Earnings Transcript for DOYU - Q4 Fiscal Year 2022

Operator: Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited's Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] I will now turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Lingling Kong: Thank you. Hello, everyone. Welcome to our fourth quarter and full year 2022 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 fourth quarter and full year 2022 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 safe harbor provision 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 statements, 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. Throughout 2022, against the backdrop of a complex and volatile macro environment, we remained committed to our long-term growth strategy of fostering a vibrant game-centric content ecosystem. We ended the year with a stable business performance achieved through a mix of operational adaptation and innovation that included optimizing our revenue structure, streamlining our operations, creating new services and enhancing monetization capabilities. In the fourth quarter, we continued to produce premium gaming content, upgrade our content operating model adding to the interactive features on our platform to further enhance user engagement. Our mobile MAUs grew slightly on a sequential basis to 57.4 million during the quarter, with the total number of paying users of 5.6 million, and our adjusted net loss was RMB4.3 million. Due to a couple of strategic adjustments over the past few quarters, our ecosystem has been shown to be healthier, which we believe it will empower us to deliver long-term sustainable growth. As we progress further into 2023, we are continuing to enrich our content with community interaction playing halo in our ecosystem. We are shifting the focus of our user growth strategy from increasing scale to improving quality without being overly concerned about the short-term growth of our business. Furthermore, we will optimize our marketing strategy to strengthen partnerships with game developers, coupled with our interactive gaming content community to enhance user engagement. In addition with the price level of corporate deployments gradually returning to a reasonable range, we believe that prudently purchasing some co-copyrighted tournaments will help us domain our own competitiveness in the industry. This investment will also foster the ecosystem of our game-centric community and enhance our core user engagement and retention rate, thereby facilitating the company's long-term development. Next, I'd like to share with you our business updates from the fourth quarter in more detail. For Q4, our average mobile MAUs for the quarter were 57.4 million, a slight sequential increase despite the year-over-year decline of 8 points. The main reason for the year-over-year and quarter-over-quarter MAU changes include

Hao Cao : Thank you, Lingling. Hello, everyone. For the full year 2022, we focused on optimizing cost and developing revenue quality in order to improve financial performance. As we continue to invest in high-quality self-produced content and improve our revenue structure, we enhanced operating efficiency through adjusting our live streaming business, together with effective cost and expense controls. For the full year 2022, our gross margin expanded to 13.9% and adjusted net loss narrowed significantly to RMB7.6 million. Let's now look at our financial performance for the fourth quarter in more detail. Total net revenues in the fourth quarter of 2022 decreased by 27.8% year-over-year to RMB1.68 billion. Live streaming revenues were RMB1.6 billion, a decrease of 27.7% from RMB2.21 billion in the same period of 2021. The decrease was mainly attributable to two factors

Operator: [Operator Instructions] And our first question today will come from Lei Zhang of Bank of America Securities.

Lei Zhang : Thanks for management for taking my question. My first question is mainly on your strategy. We noticed that you have invested in eSports contract this year. Can you share with us your strategy for 2023? And how should we deliver -- operating efficiency will have additional in-content cost? Secondly, we noticed that [ex partaking] attraction this year and can you share with us its performance in live streaming? And we also know that there are more new games to be launched this year. Will those games help our user growth and game streaming involvements?

Shaojie Chen : As a leading game live streaming platform in China, we remain committed to our long-term growth strategy of fostering a vibrant game-centric content ecosystem. We continue to establish a diversified gaming platform by streamlining our operations and creating new services, propounding a vibrant game content ecosystem. Facing the ever-changing macro environment in the past two years, we've made some adjustments to pursue long-term sustainable development. Those adjustments include us actively modifying our operating strategy to optimize our revenue structure and controlling business spending through fine-tuned operations. All the measures we've taken have not only stabilized the overall company's business, but also improved our financial performance, and significantly narrowed our adjusted net loss for the full year 2022. Looking ahead to 2023, we will continue to execute prudent operational strategies and focus on the long-term business process. We will reduce our investment in traditional business lines with low ROI and focus on exploring new growth avenues. While pursuing growth in user scale, we will target improving user quality. By delivering high-quality content, upgrading our product structures and strengthening our interactive features, we are able to enrich our platform's ecosystem so that we can enhance our user experience and retention rate. In terms of cost allocation, we conducted a detailed evaluation of the ROI of each of our expenses in allocated company’s resources rationally and dynamically, dedicating limited resources to business lines with greater potential. For example, in terms of our user acquisition strategy when we compare it with content-driven user acquisition, we noticed that channel promotions drove user growth in the short term, but with lower retention rate and conversion rate. As users' needs have becoming -- become more diversified, focusing on channel promotion is no longer a sustainable user acquisition strategy. Therefore, we have adjusted our overall marketing strategy in 2023, adhering to a content-driven approach to growth by continuously investing in high-quality content and cooperating with game developers to attract and engage users. Although investing in game -- in content is a more long-term process than channel promotion. We believe it’s beneficial for our platform's sustainable development. In terms of our co-copyrighted procurement, as we mentioned before, our copyright tournaments are still of great value, and we would repurchase some co-copyrighted tournaments if the price level return to a reasonable range. On that basis, we repurchased some co-copyrighted events in 2023, such as the LPL and the LoL World Championship Tournament. High-quality streamers content, diversified and self-produced game-centric content along with copyrighted tournament content enable us to enrich our content ecosystem and foster our game-centric community, thereby solidifying our overall competitiveness in the industry. Meanwhile, in terms of revenue, we will focus on ensuring that our users' willingness to pay on our platform is on a sustainable basis. Such focus shift will have a short-term impact on our revenue. However, our operating leverage is expected to improve in the long run, which, in turn, supports the company's long-term profitability. At the same time, we are continuously exploring more innovative commercialization avenues.

Hao Cao: Let me answer your second question about [Eggy Party]. [Eggy Party] is our casual interactive mobile game. The game is easy to operate in highly interactive features. For this game, we prepared experienced streamers in advance and adopted a charity incentive method to encourage more players to engage in the game’s livestream. Meanwhile, leveraging the functionality of our user community, we organized various [indiscernible] teaming up activities within our community channels. We also provided plenty of in-game items as rewards to increase player engagement and interaction. This helps us effectively promote the game’s popularity and improve our user stickiness on our platform from general tune-up. [Eggy Party’s] live streaming volume has ranked at the top of the industry. More than half of the segment's users participated in activities within our community channels during the promotional event. In terms of new games that we eagerly anticipated launch of more blockbuster game. For games content platform such as DouYu, high-quality games and there users are the most important for content generation and user growth. Based on game features, we will continue to create premium gaming content with greater interaction -- interactive and engaging features as well as wide-ranging selection. We can't predict the exact schedule of the launch of these games. But according to our practice, we will cooperate with game developers to promote the new games during the pre-launch stage. We will also select experienced streamers, enrich game content for players to watch and discuss and then provide interactive content, such as game tutorials and tournament events to increase user engagement, evaluate, elevate user experience and enhance user stickiness.

Operator: Okay. And our next question today will come from Thomas Chong of Jefferies.

Thomas Chong : Thanks management for taking my questions. My first question is regarding our strategic direction. Given that the company has made a number of strategic assessments in the past two years, how should we think about the industry trend? Or may I put in this way that, how should I think about the management thoughts regarding the game live broadcasting overall industry environment? And my second question is about the user scale for this year, if there's any qualitative color?

Shaojie Chen : As we mentioned before, the competition we face in our industry has already transitioned from gaming live streaming to gaming content. Gaming content is a much larger market with a broader user base expanding beyond hardcore gamers, watching video game live streaming. This means, users' needs are evolving, which is both an opportunity and challenge for us. Given the large scale of our existing user base and revenue base, the challenge is how to adjust our products and operations to acquire new users and explore new commercialization channels. We insist on achieving success with premium game content. Specifically, we leverage high-quality game content to acquire new users and build a diversified product system to meet users' diverse needs and improve user stickiness. Attracted by wide-ranging content, high-quality users can also generate content through interacting and self-producing, fostering a virtuous cycle on our platform of content production and user development that we have emphasized to build a healthy and sustainable platform. It's what we've done in the past and what we'll continue to do in the future. Furthermore, for a long time, we paid considerable attention to our revenue scale based on live streaming -- based on our live streaming platforms, easing monetization features. However, we think this may harm our platform's ecosystem and healthy development in the long run. Therefore, we have recently reduced our marketing activities that target revenue growth. Instead, based on our virtual gifting revenue mode, we provided diversified products to cater different users' paying habits and demand, while also emphasizing our product’s sustainability. In addition, we are exploring new initiatives, such as a membership business. It took time to make these changes. Therefore, we focus on refining our operations and improving our cost and expenses control. In this way, while making the above adjustments, we still managed to maintain our platform's long-term profitability.

Hao Cao : Let me answer your second question about MAU. As we have consistently communicated before, DouYu is a game-centric content platform that attracts and retains users by providing high-quality game-centric content and adopting user acquisition strategies to face different business environments. In 2023, to navigate the volatile macro environment with agility, we prioritized our long-term business profile, reduced our investment in traditional business lines with low ROI. Focusing on our user growth strategy of improving user quality, we strive to strengthen our content operations as well as explore commercialization avenues. Our total revenues are mainly contributed by our content-driven users with [indiscernible] habits. We plan to largely cut our promotional expenses this year, which will directly affect our platform’s MAU in the short term. Nevertheless, since most of these lower MAUs are short-term users on the platform, this strategy won’t affect our content operations or our monetization efficiency. In addition, with the purchase of copyrighted content, we expect to gain some tournament users. By observing traffic on our LoL game segment, we found that the increase in traffic that it brought, couldn't offset the decline in user scale resulting from sustainability, decreased our promotional expenses. We believe that operational adjustments will enable us to increase our resource allocation in order to build a more sustainable content ecosystem. Although the return on this investment takes time, we will ultimately enhance our overall competitiveness and support our platform’s long-term development. Thank you.

Operator: Our next question today will come from Yiwen Zhang of China Renaissance.

Yiwen Zhang : So I have a couple of questions. First question is regarding our DouYu’s content procurement. So can you assure our plan on how we plan to improve ROI on game content? And then secondly, can you give us an update on the 2022 whole year cash flow? Have we achieved positive operating cash inflow?

Hao Cao : Thank you for your questions. As to the first question on copyright procurement, copyrighted tournaments played an important role in stabilizing our platform's traffic and improving our user engagement. In the past year, we adopted a selective copyright procurement strategy due to the overpricing of some copyrighted tournaments. With the price level of copyrighted tournaments gradually returning to a reasonable range, we have increased our investments in purchasing co-copyrights in 2023. Major copyrighted tournaments we have purchased so far include League of Legends; Honor of Kings; Peacekeeper Elite, Crossfire, [indiscernible] and DOTA2. For the tournament copyrights we purchased, we will improve our return on investment through innovative operations. In terms of enhancing user engagement, we will continue to upgrade interactive features on platform to meet users' diversified needs by building on our accumulated experience in live streaming and operating copyrighted tournaments. For example, in LPL, by leveraging our top-tier streamer resources, we selected 12 streamers to do a co-streaming of the tournament events. These streamers included both official tournament commentaries and top-tier streamers with massive fan base in these tournaments and on our platform. This co-streaming initiative achieved good results. The DAU of live streaming channel is on par with that of our official channel. In addition, the number of buddy chats is several times higher than that of our official channel. Furthermore, we featured more user-friendly access to videos and community channels, our live streaming channel, thereby, gaining more exposure for our diverse gaming content and attracted more users to join. In terms commercialization, we continue to integrate our copyrighted tournaments content with more refined operations. For example, we promote our game-specific membership services to tournament viewers. Meanwhile, we will explore more direct monetization opportunities based on copyrighted tournaments content. In addition to discussing the copyright price with copyright owners, we will communicate more proactively with them to explore reasonable long-term cooperation. So on the second question of cash flows. As of December 31, 2022, our overall cash balance, including cash and cash equivalents, restricted cash and deposits amounted to RMB6.81 billion, an increase of RMB170 million compared with RMB 6.64 billion in the same period of 2021. This is mainly due to two factors

Operator: Our next question today will come from Raphael Chen of BOCI.

Raphael Chen: Thanks for taking my question. My question is regarding the paying user trend. Could management elaborate on how the current operations strategy will impact the paying users going forward? It would be great if management could share more insight on the paying user trend, especially in the year of 2022?

Hao Cao : Thank you for your question. As mentioned previously, improving user quality is our key focus this year. In the second half of last year, we canceled some marketing activities for new paying users with low rates of return. That reflects the high quality of our current paying users with consistent paying behaviors for our services. In 2023, we plan to further reduce our marketing expenses and acquisition expenses for paying user acquisition, which will have an impact on paying user base. In 2023, we will continue to improve revenue quality and maintain our core paying users business and also their willingness to pay, shifting the focus of revenue generation to the following two areas

Operator: Thank you. That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

Lingling Kong : On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter.

Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.