HUYA Inc.

Good day and good evening, and thank you for standing by. Welcome to HUYA's fourth quarter and fiscal year 2024 earnings webinar. I'm Han Yuliu from the HUYA Investor Relations. At this time, all participants are in lesson only mode. Please be advised that today's webinar is being recorded. 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 soon. Participants of management on today's call will be Mr. Junhong Huang, our Acting Co-CEO and the Senior Vice President, and Mr. Raymond Peng Lei, our Acting Co-CEO and CFO, Management will begin with the 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 on 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 this 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 WHOIA's earnings press release and this conference call include discussion of unaudited gap financial information as well as unaudited non-gap financial measures. WHOIS press release contains a reconciliation of the unaudited non-gap measures to the unaudited, most directly comparable gap measures. With that, I'm pleased to turn the call over to our co-CEO and SVP, Mr. Huang. Please go ahead.

Okay. Hello, everyone. Thank you for joining our earning conference today. Despite 2024's external challenges, we delivered a solid year by seeing opportunities arising from our strategic transformation and new game launches, notably Revenues from the game-related services, advertising, and other segments increased by 145.4% year-over-year to RMB 1.33 billion for the full year. This segment accounted for 21.9% of our total net revenues for the year, a substantial rise from 7.8% in the previous year. We recorded total net revenues of RMB 6.08 billion for the full year with improving profitability. Non-GAAP net income reached RMB 269 million. up by 125.6% year-over-year, with net cash provided by operating activities turning positive at RMB 94 million. These advancements are thanks largely to our strategic commercialization model update, as well as our enhanced live streaming content ecology and technology and product upgrades Now, let me share the detail of our recent business progress. First, we made encouraging strides in our business transformation. For the fourth quarter, revenues from game-related services, advertising, and others increased by 99.4% year-over-year through RMB 372 million. Despite a sequential revenue decline from the third quarter peak due to the game industry's net seasonality, these sectors overall performance remain solid. Regarding game distribution, we continue to increase operational excellence for both new and existing titles and are pleased to see the Huya platform emerging as one of the primary distribution channels for several games. Following the recent launch of Data Force, we actively encourage our broadcasters' participation in the title's live streaming and game promotion. This led to rapid growth in gross receipts for the game generated through the VR distribution channel while also boosting its live streaming content's performance. In Edison, we plan to collaborate with more game developers and publishers on distribution and joint operations, and we conducted some meaningful trials with third-party game studios in the fourth quarter. We look forward to these initiatives contributing to the future development of our game distribution business. For in-game item sales, we deepen our focus on diversifying in-game item categories and improving traffic efficiency on live channels. We also upgraded the More section on our app, integrating popular game skins, tools, and user incentive activities. In January, we launched our first League of Legends themed game item shop, accompanied by a special Spring Festival promotion featuring Huya exclusive benefits. Excitingly, our efforts drove a record high in our monthly total in-game item sales GMV for January. On the advertising front, it's worth noting that our in-house LOL Legend Cup Season 2 doubled its sponsorship revenue compared to its inaugural event Leveraging Legend cups increased influence and IP value. The event attracted a wider range of well-known sponsors from the beverage, automotive, and local service sectors. Furthermore, we began leveraging our international business presence to explore diverse revenue streams in overseas market in 2024 by providing game distribution, in-game item sales, and game marketing services. These initiatives have already achieved promoting early results. Moving on live streaming content ecology, we continue to strengthen our content ecologist through collaborations with various content platforms during the quarter. This has brought our broadcasters quality content and services to broader game audience, expanding our market presence and setting the stage for the future commercialization initiatives. In December 2024, we asked content reach a record high number of viewers, which we estimated to be more than double the number of our mobile active users. On our professional content enrichment efforts, our comprehensive Coverage extension uses inclination to watch esports on Huya platform, enhancing our market share of several major events. Our licensed tournaments covered approximately 40 game titles in 2024. In the fourth quarter alone, we broadcast over 100 licensed esports tournaments. Featuring major events such as League of Legends World 2024 and Demacia Cup, Anna of Kings KPL Grand Finals, and Counter-Strike 2 Shanghai Major and Blast Premier World Final, solidifying our content advantage. We also broadcast over 35 self-organized esports tournaments and entertainment PGC shows. During the fourth quarter, among these events, LOL's Legend Cup S2, HOK's Super Platform Cup, and Valorant's Wally Cup were quite popular. In addition, we hosted Xiang Wang Cup and Huya Jiangshu Village Games for HOK and Crossfire competitions in the fourth quarter, attracting widespread participation from local communities. Furthermore, this year we continue to develop our self-organized tournaments to complement the licensed tournaments on our platform and provide our users with a steady stream of fresh content. In doing so, we reduce the gap between our major licensed tournaments and in-house produced content for both League of Legends and Honor of Kings significantly. from over a month in 2023 to no longer than two weeks in 2024. We also enhanced the influence of our in-house produced content by engaging more popular broadcasters and fostering greater interactions in our game community. GUYA currently leads the industry in the number of top-tier in-house produced e-sports events and audience scale. According to our internal statistics and estimates, GUYA captured over half of the market share for the industry's top-tier in-house produced e-sports events in 2024. In particular, our flagship Legend Cup H2 has set a new standard for premier self-organized tournaments across various platforms. Building on the success of its inaugural season, we boosted the event's viewing and entertainment value this year with upgraded team formation rules. match schedule during and gameplay design as well as international players participation. Increase in the events derivative content and sponsorship revenue clearly reflect Legend Cup's rising IP value. We are also delighted to see that the viewership metrics of the Legend Cup series on our platform nearly equal or even surpassed those of some top tier licensed esports events. In 2025, we intend to replicate our successful self-organized tournament model to encompass a wider array of popular esports titles on our platform. Alongside the upcoming Legend Cup Season 3, which will begin at the end of March, we will also launch premier VR-branded tournaments for Dota 2 and Valorant, creating more high-quality IPs. We invited everyone to stay tuned for this exciting event. Turning now to our technology and product upgrades, which drove business improvement throughout the year. To further enhance Wea's esports community vibe, we launched a series of product features on our app around tournaments to increase viewers engagement and facilitate access to professional esports analysis. During the Masiya Cup, we introduced customizable team sim live channel skins and bullet chat effects as well as pre-match analysis and real-time data based on event statistics. Additionally, we developed features that allow viewers to access in-team chats during matches and flexibly switch between the first-person perspective of different players, which will gradually be integrated with our content release to provide inclusive content for team fans. We also launched a Huya rating section on our platform, providing users with a professional forum for esports rating and reviews of esports players, tournaments, broadcasters, and more. This section has quickly gained recognition and active participation from users. For instance, by the end of the event in early March, this year's LPL split one has received 6.8 million total of user ratings, representing an increase of approximately 80% compared to the cumulative rating of last year's LPL summer split, and more than double that of the event on another well-known rating platform during the same period. This not only reflects high user engagement with VR ratings, but also demonstrates its significant impact on our promoting interaction with the eSports community. Furthermore, we are actively embracing cutting-edge technologies such as AI. In February, we became the first game live streaming platform to fully deploy the DeepSeek R1 model. As deployed an AI assistant, feature to help users efficiently search for game strategies and live channels of interest. We will further advance our AI Plus live streaming strategy by applying AI large models to improve broadcasters' content creation efficiency through smart interaction upgrades, full-process automation, and data-driven operational support. This will also foster AI-powered digital IP innovation and facilitate the design of more distinctive visual streamers and delivering a novel experience for both users and content creators. By leveraging AI technologies throughout the entire cycle of live streaming content production, distribution, and consumption. We expect to energize the live streaming creators ecosystem with intelligent tools, preparing the human driven live streaming industry towards a technology driven future. We believe this innovative AI driven endeavors will create more immersive, interactive, experience for users and generate long term value for we are in live streaming is bought and more areas. Building on the meaningful achievement we have made so far. We will continue to progress our strategic transformation. Although challenges and uncertainties exist, we remain committed to building a more comprehensive game content and services platform exploring new technologies and deepening their applications to holistically improve our content creators and user experience. Moving into 2025, we will continue to respond pragmatically to changes in the market environment and capitalize on market opportunities, driving our long-term sustainable business development. With that, I will now turn the call over to our Acting Co-CEO and CFO, Raymond Lei. He will share more detail on our results. Raymond, please go ahead.

Thank you, Vincent, and hello everyone. I'll start with our first quarter results, followed by our four-year financial highlights and an update on our shareholder returns. Our total net revenues in the first quarter of 2024 were approximately RMB 1.5 billion, with gaming-related services, advertising, and other businesses nearly doubling their revenues year-over-year, naturally offsetting the macroeconomic and industrial environment's continued impact on live streaming revenues. The number of paying users in the first quarter rose over year, rose year-over-year to 4.5 million, excluding those who made in-game purchases through our game distribution business but didn't pay via our platform or related services, demonstrating engagement across our core user base. Due to the seasonal nature of major esports events scheduling and the related cost allocation, we have faced a gross margin pressure in the first quarter in recent years Nevertheless, in 2024, we further rationalized broadcaster related and export content costs, including costs related to AOL worth, resulting in an increase in our first quarter gross margin to 11.4% from 1% in the same period last year. Moreover, enhanced operation efficiencies resulted in a 23.8% year-over-year reduction in total operating expenses, further contributing to the improvement in our broad profit metrics. We achieved a non-GAAP net income of RMB 1.2 million in the quarter, marking a turnaround from the same period last year. We record non-GAAP net profit in all four quarters of 2024, highlighting significant progress in our business optimization efforts. Let's move on to more details of our Q4 financial results. Our total net revenues were RMB 1.5 billion for Q4, of which live streaming revenues were RMB 1.12 billion. and the game-related services, advertising, and other revenues were RMB 372 million, compared with total net revenues of RMB 1.53 billion for the same period last year. Cost of revenues decreased by 12% year-over-year to RMB 1.33 billion for Q4, primarily due to decreased revenue sharing fees and accounting costs as well as bandwidth and server custody fees. Revenue sharing fees and content costs decreased by 12% year-over-year to RMB 1.16 billion for Q4, primarily due to decreased live streaming revenue sharing fees associated with the decline in live streaming revenues, as well as lower costs related to licensed esports content and in-house produced content. partially offset by the increase in game-related services, advertising, and other revenue sharing fees. Bandwidth and server custody fees decreased by 33% year-over-year to RMB 55 million for Q4, primarily due to continued technology and management enhancement efforts, as well as favorable pricing terms. Gross profit was RMB 170 million for Q4, compared with RMB 15 million for the same period last year. Gross margin was 11.4% for Q4, compared with 1% for the same period last year. Primarily attributable to decreased revenue sharing fees and accounting costs as a percentage of total net revenues. Excluding share-based compensation expenses, Non-GAAP gross profit was RMB 174 million and the non-GAAP gross margin was 11.6% for Q4. Research and development expenses decreased by 10% year-over-year to RMB 123 million for Q4, primarily due to decreased personal related expenses, partially offset by higher share-based compensation expenses. Sales and marketing expenses decreased by 45% year-over-year to RMB 63 million for Q4, primarily due to decreased marketing and promotion fees as well as personal related expenses. General and administrative expenses decreased by 19%. year-over-year to RMB 81 million for Q4, primarily due to decreased provision and office expenses, partially offset by higher share-based compensation expenses. Other income was RMB 4 million for Q4, compared with RMB 13 million for the same period last year, primarily due to lower government subsidies. As a result, Operating loss was RMB 93 million for Q4, compared with a loss of RMB 322 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets for business acquisition, non-GAAP operating loss was RMB 69 million for Q4, compared with a loss of RMB 360 million for the same period last year. Long gap of trading margin was negative 4.6% for Q4. Interest income was RMB 75 million for Q4 compared with RMB 129 million for the same period last year, primarily due to a lower time deposit balance, which was primarily attributable to the special cash dividend paid in May and October 2024. Impairment loss of investments was RMB 151 million for Q4, compared with RMB 80 million for the same period last year. As we recognize, impairment charges are our investment attributable to the weak financial performance of certain investees. Land loss attributable to Huya Inc was RMB 172 million for Q4, compared with the loss of RMB 275 million for the same period last year. Excluding share-based compensation expenses, impairment loss of investment and arbitration of synthetic assets from business acquisition, net of income taxes, Non-GAAP net income attributable to Huya Inc. was RMB 1 million for Q4 compared with non-GAAP net loss attributable to Huya Inc. of RMB 190 million for the same period last year. Non-GAAP net margin was 0.1% for Q4. Diluted net loss per ADS was RMB 0.75 for Q4 Langevin diluted net income per ADS was RMB 0.01 for Q4. As of December 31, 2024, the company has cash and cash equivalents, short-term deposit and long-term deposit of RMB 6.73 billion compared with RMB 8.08 billion as of September 30, 2024. Moving on to our full year 2024 results, total net revenues were RMB 6.08 billion for 2024, compared with RMB 6.99 billion for the prior year. Live streaming revenues were RMB 4.75 billion for 2024, compared with RMB 6.45 billion for the prior year. Game-related services, advertising, and other revenues were R&B 1.33 billion for 2024, compared with R&B 544 million for the prior year. Long-gap gross profit was R&B 825 million for 2024, compared with R&B 831 for the prior year. Gross margin was 13.6% for 2024, up from 11.9% for the prior year. Non-capital income attributable to Huya Inc. was RMB 269 million for 2024, up from RMB 190 million for the prior year. and non-GAAP net margin was 4.4% for 2024, up from 1.7% for the prior year. Non-GAAP diluted net income per ADS was RMB 1.15 for 2024, up from RMB 0.48 for the prior year. Net cash provided by operating activities was RMB 94 million for 2024, compared with net cash used in operating activities of RMB 32 million for the prior year. For additional details on our full-year 2024 financial results, I encourage listeners to refer to our earnings press release issued earlier today. Finally, let me provide an update on our shareholder returns To enhance our shareholder returns and optimize our capital structure, we are pleased to introduce our 2025-2027 dividend plan, which is expected to distribute a total of no less than USD 400 million to our shareholders over the next three years. Specifically, for 2025, we have declared a cash dividend of US$1.47 per ordinary shares or per ADS. Totally approximately US$340 million. For 2026 and 2027, we expect to distribute no less than US$30 million in cash dividend annually. In addition, through our up to US dollar 100 million share repurchase program, we had repurchased 90.1 million Huya shares with a total aggregate consideration of US dollar 63.6 million as of the end of December 2024. Whois Board of Directors has also authorized the renewal and the continued usage of the unutilized quota under the Exceeding Shared Repair Trust Program until March 31, 2026. With that, I'd like to open the call to your questions.

Thank you, Raymond. And hello, everyone. If you are dialing in by phone, please press 5 to ask a question, then press 6 to unmute yourself. If you are accessing the call from Tencent meeting or both meeting applications, please click the raise hand button at the bottom left. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Today's first question comes from Thomas Chong from Jefferies. Your line is open, please go ahead.

Thank you for your question. My question is about shareholder returns. What are your thoughts on the strategy of creating shareholder returns? So I translate myself and thanks management for taking my question. My question is about our shareholder return strategy. So what factors do we consider when we make shareholder return strategies? Thanks.

Thank you, Thomas. We focus on increasing shareholder returns, especially the stock market plan for 2025 to 2027. The plan is to send a total of more than US$400 million of cash to shareholders in the next three years, of which US$3.4 billion will be sent to shareholders in 2025, including US$1.47 per normal stock or per ADS. In 2026 and 2027, it is expected that the share will be more than US$30 million per year. This share plan is to further return to shareholders and optimize the company's capital structure to improve the efficiency of cash use.

We place great emphasis on enhancing shareholder returns and have thus established a 2025-2027 dividend plan, which aims to distribute a total of no less than US$400 million in cash dividends to Huya's shareholders over the next three years. Especially for 2025, we have declared a cash dividend of US$1.47 per ADS, totaling approximately US$340 million. For 2026 and 2027, we expect to distribute no less than US$30 million in cash dividends annually. This dividend plan is designed to further reward Wuya shareholders and optimize the company's capital structure and improve the efficiency of our cash utilization.

At the end of December 2024, Wuya has more than $900 million in cash and cash deposits, and the company has no debt. In the whole year of 2024, our non-GAAP net profit has increased significantly in 2023 to 2.7 billion yuan, and has achieved a full-year operating cash flow turnaround. Not considering the subsequent business cash situation, under this three-year stock market plan, after completing all the stock market payments, Huya will retain funds worth about $500 million, which can ensure the financial support needed for future business development. Since Huya is currently in a special stage of strategic transformation, we will consider combining the business situation of the company with its predictability after this stock market plan, and use the long-term return mechanism such as long-term stock market policy to achieve sustainable development of share value with shareholders.

Huya currently has sufficient internal funds. As of the end of December 2024, the company held cash, cash equivalents and deposits totaling over US$900 million, with no debt. For the full year of 2024, our non-GAAP net profit increased significantly compared to 2023, reaching RMB 270 million, and we achieved positive operating cash flow for the year. Even without considering future business cash flows, after completing the full dividend payment under this three-year dividend plan, Huya will still retain approximately US$500 million in funds, ensuring sufficient financial support for future business development. Given that Huya is currently in a special phase of strategic transformation, we will consider after this dividend plan studying long-term return mechanism such as a regular dividend policy based on the company's operating condition and visibility so as to achieve sustainable development and shared value with our shareholders.

In terms of repurchase, under the current $100 million repurchase plan, we have repurchased $63.6 million of Huya stocks by the end of December. This repurchase plan will continue to be continued until March 31, 2026. We will consider comprehensive multi-faceted factors, including market conditions, stock liquidity, and overall shareholder feedback, and carefully promote repurchase.

In terms of share repurchases, under the existing share repurchase program of up to 100 million US dollars, we had repurchased Huya shares with a total aggregate consideration of 63.6 million US dollars as of the end of December last year. The repurchase program had been extended until March 31, 2026. We will comprehensively consider various factors, including market conditions, stock liquidity, and overall shareholder returns to prudently advance the repurchase program.

Thank you. And our next question comes from Nelson Chong from Citi.

Nelson, please go ahead. So let me translate the question in English myself. Thank you for your question. I will answer this question.

In the fourth quarter, although our game-related services, advertising, and other income have decreased compared to the summer, but we can see that the growth is still almost doubled. to 3.72 billion yuan. The overall performance is still very stable. Specifically, in terms of game distribution, we continue to optimize the operation of the Huya platform in the new and old games. Huya has become the main distribution channel of some games. For example, after the launch of the new game, Triangle Island, we are also actively promoting platform streamers to participate in live broadcasts and related promotion activities. The game has also achieved rapid growth through Huya's distribution channel flow, and has promoted a positive cycle of game live broadcast content. At the same time, we are also expanding and more manufacturers in the field of game release. And in the fourth quarter and the third, third-party game manufacturers have started more intentional attempts to cooperate.

In the fourth quarter, although our revenues from game-related services, advertising, and others declined sequentially compared to the peak summer season, they still nearly doubled year over year, reaching an RMB 372 million, demonstrating a very solid overall performance. Especially in game distribution, we continue to enhance the operational excellence for both new and existing game titles on Huya platform, and we have become one of the primary distribution channels for several games. Following the launch of the new game Delta Force, we actively encouraged platform broadcasters to participate in live streaming and related promotional activities, leading to a rapid growth in the game's growth received through the Huya distribution channel and fostering a positive life cycle with live streaming content. At the same time, we are expanding distribution and joint operations with more game developers and conducted meaningful trial collaborations with third-party game studios in the fourth quarter of 2024.

In terms of the sale of props, we will continue to enrich the sale of props to increase the efficiency of our traffic flow, and further optimize the app end in the commercial section. to integrate popular props and user base activities. In terms of advertising, we are also actively improving our own e-sports marketing capabilities, especially the IP value of the legendary cup of the Heroes League. We can also see that it has been significantly improved. Compared to the first-tier S1, the income of the business has been doubled, and it has attracted the support of well-known sponsors such as film, car, and local living platforms.

In terms of in-game item sales, we continue to diversify the categories of in-game items, improving traffic efficiency. And we further optimize the mall section on our app, integrating popular items and user incentive activities. In advertising, we actively enhanced the sponsorship capabilities of our self-organized esports tournaments. particularly the IP value of LOL Legend Cup S2, which doubled its sponsorship revenue compared with the first season of the scam and attracted a broader range of well-known sponsors there from beverage, automotive, and local live platform sectors.

To be specific, the performance of our game-related services is closely related to the degree of participation of streamers, as well as the seasonality of the game industry. Therefore, even during the Spring Festival, I usually forget about the gaming industry, but at the same time, the streamer's opening rate has dropped, which may also have a certain impact on this business. In addition, in 2024, we also successfully participated in the distribution and promotion of some large new games online. The online rhythm and market performance of game products in the future are expected to have an impact on the growth of business income related to the company.

It is worth noting that the performance of our game-related services business is not only constrained by the seasonality of the game industry, but also closely related to the participation of the streamers. Therefore, even though the spring festival period is typically a peak season for game industry, the decline in the streamer live streaming rates during this period may have a certain impact on our business. Additionally, in 2024, we successfully participated in the distribution and promotion of several major new game launches, and the release schedule and market performance of future game products are expected to influence the growth of companies' related business revenue.

Looking back at the past year, Huya has made significant progress in the transformation of commercialization. The total income of non-streaming businesses this year has exceeded two-thirds. In 2025, we will continue to promote the transformation of commercialization, aiming to further improve the income of game-related services and advertisements. In addition to the progress of existing businesses, we also plan to strengthen cooperation with various game manufacturers and platforms, and try the game-only mode, which will bring more possibilities for the continued development of businesses.

Looking back over the past year, Huya has made a significant progress in its commercialization transformation with non-live streaming business revenue accounted for over 20% of the total revenue for the full year. In 2025, we will continue to advance our commercialization transformation, focusing on further increasing the game-related services and advertising revenues. In addition to refining our existing business, we also plan to strengthen the cooperation with various game developers and platforms and explore the exclusive distribution model to bring more possibilities for the sustainable development of our business.

Thank you. And our next questions come from Richie Sun from HSBC. Richie, please go ahead.

Vincent, Raymond, and Fanyu, good evening. Thank you for accepting my question. I'd like to ask about DeepSeq's popularity recently. I'd like to ask about the impact of technology or AI on our products, company applications, and monetization, core structure. Thank you, management, for taking my questions. We noticed the rise of deep-seek and also in AI in general recently. And how does this impact our products, monetization strategy, cost structure, all these aspects?

Thank you. OK, thank you, Rishi, for your question. First of all, Huya is a technology-driven entertainment platform. Currently, we are actively integrating and applying various AI large-model solutions to fully utilize the technology resources of the platform, rich in game live streaming content and data. We also hope that Huya can create long-term value in the field of live streaming and e-sports, bringing opportunities for future income and profit growth.

Huya is a technology-driven entertainment platform and we are actively integrating and applying various AI large model solutions, leveraging the platform's technical resources, reach game live streaming content and data with the aim of creating a long-term value for Huya in live streaming, esports and other areas and bring opportunities for future revenue and profit growth.

In February of this year, Huya Live's app also introduced DeepSeq R1's full-blooded large model and launched our AI assistant to help users search for more efficient platforms, popular sites, topics, and fun live broadcasts. Next, we will also use the assistant to support more, for example, real-time interaction such as game strategy and game live broadcasts.

In February this year, Huya Live App integrated the DeepSeq R1 large model full version and launched the AI Assistant to help the users efficiently search for popular events, topics, and fun live streaming rooms on the platform. Moving forward, this assistant will also support features such as game guides and real-time interaction during live game streaming.

At the same time, we are also continuing to explore the potential of AIGC in improving live broadcast content and user service. Currently, we are also creating AI streamers to help streamers to be able to more effectively plan, for example, live broadcast scripts to achieve data-based operation assistance and actually respond to the needs of the audience's interaction to create more interactive user experience. On the other hand, with the support of the underlying reasoning and multi-modal capabilities of the entire AI model, through the deep integration of this kind of commentary style and platform, We will also build a series of AI data streamers based on the format of the live broadcast. We will provide users with a more differentiated gaming live broadcast experience in terms of live broadcast commentary, live broadcast replays, and VP analysis. Based on the current data, the assistant application of the anchor can significantly improve the activity of the live audience and the interaction gift of the anchor. In addition, we have achieved some progress in the style creation of virtual anchors, implementation, reasoning, output, etc., and are continuously optimizing.

At the same time, we continue to explore the potential of AIGC in enhancing live streaming content and user services. Currently, we are developing an AI-powered streamer assistant to help the broadcasters more effectively to help them plan live streaming scripts, achieve data-driven operational support, and respond to viewer interaction needs in real time, and also create a more interactive user experience. On the other hand, leveraging the reasoning and multimodal capabilities of AI large models and through deep integration with the unique commentary styles of our platform's streamers, we will build a serious of more stylized AI-powered virtual streamers in the construction of live streaming event content, and provide the users with more differentiated gaming experiences in areas such as event commentary, event replays, and band pick phase match analysis. According to current early testing data, the application of the streamer assistant has significantly increased the activity of live streaming viewers and the gift revenue from the viewer interactions. Additionally, we have made progress in the creation of virtual streamer style and real-time reasoning output of large models, and we will continue to optimize on these areas.

In general, in the face of the future, Huya will also implement the strategy of deepening AI and live broadcast. Through the AI big model, we will be able to improve the efficiency of live broadcasts, create a new mode of AI IP, and more stylized virtual live broadcasts. This will bring a new experience for users and content creators. Huya will also use the AI big model to pass through content production, distribution, and consumption. We use intelligent tools to activate the ecosystem of live stream creators, and drive the live stream industry to develop from human-powered drive to technology-powered drive.

In summary, looking into the future, Huya will deepen the implementation of AI plus live streaming strategy and empower our broadcasters with AI large models to upgrade their efficiency, to create new AI IP models and more stylized virtual streamers, bringing a completely new experience to users and content creators. Huya will leverage AI large models throughout the content production distribution and consumption loop using intelligent tools to activate the live streaming creator ecosystem and propel the live streaming industry from a human-driven to a technology-driven future.

Thank you. Now we will take our last question today from Yiwen Zhang. from China Renaissance.

Yiwen, please go ahead. So thanks for taking my questions. So can you just discuss our live streaming revenue trend and additionally, can you also touch upon our group overall profitability margin trend as well? Thank you.

Thank you, Yiwen. In the fourth quarter, our live broadcast revenue continues to be affected by the macroeconomic and industry environment. Users have been recovering from the cost of consumption. At the same time, we continue to adopt a more cautious operation strategy. The overall live broadcast revenue is still weak.

In the fourth quarter, our live streaming revenue continued to be impacted by the macroeconomic and industry environment, with users' willingness to spend on gifting yet to recover. At the same time, we maintained a cautious operational strategy, resulting in overall live streaming revenue remaining weak.

工厂第一季度是直播行业的淡季,春节假期及其前后, The number of streamers has decreased. In addition, there are fewer related activities and events in this quarter. We expect that the level of live streaming revenue in the first quarter of this year will still drop in the fourth quarter due to seasonal decline. We noticed that the streamer's situation has gradually recovered after the Spring Festival holiday.

Typically, the first quarter of a year is low season for the live streaming industry. During the Spring Festival holiday and its surrounding period, the number of broadcasters going live decreases, and with fewer related activities and events in this quarter, we expect live streaming revenue in this first quarter of this year to seasonally decline compared to the fourth quarter last year. And we have noticed that some streamers' live streaming activity has gradually recovered after the Spring Festival period.

利润方面,在成本端, 第四季度由于有较多的大型版权和自制电竞赛事, 内容成本较第三季度有所增加。 但相比于上年同期, 由于包括英雄联盟S赛在内的版权电竞赛事授权费用有效节约, and more optimized broadcast cost structure, content cost has significantly decreased. Therefore, the fourth quarter's net profit reached 11.4%, which is slightly lower than the third quarter. As of 2023, the fourth quarter has increased by 10.4%. In terms of operating costs, the company continues to maintain a cautious expenditure strategy, effectively supporting the overall operating performance of the fourth quarter. Langevin's profit compared to the previous year's same period was reduced to profit.

In terms of profitability, on the cost side, the costs increase sequentially in the fourth quarter due to the presence of more large-scale licensed and self-organized esports events. However, compared to the same period last year, content costs have significantly declined due to the effective savings in licensing fees for licensed in sports events, including LOL Worlds 2024, as well as a more optimized streamer cost structure. So as a result, the gross margin in the fourth quarter reached 11.4%, slightly lower than the third quarter, but up by 10.4% compared to the fourth quarter of 2023. And in terms of operating expenses, the company continued to maintain a cautious spending strategy, effectively supporting the year-over-year improvement and overall operating performance in the fourth quarter, with a non-GAAP net income turning profitable compared to the same period of last year.

Our subsequent revenue situation will be affected by the overall change in income. In addition to increasing our investment in our own content at the cost of cost, we expect the cost of copyright content and the cost structure of broadcasting to improve in the future. At the same time, we will continue to strictly control the operating costs. It is worth noting that Due to our positive shareholder return policy, which will lead to a decrease in cash flow and a decline in market interest, we expect that this year's interest income will be significantly lower than that of 2024. Therefore, this year's profit performance will mainly depend on the company's improvement in operating profits.

Our future profitability will be influenced by the changes in overall revenue scale, while on the cost and expenses side, in addition to moderately increasing investment in self-produced content, we expect there's still room for improvement in licensed content costs and streamer cost structures in the future, and we will continue to strictly control operating expenses. notably due to our proactive shareholder return policy leading to a reduction in cash surplus on the book, coupled with factors such as declining market interest rates. We expect the interest income this year to be significantly lower than in 2024. Therefore, this year's bottom line performance will primarily depend on the improvement in the company's operating results.

Thank you. 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 PS&T Financial Communications. This concludes today's call. And we look forward to speaking with you again next quarter. Thank you.