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spk03: Hello, ladies and gentlemen. Thank you for standing by for the first quarter 2022 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. Har Ulu, Company Investor Relations. Please go ahead.
spk09: Hello, everyone, and welcome to Huya's first quarter 2022 earnings 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. Ashley Wu, Vice President of Finance. 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 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 U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required on the applicable law. Please also note that WHO-YA's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. WHO-YA's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Rongjie Dong. Please go ahead.
spk01: Hello, everyone. Thank you for joining our conference call today. Despite macro challenges that continue to impose near-term pressure on us and the entire industry, we delivered healthy user growth and outstanding financial performance in the first quarter of 2022. Total net revenues were 4.46 billion RMB and the non-GAAP net income reached approximately 47 million RMB for the first quarter. In line with our expectations against the backdrop of the involving market environment, first, Let me give you some color on our user metrics. Our user base sustained its expansion trend with Huya Labs mobile MLs, increasing by 8.5% year-over-year to 81.9 million in the first quarter. The growth was mainly driven by the strong performance of esports tournaments this quarter, as well as our enhanced cooperation with game studios. Meanwhile, our user engagement level also improved as we remained diligent in our efforts to provide quality content and optimize user experience through product innovations. Specifically, in the first quarter, users' time spent on our platform recorded double-digit growth on both a year-over-year and a quarter-over-quarter basis. In addition, Huya Life Apps' next month user retention rate remained stable at above 70%. Now I would like to provide more details about our cooperation with game studios and our recent advancements in product innovation. Our interactive feature, Gift Droppers, has emerged as a very popular way to connect game streaming viewers. directly with their game players. By participating in this task type activity, users can claim virtual rewards from both game studios and our platform once they complete specific combinations of tasks, such as viewing game streaming for a certain period of time. and sending certain bullet chats. We introduced the feature during a live broadcast of Peacekeeper Elite last year and have now added it to over 20 game titles such as Honor of Kings, LOL Wild Rift, Call of Duty Mobile, and Genshin Impact. as we continue to deepen our relationships with a variety of game studios. Excitingly, more than 10 million users on our platform engaged with this interactive feature during the first quarter. In addition to improving user interaction metrics on our platform, More game operation teams have noted that the feature encourages trained players to return to games, bolstering user activation rates. In another effort to expand our in-depth cooperation with game titles, we joined forces with Crossfire Mobile's game studio to design and launch an event membership during the tournament period of our self-produced Huya CFM Championship London Cup Huya CFM Guanjin London Bay by connecting their CFM game ID with their Huya account, users secured a free membership which allowed them to complete gameplay and tournament related tasks to unlock an array of privileges on both the game operators and Huya's platforms. This initiative helped increased Huya's exposure within the gaming community and also promoted gamers' activity level. In addition, all long-term cup matches were live broadcasted on Huya's platform and were also made available on the CFM in-game tournament streaming channel, including this self-produced events, popularity, and reflecting our continuous efforts to connect Huya's live streaming content with the Tencent ecosystem. Building on this event's success, we will forge ahead with additional endeavors in this area going forward. We are also looking beyond the world of gaming to innovate more interactive live streaming features. For example, at our January annual gala event, Huya Boom Night, we debated an extraordinary music movement, Fei Fan Ying Dong, an online real-time interactive game musical gameplay feature designed to make the events broadcast distinctive and captivating. This new feature leveraged our in-house developed audio and beta detention technologies to engross users in the musical experience with a fun, simple game. Clicking bubbles on the screen along with the musical rhythm. Users were scored based on data accuracy, allowing them to compete with other viewers while watching artists' livestreamed stage performance. Merging live musical performances and interactive activities This new feature created a truly immersive viewing experience, bringing the unique feeling of live performance to users' fingertips and broadening the boundary between reality and virtual reality. Before I conclude, I would like to provide some updates on our recent strategic initiatives in our overseas business. Given the rapidly changing business environment, both domestically and internationally, we have strategically implemented some adjustments and refinements with respect to NEMO TV's operations, concentrating our resources on future key geographic regions. While these other adjustments could result in short-term contractions in overseas, user expression and revenue growth as we downside our overseas in certain areas. We expect to improve the overall efficiency of our international business by directing resources to regional markets with greater potential for profitable business growth at a low cost. We believe this more focused approach will benefit our overseas operations in the long term. In summary, the persistent macroeconomic and regulatory headwinds, along with the impact of the ongoing COVID-19 resurgence in China could still create some challenges as we move ahead. We are confident in our strategy and will continue to focus on harnessing the strength of our business fundamentals to further improve operational efficiency as we embrace the regulatory changes. We will continue to work closely with authorities and directly comply with the government's guidelines and rules by leveraging our operational and technological expertise, spanning eight years in the game live streaming market. We also believe that the restructuring will not impact the core needs of our users and that we are capable of continually innovating compliant products and features to offer users more choices and better experiences in the world of live broadcasting. As our high-quality content portfolio and technology and product advancements solidify our leadership in the game live streaming market, we will remain committed to serving our growing user base and creating more value for our broadcasters, business partners, and all other stakeholders. With that overview, I will now turn the call over to our VP of Financial, Ashley Wu. to share more details on our operating metrics and financial assessment. Ashley, please go ahead.
spk04: Thank you, Mr. Dong, and hello, everyone. To expand on Mr. Dong's remarks, I will now provide some updates on our content enrichment and diversification initiatives. On the professional esports content front, we broadcasted around 80 third-party esports tournaments in the first quarter. This year, we are deliberately being more selective in tournament procurement to ensure high-quality content offerings and improve ROI matches. We were glad to see that during the first quarter, total worship of licensed esports tournaments reached more than 700 million, exceeding the previous quarter's viewership, despite the fact that, due to seasonality, the first quarter of the year is typically not a strong period for esports events. In particular, CFPL spring season's viewership reached a record high this quarter, more than doubling compared to the 2021 spring season. LPL Spring, KPL Spring, LCK Spring, and ESL Pro League S15 were also top performing tournaments during the period. Our comprehensive esports content continue to serve as the key drivers of user traffic and through a superior experience for all of our users. In addition to licensed esports content, we broadcasted 26 self-organized esports tournaments and entertainment PGC shows during the first quarter, generating approximately 86 million total viewership. During the Chinese New Year holidays, we held our Huya League Million event, which featured popular streamers from different categories as participants in several online games, offering our users engrossing content and an entertaining festival experience. The Huya CFM Championship Long-Term Cup, which Mr. Zhong mentioned earlier, and the Huya Super League a tournament for PC and solo games, were also well-liked Huya-branded esports events in the first quarter. Additionally, our commentary show for LPL, Huya Game Watch Room, Huya Guan Sai Cha, has become a major channel for game lovers to enjoy professional gameplay analysis during the LPL season. We strategically adjusted our investment in self-produced events this quarter because we had abundant offerings of licensed events during the period and encountered pandemic-related lockdowns in a few major cities, which imposed some delays on in-house variety show productions. Nevertheless, those events we broadcasted in the first quarter achieved satisfying results. Furthermore, we have been continuously improving our video production and viewing experience for users. On the product end, we are integrating video content with our newly added discussion forum in streaming channels. Within a specific game or tournament forum, users can upload videos of gameplay or tournament highlights to share, watch, and discuss with their peers, helping to create a dynamic content ecosystem on our platform. Encouragingly, in the first quarter, the number of videos uploaded on our platform grew by 12% quarter over quarter, and video viewership recorded nearly 50% sequential growth. Next, let me walk you through our Q1 financial results. Unless otherwise specified, the growth rates I will be reviewing are all on a year-over-year basis. Our total net revenues were RMB 2.46 billion for Q1, decreasing by 5.4% year-over-year. Livestreaming revenues were RMB 2.15 billion for Q1, compared with nearly RMB 2.5 billion for the same period last year. The decline was mainly due to lower average spending per paying user on Huya Life, as the Microsoftness continued to adversely affect paying users' sentiment. The number of paying users for Huya Life was 5.9 million, relatively flat compared to the same period last year, and representing a net addition of 0.3 million. compared to Q4 last year. We believe the increased user engagement level and time spent in Q1 contributed to the sequential increase in paying users. Advertising and other revenues increased by 47.2% year over year to RMB $313 million for Q1. primarily driven by the increase in content sublicensing revenues. In this Q1, we were able to recognize most sublicensing revenues according to the licensing event schedule. Cost of revenues increased by 1.9% to RMB $2.1 billion for Q1, primarily due to the increase in revenue sharing fees and content cost. Revenue sharing fees and content cost increased by 3.4% to RMB 1.8 billion for Q1, primarily due to the increase in spending on esports content and the increase in revenue sharing fees in relation to certain broadcaster incentive programs. Bandwidth cost decreased by 7.3% to RMB 168 million for Q1, primarily due to improved bandwidth cost management and continued technology enhancement efforts. Gross profit was RMB 334 million for Q1. compared with RMB 514 million for the same period of 2021, primarily due to lower revenues and increased cost of revenues, primarily driven by higher revenue sharing fees and content costs. Gross margin was 13.5% for Q1. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 347 million, and non-GAAP gross margin was 14.1% for Q1. Research and development expenses decreased by 1.4% to RMB 196 million for Q1. primarily due to the decrease in share-based compensation expenses. Sales and marketing expenses increased by 0.3% to RMB $145 million for Q1. General and administrative expenses decreased by 3.9% to RMB $81 million million for Q1, primarily due to the decrease in share-based compensation expenses. Other income was RMB 28 million for Q1, compared with RMB 76 million for the same period of 2021, primarily attributable to realized damages received in the first quarter of 2021 from a favorable outcome in a broadcaster-related lawsuit. As a result, operating loss was RMB 60 million for Q1, compared with operating income of RMB 162 million for the same period of 2021. Excluding share-based compensation expenses, non-GAAP operating loss was RMB 3 million, and non-GAAP operating margin was negative 0.1% for Q1. Interest and short-term investment income were RMB 59 million for Q1. compared with IMB $65 million for the same period of 2021, primarily due to decreased interest rates. Income tax expenses were IMB $9 million for Q1, compared with IMB $39 million for the same period of 2021, primarily due to lower taxable income. Net loss attributable to Huya Inc. was RMB 3 million for Q1, compared with net income attributable to Huya Inc. of RMB 186 million for the same period of 2021. Non-GAAP net income attributable to Huya Inc., which excludes share-based compensation expenses and gain on fair value change of investments, net of income taxes was RMB 47 million for Q1, compared with RMB 266 million for the same period of 2021. Non-GAAP net margin was 1.9% for Q1. Diluted net loss per ADS was RMB 0.01 for Q1. Non-GAAP diluted net income per ADS was RMB 0.19 for Q1. As of March 31, 2022, we had cash and cash equivalent shortened deposits and shortened investments of RMB 10.47 billion compared with RMB 10.96 billion as of December 31, 2021, primarily due to the increase in investments and prepayments to content providers. With that, I would now like to open the call to your questions.
spk03: Thank you. If you do wish to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the hash key. For the benefit of all participants on today's course, if you do wish to ask a question to management in Chinese, please immediately repeat your question in English. Please stand by while we compile the Q&A roster. Your first question comes from the line of Thomas Chong from Jefferies. Please ask your question.
spk06: So my question is about our overseas business. Just wondering what will be the reason behind the adjustment and what will be the impact on our business? Thanks.
spk01: Okay, let me answer. In general, we have considered some changes in the domestic and foreign markets, some changes in the environment. We have recently made some adjustments to the operation of NEMO. In general, we will focus on some key areas in the future. Because we have collected some business in some places, So these adjustments will lead to a certain decrease in overall overseas users and overseas revenue in the future. Of course, there will also be some once-in-a-lifetime adjustments. Overall, we hope to bring resources to a more potential market and improve the overall efficiency of international business. Given the rapidly changing business environment both domestically and internationally,
spk08: we have strategically implemented some adjustments and refinements with respect to NEMO TV's operations, concentrating our resources on future key geographic regions. While these adjustments could result in short-term contractions in overseas user expansions and revenue growth as we downsize our overseas presence in certain areas and might have some non-recurring expenses, But we expect to improve the overall efficiency of our international business by directing resources to regional markets with greater potential for profitable business growth at a lower cost. We believe that this more focused approach will benefit our overseas operations in the longer term.
spk09: Okay, let's have the next question.
spk03: Thank you. Your next question comes from Yuwen Zhang from China Renaissance. Please ask your question.
spk00: Good evening, Ms. Guan. Thank you for answering my question. I have a question related to our energy side. Since April, we have seen some of the board games restart. At the same time, we have also seen some of the wind control measures caused by the pandemic in some parts of the city. I would like to ask how these two effects on our energy side are different. So, Thank you, Benjamin, for taking my question. So I have a quick question on the traffic side. So given the game license resumption in April and also the COVID that led to some cities back to lockdown, so what has their impact on our traffic side? Thank you.
spk01: Okay, let me answer that. In terms of game code, in the long term, the recovery of the code will definitely be of positive help to the entire game industry. Then Huya as a part of the gaming industry, overall, it must be good. Some of the richness of our live broadcast content. At the same time, because Huya has the best new game operating capability, it has more advantages in terms of user traffic acquisition. So in general, this is definitely helpful for Huya's user growth. Then the recovery of the game version, Logically, it can also improve the needs of game manufacturers for advertising. Yes, this is definitely positive for the advertising business on our platform. Then in the short term, the impact on the business mainly depends on whether there are new games that are not suitable for live streaming in the near future. Yes, this is the most important thing. Of course, in the continued attention and expectation, Yes, and because the version has been restored in April, it is not very helpful for us.
spk08: Thank you for your question. For the longer term, the resumption of licensing of games is positive development for the gaming industry. As a downstream player of the game industry, Huya, we believe that this will be helping us to enrich our content for live streaming. Also at the same time, Huya has the best operating capacity in terms of new games. So we stand in a more advantageous position when gaining traffic from those new games. And it would be positive for our long-term user expansion. In addition, the resumption of licensing games will be motivating the advertisers on the games, which is a positive on our advertisement business and the platform. In the short term, I think people will be looking more at the business side, whether or not the new games are being released are suitable for live streaming, and whether or not the new games are well received in the users. And we are also keeping an eye on the pulse of the market. And given the fact that the resumption of licensing games only began in April, the impact of such on our business and especially advertisement business is pretty much limited for now.
spk01: As for the impact of COVID in terms of the traffic,
spk08: because some cities they implemented this lockdown measures or stay at home measures. Well, there are some positive impact for our traffic as well as gamma live streaming. But because this policy is somehow normalizing, so compared with the beginning of 2020, the positive impact on our traffic is relatively smaller versus that time, you know, in 2020. In terms of revenue, For the consuming behaviors for our online users, as well as the demand for advertisement from our advertisement merchants, there will be some pressures because of the COVID. And therefore, in the short term, we expect to have some impact on the revenue in this regard. We will continue to keep a close eye on the impact of COVID on our business And we will also ensure that we can provide very good debt guarantee and we could provide protections and great supports to our colleagues who are under the impact of lockdown measures.
spk09: Okay, that's it. We can have the next question.
spk03: Thank you. Your next question comes from the line of Brian Gong from Citi. Please ask your question.
spk05: Thank you for accepting my question. I'm Katrina from Huaxi. Can you help us evaluate the impact of the new protection for underage people in May, especially in the ranking and PK? Thanks management for taking my question. This is Katrina Chiu from CT asking on behalf of Brian. Can management help assess the impact of the new regulation on minor protection rolled out in May, especially the restriction on ranking and PK those features? And also, what's our expectation for further detailed policy on other areas ahead? Thank you. 我们所在的行业在过去一段时间
spk04: Thank you. I'll take your question.
spk08: Our industry has been under scrutinizing of the regulators over the past period. And recently, the regulators have released opinions on regulating tipping behaviors on live streamings and better protections for miners. And we believe that these changes are to better regulate the industry so as to make sure that it's long-term and sustainable growth in a more healthy way.
spk04: We have been keeping a very close eye on the latest changes in terms of regulations and guidance. For these latest opinions,
spk08: on protecting the miners, we would make sure that we strictly abide by all the relevant regulations and guidance and earnestly implementing them after more operating details became available. We will have to make some adjustments in terms of our product and operations, and we will try to do that as soon as possible. This might mean some changes to our financial and operational metrics. and we are now evaluating the scale of the impact. We think that these possible changes and adjustments may have a very limited impact on the demand of the core users on our platform, and we would, of course, dynamically adjust our operation and monetization policies so as to minimize the impact from such regulation changes.
spk04: In addition, we will continue to strengthen the regulatory capacity of the platform, 在相应的技术上加强投入,更好地适应监管的变化。 那在合规的同时,我们也会持续投资于优质的内容,升级产品,保持公司的竞争力。 At this time, we'll continue to enhance our capacity in complying with the regulations and make relevant investments in our technology so as to be more adjustable to the regulation changes.
spk08: At the same time, we'll continue to invest in good quality content, upgrading our product, and keep our competitiveness in the market.
spk09: Okay, thank you. Let's have the next questions, please.
spk03: Thank you. Your next question comes from the line of Li Zhang from Bank of America. Please ask your question.
spk07: Hi, 管理層,晚上好。謝謝接受我的提問。我的問題主要是關於我們跟通訊的這個合作方面,可以給我們就是提供一下最近的一些更新,還有我們跟一些項目組在做的一些新的initiatives。
spk01: Thank you for your question. The cooperation between Huya and Tencent are progressing very well.
spk08: First of all, we keep a very close synergy relationship with Tencent in terms of games and tournaments. For instance, in the first quarter, in our self-produced CFM Long Term Cup, we have worked together with CFM Games for a joint membership. Users can participate in our activities and will be able to enjoy the privileges and benefits both on Huya and in the game. On one hand, it increases the exposures of Huya platform in the users, and also at the same time, they will become more active in both the game and live stream platform. And this feature becomes very popular amongst the users, and the results have been recognized by the game studio.
spk01: We hope that similar cooperation can be continued to be promoted to more games. We also cooperated with InfoLemon to operate the products in the community. In addition to the live broadcast content, we also brought more experiences to our users. At present, Huya has a stable lead in the live broadcast market of InfoLemon. In addition, with the official authorization of InfoLemon, Huya's war cup has been held for the second time.
spk08: We hope to expand such cooperation to more games, and we could have more synergetic activities in terms of LOL mobile, in terms of a product operation, as well as communities, so that we'll be able to enrich the user experience for our users on top of the live streaming content. And right now, we are having a leading market share in terms of live streaming for LOL Mobile. And at the same time, we had held two Zhanshen Cup for now, which is a self-produced tournament license officially by LOL Mobile. 对,同时虎牙克的一些互动直播的功能,比如说直播间调保,游戏道具带货,
spk01: We also plan to put these interactive applications with good results into more games and categories.
spk08: At the same time, Huya had some very special interactive features, for instance, gif dropping or live streaming e-commerce that had been applied to video, that had been applied to games in Tencent. For instance, for the gif dropping, it has been applied to more than 20 games in Q1 with over 10 million active users. And for Honor of Kings PS4, keeping Elyse as well as CODM, they've got very nice results so far. And we plan to apply those interactive features to more games and more categories.
spk01: As a technology-driven content company, we have achieved some preliminary results in promoting interactive live broadcast functions and interactive content since last year. KUYA's content correction can meet users' needs before and after watching the game. It helps with game promotion and process. And we will also be able to expand the player community through live interaction and community functions to better connect our users, streamers, and game manufacturers. We hope to play a more important role in the game industry.
spk08: As a company that produced technology-driven content, since 2021, we have been making some very nice progress in having these interactive features and also to generate some interactive content. Our content metrics are able to cater for the needs for the users both before and after the gameplay. and that is positive for the promotion of games as well as retention of players and users. We will continue to do it by giving more interactions on the live streaming and having some more active community features so as to retain our users and to have better connections of our users, live streamers, as well as game studios and players, so as to play a bigger role in the entire industry of game.
spk09: Okay, thank you. Let's have the next questions, please.
spk03: Thank you. Your next question comes from the line of Richie Sun from HSBC. Please ask your question.
spk02: Thank you, management, for taking my questions. So first of all, as we noticed, some of your competitors are changing their content strategies or even exit the business. So how should we think about the long-term adjusted net margin profile under this new competitive landscape? And secondly, how should we think about the headcount and also budget allocation plans across R&D, sales and marketing, and G&A expenses for this year? Thank you. 我先補充一下,就是大家看到行業裡面有些競爭對手可能在這個
spk01: Thank you for your question.
spk08: We noticed the strategic change by our competitor, and from Huya's point of view, we think that is a positive change for us as this will alleviate the competition landscape.
spk04: Okay, let me answer the other cost-benefit questions. Based on the current business environment and the company's situation, we will make stricter controls on cost-benefit. Given where we are right now in Huya Inc., we will continue to have more stringent control over our costs and expenses and optimize our operating efficiencies.
spk08: Overall speaking, it is necessary to continue to invest in high-quality content and product, because that is positive to make sure that we will continue to serve our users well and to consolidate our leading position in a competition.
spk04: In terms of live broadcasting, the recent market pattern has not changed much compared to the past. In terms of the operation and transmission capabilities of our platform,
spk08: In terms of revenue sharing fees with the live streamers, recently the market layout does not change a lot. So given our operation and monetization capabilities on Huya, we think that the current regime for revenue sharing is competitive. and therefore, we will keep that the way, untrenched.
spk04: 在版权和知识内容方面,我们会对各项内容的IOI进行更有针对性的分析, 把资源投入到更加有效果的内容方面, 并且会视场的情况及时进行调整 。 比如说在Q1,我们在版权赛事和知识内容方面的投入,
spk08: In terms of licensed product and self-produced product, we will have more detailed analysis as to the ROIs of different kinds of content, and we will allocate our resources to more effective content and make adjustments according to the market dynamic. For instance, in Q1, we have made a more selective selection in investing in licensed tournaments and self-produced content. At the same time, we'll continue to optimize our technology on the bandwidth and make it more efficient. We would also make more optimizations in terms of sales and marketing and other operating expenses, and to have more stringent control in terms of labor costs and other expenses.
spk04: In addition, we have mentioned that some of the recent adjustments to overseas businesses are also one of the measures to optimize cost costs.
spk08: We had also mentioned that we are making some strategic adjustments to our overseas business, which in a way constitute as a method to control our cost. In terms of the margin for the short term, because of business adjustment for the quarter, there might be some non-recurring expenses and costs for the quarter, and that would send some turbulences to our margin level. However, if you look at the entire trajectory for the whole year in terms of investment and revenue, we expect that the constant cost as a percentage to revenue in 2022 will be slightly higher than 2021. And therefore, the overall gross margin rate for the whole year might be affected. And due to that, we believe that operating margin in 2022 versus 2021 will be slightly lower. But of course, we will continue our effort in optimizing our cost and and operation efficiency so as to lay down a good foundation for our long-term development.
spk09: Okay, that's it.
spk03: Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.
spk09: Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website or the TPG Investor Relations. Thank you.
spk03: This concludes this conference call. You may now disconnect your line. Thank you.
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