DouYu International Holdings Ltd. Q3 FY2023 earnings call

• In the third quarter, executed and optimized corporate growth strategy, leveraging summer gaming events, derivative content, and new game promotions to attract and invigorate users. - Deepened cooperation with game developers, scouted promotions for new games, and introduced various program operations. - Conducted internal supervision normally, optimizing the ecosystem to improve overall performance. - Adjusted user acquisition strategy, emphasizing user quality and reducing low ROI marketing spending, leading to MAU changes quarter-over-quarter and year-over-year. - Enhanced content ecosystem, broadcasting 50 large-scale official gaming events, driving derivative programs for events, and launching high-engagement self-produced tournaments during downtime. - Cooperated with game developers on new game promotions like Eggy Party and Valorant, maximizing game appeal through live streaming. - Refined content operations and functionality innovation, fortifying content review with tech-based monitoring, enhancing content-first function using deep learning technology for better content visibility and recommendation.

In the third quarter of 2023, total net revenues decreased by 24.4% year-over-year to RMB 1.36 billion. Live streaming revenues were RMB 1.15 billion, down 32.5% from the same period in 2022. Advertising and other revenues were RMB 208.2 million, an increase of 123.2% from the same period in 2022. Adjusted net profit was RMB 71.9 million. Mobile MAUs were 51.7 million, slightly up quarter-over-quarter but down 9.5% year-over-year due to user acquisition strategy fine-tuning. Quarterly average paying users were 3.9 million, and quarterly ARPU was RMB 306, marginally declined year-over-year and quarter-over-quarter. Membership business achieved solid growth momentum.

• In the fourth quarter, expect a quarter-over-quarter decrease in the scale of paying users and revenue from the virtual gifting business due to the current macro environment and reduced platform-wide operating activities. - Will maintain content-driven strategy for user retention and growth to mitigate adverse seasonal effect on MAU, and continue to explore new business opportunities to enhance revenue generation capabilities while managing costs prudently.

• Macro environment impact: Weak economic environment leads to users' decreased disposable income for entertainment-related consumption, affecting users' willingness to pay. - Regulatory risks: Stricter content review and compliance requirements may bring challenges to operations. - Innovation business risks: Innovative businesses are relatively small in scale, and their development stability and impact on revenue need to be further observed.

Q: How will the macro environment affect the game broadcasting sector and our operations?

A: Over the past 3 years, the domestic game live streaming industry has changed greatly. Macro factors like regular supervision, game market changes, and economic cycle affect. Live streaming industry enters regular supervision stage. Game market has changed, bringing opportunities. Economic cycle affects commercialization strategies, with users' entertainment consumption income decreasing, so we offer modestly-priced products. We prioritize long-term sustainable development, stabilize traditional business fundamentals, optimize operational efficiency through marketing strategy adjustments and cost optimization, and have more flexibility to explore new businesses.

Q: Could you share a little bit more on the progress of the innovative business in terms of the launch of the new games? How would that improve the number of paying users and revenue?

A: Membership business from platform content and associated games has good growth. Innovative businesses are small in scale, still evaluating. Virtual gifting business has made adjustments. In the fourth quarter, expect paying users and virtual gifting revenue to decrease quarter-over-quarter. Working to make new breakthroughs in innovative businesses.

Q: Can management share with us the internal regulation policies and the related impact to your live streamers?

A: Implemented measures to fortify platform management, clamped down on non-compliant activities, used advanced analysis to pinpoint improper streamers and users, issued warnings and disciplinary actions. Actively conduct internal regulation, disclose activities on website, promote platform rules through DouYu classroom. Educated streamers on compliance, provided data tools for content production analysis, improving live streaming quality and efficiency.

Q: Can you give us some updates on your margin spend? Any room we can optimize in all parts, additionally, any color on the cash flow in future?

A: Optimized cost of revenues by adjusting traditional business costs, revenue sharing fees at low level, optimized content costs. Optimized operating expenses by cutting back on user acquisition expenses and refining organizational structure. For cash flows, adjusted net income has achieved three consecutive quarters of profitability. Operating cash flow was negative in first quarter, positive in second and third quarters of 2023. Company has not and will not engage in significant financing or investment activities outside of cash management.

Q: Firstly, could management elaborate more about the MAUs in this quarter? Secondly, could we have some color on the fourth quarter MAU guidance, especially with the help of League of Legends Pro Championship?

A: In third quarter, MAU benefited from summer peak season events like official tournaments and derivative content, and cooperation with game developers. In fourth quarter, fewer official events, LOL World Championship schedule shorter, more holidays, users engage in more offline activities, likely weighing on MAU. Will maintain content-driven strategy for user retention and growth to mitigate adverse seasonal effect on MAU.