffic into the reported MAU. But we are still in active communication with related project teams of Tencent. just so that we can enrich and diversify the content ecosystem with intensive schemes and products. And probably in future, there might be a chance for us to share revenues with such related project teams in future. And secondly, Your question on the competitive landscape, if theoretically, if hypothetically, we didn't consider the new competitors, new entrants. Actually, we have been seeing that previously, that with the new entrants of those short form videos entering into the game live streaming industry, we have been seeing the new traffic and also the market size, those two things have been growing after the new entrance of the short form videos entering into the industry. And we actually are very much appreciating that they have been helping us to educate the users. And in the first half, the total revenue generated by the game industry is actually enjoying the highest growth rate that we have seen in the past few months. And this sets us to the conclusion that probably for the game live streaming industry, if we don't consider other factors too, the future of the industry, just based on the growth of the game industry, the future of game-wide streaming industry is already prospectus in the future. And my third point is regarding the eSports tournament. As with the popularity of the eSports tournament in the industry over the past few years, It actually has already become a sensational activity among all the gamers and probably also a must-have experience of the gamers. So we think with the help of the eSports tournament and its popularity, it's also going to be beneficial to us as game live streaming industry players. And also my last point is regarding the combination of game live streaming content and game video content, which we have been placing a lot of efforts in. So going forward, what we would like to see is that one single user can actually enjoy a different dimension of content consumption on our platform, both in game live streaming and in game videos. And with the quality product, with the quality content in the short form, in the video production, we think Hoi An might have this chance to grow the user base and carry that into the next phase of the growth. So thank you, that's all for the questions. Please move on to the next.

Your next question comes from the line of Alex Liu of China Renaissance. Please ask your question.

Okay, thank you, Guan Yicheng. I have two questions. The first question is, I would like to ask about the fact that Huya has been talking about the game for a while. I would like to ask, since the cooperation with Tencent is getting deeper and deeper, I would like to ask what kind of follow-up cooperation will be made with Tencent in the future in terms of the game, and then the commercialization of the game itself, and then what do you think, Guan Yicheng? This is the first question. The second question is, I would like to ask about a question I just answered, which is, In the long run, we've heard some of the competitors' comments. Maybe some of their paychecks are now based on some of the fees. I'd like to see if the cost of the streamer's paychecks itself has become a concept of variable cost in the long run. For example, in the long run, all the fees given to our game streamers are a I'll translate myself. The management talk about will provide more color on how will we work with Tencent more closely on cloud gaming and the potential commercialization model of cloud gaming going forward. And also, secondly, just on the game host sign-on fee, where does the management see this cost item to stabilize in the longer term?

Okay, let me answer that. The development of the cloud game is relatively early. So I want to say that, first of all, we hope that we will continue to improve on this line. Secondly, we hope that we can really solve the user experience of the cloud game today. Yes, so from my point of view, we think that the large-scale commercialization of the cloud industry, at least from the point of view of Huya, we think that it may need to be polished for a while. Yes, this is the first one. The second one, but from the behavior of our own platform users, we actually think that the future of the cloud industry is to combine with live broadcasts. Yes, we see similar data in the world. This is very good. So we are very confident about the combination of cloud games and live streaming platforms. This is the part of cloud games. And then for another live stream signing fee, first of all, in terms of Huya, our live stream signing fee has little to do with its flow. Our signing fee is more focused on whether the content provided by the live stream is good enough. That's right. So our signature fee is more similar to that of its users, like ACO, its user flow, and these quality indicators. Yes, our flow is relatively not important in our signature fee. But we also agree that in fact, with the development of the live broadcast industry, especially like the head anchor, . . . Okay, as a translation, regarding your first question about the cloud gaming, actually the cloud gaming business for who we are, or even for the industry, is at a very early stage.

And who has meant such business is that, firstly, we will keep a close eye on the industry in terms of development and catching up with the latest trends. And secondly, we will work to continuously optimizing user experience for our cloud gaming platform. And from the data that we have seen right now, we think massive commercialization or massive monetization is still not there yet for Huya or for the business. And secondly, from the data that we have observed in user behavior, we think the experience of cloud gaming platforms is at its best to be combined with the live streaming experience. which means probably in the future we will provide more interactive feature to viewers' streaming experience by combining the content streaming together with the cloud gaming playing. That's for the cloud gaming business. And regarding your signing bonus trend, Actually, for Who Has Business right now, the signing bonus fee for the broadcasters is not related to the broad things that a broadcaster can generate. It's more decided by the quality content one broadcaster can produce and also by the viewers that they can generate, such as operating metrics as ACUs or retention rates. But if we take a step back and review your suggestion like getting the grossings and signing bonus fees together, we think for the top streamers in the industry, they are enjoying a very high signing bonus fee. And we are actually thinking about to guide them to contribute more to the monetization or commercialization of the platform. And I can cite an example for you. In the e-commerce streaming business, actually the quality and the top streamers in the industry, they can generate a very good amount of grossing that they can. they can contribute to the platform. So I think it's a very good example to apply to the game live streaming and encourage those broadcasters, those top broadcasters to contribute more and to participate more into the commercialization and monetization activities of the platform. Thank you for your question. We can move on to the next.

Your next question comes from the line of Binnie Wong of HSBC. Please ask your question.

晚上好,恭喜管理層有個很強勁的業績。 第一個問題想問問就是虎牙這個quarter的MEE就已經跳躍了多餘,就是很強勁。 但是我們發現也就是看成本上我們也沒有加大投入。 那我的margin还是有improved的。 所以其实我想问问就是说, 这个很强劲的MAE增速是什么情况, 什么原因的driver,主要这方面。 然后就是如果我们看下半年, 你觉得就是在那个user acquisition方面, 其实这个竞争比去年之列还是说, 因为现在可能之后合并之后呢, 那这个会比较rational来一些点。 Now, we will just translate my question very quickly. So we observed that HUYA MAU surpassed the DOE risk order. And then also with that, margins has also continued to improve without much incremental cost. So what are the key drivers behind the strong user growth without much incremental cost? And then if you look at the use acquisition strategy this year, do you see the competition has been rationalizing and then so we should be able to see margins trajectory continue to be improving? Thank you, management.

I will answer first the question. In terms of MAU, the strong growth was mainly because in the second quarter because of the pandemic has pretty much domestically in China has resided and most of the offline Internet cafes has reopened. As we mentioned in the first quarter's earnings call, In the first quarter, because of the offline internet cafes have mostly been closed down, so we have lost some of the non-PC, non-mobile MAUs in the first quarter. And in the second quarter, that part of the users have picked up. And in your second question, for the proposed merger of Huya and Douyu, Because we just received a proposal yesterday and the independent and disinterested members of the board will review and evaluate the transaction. So from the board perspective, there is no decision so far. And we will update the investors if there are significant changes. milestones and there is a decision to be reached. Thank you. And the next.

Your next question comes from the line of Wendy Chen of Goldman Sachs. Please ask your question.

Okay, thank you very much for accepting my question. I will quickly ask a question about internationalization. In 2019, we mentioned that we have 20 million users overseas. I would like to ask what is the main focus of internationalization now? And now, maybe Chinese companies will encounter some relatively, for example, geopolitical and political difficulties. Do we have any updates on the current internationalization strategy? 然後這可能會對我們將來的這個margin profile會有什麼影響, 因為畢竟國際化這方面還是一直是有一些投資在裡面的。 那我很快翻譯一下。 Thanks for taking my question. So I just have one quick question on the international expansion part. So I'm wondering if you can let me share what is our geographic focus area for the international expansion right now, and whether we have any update on the globalization strategy with all the... potential headwind we have seen for the Chinese corporate overseas endeavor? And also, if there's an update, whether there will have any impact on our margin profile as we have been invested for international expansion? Thanks very much.

Okay, let me answer this. Our overseas market this year and the past two years actually have a big difference. In the past two years, in 2018 and 2019, we mainly focused on the user scale. This year, we believe that after the user scale is reached a certain stage, we need to to re-examine the health of our entire ecosystem. In other words, we have to seriously consider commercialization. So this year, we are actually on the overseas business of Huya, when we are choosing a country, we are especially concerned about whether our investment and output in this country can have a relatively reasonable proportion. So from this point of view, in fact, we basically have not entered the U.S. yet. India, for example, we believe that it will need some time to recover. So, we have very little investment in India at the moment. So, in terms of revenue, we believe that Southeast Asia and Latin America will have more potential in the future. So, in the near future, we may continue to expand Southeast Asia and Latin America, similar to the Middle East. We believe that

As a translation, actually the overseas business that we are deploying for this year is a little bit compared with what we have played in the year of 18 and 19. So in the past two years, what we have been focusing more is on the market size growth But entering into 2020, we have been carefully evaluating the healthiness of the ecosystem and also emphasized more on the commercialization and return on investment. So in deciding which country for us to enter in this year, We focused more on exploring a more reasonable ROI, which is why we didn't really enter United States. And also speaking of India, since we believe the potential of revenue in India is quite limited, so we didn't really spend much money on that. We didn't really put a heavy investment in India. So that's for the business in those two countries. Speaking of the countries that we have focused more, it's actually more centered in the Southeast Asian countries and Latin America, which we think is of great potential in both users and monetizations. And taking that together with Middle East, those are the areas, yes, that we will be focusing more in the near future, especially considering that those countries will have a balanced play between user growth and monetization. So that's your question. Can we move on to the, okay. Operator, I think we have, it is about time. And I would like to thank you again for joining our conference call today. If you have further questions, You can reach the team at iraquia.com. And we look forward to speaking with you in the next quarter. Thank you, operator. We can conclude the call.

This concludes today's conference call. You may now disconnect your line. Thank you.