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spk09: Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and fiscal year 2022 earnings conference call for Who We Are, Inc. At this time, all participants are in the listen-only mode. Today's conference call is being recorded. I'll now turn the call over to Ms. Han Yuleo, Company Investor Relations. Please go ahead.
spk06: Hello everyone and welcome to HUYA's fourth quarter and fiscal year 2022 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 under applicable law. Please also note that WHO-YAS earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. WHO-YAS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited, mostly directly comparable gap 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. Amid ongoing macro headwinds, 2022 was a volatile year for us. While we delivered standard user growth for the year, our four-year revenues came in at IMB $9.2 billion, showing an annual decline and a net loss. Our focus has been on controlling the aspects of our business where we can make improvements to show up our solid foundation and prepare for growth. in a more favorable market environment ahead. In the meanwhile, we have honed our content and product offerings as well as improved our operational efficiency while fulfilling our commitment to corporate social responsibility. I would like to take the opportunity on Cisco today to share with you some of our progress and strategy moving forward. On the user side, we continued to bring high-quality esports tournaments and entertainment progress to our users. We also further enhanced the broadcaster and the viewer interactive experience by partnering with game studios. As a result, we were able to achieve stable user scale and a healthy user engagement level in the fourth quarter. At the same time, we adopted stringent policies for our marketing spend to keep our expenses down, lowering Q4 sales and the marketing expenses by 48% year-over-year. In the fourth quarter, Kuya Labs' mobile MLs reached $85.5 million, slightly up compared with the same period last year. On the annual basis, the mobile MLs were $84.3 million. growing by 4% from $88.9 million in 2021. We also maintained our Huya Life app's next month user retention rate above a 70% average for the full year. Next, let me share with you some highlights on our recent product updates and collaboration efforts with game companies. We have been expanding our portfolio of livestreaming interactive features. In addition to the popular Gift Droppers feature, we recently introduced an upgraded Treasure Digging feature. These additions further link broadcasters streaming behaviors with suitable audience and allow not only participating viewers to earn rewards, but also broadcasters to collect rewards for their activities. After a broadcaster completes a certain stream time or other streaming-related activities, odds will be released for users to play. Users can also obtain exclusive odds by participating in the treasure-digging live broadcast room via check-ins and posting comments. Odds can then be traded in for a variety of game properties provided by the relevant game company. This reward system has been proven highly effective with our users. Last December, together with popular broadcasters on our platform, we launched Riot Games carnival treasure digging activities for five major League of Legends IP games. The game studio offered 400,000 pieces of free game tools and cumulative 2.8 million users participated in the 10-day campaign, achieving a successful outcome from our innovative cooperation. Our collaboration is also a good representation of Goya's continuous effort to provide more services around the games and our ambition to diversify and increase our presence in the game industry value chain. In terms of our video business, our broadcasters continue to be the driving force of video content production. with more original creators joining our platform to enrich with supply of video content. It is also worth mentioning that our AI real-time editing function is being utilized more often by our creators. This tool facilitates the creation of live content. Through automatic editing and processing capabilities, we can improve production efficiency and motivate both users and broadcasters. Our efforts to support our creators drove the total number of video uploads in 2022 by nearly compared with the previous year. Meanwhile, we have been enhancing users' video viewing experience and video content consumption. We did this through both embedded videos in our game community and by introducing an immersive vertical video viewing format. With these enhancements, we achieved about 40% growth in total viewing time for on-demand videos on our mobile app in the first quarter, compared with the same period last year. As we build out a more comprehensive video content ecosystem, we believe we can increase user stickiness, and also drive community across our Huya platform. In terms of our corporate social responsibility initiatives, in 2022, we partnered with over 9,800 broadcasters and held more than 8,000 livestreaming sessions promoting positive social impact. Topics covered areas such as traditional culture preservation, environmental protection, and purifying the online environment from negative influence. During the year, we also joined forces with a few international NGOs to launch the Protect Our Home Platform campaign. This included several related public awareness activities featuring high-profile KOLs and our leading broadcasters. Additionally, We promoted the campaign by using a new virtual gallery digital format. Millions of tournament viewers also enjoyed this new format, which was integrated into our tailor-made virtual esports venue for the 2022 season for LOL World championship final in Q4. These efforts have not only enhanced Huya's brand influence, but also contributed to the healthy development of the live streaming industry. While we achieved healthy user scale expansion for the year, we were impacted by the relatively weak market environment in 2002, which contracted user spending power. Regularity policies introduced during the year have also placed added pressure on the industry by instituting higher compliance requirements for both gaming and live streaming sectors. Accordingly, we made prudent adjustment to our products and operations and will continue to strengthen our abilities to meet compliance regulations and ensure our sustainable development. The stampers we have taken in 2022 to optimize Our operations costs and expenses place us in a strong position to benefit once the market begins to recover. Although there are still some uncertainties in the market environment in the near term, we will continue to strengthen our services for users and the content creators and the provider high-quality content in 2023 and going forward. We will also advance our product development capabilities and implement innovative technology to further consolidate VR score competencies. In doing so, we can maximize our advantages and maintain our leading position in the game live streaming market in China. In the meanwhile, we will actively explore our opportunities to diversify our revenue streams and broaden our business ecosystem. With that overview, I will now turn the call over to our VP of Finance, Ashley Wu, to share more on our operating metrics and financials. Ashley, please go ahead.
spk10: Thank you, Mr. Dong, and hello, everyone. Following Mr. Dong's remarks, I'll start with some updates on our content enrichment and diversification initiatives. In the fourth quarter of 2022, we broadcasted over 70 third-party professional esports tournaments and the total viewership of those events reached approximately 360 million. The largest viewership during the quarter was for LOL World 2022, Honor of Kings International Championship, Demoiselle Cup, and CFS Grand Finals. While the time zone differences between China and the U.S. for World 2022 had some impact on the live broadcast views. The overall viewing data of our core users remained stable. Wild Rift League Season 2 also gained a lot of traction. In particular, with our deepened cooperation with the LOL Wild Rift game on tournament viewing, we introduced interactive prediction features and a 4K HDR viewing experience for those matches. These innovative features also make it easier for users to switch between the in-game streaming channel and our platform. The licensed tournament content supplied in Q4 was not as high as in previous quarters, mainly due to event seasonality and certain disruption from the COVID-19 resurgence. As such, we added more self-produced programs during the period. In the fourth quarter, we broadcasted over 45 Huya-organized esports tournaments and entertainment PGC shows, generating total viewership of approximately 150 million. In addition to fan favorites such as Peacekeeper Elite All-Star Annual Invitational and Thunder Series of Honor of Kings. We held the Huya platform qualifier for the Demoiselle Cup, which gained great traction with our users. The commentary programs hosted by well-known streamers and former professional players for both World 2022 and HOK International Championships. also helped promote the popularity of those events. Additionally, during the quarter, we launched two seasons of the dating variety show, Heartbeat 72 Hours, further enriching the Penn Entertainment content on our platform. Under our script screening process for content procurement and production, we had over 30% fewer total license and self-produced events and programs in 2022, compared with the previous year. Our total viewing data, however, remains steady. Although our Q4 terminal license cost was significantly higher due to the worst 2022, which was a major contributor to our gross loss for the quarter, we will stay true to our focus of covering key events that are popular among users while striving to achieve better ROIs. As we disclosed in January, we entered into an amended licensing agreement for a series of League of Legends matches. We believe this will effectively lower our overall terminal licensing costs in 2023. In the fourth quarter, we also continued to optimize broadcaster-related costs and bandwidth usage. We became more efficient with our operating expenses in Q4, reducing our total operating expenses by 35% year over year and 10% quarter over quarter. Our savings were primarily driven by lower expenses associated with sales and marketing channels and personnel. In our overseas business, we further narrow our operating loss. Thanks to our strategy to concentrate on key markets and promote greater localization, we plan to continue strengthening our prudent cost and expense control strategy as we move forward. Next, moving on to our Q4 financial details. Our total net revenues were RMB 2.1 billion for Q4, a decline from RMB 2.81 billion for the same period last year. Livestreaming revenues were RMB 1.98 billion for Q4, compared with RMB 2.61 billion for the same period last year. The decrease was primarily due to lower average spending per paying user and a decreased number of paying users on Huya Life. As the challenging micro and regulatory environment adversely affected paying users' sentiment, Advertising and other revenues were RMB 127 million for Q4, compared with RMB 196 million for the same period last year. This was primarily due to soft demand for advertising services, resulting from the challenging micro-environment, as well as lower content sub-licensing revenues. I also would like to point out that following our amended licensing agreement for League of Legends matches in January, we no longer own the sublicensing rights for LPL matches during the 2023 to 2025 period. Since the sublicensing of the LPL matches was the primary contributor to our content sublicensing revenues, in 2022. We expect the content sublicensing revenue to decline significantly in 2023. Cost of revenues decreased by 15% year-over-year to RMB $2.39 billion for Q4, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content cost decreased by 12% year-over-year to RMB $2.17 billion for Q4, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues. This is partially offset by the increase in spending on esports content, which was mainly related to the higher content costs both for LOL World 2022 and Q4 2022. Bandwidth costs decreased by 46% year-over-year to RMB $100 million for Q4. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts. as well as less bandwidth usage as a result of strategic adjustments in our overseas business to stay focused on key markets. Cross-loss was RMB $284 million for Q4, primarily due to lower revenues and increased content costs related to export content, particularly words 2022, gross margin was negative 13.5% for Q4. Excluding share-based compensation expenses, non-GAAP gross loss was RMB 278 million, and non-GAAP gross margin was negative 13.2% for Q4. Research and development expenses decreased by 13% year over year to RMB $144 million for Q4, primarily due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 48% year over year to RMB $113 million for Q4, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses. General and administrative expenses decreased by 13% year over year to RMB $79 million for Q4, primarily due to decreased share-based compensation expenses. Other income was RMB $44 million for Q4, compared with RMB $56 million for the same period of 2021, primarily due to lower tax refunds and government subsidies. As a result, operating loss was RMB $577 million for Q4, compared with RMB $457 million for the same period of 2021. Interest and short-term investment income were RMB $102 million for Q4, compared with RMB $62 million for the same period of 2021, primarily due to increased interest rates. net loss attributable to Huya Inc. was RMB 524 million for Q4, compared with RMB 313 million for the same period of 2021. Non-GAAP net loss attributable to Huya Inc. was RMB 440 million for Q4, compared with RMB $242 million for the same period of 2021. Non-GAAP net loss margin was 20.9% for Q4. Diluted net loss per ADS was RMB 2.16 for Q4. Non-GAAP diluted net loss per ADS were RMB 1.81 for Q4. as of December 31, 2022. The company had cash and cash equivalents, short-term deposits, short-term investments, and long-term deposits of RMB 10.7 billion, compared with RMB 11 billion as of September 30, 2022. Moving on to our full-year 2022 results, Total net revenues for 2022 decreased to RMB 9.22 billion from RMB 11.35 billion for the prior year. Live streaming revenues were RMB 8.2 billion for 2022, compared with RMB 10.19 billion for the prior year. Advertising and other revenues were RMB $1.02 billion for 2022, compared with RMB $1.17 billion for the prior year. Non-GAAP gross profit was RMB $643 million, and non-GAAP gross margin was 7% for 2022. Non-GAAP net loss attributable to Huya Inc. was RMB $281 million and non-GAAP net loss margin was 3.1% for 2022. Non-GAAP denoted net loss per ADS was RMB 1.17 for 2022. To be mindful of the length of our earnings score, for additional details on our full year 2022 financial results, I encourage listeners to refer to our earnings press release issue earlier today. With that, I would now like to open the call to your questions.
spk08: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. Once again, that's star 114 questions. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.
spk05: Thank you for taking my questions. I have two questions. The first question is about the user trend for this year. And number two is about the final approvals. How should we think about the new games getting approved and which might affect our user growth momentum? Thank you.
spk01: 我来回答一下。 今年在整体用户设备方面, 相比MAO的扩张, 我们会更加重视用户在平台的粘性和参与度。 Thank you.
spk08: In terms of overall user strategy this year, compared with the expansion of MAU, we will pay more attention to the stickiness and participation of users on the platform. Through more immersive, community-based, and interactive product strategies, we will improve the users' consumption on the platform content, and also to improve the user retention and interaction rates, so as to increase the users' payment on our platform. At the same time, we'll continue to spend prudently on promotion and channels.
spk01: 今年一季度由于此前刚刚放开受到主播感染和清洁等因素的影响, 平台的开播量短期内有所减少, 同时一些用户也这个部分转到了线下的活动这块, 因此年初的MAU的水平会受到一定的影响。 In the first quarter of this year, due to the fact that the economy was just opened up and the number of broadcasters on the platform had decreased in the short term due to the COVID infections and the Spring Festival in China,
spk08: So, some users have also switched to the offline activities. The level of MAU at the beginning of this year was affected. But of course, we believe that these impacts are relatively temporary, and we have seen stabilizing signs recently. It is expected that the future user number will return to a more stable trend.
spk01: With the normalization of the release of licenses of games, some major games have obtained licenses and have been launched or will be launched soon.
spk08: So the live content of these games, if they are popular and with the launch of eSport events of these games, we believe that it will be conducive to the growth of the users of live platform, and we will also have the opportunity to bring us more additional user growth. At the same time, we'll make sufficient preparations for the launch of new games, such as the recruitment of streamers or guilds, hosting events, cooperating with game studios to provide incentives for the launch of new games, provide traffic and other resources support for new games so as to seize the opportunities of new games in a timely manner.
spk06: Thank you. Let's have the next question, please. Thank you.
spk08: Our next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.
spk00: Hello, everyone. Thank you for your question. I would like to ask about the content strategy of this year's live broadcast and the upcoming tournament. Also, I would like to ask about the content strategy of this year's live broadcast and the upcoming tournament. Also, I would like to ask about the content strategy of this year's live broadcast and the upcoming tournament. Also, I would like to ask about the content strategy of this year's live broadcast and the upcoming tournament. What's the impact of our financial operation? Thank you.
spk01: From the content of the live broadcast, we will continue to enhance the advantages of the live broadcast by providing more services and more income for the live broadcast to enhance the platform's competitiveness for the live broadcast. At the same time, through some of the functions of live broadcast interaction and virtual live broadcast and other technologies to supply the form of live broadcast,
spk08: From the perspective of live broadcast content, we'll continue to strengthen the advantages of the streamers and also to enhance the competitiveness of the platform by providing more services and revenue sources for them. At the same time, the application of more live interaction functions and virtual live broadcast technologies will help us to enrich the live broadcast forms and make the content of UGC streamers more innovative and interesting for the users.
spk01: In terms of the e-sports competition, we mentioned in the previous conference that we will continue to make strict selections for the copyright and self-defeating competition. In terms of the copyright competition, we will fight with all the copyright parties for better commercial terms. In this content, we hope that In terms of the esports events, we mentioned in the previous conference call that we'll continue to strictly screen the investment opportunities in copyrighted and self-run events.
spk08: And in the copyrighted championship, we will strive for better commercial terms with all the copyright owners. And in the self-made content, we'll focus more on forming high-quality Huya competition brand and to consolidate IP metrics of self-made content. And we'll continue to reduce the procurement and investment for some relatively poor performing event content.
spk01: At present, we will continue to cover the main tournaments in eSports this year, such as the KPL, the PL, and the eSports mobile league, and the professional league. We will also have some unique tournaments, such as the ESL DOT2 and CSGO tournaments, and the eSports LCK tournaments. At present, we'll continue to cover the LPL-S games of the LOL, the KPL, the PEL of Peace Elite, the LOL Mobile, and the Crossfire Professional League as our main event.
spk08: We will also have some exclusive events such as Dota 2 or CSGO series events of ESL and LCK events of the League of Legends. So if there are new game related esports events on the market made available, we would also dynamically evaluate and introduce new events if that is possible.
spk10: Let me answer the question about the financial and operational impact of the Hero League. We and the copyright parties reached this agreement in January this year through friendly negotiation. In terms of the contest content, in 2023-2025, in addition to the LPL-related contests, we increased the copyright of the S-Side, Demacia Cup, and other key contests. In terms of finance, the total cost of the market in the agreement will be significantly reduced by 2022. At the same time, since Huya no longer has the right to transfer power to the LPL market, we will reduce the revenue on the copyright distribution. In general, we expect the cost of the relevant market to fall in 2023 to 2022, which will be higher than the reduction in the size of the copyright revenue. In this way, the overall cost structure
spk08: As for the operational and financial impact of the supplementary agreement, we reached a supplementary agreement on the League of Legends event in January this year through a friendly negotiation with the copyright owner. And specifically in the year of 2023 throughout to 2025, in addition to LPL-related events, we added the copyright of key events such as the S Championship and the Domestika Cup In terms of the finance, the total cost of the events in the agreement covered will be significantly lower than that in 2022. At the same time, as HUYA will no longer have the right to sub-license LPL events, revenue from copyright distribution will decrease. In general, we expect that the cost of the relevant events will decrease more than the reduction of the copyright revenue in 2023 compared with 2022, which is a positive effect on the overall cost structure of our company.
spk10: From the user's perspective, are there more platforms covering these events?
spk08: We do not rule out that there is going to be some dilution in the population watching on our platform, but we believe that this overall impact is controllable, which will be conducive to better dissemination of the event itself and also help the vigorous development of esports ecosystem. There are still some top-tier copyrighted events and self-made events only available in Chuya. In addition, we continue to improve the viewing and interactive experiences in our platform for those events, which will be very competitive advantages for us to gain users.
spk06: Thank you.
spk08: Next question, please. Thank you.
spk09: Our next question comes from the line of Richie Sun from HSBC. Please ask your question, Richie.
spk04: I will translate this myself. My question is about the live streaming revenue recovery situation as well as the 2022 overall total revenue growth expectation. Thank you.
spk10: Okay, let me answer some questions about income. In terms of live streaming income, some live streaming policies were introduced in May last year. We implemented them according to the requirements of the guidance. These adjustments mainly affected our revenue from June last year. Under such circumstances, the domestic live streaming income in the first half of 2022 is relatively high. Therefore, we expect that the live streaming income will be weaker in the first half of this year. In terms of live broadcast revenue, after the launch of the new policy last May, we subsequently implemented it according to the requirement. And the impact of these adjustments on revenue mainly began in June,
spk08: So in this case, the domestic live forecast revenue base in the first half of 2022 was relatively high. So we expect that the revenue in the first half of this year will be weaker year on year. Moreover, from a seasonal perspective, due to fewer activities and the Chinese New Year Festival and other factors, Q1 is generally a off season for live streaming. revenue and this year will also be affected by some factors after the COVID opened up as well.
spk10: We hope that the live broadcast revenue will gradually stabilize in the following quarter. On the one hand, the same number of models will be better, and we are also continuing to polish and improve the ability of live broadcasts to be able to broadcast. For example, we will launch some new live interaction playlists and some optimized design for virtual objects.
spk08: So we hope that the revenue of subsequent quarters will gradually stabilize because on one hand, the year-on-year base will be better, and we are also continuing to polish our product and operational activities so as to enhance the monetization of our business operations, such as introducing some new interactive displays, as well as optimizing the design of the virtual gifts. At the same time, we remain optimistic about the recovery of the overall economic environment and the launch of more games.
spk10: There is a small part of our live streaming income from overseas game live streaming. Since April last year, we have made some adjustment in terms of business. A small part of our live revenue comes from our overseas business, Nemo.
spk08: And due to the business optimization since last April, the revenue had experienced an year-on-year decrease since the second quarter of 2022. And at present, on the basis of continuing to strengthen the localized operation, we also expand NEMO's Penn Entertainment content, which we believe will be conducive to generate improvement for commercial performance and overseas revenue for our business.
spk10: In addition to live streaming revenue, with the recovery of the market environment and game titles this year, we believe that advertising revenue may recover. But due to the revision of the LOL size copyright agreement, we will have a greater decline in copyright revenue than in 2022. Therefore, we expect that the overall advertising revenue and other parts may decline. At the same time, some new business opportunities, including games,
spk08: 我们也在探索变现,希望能够跑通流程。 In terms of other revenues, with the recovery of market environment and the licensing coming up again this year, we believe that advertising revenue will have some opportunity to recover this year. However, because of the supplementary agreements we signed in January, this will lead to some decline in our copyright revenue compared with the year of 2022. We predict that the overall revenue of advertising and other sectors may decline. At the same time, we are also exploring new business opportunities, including games and et cetera, hoping to get to some success.
spk06: Okay, thank you.
spk08: Next question, please. Thank you.
spk09: Our next question comes from the line of Lei Zhang from Bank of America. Please ask your question, Lei.
spk07: Hi, good evening. Thank you for accepting my question. My question is mainly about our previous video business. Thank you, management, for taking my question. My question is about our redo business. Can you give us some updates on this redo business and what is our product and operation forecast for 2023? Thank you.
spk01: This video, in terms of content production, in addition to our main stream, which continues to be the main force of content production, we also have more video content creators to join. On the Huya platform, there is more live content and live content, which accumulates a lot of material for video content processing. In addition to the conventional editing tool, our AI real-time editing can be used to identify Video analysis, live streaming, video content, automatic capture, wonderful viewing, and the creation of wonderful video clips. This can continue to provide effective support for the production of competitive games and competitive content. It helps to improve the efficiency and positivity of users and streamers. In 2022, the number of videos uploaded on Huya is nearly 50% compared to 2021.
spk08: In terms of our video business, in terms of the content production, in addition to our live streamers, we also have a lot of video content creators joining for us. And we have been able to accumulate large volume of original materials for video content processing. And in addition to conventional editing tools, We also have AI real-time editing function that can analyze the live stream content in real time through AI recognition technology and automatically capture the highlights in the live streaming processes to generate video clips, which can provide effective support for video production of competitive games and events and help to improve the creation efficiency and enthusiasm of the users and streamers. In the year of 2022, the number of video uploads on Huya has increased by nearly 50%, enriching the content that are available in our platform.
spk01: At the same time, we are continuously optimizing the video content environment, combining immersive video experience and video content in the gaming community. Huya users' consumption of video content has also been significantly improved. Last year, in Q4, the penetration of video content on the Huya app was new. At the same time, users' overall market of viewing video content at the end of the app grew by more than 40%. The development of video content has promoted the work of communityization of Huya, and has achieved gradual results. As for the overall environment of Huya content, we believe that the technology of live streaming is developing in the direction of semi-live streaming. At the same time, as we continually optimize our video content ecosystem, combined with immersive vertical screen viewing format, video content being embedded in the GAN community
spk08: Our Huya users' consumption of video content had also significantly increased. In the fourth quarter of last year, the penetration rate of video content on Huya app reached a new high. At the same time, the total screen time on application increased by more than 40% year on year. So the development of our video businesses has promoted a community-based development of Huya. And for an overall content ecosystem in Huya, we believe that it will develop towards a pin live broadcasting format and form an ecosystem for video consumption that will be further integrated with live broadcasting. This will also help to increase the attractiveness of the platform to users. And in the long run, it would help us to expand the channels to obtain users and increase revenue.
spk01: In 2023, we will continue to promote product delivery, upgrade, and consolidate Huya's core live broadcast business. At the same time, we will continue to promote video business development and communityization. In addition, we will pay attention to the ability to deliver live broadcasts and upgrade it to service for live broadcasts for live broadcasts and game manufacturers. We will use Huya's new live broadcasts, live broadcasts, and game manufacturers' joint accumulation for game operation and promotion. And for the year of 2023, we will continue to promote product upgrades, consolidate the advantages of Puya's core businesses, and continue to promote video community.
spk08: In addition, we will also attach importance to upgrading our operation capability for a pin live streaming full link services for the streamers, events, and game companies. Utilize our expertise in new games and streaming events and game companies to provide more value for the operation and promotion of the games so as to prepare ourselves for the growth of our game-related service revenue in the mid and long term.
spk06: Thank you. Next question, please.
spk08: Our next question comes from the line of Felix Liu from UBS. Please ask your question, Felix.
spk03: Hey, good evening. Thank you for accepting my question. I'm Daniel Han from UBS representing Felix Liu. I have two main questions. First, can you please introduce the competitive status of the game live broadcast industry? How do you see the trend of live broadcast distribution and content cost in the current competitive environment? And my second question is, Let me translate myself. Good evening, management. Thanks for taking my question. This is Daniel Han from UBS on behalf of Felix Liu. I have two questions today. First, could you please briefly tell us about the current competitive landscape in game live streaming sector? How would the competition impact the revenue sharing ratio and the content cost? And my second question is, how is the margin outlook for 2023 Can we expect a sequential improvement on margins from last year? Thank you.
spk01: The market share of Huyao is very stable at present. In the field of gaming and e-sports, especially in the core game category, we have maintained an advantageous position. Overall, market competition still exists, but the behavior of various platforms is more rational than before. Therefore, we believe that the competitiveness of Huya lies in the more vertical gaming user group and the professional e-sports content ecosystem. The e-sports content ecosystem benefits from the production system of the mature content of Huya, the cooperation of the union, the stable supply of high-quality live broadcast content, and the perfect copyright market, the self-knowledge content, and the close cooperation with the game industry.
spk08: Thank you for this question. Our Huya's market share is still relatively stable, and we have maintained a dominant position in the field of games and live streaming of esports, especially in the core games. Overall, the market competition still exists, but the behavior of each platform is more rational than that of the previous year or two. We believe that Huya's competitiveness lies in our more vertical game user group and a more professional esports content ecosystem, which benefited from our mature content production system, the stable supply of high-quality live content through guild cooperation and copyrighted games, as well as self-made content. And also, we had close cooperation with the game companies.
spk10: Okay, let me answer some questions about cost and profit. In terms of broadcast distribution and contract cost, since the broadcast distribution ratio has increased in 2021, our broadcast distribution ratio has been relatively stable in 2022. Under the current market competition, we expect that this year's broadcast distribution ratio and contract cost trend will still be relatively stable. As for the future, it depends on the market. There may be some room for adjustment. At the same time, based on the optimization of the content cost of the competition program mentioned earlier, we expect that the net profit rate for the whole year will increase compared to 2022. At the same time, the net profit rate will also be a little smaller than in 2022.
spk08: Ms. Wu will cover the cost and profit trends. In terms of the commission sharing and contracting cost, while since the proportion of commission sharing increased in 2021, Our proportion, our sharing ratios have been relatively stable in 2022. And under the current market competition, we expect that this year's sharing ratio and signing cost trend will remain relatively stable. And the future will depend on the market situation and updates, but still there will probably be some room for adjustments. At the same time, based on the optimization of the cost of the tournament and championships, as well as the optimization of the content costs, we expect that the gross profit rate of the whole year will increase compared with the year 2022. And the fluctuation on our gross margin between quarters will be smaller than that of 2022.
spk10: In terms of operating costs, we will continue to pay attention to improving operating efficiency. Since Q2 2022, we have been strengthening some measures in terms of cost reduction. The operating costs have dropped by double in three consecutive seasons. In 2023, we will continue to maintain strict budget control and consolidate the results of cost optimization. Reducing losses and increasing profitability is the key to this year's financial year. We hope that this will help
spk08: In terms of operating expenses, we'll continue to strengthen our measures to improve the operational efficiency. Since the second quarter of 2022, we have started to strengthen the cost reduction and efficiency improvement measures, and operating expenses have declined by double digits year on year for three consecutive quarters already. And in the year 23, we'll continue to maintain a strict budget control and consolidate the results of cost cutting. Reducing losses and improved profitability will be the focus of this year's finance work. And we hope that this will lay a good foundation for the subsequent return to growth and long-term profitability of our company.
spk06: Okay, thank you.
spk08: Thank you.
spk09: As there are no further questions now, I'd like to turn the call back to the company for closing remarks.
spk06: Thank you once again for joining us today. If you have further questions, please feel free to contact Huya Investor Relations through the contact information provided on our website or the PS&A Group Investor Relations. Thank you.
spk09: This concludes today's conference call. You may now disconnect your line. Thank you. Thank you. Hello, ladies and gentlemen. Thank you for standing by for the fourth quarter and fiscal year 2022 earnings conference call for Who We Are, Inc. At this time, all participants are in the listen-only mode. Today's conference call is being recorded. I'll now turn the call over to Ms. Han Yu-liu, Company Investor Relations. Please go ahead.
spk06: Hello everyone and welcome to HUYA's fourth quarter and fiscal year 2022 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 under applicable law. Please also note that WHOYA's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. WHOYA's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited, mostly directly comparable gap 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. Amid the ongoing macro headwinds, 2022 was a volatile year for us. While we delivered standard user growth for the year, our four-year revenues came in at RMB $9.2 billion, showing an annual decline and a net loss. Our focus has been on controlling the aspects of our business where we can make improvements to show up our solid foundation and prepare for growth. in a more favorable market environment ahead. In the meanwhile, we have honed our content and product offerings as well as improved our operational efficiency while fulfilling our commitment to corporate social responsibility. I would like to take the opportunity on Cisco today to share with you some of our progress and strategy moving forward. On the user side, we continued to bring high-quality esports tournaments and entertainment progress to our users. We also further enhanced the broadcaster and the viewer interactive experience by partnering with game studios. As a result, we were able to achieve stable user scale and a healthy user engagement level in the fourth quarter. At the same time, we adopted stringent policies for our marketing spend to keep our expenses down, lowering Q4 sales and marketing expenses by 48% year-over-year. In the fourth quarter, Kuya Labs' mobile MOUs reached 85.5 million, slightly up compared with the same period last year. On the annual basis, the mobile MOUs were 84.3 million. growing by 4% from $88.9 million in 2021. We also maintained our Huya Life app's next month user retention rate above a 70% average for the full year. Next, let me share with you some highlights on our recent product updates and collaboration efforts with game companies. We have been expanding our portfolio of livestreaming interactive features. In addition to the popular Gift Droppers feature, we recently introduced an upgraded Treasure Digging feature. These additions further link broadcasters streaming behaviors with suitable audience and allow not only participating viewers to earn rewards, but also broadcasters to collect rewards for their activities. After a broadcaster completes a certain stream time or other streaming-related activities, odds will be released for users to play. Users can also obtain exclusive odds by participating in the treasure-digging live broadcast room via check-ins and posting comments. Odds can then be traded in for a variety of game profits provided by the relevant game company. This reward system has been proven highly effective with our users. Last December, together with popular broadcasters on our platform, we launched Riot Games Carnival Treasure Digging activities for five major League of Legends IP games. The game studio offered 400,000 pieces of free game tools and cumulative 2.8 million users participated in the 10-day campaign, achieving a successful outcome from our innovative cooperation. Our collaboration is also a good representation of Goya's continuous effort to provide more services around the game and our ambition to diversify and increase our presence in the game industry value chain. In terms of our video business, our broadcasters continue to be the driving force of video content production. with more original creators joining our platform to enrich with supply of video content. It is also worth mentioning that our AI real-time editing function is being utilized more often by our creators. This tool facilitates the creation of live content. Through automatic editing and processing capabilities, we can improve production efficiency and motivate both users and broadcasters. Our efforts to support our creators drove the total number of video uploads in 2022 by nearly compared with the previous year. Meanwhile, we have been enhancing users' video viewing experience and video content consumption. We did this through both embedded videos in our game community and by introducing an immersive vertical video viewing format. With these enhancements, we achieved about 40% growth in total viewing time for on-demand videos on our mobile app in the fourth quarter, compared with the same period last year. As we build out a more comprehensive video content ecosystem, we believe we can increase user stickiness, and also drive community across our Huya platform. In terms of our corporate social responsibility initiatives, in 2022, we partnered with over 9,800 broadcasters and held more than 8,000 livestreaming sessions promoting positive social impact. Topics covered areas such as traditional culture preservation, environmental protection, and purifying the online environment from negative influence. During the year, we also joined forces with a few international NGOs to launch the Protect Our Home Platform campaign. This included several related public awareness activities featuring high-profile KOLs and our leading broadcasters. Additionally, We promoted the campaign by using a new virtual gallery digital format. Millions of tournament viewers also enjoyed this new format, which was integrated into our tailor-made virtual esports venue for the 2022 season for LOL World championship final in Q4. These efforts have not only enhanced Huya's brand influence, but also contributed to the healthy development of the live streaming industry. While we achieved healthy user scale expansion for the year, we were impacted by the relatively weak market environment in 2022, which contracted user spending power. Regularity policies introduced during the year have also placed added pressure on the industry by instituting higher compliance requirements for both gaming and live streaming sectors. Accordingly, we made prudent adjustment to our products and operations and will continue to strengthen our abilities to meet compliance regulations and ensure our sustainable development. The stampers we have taken in 2022 to optimize Our operations costs and expenses place us in a strong position to benefit once the market begins to recover. Although there are still some uncertainties in the market environment in the near term, we will continue to strengthen our services for users and the content creators and the provider high-quality content in 2023 and going forward. We will also advance our product development capabilities and implement innovative technology to further consolidate Huya's core competencies. In doing so, we can maximize our advantages and maintain our leading position in the game live streaming market in China. In the meanwhile, we will actively explore our opportunities to diversify our revenue streams and broaden our business ecosystem. With that overview, I will now turn the call over to our VP of Finance, Ashley Wu, to share more details on our operating metrics and financials. Ashley, please go ahead.
spk10: Thank you, Mr. Dong, and hello, everyone. Following Mr. Dong's remarks, I'll start with some updates on our content enrichment and diversification initiatives. In the fourth quarter of 2022, we broadcasted over 70 third-party professional esports tournaments, and the total viewership of those events reached approximately 360 million. The largest viewership during the quarter was for LOL World 2022, Honor of Kings International Championship, Demoiselle Cup, and CFS Grand Finals. While the time zone differences between China and the U.S. for World 2022 had some impact on the live broadcast views, the overall viewing data of our core users remained stable. Wild Rift League Season 2 also gained a lot of traction. In particular, with our deepened cooperation with the LOL Wild Rift game on tournament viewing, we introduced interactive prediction features and a 4K HDR viewing experience for those matches. These innovative features also make it easier for users to switch between the in-game streaming channel and our platform. The licensed tournament content supplied in Q4 was not as high as in previous quarters, mainly due to event seasonality and certain disruption from the COVID-19 resurgence. As such, we added more self-produced programs during the period. In the fourth quarter, we broadcasted over 45 Huya-organized esports tournaments and entertainment PGC shows, generating total viewership of approximately 150 million. In addition to fan favorites such as Peacekeeper Elite All-Star Annual Invitational and Thunder Series of Honor of Kings. We held the Huya platform qualifier for the Demacia Cup, which gained great traction with our users. The commentary programs hosted by well-known streamers and former professional players for both World 2022 and HOK International Championships. also helped promote the popularity of those events. Additionally, during the quarter, we launched two seasons of the dating variety show, Heartbeat 72 Hours, further enriching the Penn Entertainment content on our platform. Under our strip screening process for content procurement and production, we had over 30% fewer total licensed and self-produced events and programs in 2022, compared with the previous year. Our total viewing data, however, remains steady. Although our Q4 terminal license cost was significantly higher due to the worst 2022, which was a major contributor to our gross loss for the quarter, we will stay true to our focus of covering key events that are popular among users while striving to achieve better ROIs. As we disclosed in January, we entered into an amended licensing agreement for a series of League of Legends matches. We believe this will effectively lower our overall terminal licensing costs in 2023. In the fourth quarter, we also continued to optimize broadcaster-related costs and bandwidth usage. We became more efficient with our operating expenses in Q4, reducing our total operating expenses by 35% year-over-year and 10% quarter-over-quarter. Our savings were primarily driven by lower expenses associated with sales and marketing channels and personnel. In our overseas business, we further narrow our operating loss. Thanks to our strategy to concentrate on key markets and promote greater localization, we plan to continue strengthening our prudent cost and expense control strategy as we move forward. Next, moving on to our Q4 financial details. Our total net revenues were RMB 2.1 billion for Q4, a decline from RMB 2.81 billion for the same period last year. Livestreaming revenues were RMB 1.98 billion for Q4, compared with RMB 2.61 billion for the same period last year. The decrease was primarily due to lower average spending per paying user and a decreased number of paying users on Huya Life. As the challenging micro and regulatory environment adversely affected paying users' sentiment, Advertising and other revenues were RMB 127 million for Q4, compared with RMB 196 million for the same period last year. This was primarily due to soft demand for advertising services, resulting from the challenging micro-environment, as well as lower content sub-licensing revenues. I also would like to point out that following our amended licensing agreement for League of Legends matches in January, we no longer own the sublicensing rights for LPL matches during the 2023 to 2025 period. Since the sublicensing of the LPL matches was the primary contributor to our content sublicensing revenues, in 2022. We expect the content sublicensing revenue to decline significantly in 2023. Cost of revenues decreased by 15% year-over-year to RMB $2.39 billion for Q4, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content cost decreased by 12% year-over-year to RMB $2.17 billion for Q4, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues. This is partially offset by the increase in spending on esports content, which was mainly related to the higher content costs, both for LOL World 2022 and Q4 2022. Bandwidth costs decreased by 46% year-over-year to RMB $100 million for Q4. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts. as well as less bandwidth usage as a result of strategic adjustments in our overseas business to stay focused on key markets. Cross-loss was RMB $284 million for Q4, primarily due to lower revenues and increased content costs related to export content, particularly 2022, gross margin was negative 13.5% for Q4. Excluding share-based compensation expenses, non-GAAP gross loss was RMB 278 million, and non-GAAP gross margin was negative 13.2% for Q4. Research and development expenses decreased by 13% year over year to RMB $144 million for Q4, primarily due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 48% year over year to RMB $113 million for Q4, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses. General and administrative expenses decreased by 13% year over year to RMB $79 million for Q4, primarily due to decreased share-based compensation expenses. Other income was RMB $44 million for Q4, compared with RMB $56 million for the same period of 2021, primarily due to lower tax refunds and government subsidies. As a result, operating loss was RMB $577 million for Q4, compared with RMB $457 million for the same period of 2021. Interest and short-term investment income were RMB $102 million for Q4, compared with RMB $62 million for the same period of 2021, primarily due to increased interest rates. net loss attributable to Huya Inc. was RMB 524 million for Q4, compared with RMB 313 million for the same period of 2021. Non-GAAP net loss attributable to Huya Inc. was RMB 440 million for Q4, compared with RMB $242 million for the same period of 2021. Non-GAAP net loss margin was 20.9% for Q4. Diluted net loss per ADS was RMB 2.16 for Q4. Non-GAAP diluted net loss per ADS were RMB 1.81 for Q4. as of December 31, 2022. The company had cash and cash equivalents, short-term deposits, short-term investments, and long-term deposits of RMB 10.7 billion, compared with RMB 11 billion as of September 30, 2022. Moving on to our full-year 2022 results, Total net revenues for 2022 decreased to RMB 9.22 billion from RMB 11.35 billion for the prior year. Livestreaming revenues were RMB 8.2 billion for 2022, compared with RMB 10.19 billion for the prior year. Advertising and other revenues were RMB $1.02 billion for 2022, compared with RMB $1.17 billion for the prior year. Non-GAAP gross profit was RMB $643 million, and non-GAAP gross margin was 7% for 2022. Non-GAAP net loss attributable to Huya Inc. was RMB $281 million and non-GAAP net loss margin was 3.1% for 2022. Non-GAAP denoted net loss per ADS was RMB 1.17 for 2022. To be mindful of the length of our earnings score, for additional details on our full year 2022 financial results, I encourage listeners to refer to our Earnings Press Release issue earlier today. With that, I would now like to open the call to your questions.
spk08: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. Once again, that's star 114 questions. Our first question comes from the line of Thomas Chong from Jefferies. Please ask your question, Thomas.
spk05: I have two questions. The first question is about the user trend for this year. And number two is about the banhao approvals. How should we think about the new games getting approved and which might affect our user growth momentum? Thank you.
spk01: 我来回答一下。 今年在整体用户设备方面, 相比MAO的扩张, 我们会更加重视用户在平台的粘性和参与度。 Thank you.
spk08: In terms of overall user strategy this year, compared with the expansion of MAU, we will pay more attention to the stickiness and participation of users on the platform. Through more immersive, community-based, and interactive product strategies, we will improve the users' consumption on the platform content and also to improve the user retention and interaction rates so as to increase the users' payment on our platform. At the same time, we'll continue to spend prudently on promotion and channels.
spk01: 今年一季度由于此前刚刚放开受到主播感染和春节等因素的影响, 平台的开播量短期内有所减少, 同时一些 用户也这个部分转到了线下的活动这块, 因此年初的MAO的水平会受到一定的影响。 In the first quarter of this year, due to the fact that the economy was just opened up and the number of broadcasters on the platform had decreased in the short term due to the COVID infections and the Spring Festival in China,
spk08: So, some users have also switched to the offline activities. The level of MAU at the beginning of this year was affected. But of course, we believe that these impacts are relatively temporary, and we have seen stabilizing signs recently. It is expected that the future user number will return to a more stable trend.
spk01: With the normalization of the release of licenses of games, some major games have obtained licenses and have been launched or will be launched soon.
spk08: So the live content of these games, if they are popular and with the launch of eSport events of these games, we believe that it will be conducive to the growth of the users of live platform, and we will also have the opportunity to bring us more additional user growth. At the same time, we'll make sufficient preparations for the launch of new games, such as the recruitment of streamers or guilds, hosting events, cooperating with game studios to provide incentives for the launch of new games, provide traffic and other resources support for new games so as to seize the opportunities of new games in a timely manner.
spk06: Thank you. Let's have the next question, please.
spk08: Thank you. Our next question comes from the line of Yiwen Zhang from China Renaissance.
spk09: Please ask your question, Yiwen.
spk00: Hello, everyone. Thank you for your question. I would like to ask about the content strategy of this year's live broadcast and the upcoming competition, as well as the financial impact on the company's overall finance and operation. Thank you. So my question is regarding our live stream and the esports tournament content strategy for this year. And specifically, we signed an amendment agreement on the 2019 tournament back in January. What's the impact of our financial operation? Thank you.
spk01: From the content of the live broadcast, we will continue to enhance the advantages of the live broadcast by providing more services and more income for the live broadcast to enhance the platform's competitiveness for the live broadcast. At the same time, through some of the functions of live broadcast interaction and virtual live broadcast and other technologies to supply the form of live broadcast,
spk08: From the perspective of live broadcast content, we'll continue to strengthen the advantages of the streamers and also to enhance the competitiveness of the platform by providing more services and revenue sources for them. At the same time, the application of more live interaction functions and virtual live broadcast technologies will help us to enrich the live broadcast forms and make the content of UGC streamers more innovative and interesting for the users.
spk01: In terms of the e-sports competition, we mentioned in the previous conference that we will continue to make strict selections for the copyright and self-defeating competition. In terms of the copyright competition, we will fight with all the copyright parties for better business conditions. In this content, we hope that In terms of the esports events, we mentioned in the previous conference call that we'll continue to strictly screen the investment opportunities in copyrighted and self-run events.
spk08: And in the copyrighted championships, we will strive for better commercial terms with all the copyright owners. And in the self-made content, we'll focus more on forming high-quality Huya competition brand and to consolidate IP metrics of self-made content. And we'll continue to reduce the procurement and investment for some relatively poor performing event content.
spk01: At present, we will continue to cover the main tournaments in eSports this year, such as the KPL, Peace Elite PL, and the eSports Handball Tournament, and the Professional Tournament. We will also have some unique tournaments, such as the ESL DOT2 and CSGO tournaments, and the eSports LCK tournament. At present, we will continue to cover the LPL F Games of the LOL, the KPL, the PEL of Peace Elite, the LOL Mobile, and the Crossfire Professional League as our main event.
spk08: We will also have some exclusive events such as Dota 2 or CSGO series events of ESL and LCK events of the League of Legends. So if there are new game related esports events on the market made available, we would also dynamically evaluate and introduce new events if that is possible.
spk10: Let me answer the question about the financial and operational impact of the Hero League. We and the copyright parties reached this agreement in January this year through friendly negotiation. In terms of the contest content, in 2023-2025, in addition to the LPL-related contests, we increased the copyright of S-Side, Demacia Cup, and other key contests. In terms of finance, the total cost of the market in the agreement will be significantly reduced by 2022. At the same time, since Huya no longer has the right to transfer power to the LPL market, we will reduce the revenue on the copyright distribution. In general, we expect the cost of the relevant market to fall in 2023 to 2022 will be higher than the reduction in the size of the copyright revenue. In this way, for the overall cost structure,
spk08: As for the operational and financial impact of the supplementary agreement, we reached a supplementary agreement on the League of Legends event in January this year through a friendly negotiation with the copyright owner, and specifically in the year of 2023 throughout to 2025. In addition to LPL-related events, we added the copyright of key events such as the S Championship and the Domestika Cup. In terms of the finance, the total cost of the events in the agreement covered will be significantly lower than that in 2022. At the same time, as HUYA will no longer have the right to sub-license LPL events, revenue from copyright distribution will decrease. In general, we expect that the cost of the relevant events will decrease more than the reduction of the copyright revenue in 2023 compared with 2022, which is a positive effect on the overall cost structure of our company.
spk10: From the user's perspective, are there more platforms covering these events?
spk08: We do not rule out that there is going to be some dilution in the population watching on our platform, but we believe that this overall impact is controllable, which will be conducive to better dissemination of the event itself and also help the vigorous development of esports ecosystem. There are still some top-tier copyrighted events and self-made events only available in Huya. In addition, we continue to improve the viewing and interactive experiences in our platform for those events, which will be very competitive advantages for us to gain users.
spk06: Thank you.
spk08: Next question, please. Thank you.
spk09: Our next question comes from the line of Richie Sun from HSBC.
spk08: Please ask your question, Richie.
spk04: I will translate this myself. My question is about the live streaming revenue recovery situation as well as the 2022 overall total revenue growth expectation. Thank you.
spk10: Okay, let me answer some questions about income. In terms of live streaming income, some live streaming policies were introduced in May last year. We implemented them according to the guidance requirements. These adjustments affected our revenue mainly from June last year. Under these circumstances, the domestic live streaming income in the first half of 2022 is relatively high. Therefore, we expect that the live streaming income will be weaker in the first half of this year. In terms of live broadcast revenue, after the launch of the new policy last May, we subsequently implemented it according to the requirement. And the impact of these adjustments on revenue mainly began in June,
spk08: So in this case, the domestic live forecast revenue base in the first half of 2022 was relatively high. So we expect that the revenue in the first half of this year will be weaker year on year. Moreover, from a seasonal perspective, due to fewer activities and the Chinese New Year Festival and other factors, Q1 is generally a off season for live streaming. revenue and this year will also be affected by some factors after the COVID open up as well.
spk10: We hope that the live broadcast revenue will gradually stabilize in the following quarter. On the one hand, the same number of models will be better, and we are also continuing to polish products and operating activities to increase the ability to transform. For example, we will launch some new live interaction playlists and some optimized design for virtual objects.
spk08: So we hope that the revenue of subsequent quarters will gradually stabilize because on one hand, the year-on-year base will be better, and we are also continuing to polish our product and operational activities so as to enhance the monetization of our business operations, such as introducing some new interactive displays, as well as optimizing the design of the virtual gifts. At the same time, we remain optimistic about the recovery of the overall economic environment and the launch of more games.
spk10: There is a small part of our live streaming income comes from overseas live streaming. Since April last year, we have made some adjustments in terms of business. A small part of our live revenue comes from our overseas business, Nemo.
spk08: And due to the business optimization since last April, the revenue had experienced an year-on-year decrease since the second quarter of 2022. And at present, on the basis of continuing to strengthen the localized operation, we also expand Nemo's pan-entertainment content, which we believe will be conducive to generate improvements for commercial performance and overseas revenue for our business.
spk10: In addition to live broadcast revenue, with the recovery of the market environment and game version this year, we believe that advertising revenue may be restored. But due to the revision of the LOL size copyright agreement, we will have a greater decline in copyright revenue than in 2022. Therefore, we expect that the overall advertising revenue and other parts may decline. At the same time, some new business opportunities, including games,
spk08: 我们也在探索变现,希望能够跑通流程。 In terms of other revenues, with the recovery of market environment and the licensing coming up again this year, we believe that advertising revenue will have some opportunity to recover this year. However, because of the supplementary agreements we signed in January, this will lead to some decline in our copyright revenue compared with the year of 2022. We predict that the overall revenue of advertising and other sectors may decline. At the same time, we are also exploring new business opportunities, including games and et cetera, hoping to get to some success.
spk09: Okay, thank you. Next question, please. Thank you. Our next question comes from the line of Lei Zhang from Bank of America. Please ask your question, Lei.
spk07: Hi, good evening. Thank you for accepting my question. My question is mainly about our previous video business. Can you introduce the overall progress of the video business and what are the key products and operations of our company in 2023? Thank you, management, for taking my question. My question is about our WeDo business. Can you give us some updates on this WeDo business and what is our product and operation forecast for 2023? Thank you.
spk01: This video, in terms of content production, in addition to our anchor, which continues to be the main force of content production, we also have more video content creators to join. On the Huya platform, there is more live content and test content, which has accumulated a lot of material for video content processing. In addition to the conventional editing tool, our AI real-time editing can automatically capture wonderful views by AI recognition, real-time analysis, and live video content. It can generate wonderful video clips. In terms of our video business, in terms of content production,
spk08: In addition to our live streamers, we also have a lot of video content creators joining force, and we have been able to accumulate large volume of original materials for video content processing. And in addition to conventional editing tools, we also have AI real-time editing function that can analyze the live stream content in real time through AI recognition technology and automatically capture the highlights in the live streaming processes to generate video clips, which can provide effective support for video production of competitive games and events and help to improve the creation efficiency and enthusiasm of the users and streamers. In the year of 2022, the number of video uploads on Huya has increased by nearly 50%, enriching the content that are available in our platform.
spk01: At the same time, we are continuously optimizing the video content environment to combine immersive video experience and video content in the gaming community. Huya users' consumption of video content has also increased significantly. Last year in Q4, the penetration of video content on the Huya App created a new peak. At the same time, users watched the video content on the App, and the total market grew by more than 40%. The development of video content promoted the work of communityization of Huya, and obtained a preliminary image. For the overall ecosystem of Huya content, we believe that the technology of live streaming is developing in the direction of live streaming to form a consumer ecosystem of video that is further integrated with live streaming.
spk08: 我们相信这会增强平台对于用户的吸引力, 长期来看能够帮助拓展获得用户增加营收的渠道。 At the same time, as we continually optimize our video content ecosystem, combined with immersive vertical screen viewing format, video content being embedded in the GAN community, our Huya uses consumption of video content had also significantly increased. In the fourth quarter of last year, the penetration rate of video content on Huya app reached a new high. At the same time, the total screen time on application increased by more than 40% year on year. So the development of our video businesses has promoted a community-based development of Huya. And for an overall content ecosystem in Huya, we believe that it will develop towards a pin live broadcasting format and form an ecosystem for video consumption that will be further integrated with live broadcasting. This will also help to increase the attractiveness of the platform to users. And in the long run, it would help us to expand the channels to obtain users and increase revenue.
spk01: In 2023, we will continue to promote product delivery and upgrade, consolidate the core of Huya's live broadcast business, and continue to promote video business development and communityization. In addition, we will emphasize the ability to deliver live broadcasts as a service for live broadcasts for live broadcasts and game manufacturers. Use Huya's new live broadcasts, live broadcasts, and game manufacturers' joint accumulation for game operation and promotion. And for the year of 2023, we will continue to promote product upgrades, consolidate the advantages of Huya's core businesses, and continue to promote video community. In addition, we will also attach importance to upgrading our operation capability
spk08: for a pin live streaming full link services for the streamers events and game companies utilize our expertise in new games in streaming events and game companies to provide more value for the operation and promotion of the games so as to prepare ourselves for the growth of our game related service revenue in the mid and long term thank you next question please Our next question comes from the line of Felix Liu from UBS.
spk09: Please ask your question, Felix.
spk03: Hey, good evening. Thank you for accepting my question. I'm UBS Daniel Han, representing Felix Liu. I have two main questions. First, can you please introduce the competitive status of the game live broadcast industry? How do you see the trend of live broadcast distribution and content cost in the current competitive environment? And my second question is, Let me translate myself. Good evening, management. Thanks for taking my question. This is Daniel Han from UBS on behalf of Felix Liu. I have two questions today. First, could you please briefly tell us about the current competitive landscape in game live streaming sector? How would the competition impact the revenue sharing ratio and the content cost? And my second question is, how is the margin outlook for 2023 Can we expect a sequential improvement on margins from last year? Thank you.
spk01: Therefore, we believe that the competitiveness of Huya lies in the more vertical gaming user group and the professional e-sports content ecosystem. The e-sports content ecosystem benefits from the production system of the mature content of Huya, the cooperation of the union, the stable supply of high-quality live streaming content, and the perfect copyright market, the self-knowledge content, and the close cooperation with the game industry.
spk08: Thank you for this question. Our Huya's market share is still relatively stable, and we have maintained a dominant position in the field of games and live streaming of esports, especially in the core games. Overall, the market competition still exists, but the behavior of each platform is more rational than that of the previous year or two. We believe that Huya's competitiveness lies in our more vertical game user group and a more professional esports content ecosystem, which benefited from our mature content production system, the stable supply of high-quality live content through guild cooperation and copyrighted games, as well as self-made content. And also, we had close cooperation with the game companies.
spk10: Okay, let me answer some questions about cost and profit. In terms of broadcast distribution and contract cost, since the broadcast distribution ratio has increased in 2021, our broadcast distribution ratio has been relatively stable in 2022. Under the current market competition, we expect that this year's broadcast distribution ratio and contract cost trend will still be relatively stable. As for the future, it depends on the market situation. There may be some room for adjustment. Miss Wu would cover the cost and profit trends. In terms of the commission sharing and contracting costs, while since the proportion of commission sharing increased in 2021,
spk08: Our proportion, our sharing ratios have been relatively stable in 2022. And under the current market competition, we expect that this year's sharing ratio and signing cost trend will remain relatively stable. And the future will depend on the market situation and updates, but still there will probably be some room for adjustments. At the same time, based on the optimization of the cost of the tournament and championships, as well as the optimization of the content costs, we expect that the gross profit rate of the whole year will increase compared with the year 2022. And the fluctuation on our gross margin between quarters will be smaller than that of 2022.
spk10: In terms of operating costs, we will continue to focus on improving operating efficiency. Since Q2 2022, we have been strengthening some measures in terms of cost reduction. The operating costs have dropped by double in three consecutive seasons. In 2023, we will continue to maintain strict budget control and consolidate the results of cost optimization. Reducing losses and increasing profitability is the key to this year's financial year. We hope that this will help
spk08: In terms of operating expenses, we'll continue to strengthen our measures to improve the operational efficiency. Since the second quarter of 2022, we have started to strengthen the cost reduction and efficiency improvement measures, and operating expenses have declined by double digits year-on-year for three consecutive quarters already. And in the year 23, we'll continue to maintain a strict budget control and consolidate the results of cost cutting. Reducing losses and improved profitability will be the focus of this year's finance work. And we hope that this will lay a good foundation for the subsequent return to growth and long-term profitability of our company. Okay, thank you. Thank you. As there are no further questions now, I'd like to turn the call back to the company for closing remarks.
spk06: Thank you once again for joining us today. If you have further questions, please feel free to contact Huya Investor Relations through the contact information provided on our website or the PS&A Group Investor Relations. Thank you.
spk08: This concludes today's conference call.
spk09: You may now disconnect your line. Thank you.
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