DouYu International Holdings Ltd. Q1 FY2023 earnings call

• Focus on building a comprehensive game-centric content ecosystem and fostering a healthy gaming community.
• Adjusted marketing strategy to improve user quality, reducing low ROI marketing spending and focusing on high-quality content and game developer cooperation.
• Membership business contributed to user growth, with upgraded and promoted membership services meeting gaming needs of users.
• Developed multi-layer tournament system including official, self-produced tournaments, and optimized content display formats to enhance user engagement.
• Launched new content production tools in PC-based live streaming application to improve live streaming quality and efficiency for streamers.

In the first quarter of 2023, total net revenues decreased by 17.4% year-over-year to RMB1.48 billion. Live streaming revenues were RMB1.37 billion, a decrease of 20.7% from the same period in 2022. Advertising and other revenues were RMB114.1 million, an increase of 66.6% from RMB68.4 million in the same period of 2022. Cost of revenues was RMB1.31 billion, a decrease of 15.8% compared to the same period. Gross profit was RMB176.5 million, down from RMB243.8 million in the same period of 2022. Gross margin was 11.9% compared to 13.6% in the same period of 2022. Sales and marketing expenses decreased by 51.3% to RMB90.7 million, R&D expenses decreased by 37.8% to RMB72.3 million, and general and administrative expenses decreased by 33.6% to RMB59.8 million. Adjusted net profit was RMB25.8 million.

• Maintain stable operation of core business and improve revenue quality while optimizing costs for sustainable profitability.
• Explore more commercialization channels and enhance monetization capabilities to support long-term healthy development.
• Expect MAUs in 2023 to remain at first quarter levels with quarterly fluctuations, and focus on maintaining core paying user stickiness through interactive products and membership services.

• Uncertainties in user acquisition due to previous low ROI marketing strategies.
• Market competition affecting user retention and conversion.
• Fluctuations in copyright costs, such as the impact of purchasing LPL tournament copyright.

Q: Can you help us to understand our core user group and how we can maintain and expand our core user group?

A: Core users are highly engaged with long view hours and high retention rates. We maintain them by upgrading content, optimizing product features/interface, strengthening game attributes, investing in multi-layered gaming content, and providing personalized recommendations/innovative services. Expand by enhancing platform ecosystem and acquiring new users through improved content.

Q: How should we measure or evaluate the effectiveness of new strategies?

A: Metrics include user activity, time spent, retention rate for user acquisition strategy. For revenue, focus on revenue stability, gross margin, and adjusted net margin. For new monetization models, look at potential and contribution to revenue structure. It takes time for content investments and new models to pay off.

Q: Can management share how the return of LPL tournament contributes to the platform and share MAU, as well as paying user trends for this year?

A: Repurchasing LPL and other core tournaments elevated overall user activity in the LoL segment. MAU performance in Q1 was in line with expectations, with most lost MAUs being short-term users. Core user base remains stable. Paying user decline is due to revenue activity adjustments and user scale decrease; focus on maintaining core paying users through interactive products and membership services.

Q: Could management shed some color on the bottom line or margin outlook in the next few quarters?

A: Overall cost of revenues as percentage of revenues expected to remain flat. Marketing expenses to be majorly reduced year-over-year. Actively optimize operating expenses and refine employee streamlining to improve efficiency, supporting long-term sustainable profitability.