DouYu International Holdings Limited (DOYU) Q1 2021 Earnings Report, Transcript and Summary

Good morning, and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. 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 site.

Thank you, Mao Mao. Hello everyone. Total net revenues in the first quarter of 2021 were RMB2.15 billion. Live streaming revenues were RMB2 billion, compared with RMB2.11 billion in the same period of 2020. Advertising and other revenues were RMB154.1 million, compared with RMB165 million in same period of 2020. The year-over-year decrease in live streaming revenues was mainly due to the reversion of the user's tipping behavior to that of the pre-pandemic levels. As the pandemic was gradually brought under control in China. This decline was partially offset by our implementation of a 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-over-year declining advertising and other revenues was mainly due to the trend of gain advertisers. Normalizing their marketing expenditures, which were relatively higher in same period last year due to the COVID-19 pandemic. As China has gradually brought the pandemic and the control. Advertisers expenditures have also returned to their pre-pandemic level. Total revenues in the first quarter of 2021 increased by 5.6%. The RMB1.89 billion from RMB1.79 billion in the same period of 2020. More specifically, revenue channel fees, and the content cost increased by 5.4% year-over-year to RMB1.66 billion. This was because of the company's increased investments in the broadcasting rights for eSports tournaments, in-house production of proprietary content and the quality streamers in the overseas market.

The first question is from Daniel Chen of JPMorgan. Please go ahead.

I will translate myself. My first question is on the first quarter mobile MAU. We have seen a slowdown in the growth rate to 4.5% year-over-year. So what's the reason behind? My 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 was it going to be -- what's the implication to the overall user behavior? Thank you.

Thank you for the 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 their further diversification of content in our video and community segments, which had a positive impact on our user base. However, the pandemic recovery has leaded 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 their mobile sites. 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 content development system for live streaming video and community businesses to nurture the steady growth of our mobile MAU. And as for the second question, user behavior is consistent with their trend. 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 a table in comparison with the previous program. Our user behavior data shows that as the number of years users went on our platform increase, their average monthly time spent on our platform also increases. This shows the curve remains consistent for users who join us at a different time, as they gradually become our high quality and loyal fans over time. As our video and 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. These demonstrates the effectiveness of our video businesses in retaining users and converting them into our loyal users. Thank you

Thank you.

The next question is from Lei Zhang of Bank of America. Please go ahead.

Thanks management for taking my questions. Two questions here. First, any updates on the merger deal with Huya and to which is an impact from the tightening of antitrust regulation? Secondly, can you give us more color on the video and the community new initiatives, we launched last year. And for the Weibo business, how should we compete with -- as for Weibo players?. Thank you.

Regarding your first question on the merger program. Firstly, the potential merger between us and Huya is on track. And we believe that these step -- that timing or 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 the 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 the top date and fair competition environment among the internet companies, encouraging a level playing field across the industry, which will also help to support our long-term development. And therefore the entire 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 skill 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 efficiencies, and increase the overall value of the combined platform can ultimately unlock the greater growth potential in the future. Regarding your second question on our video and communities business, since last quarter we have continued to diversify our content categories through these two new business segment. 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 includes video programs that we self-produced and tailored to streamers. And in the mid-tier level, we hosted large scale self organised events, such as the DouYu Video Contest Spring Season to maintain a steady supply of high quality content and double the number of daily active video content creators on our platform on a differential basis. To date, we have accomplished our near-term goal of establishing a stable supply of content for all mainstream video categories on our platforms. And going forward combined with the continuous content enrichment and more targeted promotional activities for users, we expect our video viewership to further improve. On regarding the community business, we launched the functions such as one game to promote more activities among users. Our users spontaneously developed their own player circle for different popular games, such as and Honor of Kings for game discussion and social purpose. And in addition, majority of professional tournament media outlets join our community as well and produce large amounts 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 players, our community naturally grows into an effective marketing and promotion channel for the game developers. So for this quarter, we help with the presentation and introduction for over 30 kinds of different console games and mobile games and successfully converted a significant amount of users into game players. And on the last question on the differentiation on the video business is 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 ward the organic synergies between the live streaming and video content. We leverage our strengths from the live streaming business in user engagement and monetization. Encourage more video content creators to live stream on platform and help them increase their overall income. By utilizing features like UI chat, we also improve that user engagement. And at the same time, we recognize the videos advantage in content distribution accumulation as well as extension, and we encourage our streamers to improve their platform influence by building up the video content profiles on our platforms. And furthermore, we have also gradually built a connection between our video and communities business. In our community, we attracted and established a close partnership with a large number of game developers, and professional tournament media online. We also collaborate with a large number of official game accounts to produce exclusive high quality PGC for the improving our influence in the gaming industry. While users watch the high quality PGC game content, we provide them with the opportunities to directly interact with game developers and tournament media online. So this helps to improve the user engagement and participation. Next question please.

The next question is from Feiya Zhao of Haitong International. Please go ahead.

Thanks management for taking my questions. I have three questions. First, we noticed that we are -- have signed 5-year exclusive media rights with LTL. 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 broadcasting rights cost? And how should we think about DouYu's future investment in considering this year's competition right now? And lastly, could you please elaborate more about the reason on the sequential decline of live streaming revenue? Thanks.

Thank you, Feiya. For the Legends Pro League, we expect to broadcast this tournament as well. So in terms of broadcasting official tournaments, our contender, they will not experience any negative impact. As renter of our most popular games segment, League of Legends, has a larger pool of female streamers, loyal game players as well now as the different tiers of streamers, and content type. So we believe that we will be the go to platform that the users choose first to watch the tournament. Moreover, we are planning 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 segments and provide users with more fun to watch tournaments. With different content options. We believe our League of Legends segment will contain content, creativity, and industry leadership, while continue to generate greater user traffic.

Regarding your question on the expenditures, in the first quarter of 2021 broadcasting right costs 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 or 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 to enriching 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 platforms 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 offseason. During the period, streamers usually chose to spend more time with their families, and overall live streaming volume is generally at its lowest in 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 the purchase of willingness, which helped to create sequential increase in your ARPPU. Going forward, we will continue to improve the segment's monetization efficiency by refining operations. Furthermore, we will deepen our collaborations with talent agencies customize monetization products to increase the income and monetization efficiency of our mid-tier streamers. Thank you.

The next question is from of HSBC. Please go ahead.

Thank you for taking my question. Two questions. First is for the revenue sharing ratio. Can management comment on the drivers behind it and what would will be the trend going forward. And second of all, is sales and marketing a G&A expense. Okay, basically comment on the change in one, two and what will be the trend going forward? Thank you.

We will maintain our 50 to 50 revenue splits to share rate 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 the 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. Thanks. Sales and marketing expenses include staff salaries, channel promotion costs in both teams sponsorship fees and expenses, offline and online activities in the first quarter of 2021. Sa1es and marketing expenses increased on a sequential basis. This increase was due to an 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 teams 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 -- most of our merger related professional services fees were approved in the first quarter of 2020. Therefore, expenses has already returned to their regular levels by the first quarter. Going forward we expect GLA expenses to grow at a slow and steady rate. Thank you.

The next question is from Sabrina Chong of Jefferies. Please go ahead.

Are we expecting a rising trend of business monetization events to our users relating to our platform for eSports? Thank you.

Thank you for your question. According to our platform data, our official tournament viewership has increased steadily, especially for larger skill official tournaments, like LPL Spring. We have launched an interactive event in major high lines and customized videos. We have also introduced unique live streaming room through which remote and commentators can live stream during tournaments. Our broader portfolio, our contender initiatives has helped to increase users viewing options and engagement leading to a year-over-year increase in our overall users and number of acquired users. Today, we already have our relatively complete and major broadcasting system for official tournament. We also continue to innovate in content through surrounding programming. As a result, we believe that we can bring more high quality new users to our platform going forward. We know that our users have shown more loyalty to high quality live streaming content on a relative basis. With our competitive live streaming content and resources and our pool of our 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 tournament 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.