HUYA Inc.

Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and full year 2020 earnings conference call for Huya Inc. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. And I'd like to turn the call over to Ms. Dana Chang, Company Investor Relations. Please go ahead. Hello, everyone, and welcome to Goya's 2020 first quarter and four-year earnings conference call. The company's financial and operational results were issued earlier today, and I'll post it online. You can also view the earnings press release by visiting the IR website at ir.goya.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. Rong Jie-dong, Chief Executive Officer of Goya. and Ms. Catherine Lill, 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 today's discussion will contain forward-looking statements made under the safe cover provisions of the U.S. Private Security and Publication Reform Act of 1995. Forward-looking statements involving hearing reaps and assurances. As such, the company's results may be inherently different from the bills expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public followings as well as the U.S. SEC. The company does not assume any obligation to update any follow-up statements except as required under applicable laws. Please also note that COIA's earnings pressure released in this conference call includes discussions of unnotated gap financial information, as well as unnotated non-gap financial measures. OAS Press Release contains a reconciliation of the unnotated non-gap measures to the unnotated most directly comparable gap measures. I will now turn the call over to our CFO, Ms. Katherine Liu, who will read prepared remarks on behalf of our CEO, Mr. Longjie Dong. Catherine, please go ahead. Thank you, everyone, for participating in our conference call today. I am pleased to deliver today's opening remarks on behalf of Mr. Dong. We are very pleased to report another quarter of solid performance across our businesses, allowing us to finish 2020 on a strong note. Total net revenues for the fourth quarter of 2020 increased by 21%. year-over-year to close to 3 billion RMB, while full-year revenues crossed the 10 billion RMB mark for the first time. We believe our enhanced monetization capability sets a solid foundation for us to reinvest into the business and strengthen our future. Robust user growth and higher user engagement also continue to underline our ability to execute well. Mobile MAUs of Goya Live reached 79.5 million in the fourth quarter, a year-over-year growth of 29%, and a net addition of 5 million compared to Q3, further reinforcing our leadership position on the mobile end. Strong mobile growth was driven by the continued buildup of our quality content library especially with e-sports tournaments and entertainment programs, plus improvements as well as marketing activities. Meanwhile, our Who We Are Live APP's next-month retention rate remained at over 70% in the fourth quarter. Driven by mobile growth, average MAUs of Who We Are Live in the fourth quarter increased by 19% year-over-year. to $178.5 million. Paying users for VR Live increased by 18% year-over-year to $6 million in the fourth quarter. Notably, around 80% of our paying users paid with mobile devices, and mobile users contributed to more than 85% of our live streaming revenue this quarter. further endorse our mobile strategy focus as we continue to allocate resources to grow our mobile user base. The growth in both financial and operating matrix validates the strong appeal of our content. Achieving such sound results in the midst of a global pandemic proves the resilience of our business and represents an important milestone for our company as we move forward. We have also committed to creating more immersive experiences for our users. In the fourth quarter, our open platform for third-party application developers continued to gain popularity. By the end of fourth quarter, there have been around 200 tools available across the platform and over 400,000 broadcasters. have used these tools during their streaming sessions. Most of the tools are game-centric, offering smart assistance to broadcasters to better engage users. Since we officially launched our cloud gaming platform, Yuva, in November last year, we have been able to reduce latency to deliver an industry-leading level of user-playing experience Thanks to our continuous technology advancement and our average stable time spent per user of Yuva has now reached around 90 minutes, indicating higher engagement. We have also studied efforts in the integration of the cloud gaming function into our core VR live streaming for broadcasters to better interact with users. Now moving on to our collaboration with Tencent. In the fourth quarter, average MAUs who watched the real-life streaming content from Tencent's platform, which are not counted in our reported MAUs, was around 20 million, with WeChat Game Center and LOL games remaining as the most popular channels. On the broadcaster front, Oya has collaborated with Tencent to help our broadcasters receive greater exposure within Tencent's game communities, further increasing their influence. For example, the owner of King's Game Video recently cooperated with a celebrity broadcaster on Oya's platform to release the broadcaster's voice packets within the game. After the release, The broadcaster gained over 5 million fans in the in-game community, assessing a greater audience and expanding the potential streaming viewer base. Next, I will provide you some updates on the ongoing merger with Douyu. After we announced our potential merger with Douyu in October last year, we have made relevant filings with SECs. And in China, we have voluntarily submitted the declaration of concentration of undertakings with the state administration for market regulation, the relevant regulatory authority. And currently, the review is still in the process. As we embrace 2021, we will continue to extend the breadth and diversity of our platform and invest in content ecosystem, product upgrades, and technologies to better serve our growing user base. This concludes Mr. Dong's remarks. Let's start with updates on content enrichment and diversification. In Q4, we broadcasted 149 third-party esports tournaments, among which the top tournaments included LOL Worlds 2020, i.e. S10 and the Demacia Cup, four seasons of KPL and PCL, and exclusively broadcasted National Electronic Sports Tournament, MEST. Total viewership for these tournaments reached around $665 million in the fourth quarter, representing a 24% year-over-year growth. As far as our self-produced content, we organized 48 esports tournaments and entertainment shows and generated a total viewership of 109 million, representing 53% year-over-year growth. The top-performing self-produced esports content in the fourth quarter include our long-standing PUBG event, Huya TMC Season 8, and our commentary program for LOL Worlds, Hushuo S10. In TMC S8, there are eight international teams also joined the competition for the first time, and then the success of this global participation is a further testament to our ability to organize high quality esports events. Among the entertainment PGC shows this quarter, Wake Up Losers, an ultra chess themed reality show, The Voice of Huya, an outdoor talent show, and Huya Kung Fu Carnival season three, a mixed martial arts competition, have gained popularity. and we believe such shows will continue to improve user sickness and health problems. Turning to our overseas business, the MA use of overseas business was around 30 million in the fourth quarter, representing a 50% year-over-year increase. We also achieved leading market position in certain countries and had some successful monetization attempts through our localized operational efforts. Next, I will walk you through our financial highlights. In the fourth quarter, our total net revenues grew by 21% year-over-year to close to RMB 3 billion. Our live streaming revenues increased by 20% year-over-year to RMB 2.8 billion in the fourth quarter. was primarily due to the increased number of paying users and the increase in revenue per paying user, both of which have expanded year over year. Advertising and other revenues increased by 45% year over year to RMB 175 million in the fourth quarter of 2020, primarily driven by the increasing and diversifying number of advertisers Our profitability continues to improve this quarter, given the leverage we have in bandwidth costs and our operational efficiency. Our non-GAAP growth margin improved to 20.6% compared with 19.5% in the fourth quarter last year. Our non-GAAP operating margin was 9% compared with 7.4% in Q4 2019. and our non-GAAP net margin was 10.2% compared with 9.8% in Q4 2019. Now let me move on to our financial details. If not specified, all the growth rates are on year-over-year terms. Cost of revenues increased by 19.6% to RMB 2.4 billion for the fourth quarter primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 29.8% to RMB 2 billion for the fourth quarter, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues and then an increase in spending in esports and self-produced content, as well as on content creators. Bandwidth costs decreased by 26.1% to RMB 167 million for the fourth quarter, primarily due to improved management in bandwidth costs and continued technology enhancement efforts. Growth profit increased by 28.1% to RMB 598 million in the fourth quarter, and growth margin increased to 20% for the fourth quarter. Research and development expenses increased by 21% to RMB 216 million for the fourth quarter, mainly attributable to increased personnel related expenses. Sales and marketing expenses increased by 63.2% to RMB 193 million for the fourth quarter, primarily attributable to the increased marketing expenses to promote the company's content product services and branding, as well as increased personnel related expenses. General and administrative expenses decreased by 0.3% to RMB 96 million for the fourth quarter, mainly due to improved management efficiency. Operating income increased by 84.4% to RMB 187 million for the fourth quarter. and operating margin increased to 6.3% for the fourth quarter. Non-GAAP operating income, which includes share-based compensation expenses, increased by 46.5% to RMB 269 million for the fourth quarter, and non-GAAP operating margin increased to 9% for the fourth quarter. Net income attributable to Huya Inc. for the fourth quarter increased by 58.6% to RMB 253 million. And non-GAAP net income attributable to Huya Inc. for Q4, which excludes share-based compensation expenses, gain-of-fare value, change of investments and equity-investees' investments and equity-investees' Partial disposal of its investment net of income taxes increased by 26.5% to RMB 306 million. Diluted net income per ADS was RMB 1.05 for Q4 and non-GAAP diluted net income per ADS was RMB 1.27 for Q4. As of December 31st, 2020, the company had cash and cash equivalent short-term deposits and short-term investments of RMB 10.5 billion compared with RMB 10.8 billion as of September 30th, 2020. The decrease was primarily attributable to the land use right acquisition of approximately RMB 310 million in Foshan City in November 2020. The net cash provided by operating activities was RMB $459 million for the fourth quarter. Moving on to our full year 2020 results, total net revenues in 2020 increased by 30.3% to RMB $10.9 billion. Live streaming revenues increased by 29.3% to RMB 10.3 billion in 2020, primarily due to the increase in the number of paying users and an average spending per paying user over their life. The increase in the number of paying users was primarily driven by the company's overall user growth. The increase in average spending per paying user was primarily driven by the enrichment and enhancement of content, products, and services. Advertising and ad revenues increased by 51.3% to RMB 603 million in 2020, primarily driven by the increasing and diversifying advertiser space, many attributable to strengthen recognition of Huya's brand name in China's online advertising market. Cost of revenue increased by 25.4% to RMB 8.6 billion in 2020, 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 27.6% to RMB 7.1 billion in 2020, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues, and then the increase in spending in esports and self-produced content, as well as on content creators. Bandwidth costs increased by 9.8% to RMB 879 million 2020 primarily due to an increase in bandwidth usage as a result of the company's larger user base, partially offset by improved management in bandwidth costs and continuous technology enhancement efforts. Worth profit increased by 53% to RMB 2.3 billion in 2020 and growth margin increased to 20.8% in 2020. Research and development expenses increased by 44.3% to RMB $734 million in 2020, mainly attributable to increases in personnel related expenses. Sales and marketing expenses increased by 27.3% to RMB 558 million in 2020, primarily attributable to the increased marketing expenses to promote the company's content, products, services, and branding, as well as increased personnel related expenses. General and administrative expenses increased by 26.1% to RMB 445 million in 2020, mainly due to the increase in personnel related expenses. Operating income increased by 177.4% to RMB $725 million in 2020, and operating margin increased to 6.6% in 2020. Non-GAAP operating income, which excludes share-based compensation expenses, increased by 108.6% to RMB 1.1 billion in 2020, and non-GAAP operating margin increased to 10.4% in 2020. Net income attributable to Hoi An Inc. increased by 88.9% to RMB 884 million in 2020, and non-GAAP net income attributable to Hoi An Inc. in 2020, which excludes share-based compensation expenses, gain-on-fare value change of investments, and equity investee's investments, and equity investee's partial disposal of these investments, net of income taxes increased by 68.2% to RMB 1.3 billion. Diluted net income per ADS was RMB 3.71 in 2020. and non-GAAP diluted net income per ADS was RMB 5.29 in 2020. Net cash provided by operating activities was RMB 1.2 billion for the full year of 2020. With that, I would now like to open the call to questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask your question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press a 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. So once again, ladies and gentlemen, if you wish to ask a question, please press star one now. Your first question comes from Thomas Chong from Jefferies. Please ask your question.

Thanks, management, for taking my question. My question is about 2021 outlook. Can management comment about how we should think about the revenue and the user growth trend for this year? On the other hand, can management also comment about our strategies for the gaming and the long game segments? Thank you.

Hello, everyone. I'm Dong Hongjie. Let me answer the strategic part. This year, in 2021, in terms of the business strategy, the first big direction is that we still hope that we can seize a few new mobile games this year on the live broadcast. We can continue to consolidate our regular advantage in the live broadcast field. We also hope that we can We have more leads on the e-sports market. And we may make more improvements on the e-sports market and the PCC content production. And then maybe a little bit about the video business. Maybe I mentioned it a little bit last year. Maybe the video business is a relatively slow business. The number we can see now is that our share has increased by nearly 40%. This is the current number. The core direction of our video business is that we are still continuing to make live broadcast videos. But we will still enhance the other part, because we have been thinking about the difference between a live broadcast platform and a video platform. Yes, so in addition to our regular live broadcast videos, we are also trying to integrate live broadcast and video into a product level. Yes, we have actually made a lot of attempts in this regard. In fact, there is a certain effect at present. Yes, our overall idea is that this should be one of the possible business breakthroughs in the future. Yes, this video is the fastest. In addition, in addition to live broadcast, the gaming community, including our closer contact with the project team of Tencent, we hope to be able to combine the information of the gaming community with our business in a deeper way. Yes, and then the non-gaming part, most of it is still the previous But we will explore more about some of the things that have been proven to be more effective in the past, such as outdoor sports, nature, and so on. And then, if we talk about overseas, we can talk about overseas. If we talk about overseas, we can see that this year, NEMO's overseas focus is to I hope to be able to do business eco-friendly at the ecological level. So we will, based on our assessment of the revenue balance in a region, make some adjustments to the revenue balance. We generally think that the area that is not able to collect losses, we may... Hi, I will translate for Mr. Dong. Regarding your first question, Mr. Dong has answered the strategic part of them.