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spk08: Hello, ladies and gentlemen. Thank you for standing by for the second quarter 2021 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.
spk05: Hello, everyone, and welcome to HUYA's 2021 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. Catherine 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 made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, forward-looking statements involving hearing 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 followings as well as the U.S. SEC. The company does not assume any obligation to update any follow-looking statements except as required under applicable laws. Please also note that we have earnings press release and this conference call include discussions un-updated gap financial information, as well as un-updated non-gap financial measures. WHOYA's press release contains a reconciliation of the un-updated non-gap measures to the un-updated most directly comparable gap measures. I will now turn the call over to our CEO, Mr. Longjie Dong. Please go ahead.
spk02: Hello, everyone. Thank you for joining our conference call today. In the second quarter, we amplified our efforts to enrich content offerings and attract users, which drove standing top-line growth along with mobile user-based expansion. To illustrate, total net revenues for Q2 increased to approximately RMB 3 billion, up 10 percent year-over-year and 14 percent quarter-over-quarter we are live mobile emails reached 77.6 million in the quarter after slightly year-over-year and quarter-over-quarter while the next month the land retention rate for our who we are live app remained stable at over 70%. In this quarter, mobile users continued to contribute to over 85% of VR live streaming revenues. With our relentless commitment to providing users and the broadcasters with a better experience, we have always been deepening our technology-advanced efforts and focused on product optimization. In late May, we upgraded our Huya Live app to version 9.0, which introduced new functions such as multi-screen simultaneous viewing. and real-time highlight editing. For example, in the latest version, a user has access to a multi-screen viewing panel to watch different top broadcasters at the same time. Besides this, leveraging Huya's AI capability The new version can now automatically identify the highlight, momentum, our streaming sensing, and the generator video clippers, making video production easier and more efficient. In the second quarter, average who watch videos on our platform increased to approximately Our open platform for third-party applications developers also continued to expand in the second quarter. By the end of June, more than 250 tools had been developed on our open platform, and those tools were used by over 740,000 broadcasters. On a quarter-over-quarter basis, the daily active broadcasters who used third-party applications on our open platform grew more than 60%. Moving on to our collaboration with Tencent, in the second quarter, average emails who watched our live streaming content across Tencent platforms, which are not counted in our reported emails, were around 23 million, nearly doubling year-over-year. Notably, our live streaming content related to the QQ Celebrity All-Star Tournament attracted a large number of users for viewing on QQ Mobile. Lastly, I would like to provide more context around our strategies after the modular termination with Douyu we announced last month. According to the announcement posted by the State administration for market regulation of the People's Republic of China on July 10, 2011. The proposed merger between Huya and Douyu was prohibited following FAMR's antitrust review. We fully respect and will abide by the SAMR decision and will comply with all regulatory requirements and conduct our businesses in accordance with applicable laws and regulations. As we remain committed to further expanding our and strengthening our leading position in the game live streaming market. We are focused on effectively implementing our growth strategy. We will continue its investment in content, including acquiring, cultivating, and maintaining quality broadcasters. obtaining broadcasting rights for popular esports tournaments and developing attractive self-generated content. Meanwhile, we will endeavor to advance product optimization and deliver a super rare user experience. We also expect to further deepen our cooperation with Tencent. We are confident that our capabilities in fostering and retaining streaming talents, enriching and producing quality content, as well as our expertise in technology and product innovations, will continue to adapt Guya's core competitiveness in the game live streaming industry. 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 the second quarter, we broadcasted 122 third-party esports tournaments, among which the top tournaments included LPL Spring and Summer, KPL Spring, LOL Mid-Season, Invitational, and PUBG Champions League Spring. Total viewership for these tournaments reached around 673 million in the quarter. On the front of our self-produced content, we organized 45 esports tournaments and entertainment shows and generated total viewership of 116 million. In particular, our self-branded tournament, the 6th Huya Mobile Game Arena, 第六届虎牙手游电竞大赛, or HMA, has hit outstanding viewership in the quarter, covering 14 popular mobile games, including HOK, CFM, Battle of Balls, and CODM. HMA is now a leading comprehensive mobile game tournament in China. Additionally, following the traction from LPL, we produced a commentary show, Huya Game Watch Room, Huya Guan Sai Chang, to provide professional gameplay analysis for game lovers. The show went viral during the LPL season and became a major alternative channel for LPL fans to watch the game. In terms of entertainment PGC shows, Huya Kung Fu Carnival Season 4, Huya Kung Fu Jia Nian Hua Di Si Ji, a mixed martial arts competition joined by Huya's outdoor broadcasters and celebrities, was the leading example of the season. Besides this, in June, we also introduced God Player, Haohu de Mi Shi, a live action role-playing show to capture the younger generation's growing interest in such categories. Since we took the initiative to introduce more video content last year, there has been a clear trend of development and diversification on our platform, particularly in the sectors such as food video, animation video, and fun moments sharing videos. Moving on to our overseas business, in June, the overseas MAU picked up to close to $27 million, mainly driven by local esports events. As we discussed previously, we have been focusing on monetization-driven growth. Our overseas revenues increased by approximately 200% year over year, and then the contribution from overseas revenue is also climbing up with the margin drag from overseas business declining. Next, I will walk you through our financial highlights. In the second quarter, our total net revenues grew by 10% year over year to approximately RMB 3 billion. Our live streaming revenues were close to RMB 2.6 billion in the quarter, up slightly from the same period last year. The number of paying users for Huya Live in the second quarter came in at 5.6 million, lower than the same period last year, mainly due to the pandemic lockdown last year, setting a higher base. Advertising and other revenues increased by 190% year over year, to almost RMB 383 million in the second quarter. On second quarter profitability, Our non-GAAP growth profit was RMB 594 million, and non-GAAP growth margin was 20.1%. Our non-GAAP operating profit was RMB 249 million, and non-GAAP operating margin was 8.4%. Our non-GAAP net profit was RMB 250 million, and our non-GAAP net margin was 8.4%. Now moving on to our financial details. Unless otherwise specified, all the growth rates are on year-over-year terms. Cost of revenues increased by 12.2% to RMB 2.4 billion for the second quarter, primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 21.2% to RMB 2 billion for the second quarter, primarily due to the increase in revenue sharing fees and the increase in spending in esports content and all content creators. Bandwidth cost decreased by 35.3% to RMB 171 million for the second quarter, primarily due to improved bandwidth cost management and continued technology enhancement runs. Growth profit increased by 1.1%. to RMB 581 million for the second quarter, and growth margin was 19.6% for the second quarter. Research and development expenses increased by 15.6% to RMB 208 million for the second quarter, mainly attributable to increase the personnel related expenses. Sales and marketing expenses increased by 45.9% to RMB 167 million for the second quarter, primarily attributable to increase the marketing expenses to promote the company's content, products, services, and branding. General and administrative expenses decreased by 48.5% to RMB 72 million for the second quarter, mainly due to lower share-based compensation expenses. Operating income increased by 0.3% to RMB 182 million for the second quarter, and operating margin was 6.1% for the second quarter. Interest and short-term investments income was RMB 58 million for the second quarter, compared with RMB 78 million for the same period of 2020, primarily attributable to the decreased interest rates Income tax expenses increased by 13.7% to RMB 58 million for the second quarter. Net income attributable to Huya Inc. for the second quarter was RMB 186 million compared with RMB 207 million for the same period of 2020. Non-GAAP net income attributable to Huya Inc. for the second quarter 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 was RMB 250 million compared with RMB 331 million for the same period of 2020. Diluted net income per ADS was RMB 0.77 for the second quarter and non-GAAP diluted net income per ADS was RMB 1.04 for the second quarter. As of June 30th, 2021, we had cash and cash equivalents, short-term deposits and short-term investments of RMB 10.7 billion compared with RMB 10.6 billion as of March 31st, 2021. The increase was primarily due to net cash provided by operating activities of RMB 174 million for the second quarter. With that, I would now like to open the call to your questions.
spk08: Certainly. 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 keypad and please wait for your name to be announced. If you wish to cancel your request, you can press the pound or hash key. Once again, it is star 1 to ask a question. For the benefit of all participants on today's call, if you wish to ask your question to the management in Chinese, please immediately repeat your question in English. Once again, it is star 1 to ask a question. We have the first question coming from the line of Thomas Chong from Jefferies.
spk06: Please go ahead. 晚上好,謝謝管理層接受我的提問。 我有兩個問題,第一個想先問一下就是我們在內容戰略, 在下半年的話可以跟大家分享一下我們大概會投入的 spending 大概會是多少。 Thanks, management, for taking my questions. I have two questions. The first question is about our content strategies. Can management comment about our thoughts in the second half? as well as the spending that we are looking at. And my second question is about our key operating metrics in terms of the MAU paying users as well as APU. How should we think about the trend as we come into the second half? Thank you.
spk02: Okay, I will answer the first question. I will answer the next question. Actually, we have made two versions of the management plan today. One version is if the merger is approved or not. So, overall, I think Huya has been moving forward according to the previous plan. So, I think at least this year, our entire strategy, including the internal strategy and the overseas strategy, etc., we should not make too many adjustments. So this is the first one. The second one, of course, I also understand, is because, for example, the peace case has been closed. So we generally think that compared to the previous one, we may have an increase of four degrees in this content in the second half of the year. But overall, we think it should be still not very different from the previous one.
spk05: All right, I will translate for Mr. Dome regarding your first question on content strategy. So, as told since the beginning of this year, our management made two versions of the strategic plans for this year in different scenarios, whether the summer will pass or not pass the due. Up until we received a notification of SAMR to prohibit the merger deal, we still stick to the original plan in terms of a content strategy. So now that we have heard the news from SAMR about prohibiting the merger deal between Huya and Zouyu, there won't be major adjustments to the strategy, especially the content strategy. And now that the competitive landscape compared with before might be a little bit changed given summer prohibited due. So there might be a certain degree of growth for the content investments from our perspective. And Catherine will take your second question.
spk04: And regarding your question, MAU questions because we will continue to invest in our content and broadcasters in the second half. So in the second half, we do expect that our MAUs will continue to grow and probably re-accelerate the growth rate for mobile MAUs. And I think in the second half, our main focus is still trying to grow our mobile MAUs. And this is still probably our key goal in the second half. And next.
spk08: Thank you. Thank you. We have our next question. This is coming from the line of Lei Zhang from Bank of America Securities. Please go ahead.
spk00: Hi, good evening. Thank you for accepting my question. There are two main questions. One is that I want to ask Mr. Dong that after we can't merge with Douyu, what is your strategic plan for the future? I don't know what points you can share. The second is that I want to know about our overall cooperation with Tencent. 有没有一些新的东西可以给大家分享一下呢? 这些主要就是这两个问题,我自己翻译一下。 Thank you for taking my question. Two questions here. First, can you share with us the business strategy post the close of merger with Douyu? Secondly, animal color on the integration with Tencent recently. Thank you. 好了,这个对。
spk02: Foreign Yes, the market share is actually growing well. So this is the first one. And then the second one, overall, we think we will still follow the existing strategic strategy and push forward. We generally think that the relative growth of the market share, we are actually more confident. Yes, this is the first one. And then the second one is that we generally think that from the current stage, we may be I will turn it over to Mr. Dong. Regarding your first question for the post-termination of the merger impact on the strategic changes,
spk05: Actually, there is not much to be changed for the strategic planning of HUYA, and we will stick to the original plan to follow with our roadmap for the year and going forward. And we have confidence to strengthen our leadership position going forward. Secondly, I would like to mention that we do have confidence in the overseas market, for those countries and regions who performed better in building up the content ecosystem and a business model. And we feel they're gonna have a brighter future and we do have confidence in that. For your second question regarding the cooperation with Tencent, we're actually in close conversation with Tencent regarding to carry out more innovative, collaborative working method and more way to play out the business, to play out the operational models of the collaboration. So more things to be carried out going forward with Tencent. I hope that answers your question, Nanda.
spk04: And then to add, regarding to the cooperation with Tencent, we have continued to strengthen our cooperation with Tencent in various fronts. And we believe that in the future, there would be more cooperation between us and Tencent. And we will update investors if we have some major updates on this front. And I hope this answers your question. And next. Okay. Thank you. Very helpful.
spk08: We have the next question. This is coming from the line of Yuwen Zhang from China Renaissance. Please go ahead.
spk01: Good evening, Mr. Guan. I have two questions to ask. First, I would like to ask about our overseas business. As you mentioned, our MAU has grown quite a bit. We will continue to invest this year. Can you share more about our future, for example, user acquisition, content construction, and for example, is there any new considerations on the wireframe? Thank you for taking my question. I have two questions. The first is regarding overseas business. Imagine the overseas MAU has reached $27 million. And also this year, we will ramp up the investment overseas. Could you share more in terms of the user acquisition, content buildup, and monetization? And similarly, it's on the video content. I think this is well discussed in the past few quarters. Can you share some kind of in terms of how the video content help the user acquisition, the engagement, and the retention? Thank you.
spk04: Thank you. Regarding our overseas business, we have seen a pretty good progress as we have been emphasizing on monetization in the overseas market. We have seen significant results. In the second quarter, our overseas revenues actually increased by approximately 200% year-over-year. and also the operating loss has also been narrowed down. So we are pretty confident in our overseas business and we do expect that the overseas business will contribute even much more significant revenue contribution to us in the next year. And in terms of Our video business, we have been developing sort of a new video content. And then in the second quarter, we also noticed that our video content users have been increasing. And as Mr. Dong just mentioned, in the second quarter, average MAUs who watch video on our platform actually increased it to approximately 30 million. And in the second half, we do consider to also launching a new APP specifically for our video product. Hope this answers your question.
spk02: All right, after translation, just to provide you more colors on our video business,
spk05: Mr. Do mentioned before, there is a certain form of video business on the WHO-I-AGE platform that is laying in between the traditional videos and the streaming sessions in the form of video cortisol, or in other words, ongoing replay of the streaming. And from the statistics that we have, I think the growth rate of such category are quite high. And we believe in the form of doing streaming business, we can actually make our video business prosper in the future. And as of now, we think the results that we see in the video business or the video curatorial business is actually quite satisfying.
spk01: Thank you.
spk08: Thank you. We have the next question from Richie Sun from HSBC. Please go ahead.
spk06: I will translate the questions myself. So first question is about game video. Can management discuss the potential monetization model and also progress of monetization for game video? And what are the areas that we need to improve further for game video content? And the second question is on regulation. We see the heightened regulation risk of the industry. Can management discuss how live streaming regulation, online games, as well as cybersecurity and data privacy regulations the impact on the platform, and especially on the profit and loss side from these regulations. And are we going to incur more costs to fulfill these regulations? Thank you.
spk02: For your first question regarding the video business monetization method, currently the top priority for the company is
spk05: regarding the video business is to consider how to better integrate the live streaming business with the video business. And just so that the video business can be extended. So probably currently it's a little bit too early to talk about the business model. But from what we can see right now for the video business, advertising is probably the top choice for the monetization method.
spk04: Okay, and for your second question of the recent regulatory changes, We do believe that the recent regulatory changes I think will help the industry in the long term. And then we as a company will definitely abide for all the regulatory changes or guidance. And then so far I think, you know, we have received and also are expecting some of the probably the details of the guidelines to come out. And so we will update with investors if we saw some of the detailed guidelines for potential regulatory guidelines. And I hope this answers your question. And next.
spk06: Thank you.
spk08: Thank you. We have the next question. This is coming from from . Please go ahead.
spk03: Yes. Good evening, management. Two small, there are two small questions, three small questions. One is, in the second half of the year, which bigger games will be released on our platform? The second is, now students are on vacation, because there are no tutoring classes outside the school, and then there are these, this epidemic, everyone is not allowed to go out to play. The first question is about what management see the second half. about the game content. Are there any major contents going to come out? The second one is, on the platform, what does management see the uses and activity level as a student, you know, has less schoolwork and also not much place to go to travel. The third one is regarding the cloud scheme. The company has been developing cloud games for a while, so can management share some color about the progress and the plan for the future? Thank you.
spk02: Because it's the summer now, we can see that when the summer is normal, users will increase compared to before. We haven't seen any other factors yet. Yes, this is the first one. The second one is that in the second half of this year, there may be two new mobile games that are more important to be released. For example, DnF's mobile game and Inconvenient's mobile game. Huya hopes that these two mobile games will be released as soon as possible. Because Huya has always been a very good player in mobile game broadcasting. In the beginning of the year, Inconvenient's mobile game has already started broadcasting. We have also made some preparations for the upcoming competitions. So for your first question regarding the summer, usually from the season analysis that we have observed so far, during the summer school holidays, there will be a certain growth of users.
spk05: Since it's coming to the school holidays in the summer again, we are seeing a growth of the users as well. But regarding the other factors that you mentioned, we haven't really seen much. And for your second question, regarding the new game titles, we have been hoping that the two potential blockbuster games, the DNF mobile and League of Legends mobile, can be released soon. Because Huya is quite excelled at promoting the mobile games and make sure that promoting the mobile games on our live streaming platform can be a strength and maintain our leading positions. Actually, the preparation for those two games has already been initiated. For example, for League of Legends Mobile, it's been started since the beginning of 2021. And for D&F Mobile, we have been preparing for the launch of that since last year. So we were really hoping that those two potential blockbuster games can be launched in the second half.
spk04: And regarding to your question about the cloud game, actually since we launched our cloud game platform, Yuwa, we have been covering over 200 games right now. And then we have been improving our products since the launch and currently we believe that our product in terms of technology and then the user friendliness is in the sort of the industry leading level. And currently we are still focusing on trying to reduce the bandwidth cost per user and increase our MAUs and DAUs. Actually, since the U of I launched, the users' growth is pretty fast. So currently, our focus is still on growing users, improving products, and then trying to reduce the bandwidth cost for each user. And then probably next year we will consider trying to do some commercialization for the cloud game. But currently it's still at early stage. Hope this answers your question. And next. Yes.
spk08: Thank you. We have the next question from Vincent Yu from Needham and Company. Please go ahead.
spk07: Thank you for answering my question. I have two questions. The first one is about after the merger is cancelled, we have a lot of cash in the bank. Will we use the cash overseas to do more investment and even purchase the game? The second question is about My first question is about investment plans. So now the merger deal has been called off. Will the company now look to acquire other companies within other verticals or overseas considering we have a big cash balance? My second question is, will we see increase in content costs related to purchase of tournament broadcasting rights after this merger has been called off? Thank you.
spk04: Regarding to your first question, in addition to our operational cash needs, i.e., continue to invest in content and broadcasters, we will consider the investments or potential acquisition along our value chain, both domestically or in the overseas market. But currently, we haven't really we haven't really done any significant investments or acquisition yet. And then regarding to your second question, I will refer to Mr. Dong.
spk02: Regarding a question on the esports tournament broadcasting rights,
spk05: I think from our perspective, acquiring the broadcast human rights of those tournaments is quite important in the sector of esports. As we all know that esports has become a professional game that has been, and is also included in the Asian Games for Next year. And as we announced before, we have already got the exclusive broadcasting rights of LPL, and it's related to broadcasting rights. So going forward, we believe HUYA will continue the acquisition of broadcasting rights in a mild way.
spk07: Thank you.
spk08: Thank you. As there are no further questions, I would like to hand the conference back to the company for any ending remarks.
spk05: Thank you all for joining our conference call today. If you have further questions, feel free to contact iraqola.com and we look forward to speaking with you in the next quarter. Thank you.
spk08: Thank you. That concludes our conference call for today. Thank you all for your participation. You may disconnect your lines now.
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