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spk04: Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2021 earnings conference call for HUYA Inc. At this time, all participants are in 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 2021 first 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 price release by visiting the IR website at ir.gooia.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 Gooia, and Ms. Catherine Lu, 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 state's public provisions of the U.S. Private Security and Litigation Reform Act of 1995, forward-looking statements involving hearing risks and uncertainty. As such, the company's results may be materially different from the views expressed today. Further information regarding these and all other risks and uncertainties included in the company's prospectus and other public sellings as well as the USSEC. The company does not assume any obligation to update any seller looking statements except as required under applicable laws. Please also note that we have early press release and this conference call include discussion of unobstructed gap financial information as well as unobstructed non-gap financial measures. whereas press release contains the reconciliation of the unmodified non-GAAP measures to the unmodified mode directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Long Jie Dong. Please go ahead.
spk01: Hello, everyone. Thank you for joining our conference call today. We are pleased with the continued momentum we saw across our business in the first quarter which set us on a solid path to begin the new year. Total net revenues for Q1 increased to RMB 2.6 billion, demonstrating growth of 8% year-over-year. Despite the higher comparable revenue base associated with the pandemic lockdown period in Q1 2020, We continue to see new growth and believe that our relentless focus on content enrichment and product innovation will drive the future growth of our business and create more value for our users. The user growth that we enjoyed during the pandemic lockdown period has persisted and we continue to bolster our user community. In Q1, mobile MAUs of Huya Live reached 75.5 million, up slightly from the same period last year. Additionally, the next month's retention rate of our Huya Live app remained stable at over 70% in Q1. Mobile users have been the pillars of our business and our primary focus. In the fourth quarter this year, mobile users contributed to over 85% of Huya live streaming revenues, and they also constitute close to 80% of our core daily active users on Huya Live. Our mobile-first strategy has enabled us to become the industry leader, and we plan to further emphasize and grow this constituency, focusing on mobile users as our primary user metric. We believe our investments in content and products will gradually pay off. Our accumulated content has become the engine driving us forward, attracting new users and fulfilling more online needs as users are finding our platform to be progressively more comprehensive, attractive, and convenient. In Q1, we continued to reinforce our product offerings and the content library with a number of successful initiatives. In March, we launched an open platform for interactive features to offer more innovative gameplay and improves the uniqueness of Huya to game studios, broadcasters, and the viewers. A series of interactive features have been developed, including gift-dropping , broadcaster game battles , viewer-led interactive games, We believe the new features will not only strengthen our value proposition in the industrial value chain, but also help shape a new model for game operations and improve our capabilities in monetization diversity. As a first step, we cooperated with Chief Keeper A-Lite and embedded the interactive gameplay features within the game's live streaming and our Peacekeeper Lite channel. For example, when a game broadcaster strikes a chicken dinner or receives certain virtual gifts, the live streaming room will be triggered to send out designated in-game rewards for viewers to claim. The success of such new features has assisted Peacekeeper Elite to both acquire new traffic and retain existing users, and can also provide our viewers and broadcasters with more fun and immersive experience. Our open platform for third-party application developers also continued to expand in Q1. By the end of Q1, there were close to 220 tools developed and over 600,000 broadcasters had used these tools. On a quarter-over-quarter basis, the daily active users and the daily active broadcasters those who have used the third-party applications from the open platform grew over 100% and 40%, respectively. In April, we signed a licensing agreement with Tenjin Sports and locked down the exclusive broadcasting rights in China for League of Legends Pro League , League of Legends Developed League , and the LPL All-Star Weekend Series, as well as related licensing rights from 2021 to 2025. Securing these exclusive broadcasting rights will enrich our content offerings and strengthen our collaboration with Tenjin Sports to explore various opportunities. 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.
spk04: Thank you, Mr. Dong. And hello, everyone. Following Mr. Dong's remarks, I will start from the updates on content enrichment and diversification. In Q1, we broadcasted 92 third-party esports tournaments, among which the top tournaments included LPL Spring, PGIS and KPL Spring. Total viewership for these tournaments reached around 535 million in Q1. representing 41% year-over-year growth. On the front of our self-produced content, we organized 36 esports tournaments and entertainment shows and generated a total viewership of 195 million, representing 73% year-over-year growth. Recall that in Q1 last year, COVID-19 impacted the schedule of third-party esports tournaments and the hosting of our own offline events. We are glad that tournaments and events are back, which is also reflected in the higher viewership. Huya's game for Peace Spring event, i.e. Huya Men, Nanbei, He Ping Jing, Quan Ming Xing, YaoQingSan is a top-performing self-produced event in Q1 that has leveraged the influence of Huya's celebrity broadcasters to compete with professional gamers. Additionally, we organized the regional tournament for Team Fight Tactics within Huya's community and helped the rising game accomplish another signature event. on the entertainment PDC shows aside. I'm the styling team, i.e. I'm and fashion styling competition show and last winner, a role playing detective show are the leading examples of Q1. Moving on to our overseas business, the MAUs of our overseas business was around 25 million in the first quarter. slightly higher than the same period last year. Our strategy has been shifted to focus on regions and countries with higher monetization potential. And as a result, our overseas revenues almost doubled year over year. And our overseas loss also narrowed down. Next, I will walk you through our financial highlights. In Q1, our total net revenues grew by 8% year over year. to over RMB 2.6 billion. Our live streaming revenues increased by 5% year-over-year close to RMB 2.4 billion in Q1. The growth was primarily due to the increase of revenue for paying users. The number of paying users for VR Live in Q1 reached 5.9 million compared with 6.1 million for the same period last year. mainly because the users spend more time per day and are more willing to pay on our platform during the pandemic lockdown period last year. Advertising and other revenues increased by 55% year-over-year to close to RMB $213 million in Q1, primarily driven by revenues from content licensing. Our profits continue to improve in Q1, Our non-GAAP growth profit increased by 8% to RMB 531 million. Non-GAAP growth margin was 20.4%. Our non-GAAP operating profit increased by 7% to RMB 242 million. Non-GAAP operating margin was 9.3%. Our non-GAAP net profit increased by 1% to RMB 266 million. and our non-GAAP net margin was 10.2%. Now let me move on to our financial details. If not specified, all growth rates are on year-over-year terms. Cost of revenues increased by 7.9% to RMB 2.1 billion for Q1, primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 14.1% to RMB 1.7 billion for Q1, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues and the increase in spending in esports content. Bandwidth costs decreased by 24.4% to RMB 182 million for Q1. primarily due to improved management in bandwidth costs and continued technology enhancement efforts. Growth profit increased by 8.2% to RMB 514 million for Q1. Growth margin was 19.7% for Q1. Research and development expenses increased by 27.6% to RMB 199 million for Q1, mainly attributable to increased personnel related expenses. Sales and marketing expenses increased by 35.7% to RMB 145 million for Q1, primarily attributable to the increased marketing expenses to promote the company's content, products, services, and branding. General and administrative expenses decreased by 6.8% to RMB 84 million for Q1, mainly due to lower share-based compensation expenses. Operating income increased by 21.6% to RMB 162 million for Q1, and operating margin was 6.2% for Q1. Non-GAAP operating income which exclude share-based compensation expenses increased by 6.7% to RMB 242 million for Q1. And non-GAAP operating margin was 9.3% for Q1. Income tax expenses increased by 4.9% to RMB 39 million for Q1. Net income attributable to Boya Inc. for Q1 increased by 8.4% to RMB 186 million. Non-GAAP net income attributable to Hoi An Inc. for Q1, which excludes share based compensation expenses, gain on fair value change of investments and equity investee's investments and equity investee's partial disposal of its investment, net of income taxes increased by 0.9% to RMB 266 million. Diluted net income per ADS was RMB 0.77 for Q1, and non-GAAP diluted net income per ADS was RMB 1.1 for Q1. As of March 31, 2021, the company had cash and cash equivalents, short-term deposits, and short-term investments of RMB 10.7 billion compared with RMB 10.5 billion as of December 31, 2020. The increase was primarily due to net cash provided by operating activities of RMB 166 million for Q1. With that, I would now like to open the call to your questions. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, 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. Your first question comes from the line of Lei Jiang from Bank of America, Mary Lynch. Please ask your question. Hi. Then my first question is, do you have any new opinions on the competitive environment? Especially recently, I have seen some of our competitors, such as Bilibili, they also have a live broadcast recently, especially the game live broadcast. It looks good, so I want to hear about the competition, especially the competition with Bilibili. Is there anything more you can share with us? Then the second one is to see one of our quarters, which is advertising and other revenue. In fact, the rate is quite fast. In the past two seasons, it was almost the same trend. So I want to see if the main driver here is from advertising, or maybe it has something to do with some of the new business we set up before. Thank you management for taking my question. Two questions here. First, can you give us some updates in the competitive landscape, especially the competition with Bilibili, which is a good growth in life journey in recent quarter? Secondly, any color on growth of our advertising and other revenue? What's the major driver here? Thank you.
spk01: Okay, let me answer the data of the competitors. First of all, Bilibili, I think it's like this. As a company that has just entered the industry, so its previous period of the same rate is basically inevitable. You go to see YY or Huya, they are all like this. So I personally think that entering a new field, you more need to look at the return rate. So from our point of view, we think the pressure is not very big. This is the data level. Then from the competitive perspective, from the current pattern, the general situation has not changed much from last quarter. Basically, we are still doing our job well. Actually, this year, especially in the second half of this year, we can see that in the past almost a year and a half, we actually did not have new good games in the entire industry. But in the second half of the year, we see good games coming out one after another. So we are relatively confident in the second half of the year.
spk04: All right, I will check in for Mr. Dong regarding the first question. For Bill Burberry, as a new entry to the organic life streaming industry, it is pretty natural for YAM to be a relatively higher yearly growth as is due in the growth phase for YAM, especially thinking about that in the old days both J-O-Y-Y or Ho-Ya also enjoyed an outstanding year-over-year growth as well. So it is quite a natural thing to happen. And from our internal perspective, we don't really feel pressured or threatened by the entrances of the OERs due to attitude. And talking from the perspective of competition landscape, there is almost no change compared from the situation in the last quarter. And what we can do is to strengthen our own capabilities facing the current competitive landscape. And we see more opportunities in the second half of this year, because if you look back at the past one and a half years, There weren't really many of the good games, especially the blockbuster games in the industry, which is why we are more optimistic and expecting more opportunities from the new game launches in the second half of this year. And Catherine will take your next question. As for your question of the faster growth of advertising and other revenues, This is mainly driven by revenues from licensing of content. Okay, I hope this answers your question. Next. We'll proceed to the next question from Vincent Yu of Needham & Company. Please ask your question.
spk00: Hi, President, Catherine, good evening. Thank you for accepting my question. I have three questions. The first one is about our international business. What is our international business strategy this year? How much income contribution can we make in 2021? And can we achieve this income balance? The second question is about our content investment. In 2021, will our content investment be more focused on obtaining the broadcasting rights of e-sports competitions? Or will it be more focused on, for example, the production of content such as PUDC? And how big will the content investment amount be? The third question is to ask whether this supervision can influence the current process of our current merger. Thank you. Then I will translate it myself. Good evening. Thanks for taking my question. I have two questions. First is about what is our strategy for international market for this year? How much top line contribution will we see in this market will bring in 2021? And will we see a break even on the stand alone basis in 2021? Second is, can management help us understand more on the strategy around content investment in 2021? Will we focus on acquiring licenses for esports tournaments or in-house developments of PUDC content? And can we share the size of investments we are ready to deploy? The third question is, how should we think about the recent waves of antitrust probes brought by regulators? Can management share any process that we have for our current merger with Stoic?
spk04: Regarding our first question, for the international business, we're still at the investment stage and we still expect, we probably will continue to invest in overseas business for the next couple of years. But the good news is that this year our strategy has been focused on improving our monetization. So in the first quarter, our overseas revenue has doubled year over year, and we also expected that the overseas business revenue contribution will be increasing this year. At the same time, the loss of overseas business has also narrowed down both in terms of absolute dollar or as percentage of revenue. We think in some country, we will be able to make a break-even point. But overall, the overseas business is still going to be at the investment stage this year. And then for the next question, I will relate to Mr. Dong to answer this.
spk01: We will continue to make adjustments to the content investment. We just finished the recent public-private conversation. This is also a PTT program that we made ourselves. So on the content investment side, on the other hand, we still have to purchase this high-quality market. On the other hand, we will continue to make adjustments
spk04: All right, I will turn it back to Mr. Zhong regarding your questions for the content investments. We have already been asked about the progress of the current ongoing merger with Xiuyu. From what we can see right now, it is quite likely that in the third quarter this year, the deal will reach some sort of conclusion and in the future. And given these circumstances, we think they might adjust to the current strategy in terms of the content investment. In terms of the balance play between the self-produced content and purchasing the third-party esports tournaments, we think VR has been doing quite well in terms of producing its own branded content, whether in the form of non-gaming or in the form of game esports tournaments. For example, we have just recently posted a new series of the Huya Kung Fu Carnival, and it has gained a lot of attractions among the Internet users, which is why we will not only focus on purchasing the quality esports tournaments from the third parties, but we will also solidify our capabilities to produce our own branded content. Can we take the next question, please? Your next question is from Thomas Chong of Jefferies. Please ask your question. Thank you, management, for taking my question. My first question is, could management provide some updates about the cooperation with Tencent? The second one is, could management comment on the strategy this year in game and non-game broadcasting? Thank you. Regarding to your first question, this quarter we have continued the collaboration with Tencent. For example, in March we also launched an open platform for interactive features to offer more innovative gameplay. The first game that we have cooperated with is in terms of increasing the users and also increasing the interactive features, interaction between the users and then the platforms. At the same time, we continue to collaborate with Tencent in various ways such as games and also some of the major Tencent products as well. So we expected the collaboration with Tencent will continue to go on and in the future it will also bring us more users and also monetization opportunities.
spk01: The users are looking forward to the appearance of a new game console. For Huyao, this is a huge opportunity. We have always had a good leadership ability in new games, especially in new mobile games. So we think that in the second half of the year, our investment in new games will increase a lot. Is it possible to have more input on the third party content of the non-game?
spk04: Mr. Dunn has answered your question regarding the content strategy. Firstly, we would like to strengthen that Hoya is actually the platform in the game live streaming industry that has gained the vast majority of the third-party eSports tournament broadcasting rights, that is for the eSports tournament. And for the professionally generated we also have gained the leading production capabilities among the industry players. And secondly, from the gaming perspective, we have to say that a lot of the new opportunities will be there for the new games in the second half of this year, as it is quite likely that some of the new potential blockbusters will be released in the second half of the year. And it's quite accepted by the users to gain traction. And thinking about that, Huya has a natural advantage and a strong capability to promote new games and operate the new game live streaming sessions on our platform. we would say the opportunities are about to appear in the second half of this year, which is why we're going to invest some of our resources into promoting those new games. And on the front of the 19 content, looking at the data in the past, The growth rate for the non-gaming content is actually higher than the growth rate of the gaming content. And our content pool for the non-gaming factors are actually enjoying a post-barrage growth over the past few quarters. For example, traditional sports is actually quite outstanding in the past. And that makes us think whether we will need to invest into gaining the third party non-gaming content broadcasting rights in future. That is also quite potential for us. So these are our kind of strategy for the rest of the year. And we can take the next question. Yes. So for the next question, it's from Richie Sun of HSBC. Please ask your question.
spk02: Hello, Catherine. I have a question about video games. I would like to ask how the game video strategy is progressing. Is there any data that can be shared? For example, users. As the number of users of video games continues to grow, how will this affect our company's payment rate and ARPU? 我们应该是否解释这些专业级别的游戏视频用户可能会有较低的付费率或者是output? Thank you, management, for taking my questions. I have a question about game video strategy. So how is the traction of game video strategy? So any operating metrics to update us? And with more and more game video users, how would that affect the paying ratio and output trends going forward? Do we assume game video users are less hardcore and hence the paying ratio and output will be lower? Thank you.
spk01: Yes, this video business has actually gone back to about the first two Qs. We may be thinking about this business You're you're you're you're you're you're you're you're you're you're And then of course we will continue to increase our investment in the video of the live broadcast And then as for the income, we should not be at the stage of trying to receive the video But considering that we have been in the advertising business for a long time I will translate for Mr. Zhong regarding a question for our video business.
spk04: Our video business has been running for one or two quarters already, and we are having some new thoughts in terms of how to develop the new strategy for the video business. As I said before, previously we have been focusing on the on-demand videos to be involved with acquiring new users for the video business. That actually requires a longer time, but thinking about the nature of who we are platform as a live streaming platform. We feel like the Corozo-like whirlwind streaming sessions will be more natural form for Kuya to engage in the video business, which is why we have already tested this new form of video business, the Corozo whirlwind streaming business in the first quarter. within one or two content categories of our gaming sectors. And we have received a positive feedback, whether from the data of users or from the figures of the industry value chains. And in the second quarter, we will expand the content category coverage from just one to two game sectors to more game titles in the second quarter. And we believe we see the big growth of our video business that will actually help us strengthen our attractiveness as a platform to attract those advertises and that will also help us to strengthen our monetization capability of the advertising business. Thank you. And we will take the final question from Tianhu of TH Capital. Please ask your question.
spk03: Good evening, Catherine and Hanyu. So what's the management's expectation for League of Legends to be online? And also, once that gets started, what is the potential impact? to our game web streaming business. Thank you. Let me talk about Infineon Mobile.
spk01: In fact, we have been investing in Infineon since the beginning of this year. We have spent almost half a year in continuing to sort out possible Infineon Mobile teams. At present, this work is basically done. Um.
spk03: Thank you.
spk04: For LegalWise's mobile version, we actually started the preparation for that beginning from earlier this year. And we have already sorted out all the potential professional leads and the blog captures that we can get on our platform. And we also quite emphasize the communication with the related things to use and the related players of the new game. And hopefully, and it's quite likely that the League of Legends mobile version will be released in the second half of this year. But from our own perspective and thinking about seasonality, it is just quite favorable for us if the game can be launched in the summer school holiday season. Thank you. There are no further questions now. I'd like to turn the call back over to the company for closing remarks. All right. Thank you all for joining our conference call today. If you have further questions, feel free to contact iriaquia.com. And we look forward to speaking with you in the next quarter. Thank you. Thank you. This concludes this conference call. You may now disconnect your line. Thank you.
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