Douyu International Holdings Ltd (DOYU) 2021 Q1 法說會逐字稿

Good morning, and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited's First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, this call is being recorded.

I will now turn the call over to the first speaker today, Ms. Mao Mao, Vice President of Capital Markets of DouYu. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our first quarter 2021 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer; Mr. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Finance. You can refer to our first quarter 2021 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website.

Before we start, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements.

All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call.

I will now speak on behalf of our Chairman and CEO, Mr. Shaojie Chen.

In the first quarter of 2021, we upgraded our operational system and steadily improved our operational performance with our average MAUs reaching 191.9 million and average mobile MAUs reaching 59.1 million. Meanwhile, our quarterly paying user count was 7 million, and total revenues were RMB 2.15 billion. In this quarter, without the influence of COVID-19, users tipping habits have normalized, which caused our overall revenue growth to be relatively subdued in the period. Nevertheless, the breadth and depth of our game-centric live streaming platform continues to perform well, attracting more users and building our platform expansion.

During the quarter, our total average MAUs increased by 21.3% year-over-year to 191.9 million, while our average mobile MAUs increased by 4.5% year-over-year to 59.1 million. Such MAU growth was mainly driven by 5 factors.

First, our broadcast of large-scale eSports tournaments, such as LPL Spring 2021, KPL Spring 2021 and CrossFire Pro League Spring 2021, continues to drive our user base expansion.

Secondly, we explored deeper partnerships with game developers and refined our operations through jointly produced events for different game titles such as Peacekeeper, Honor of Kings and League of Legends.

Third, we explored more organic synergies between game and pan-entertainment segments. For example, during Chinese New Year, we facilitated streamer collaboration with both movie crews and celebrities to produce premium live streaming content in our Peacekeeper and PUBG segment.

Fourth, we ramped up our efforts to provide a broader content mix through our video and communities business, and thus provided users with better viewing experience through diverse content.

In addition, as the pandemic subsided and China successfully brought the virus under control, the reopening of in-person Internet cafes led to a year-over-year uptick in our PC MAU.

Now turning to our content update. During the quarter, we continued to expand our influence up and down the eSports industry value chain. Moreover, to fuel the growth engine of our content ecosystem, we further refined our game-centric live streaming business, while diversifying our video and community content initiatives.

In order to develop more quality eSports content, we utilized the large-scale eSports tournament broadcast, self-organized events and programs, and sponsored and invested more in top eSports team. We achieved superior results during the quarter by broadcasting over 50 large-scale eSports tournaments and self-producing over 40 high-quality eSports tournaments.

We also implemented several innovative features for large-scale autonomous broadcast to better satisfy users' wide range of content viewing demand, differentiate our platform offering and boost user engagement.

During KPL Spring 2021, for example, we provided users with a diverse set of viewing options around video, community and live streaming. Such options included (foreign language) watching games with celebrity groups, KBR (foreign language), tournament highlighted sporting specialized program designed for key game streamers as well as video and [tech prone] game [program].

Additionally, during the LPL Spring 2021 broadcast, we supplied users with exclusive game commentary and the supplemental live streaming room through which our exclusive top-tier streamers delivered high-level analysis and commentary to provide better user experience and enriched their content broadcast viewing options.

And finally, we also added more interactive events to our CrossFire Pro League Spring 2021 broadcast, which helped to better circulate traffic between tournaments and credentials, create better viewing experience for our users and stimulate user engagement.

Beyond such platform innovation, we also worked to develop more in-house tournament IPs, consider our self-produced DouYu DnF all-star tournaments, for example. Through this event, we maintained a high level of user engagement during the quiet period after the official tournament end, supplied DnF segment streamers with a large repository of tournaments and provide users with more premium and differentiated content.

As we continue to accumulate more quality video content, we have also established a pyramid structure consisting of 3 content tiers. Our top-tier video content features PGC content produced through our partner collaborations and by top-tier streamers periodically, while our mid-tier content features those produced by mid-tier streamers and platform signed video content creator. At the bottom is video content produced by long tail streamers and video content creators as well as other high-quality UGC content.

Meanwhile, leveraging the monetization and engagement advantage of live streaming, we encouraged video content creators to live stream on our platform, which help them improve their overall income and increase the user engagement. We also recognize video advantage in content accumulation, distribution as well as extension, and encourage our streamers to build up their video content profile on our platform.

For our communities business, the 2 main functions are exploring games and facilitating more interaction between players, game developers, streamers and video content creators with our particular emphasis on game developer collaboration and increasing our influence among gamers.

In fact, during the quarter, we organized several events such as (foreign language) to bring gamers, streamers, video content creators, game media outlets and game developers together, bolster the community engagement and better facilitate interaction.

Now turning to monetization. In the first quarter, our quarterly paying users were 7 million, with our paying ratio reaching 3.6%. Meanwhile, our ARPPU increased steadily on a year-over-year basis to RMB 285. Although we saw the revision of users' tipping behavior to that of pre-pandemic levels as the pandemic was gradually brought under control in China, we continue to execute a proactive operating strategy centered on increasing user interactions to further stimulate users' paying habits and grow ARPPU.

Going forward, we will work to further optimize our product matrix, diversify our paying scenarios and enhance our users' overall paying experience. Through such measures, we should be able to better attract and retain a base of high-quality paying users and achieve a healthy ARPPU growth rate.

Finally, we remain committed to refining our content operation across different segments, which should help to further boost our segment monetization efficiency. We are also making good progress on the R&D front. During the quarter, we released a new feature that allows streamers to live stream directly through their Internet browsers.

By eliminating the process of downloading applications in advance, such as OBS and the DouYu live streaming tool, we have further reduced the threshold for new streamers to start live streaming on our platform.

For cloud games, we tested cloud-based live streaming tool, which made it easier for regular games users to simultaneously play and live stream games in Blu-ray video quality on our platform, thereby lowering the hardware barrier traditionally in place for the streamers.

We have also continued to fortify our foothold overseas. During the quarter, we continued to explore and increase our investments in the overseas market. As a result, our Japanese game live streaming product, Mildom, currently maintains its leading position in Japan.

In summary, during the quarter, we maintained our rigorous operating strategy and continued to develop an integrated content operation system around our 3 core businesses: live streaming, video and community. Such efforts have helped us to better position our platform for more sustainable growth over the long term. By successfully implementing these strategies, we have provided our core user group with significant benefits and thus paved the way for their steady growth.

Looking ahead, we remain committed to refining our video and community business models to create an integrated content ecosystem with our game-centric live streaming business as its foundation. We also plan to further execute several initiatives in product, streamers and content to cautiously improve our overall monetization capabilities in the long run.

With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao, to go through the details of our financial performance in the first quarter.

Thank you, Mao Mao. Hello, everyone. Total net revenues in the first quarter of 2021 were RMB 2.15 billion. Live streaming revenues were RMB 2 billion compared with RMB 2.11 billion in the same period of 2020. Advertising and other revenues were RMB 154.1 million compared with RMB 165 million in the same period of 2020. The year-over-year decrease in live streaming revenues was mainly due to the reversion of users' tipping behavior to that of the pre-pandemic level, as the pandemic was gradually brought under control in China.

This decline was partially offset by our implementation of more effective operational strategies, which helped to improve the engagement level and paying behavior of key paying users on platform in the period. The year-on-year decline in advertising and other revenues was mainly due to the trend of game advertisers normalizing their marketing expenditures, which were relatively higher in the same period last year due to the COVID-19 pandemic. As China has gradually brought the pandemic under control, advertisers' expenditures have also returned to their pre-pandemic level.

Cost of revenues in the first quarter of 2021 increased by 5.6% to RMB 1.89 billion from RMB 1.79 billion in the same period of 2020. More specifically, revenue sharing fees and the content costs increased by 5.4% year-over-year to RMB 1.66 billion. This was because of the company's increased investments in the broadcasting rights for eSports tournaments, in-house production of proprietary content and quality streamers in the overseas market.

Bandwidth cost in the first quarter of 2021 increased by 12.6% to RMB 172.1 million from RMB 152.9 million in the same period of 2020. This was mainly due to the promotion of more high quality viewing options and was partially offset by our ongoing development of P2P and CDN technologies, which have helped improve our bandwidth efficiency.

Gross profit in the first quarter of 2021 was RMB 260.2 million compared with RMB 485.9 million in the same period of 2020. Gross margin in the first quarter of 2021 decreased to 12.1% from 21.3% in the same period of 2020. This was mainly due to the decrease in our total net revenues, which resulted in an increased proportion of revenue sharing fees and the content cost to total net revenues in the period.

Sales and marketing expenses in the first quarter of 2021 increased by 95.5% to RMB 209.9 million. This was mainly due to our increased sponsorships and promotions of eSports tournaments as compared to the same period of 2020, during the COVID-19 pandemic, as well as our increased promotional activities for our user acquisition.

Research and development expenses in the first quarter of 2021 increased by 19.8% to RMB 111.3 million from RMB 92.9 million in the same period of 2020. This increase was primarily due to additional investments in technical personnel, particularly in the overseas market.

General and administrative expenses in the first quarter of 2021 increased by 4.1% to RMB 88.1 million from RMB 84.6 million in the same period of 2020. Adjusted operating loss in the first quarter of 2021, which excludes share-based compensation expenses, was RMB 91.8 million compared with an adjusted operating income of RMB 259.5 million in the same period of 2020.

Net loss in the first quarter of 2021 was RMB 101.8 million compared with a net income of RMB 254.5 million in the same period of 2020. Adjusted net loss in the first quarter of 2021, which excludes share-based compensation expenses, share of loss in equity method investments and impairment loss of investments was RMB 70.7 million compared with adjusted net income of RMB 296.9 million in the same period of 2020.

For the first quarter of 2021, basic and diluted net loss per ADS were RMB 0.19 and RMB 0.19, respectively, while adjusted basic and diluted net loss per ADS were RMB 0.10 and RMB 0.10, respectively.

Going forward, we plan to continue exploring new methods of upgrading our monetization capacity and efficiency. Additionally, as we continue to grow, we will focus on further utilizing our operating leverage and fueling the sustainable development of our platform.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

(Operator Instructions) The first question is from Daniel Chen of JPMorgan.

(foreign language) I will translate myself. My first question is on the first quarter mobile MAU. We have seen a slowdown in the growth rate to a 4.5% year-over-year. So what's the reason behind?

And second question is on the overall user engagement level. In the first quarter also, we are launching some of the new business models such as short video. So what's it going to be? What's the implication to the overall user behavior?

Thank you for your question. The year-over-year increase in MAU in the first quarter was mainly due to broadcasting major tournaments and self-produced tournament contender. It was also caused by the further diversification of content in our video and community segment, which had a positive impact on our user base. However, the content makers recovery has led to lower year-over-year growth in our mobile MAU as compared to their record growth in the same period last year, during the pandemic.

In the long term, we expect our PC MAU to remain stable. Mostly, user growth will be driven by the mobile side. In fact, we believe there is plenty of opportunities in the mobile market as moderate and lighter game user growth are still underpenetrated. In the future, we will continue to improve our contender development systems for live streaming video and community business to nurture the steady growth of our mobile MAU.

And as for the second question, user behavior is consistent with the trends we have seen over the past few quarters, and our platform continues to be highly sticky for users. Today, the average net amount of active user retention rate remains about 75%, which is stable in comparison with the previous quarter.

Our user behavior data shows that as the number of users on our platform increased, their average monthly time spent on our platform also increased. This shows curve remains consistent for users who joined us at a different time, as they gradually become our high-quality and loyal fans over time.

As our video and the community business demand starts, our user data shows that the amount of time spent by each user on our recording and video segments also increased quarter-over-quarter. This demonstrates the effectiveness of our video business in retaining users and converting them into our loyal users. Thank you.

The next question is from Lei Zhang of Bank of America.

(foreign language) 2 questions here. First, any updates on the merger deal with Huya? And do we see some impact from the [Tencent] antitrust regulation?

Secondly, can you give us more color on the Weibo and the community new initiatives we launched last year? And for the Weibo business, how should we compete with -- as for Weibo players?

(foreign language)

[Interpreted] Regarding your first question on the merger progress, currently, the potential merger between us and Huya is still on track. And we believe that this -- that timing for this deal to be closed depends on the approval process by the relevant Chinese regulators. And with the rapid development of the domestic Internet industry over the past few years, we have seen that authorities have gradually improved industry policies and regulations.

And we believe that the antitrust regulations are in line with the government's goal of promoting positive and fair competition environment among these Internet companies, encouraging a level playing field across the industry, which will also help to support our long-term development. And therefore, the entire pan-entertainment segment, we also believe that the industry competition is still relatively fierce at this stage, and we have the potential to further improve both our user scale as well as revenue size.

So the goal of our merger is to further integrate the high-quality resources on both sides to improve our operational efficiency and increase the overall value of the combined platform we can ultimately unlock the greater growth potential in the future.

(foreign language)

[Interpreted] Regarding your second question on our video and communities business, since last quarter, we have continued to diversify our content categories through these 2 new business segments.

As we mentioned earlier, we established a pyramid content structure for our video business. On the top is our top tier video content, which contributed to a significant amount of viewership, which included video programs that we self-produced and tailored to streamers. And in the mid-tier level, we hosted large-scale self-organized events, such as the DouYu Video Contest Spring Season, to maintain a steady supply of high-quality content and doubled the number of daily active video content creators on our platform on a sequential basis.

To date, we have accomplished our near-term goal of establishing a stable supply of content for all mainstream video categories on our platform. And going forward, combined with the continuous content enrichment and more talented promotional activity for users, we expect our video viewership to further improve.

Regarding the community business, we launched the function such as fun games to promote more activities among users. Our users spontaneously developed their own player circle for different popular games, such as [Ao Ao] and Honor of Kings for game discussion and social purpose.

And in addition, a majority of professional tournament media outlets joined our community as well and produced a large amount of exciting reports during the tournament period, which further diversified our content and contributed to an engaging community environment.

And as a large community with the greatest density of game players, our community naturally grows into an effective marketing and promotion channel for the game developers. So for this quarter, we helped with the presentation and introduction for over 30, kind of, different console games and mobile games and successfully converted a significant amount of users into game players.

(foreign language)

[Interpreted] And on the last question on the differentiation on the video business, as a leading game-centric integrated content platform in China, we have already established a relatively high barrier for both the top-tier live streaming content as well as the quality streaming resources.

During the quarter, we gradually forward the organic synergies between the live streaming and video content. We leveraged our strength from the live streaming business in user engagement and monetization, encouraged more video content creators to live stream on our platform and helped them increase their overall income. By utilizing features like [fully test], we also improved the user engagement.

And at the same time, we recognize the video advantage in content distribution accumulation as well as extension. And we encouraged our streamers to improve their platform influence by building up the video content profile on our platform.

And furthermore, we have also gradually built a connection between our video and community business. In our community, we attracted and established a close partnership with a large number of game developers and professional tournament media outlets.

We also collaborate with a large number of official game accounts to produce exclusive high-quality PGC, further improving our influence in the gaming industry. While users watched the high-quality PGC game content, we provide them with the opportunities to directly interact with those game developers and tournament media outlets. So this helps to improve the user engagement and participation.

The next question is from Feiya Zhao of Haitong International.

(foreign language) I have 3 questions. First, we noticed that Huya has signed 5-year exclusive media rights with LPL. So what's the impact to those? Are you going to incur additional like content cost?

Second question is, what is the sequential growth of the broadcast rights cost? And how should we think about DouYu's future investment in the cost, considering the fierce competition right now?

And then lastly, could you please elaborate more about the reason on the sequential decline of live streaming revenue?

Thank you for your question. For the League of Legends Pro League, we expect to broadcast this tournament as well. So in terms of our broadcasting official tournament, our contender will not experience any negative impact.

As renter of our most popular game segment, League of Legends has a larger pool of [single] streamers, loyal game players as well as deeper in the tiers of streamers and contender type. So we believe that we will be the go-to-platform that the users choose first to watch the tournament.

Moreover, we plan to develop a multi-angle tournament building the experience for users. We will accomplish this by generating game content through our video, community and live streaming segment and provide users with more forms to watch tournaments at DouYu with different content options. We believe our League of Legends segment will maintain content creativity and industry leadership, while continue to generate greater user traffic.

Regarding your question on the expenditures. In the first quarter of 2021, our broadcasting right cost decreased on a sequential basis. This was due to the fact that we amortized most of our broadcasting rights cost for the League of Legends [for] championships in the first quarter of 2020. In the first quarter of 2021, our broadcasting rights cost returned to the regular levels.

As a leading game live streaming platform in China, we are committed in [reaching] our content categories and improving our content quality. So we will continue to purchase broadcasting rights for quality eSports tournaments. As new game titles continue to increase and our platform's tournament category coverage improves, the absolute amount of broadcasting rights will also continue to increase at a steady pace for this year.

As to the live streaming revenues, the first quarter, which includes the Spring Festival Holiday, is traditionally the off-season. During the period, streamers usually chose to spend more time with their families, and the overall live streaming volume is generally at its lowest in a given year.

The overall number of paying users also declined in the first quarter of 2021. Although we were affected by seasonal factors, we maintained an active and effective operating strategy to stimulate our core paying users' interactions and purchase wellness, which helped to create a sequential increase in our ARPPU.

Going forward, we will continue to improve its segment monetization efficiency by refining our operations. Furthermore, we will deepen our collaborations with talent agencies as customized monetization products to increase the income and monetization efficiency of our mid-tier streamers.

The next question is from Ritchie Sun of HSBC.

(foreign language) Two questions. First is for the revenue sharing ratio. Can management comment on the drivers behind it? And what will be the trend going forward?

And second of all is the sales and marketing and G&A expense. Can management comment on the change in 1Q? And what would be the trend going forward?

We will maintain our 50-50 revenue split sharing policy for our platform, and streamers as well as our platform and talent agencies. During promotional periods, we will offer certain incentives to streamers and talent agencies. Therefore, while the overall revenue sharing ratio may fluctuate slightly quarter-over-quarter, it will remain stable in general.

As a game-centric live streaming platform, we will continue to invest in content related to eSports games and potential blockbuster titles, especially for top eSports tournaments and premium self-produced content. At the same time, we will actively enhance our overseas streamers' resources and enroll new streamers in new game segments. Overall, our content cost will show an upward trend.

Sales and marketing expenses include staff salaries, channel promotion costs, eSports team sponsorship fees and expenses for offline and online activities. In the first quarter of 2021, sales and marketing expenses increased on a sequential basis. This increase was due to our increased investments in user promotional activities, which was in line with the development of our new businesses, including video and community.

We are quite positive about the development of the eSports industry in the long run, and we will continue to increase our investments in eSports-related activities and eSports team sponsorships going forward. Meanwhile, we will upgrade our product features to improve the efficiency of traffic conversion. We also intend to enhance our channel promotions. Therefore, in the future, we expect our sales and marketing expenses will increase steadily.

For the first quarter of 2021, G&A expenses decreased on a sequential basis, mainly due to the fact that most of our merger-related professional services fees were booked in the fourth quarter of 2020. Therefore, these expenses had already returned to their regular levels by the first quarter. Going forward, we expect G&A expenses to grow at a slow and steady rate.

The next question is from [Sabrina Chong] of Jefferies.

(foreign language) Are we expecting a rising trend of business [monetization] events to our users relating to our platform for eSports?

Thank you for your question. According to our platform data, our official tournament viewership has increased steadily, especially for larger scale official tournaments, like LPL Spring. We have launched an interactive event in major high lines and customized videos. We have also introduced a unique live streaming room through which remote and commentators can live stream during tournaments.

Our broader portfolio of contender initiatives has helped to increase users' viewing options and engagement leading to year-over-year increases in our overall [UV] and number of acquired users. Today, we already have a relatively complete and major broadcasting system for official tournaments. We also continue to innovate gaming content through strong leading programs. As a result, we believe that we can bring more high-quality new users to our platform going forward.

We note that our users have shown more loyalty to high-quality live streaming content on a relative basis. With our competitive live streaming content resources and our pool of top and mid-tier streamers, we maintained a strong contender barrier relative to others in the industry. Therefore, despite the fact that nowadays some large-scale eSports tournaments chose to broadcast on multiple platforms, we haven't seen any traffic diversion occur on our platform. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you for joining us today. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]