Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after managements prepared remarks.

[Operator Instructions] Please note this event is being recorded.I will now turn the call over to the first speaker today, Miss. Mao Mao, Vice President of Capital Markets of DouYu. Please go ahead, ma'am..

Thank you. Hello, everyone. Welcome to our fourth quarter 2019 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 of 2019 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 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 unknown and known 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.Now, I will speak on behalf of our Chairman and CEO Mr.

Shaojie Chen.Before we walk you through our performance in the fourth quarter, I would like to briefly discuss about the impact of the COVID-19 outbreak on our business. Since the outbreak occurred, we immediately adjusted our working method while continuously tracking our employees’ health.

To date our employees have worked from home and we continue to execute our operations mostly across all departments.From a business perspective, we have seen several major tournaments postponed; however, this tended holiday period has increased the likelihood that users will play games and watch live-streaming eSport content.

As such, the overall user activity on our platform has increased steadily since outbreaks began. We plan to covertly monitor the epidemic s as it evolves and evaluate its impact on our business in the first quarter and beyond.We have concluded the fourth quarter of '19 with solid financial and operational results.

In particular, we achieved strong top line growth. During the quarter, our total net revenues increased by 77.8% year-over-year to RMB2.06 billion, while gross profit increased by over 900% year over year to RMB375.2 million implying a growth margin of 18.2%. Net income reached 157.5 representing a net margin of 7.6%.

Adjusted net income increased to RMB186.4 million, representing an adjusted net margin of 9%.Meanwhile, our user base further extended during the period, with average MAUs increasing by 8% year-over-year to RMB155.8 million, driven by the robust growth of mobile MAUs, which increased by 29.3% year-over-year to RMB54.4 million.

Our steady user growth during the fourth quarter was mainly generated through organic growth and was driven by premium content from top eSports tournaments.

Diversified content offerings across all segments and deepened collaboration with game developers.During the quarter, our game live-streaming segment continued to perform well accounting for approximately 80% of total daily hours.

At the same time, we also diversified the scope of our content coverage for game segments to meet a broader range of user viewing preferences, and further penetrate additional user segments. As a result, we maintained high level of overall user engagement and stickiness.

For example, the number of field streamers per user and follow the streaming rooms per users steadily increased in the fourth quarter, while the users' willingness to interact with streamers and the online community continued to improve.Going forward, we plan to continue deepening our collaboration with game developers and leveraging new blockbuster game titles to boost our platform traffic and accelerate user growth.Now turning to our content initiatives for the fourth quarter.

During this period, we continue to invest in quality game content with a focus investment strategy for high ROI content and streamers. As part of this process, for example, we selectively eliminated our partnerships with low our streamers, and we allocate our investments and internal resources to more cost effective content.

We also continue to make good progress in creating value along the eSports chain.

For example, during the quarter, we broadcasted over 100 large scale eSports tournament and inked partnerships with several championship teams, including KPL, Champion E-Star and PUBG Global Champion Gen.G to further bolster our content offerings.We also partner with top tiered game competitors and official eSports tournament competitors to produce over 50 high quality eSports related programs and events.

In addition, during the quarter, we also self-produced over 50 eSports tournaments, including Golden Grand Tournament, which was in line with our overarching content creation strategy. For streamer management, top streamers contributed significantly to premium content, overall viewership and user stickiness.

At the same time, our collaboration with talent agencies enabled us to efficiently manage the large pool of mid-tier and long-term gamers while boosting the monetization potential of this big streamers group, further contributing to the diversification of our content offerings as well as the steady growth in revenue on the platform.We believe this streamer group will serve an increasingly important role going forward.

Looking ahead, we plan to continue focusing on premium eSports content while diversifying our content offering, improving our operational capabilities across different content categories and exploring new initiatives in clean and content creation and distribution by partnering with game developers.

Beyond our steady progress on the content front, we also continued our monetization efforts in the fourth quarter.

Notably our quarterly paying users increased by 70.8% year over year to 7.3 million, implying a pioneer ratio of 4.4% as compared to 2.8% in the prior year period.Meanwhile, ARPU increased by 7.8% year over year to RMB261 in the fourth quarter. The strong realization results were mainly driven by three factors.

The first was our continuous product innovation, which helped to stimulate user engagement. The second was our previously mentioned efforts to further refine our agency partnership.

And the third or our ongoing production of monetization events which has helped to better cultivate our monetization network.Going forward, we believe that these three drivers well maintained the efficacy and continue to evolve the sustainability of our revenue growth trajectory.

During the quarter for product innovations, we accelerated the development of several interactive features to better track and cultivated user's spending habits. For example, we created a competition system and set tasks to different streamers and the offense which effectively increased the exposure and popularity of mid tier steamers.

Well also enhancing the monetization efficiency. As a result, the revenue contribution from mid TSP increased in the period as compared to previous quarters.For other monetization initiative, we held our annual ceremony at the end of the quarter, which effectively contributed to both fuel ship and revenue generation.

In addition, the super fans club served as a weekly supplement to our small amount than gifting system and significantly increased the revenue contribution from users daily spending on our platform.

We were quite pleased by what we have achieved through these monetization initiatives during the quarter.Looking ahead, we plan to continue upgrading our interactive product features, strengthening our relationship with both customer and agencies.

Exploring new innovative monetization events and refining our operations across each segment, we are confident that such measures well further enable us to boost all our monetization efficiency in each platform segment and live-streaming room.On the technology front, we continued to invest in our technology infrastructure and maintain a steady progress in the quarter.

For example, our refined proprietary P2P technology has further augmented our ability assess that with usage, during different traffic periods as well as ability to optimize our bandwidth allocation among various suppliers to significantly reduce the redundancy costs.

We also increased our investments in areas with high growth potential in the quarter.For example, we investigated cloud gaming with a number of other technology providers in the period. We continued to, to make good progress on the front and among the first group of members to join the five tree cloud gaming industry alliance in China.

On the international market, we continued to expand overseas and increase investment in the Japan market during the fourth quarter. Our live-streaming product, Mildom, which was originally launched in Japan at the end of September '19 maintained its healthy user growth trajectory during this quarter.

Overall, we are pleased with our achievements in the fourth quarter, as they have enabled us to lay an important foundation for enduring growth going forward.As we advance into 2020, we will continue to provide high quality content, explore opportunities in both up and downstream segments of game value chain, improve our operational efficiencies across different segments, and to dive more deeply into the research and development of new technologies to further optimize our user experience.

Most importantly, we will increase our focus on further developing our monetization capabilities, which will drive the long-term financial growth and performance of the Company in terms.With that, I will now turn the call to our Vice President of Finance, Mr. Hao Caoto go through the details of our financial performance in the fourth quarter..

Thank you, Mao Mao. Hello everyone. For the revenues in the fourth quarter of 2019 increased by 77.8% RMB2.06 billion from RMB1.16 billion in the same period of 2018, repeating the high end of our previous guidance range. Gross margin in the fourth quarter of 2019 expanded to 18.2% from 3.1% in the same period of 2018.

Additionally, net income in the first quarter of 2019 increased gain of RMB157.4 million for meaning from a loss of RMB271.4 million, the same period of 2018.

Adjusted net income in the first quarter of 2019 was RMB186.4 million compared with and projecting their loss RMB232.5 million in the same period of 2018.Now, please allow me to provide you with some more details regarding our key financial metrics.

Total Net revenues in the fourth quarter of 2019 increased by77.8% year-over-year to RMB2.06 billion, including RMB1.89 billion in live-streaming revenues, as well as RMB117.4 million in advertising and other revenues.

Live-streaming revenues in the fourth quarter of 2019increasedby24.1% to RMB1.89 billion from RMB1.03 billion in the same period of 2018.

This increase was due to ongoing upgrades to several of our interactive platform features which help to further increase user screamer interactions and upgrade our user experience.As a result of these improvements, we were able to attract more paying users reaching 7.3 million paying users in the fourth quarter of 2019, from 4.2 million paying users in the same period of 2018.

In addition, as we continue to deepen our collaboration with talent agencies, these improvements also enable us to further improve our monetization efficiency for mid-tier long-term streamers.Furthermore, the implementation of our content diversification strategy also helped to improve our monetization efficiency across gaming and non gaming live screening segments during the quarter.

Advertising and other revenues in the fourth quarter of 2019 increased by 29.0% to 117.4 million from 132.1 million in the same period of 2018, this increase was mainly due to our broadening brand awareness and the corresponding increased in demand from advertisers.Cost of revenues in the fourth quarter of 2019 increased by 15.2%, to RMB1.6 billion from RMB1.12 billion in the same period of 2018.

Most specifically revenue sharing fees and the content cost in the fourth quarter of 2019 increased by 68.4% to RMB1.47 billion from RMB119 million in the same period of 2018. This increase was primarily driven by two factors.

First, increase in revenue churn fees in line with increases in total net revenues, and second increased investments in both eSports related content live and in house content production, partially offset by the gradual decreases inside net bonuses for top streamers as a result of industry-wide corporations to reduce compensation for top streamers talent.Bandwidth cost in the first quarter of 2019 remained relatively stable amounting to RMB151.4 million as compared with RMB152.7 million in the same period of 2018.

Notably increases in bandwidth usage due to a larger user base and a higher user engagement platform were completely offset by a lower unit per surprise an improve bandwidth utilization efficiency.

Measures taken in such results included proactively managing peak traffic times during tournaments and events as well as further implementation of our self-developed P2P and CD and technologies.Gross profit in the fourth quarter of 2019 increased by 934.6% to RMB375.2 million from RMB36.3 million in the same period of 2018, gross margin in the fourth quarter of 2019 expanded to 18.2% from 3.1% in same period of 2018.

Especially was mainly driven by our continuous improvements to monetization, stream cost and bandwidth utilization efficiency, as well as improved operating leverage, as a result of the companies increasing economies of scale.Now, let's turn to our operating expenses, marketing expenses in the fourth quarter of 2019 decreased by 22.6% to RMB134.4 million from RMB173.2 million in the same period of 2018.

This increase was mainly due to reduced IPO related marketing costs and lower brand expenses as a result of outstanding brand awareness. Research and Development expenses in the fourth quarter of 2019 increased by 8.4% to RMB102.2 million from RMB92.4 million in the same period of 2018.

This increase was mainly due to higher investment in development of new directive product features as well as higher service compensation expenses.General and administrative expenses in the fourth quarter of 2019 remained relatively steady at RMB76.4 million, compared with RMB74.1 million in the same period of 2018.

Share based compensation expenses allocated of private expenses in the first quarter of 2019 were on the RMB17.4 million as compared to RMB22.2 million in the fourth quarter of 2018 and RMB228.2 million in the third quarter of 2019.Other operating income net in the fourth quarter of 2019, increased by 245.5% to RMB59.7 million, compared to these RMB17.3 million in the same period of 2018, mainly due to the increase of the government subsidies.

Adjusted operating income in the fourth quarter of 2019, which expects share based compensation expenses increased to RMB141.5million compared with an adjusted operating loss of RMB264 million in the same period of 2018.Net income in the first quarter of 2019 improved to a gain of RMB157.4 million from a loss of RMB271.4 million in the same period of 2018.

Adjusted net income in the fourth quarter of 2019, which is expects share based compensation expenses, share of loss in equity method investments, and impairment loss of investments was RMB186.4 million compared with adjusted net loss of RMB232.5 million in the same period of 2018.For the fourth quarter of 2019, basic and diluted net incomes per ADS were RMB0.5 and RMB0.48 respectively.

While adjusted basic and diluted net income per ADS were RMB0.58 and RMB0.58 respectively.

As of December 31, 2019 our cash and cash equivalents and restricted cash totaled RMB8.13 billion this strong balance sheet and healthy status of cash flows enable us to proactively expand our existing business, explore potential opportunities, and further strengthen our leading position in game centric live-streaming segments.Looking ahead, we'll continue to work towards enhancing the monetization possibilities and efficiency of our platform while utilizing a healthy operating leverage to deliver positive return while shareholders of the long-term.

We expect our total net revenue for the first quarter of 2020 to be in a range of RMB2.1 billion to RMB2.16 billion. This forecast with current and primarily views on a market and operational conditions which are subject to change.This concludes our prepared remarks for the day. Operator, we are now ready to take questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the Li Zhang of Bank of America Securities. Please go ahead..

Thanks management for taking my question and wish you a good health.

My first question is regarding the coronavirus impacts to giving our headquarters is located in Wuhan, any impact to our operations? And how the outbreak may impact your game streaming business in terms of user and revenue? Do you observe anything user behavior after people resuming of work? And the second that I want to know our new initiative about the cloud gaming, any color you can share? And what is managements expectation in terms of user revenue and any calls associated with this new cloud gaming things that's may impact our margins? Thank you..

Thank you, Li for your question. I will take the first question regarding the impact of the coronavirus on our business and Mr. Shaojie Chen will comment on the second question. So, since the coronavirus outbreak occurred, we immediately adjusted our working method while continuously tracking our employees’ health.

To-date our employees have worked from home and with the technical support from our IT department and we continued to execute operations smoothly across all business departments.So now our employees and headquarters in Wuhan have resumed their normal working schedule.

However, as Wuhan has been severely affected by the epidemic, we consider the health of our employees to be our first priority. And therefore, we had encouraged them to continue working remotely until the end of the epidemic.

On the first quarter of the year given the Spring Festival holiday is generally not a strong season for game live-streaming, so this is because of the relatively small amount of major eSports events during this period and the number of active streamers in the fourth quarter is also at the bottom of the year typically.So -- but this year, the extended holiday during the outbreak resulted in a quite steady user growth.

Even after people go back to work recently, we have not observed any downward trend of user activities.

So, in terms of revenue growth, we have also seen a promising trend along with the user growth since outbreak, and we work closely monitor the epidemic as it evolves and evaluate its impact on our business for the remaining of the first quarter and beyond..

So, regarding your second question, on cloud gaming, we have currently cooperated with two cloud gaming technology providers to explore cloud gaming development on both PC and mobile end, including around turning PC games and turning mobile games. And we have also launched a number of popular games on our test cloud game platform.

We have still conducting internal tests and our technical team will continue to improve the system based on these results. And we are still in the testing stage and considering the importance of user experience.We do not plan to monetize the cloud gaming before we finalize the product.

In the mid to long run, we will continue to explore cloud gaming, and hopefully by next year, we will be able to finish the infrastructure and build up our cloud gaming distribution and advertising.

And by that time, we believe that cloud gaming would not only become one of our key user scenarios, but also would help to further diversify our monetization. Thank you..

Thank you all.

Can I pull up on cloud gaming, do you use Tencent center or other people's technology or you built it on your own?.

Yes, we are working with technology developers like Tencent and Google and as a cloud gaming platform where the technologies are deployed. We'll continue to explore different ways for utilization including, online advertising and same distribution relative to cloud gaming..

The next question comes from Daniel Chen of JP Morgan. Please go ahead..

So, I have two questions. My first question is related to some competition landscape because I would say, Tencent, they actually have the option to that enabled them to increase their shareholding -- increase their voting power in Huya to 50.1% and a potentially consolidated company.

So, if Tencent really exercise, that option, what will change between the relation of DouYu and Tencent? And is it possible then DouYu and Huya are going to merge in the future? My second question is on the bandwidth cost. We see that the bandwidth cost actually is flattish Q-on-Q.

So wondering what is the future trends? And what is the major driver for the course in mix of one to two years? Thanks you..

Okay. So, first of all, we don't think there will be any major impact on our relationship with Tencent whether or not they execute the option to increase their voting power in Huya to about 50%.

Tencent currently owns around approximately 38% of DouYu and has provided great support on capital and business front for our development in the past two years, and they are currently our largest shareholder as well as our most valuable strategic partner.

So, if Tencent executes option and increase their voting power in Huya to above 50% from shareholding level, they would own less than 40% to achieve that, which means that the two platforms don't have much difference in terms of Tencent shareholding percentage.So, we don't think that Tencent would be unfair to either side even after the active option.

In terms of whether or not a potential merger would happen, we believe if Tencent, our management will always advertise the Company's long term development and the value of our shareholders. We have always been supported and trusted by our shareholders, including Tencent in making key decisions on business front and leading the strategic development.

So going forward, we expect to maintain a close strategic relationship with Tencent..

Okay, regarding your second question on bandwidth costs. The fourth quarter is an event intensive season. However, our bandwidth costs did not increase with user traffic. This was mainly due to, number one proactively manage peak traffic time, doing tournaments and events to improve bandwidth usage efficiency.

And number two, the development of proprietary CDN and the P2P technologies, which helped us to reduce our technology outsourcing path significantly to our optimized patient of bandwidth cost per unit contributed to the stable total bandwidth costs in the fourth quarter..

So regarding the future trend, as we've just mentioned we will continue to develop and deploy the proprietary CDN and the PTP technology. So, then with cost in absolute value would increase as a result of our growing user traffic. But as a percentage of our total revenue it will decrease..

The next question comes from Alex Poon of Morgan Stanley. Please go ahead..

I will translate the question myself. So regarding competition, there are some platforms recently leasing the revenue share ratio to attract traffic, attract streamers. And particularly, how do you see the competition with Huajiao or Bilibili in terms of this streamers resource location. Thank you..

So streamers that are too in the contract period with us well, not to be affected by other players like Huajiao or Bilibili and the number of streamers that are available in the market is very limited and we believe it’s hard for the new player to establish a competitive content ecosystem to compete with incubators.And our revenue sharing system has been relatively stable throughout the development of the industry.

We think that our strategy is reasonable and well continue with it going forward. But in the meantime, we would consider provide certain subsidies to the mid year and long term streamers to all event period to create high quality content. Thank you. Next please..

The next question comes from Thomas Chong of Jefferies. Please go ahead..

Thanks management for taking my question. I have a question about our streamers. Can management comment about the concentration bar, our top broadcasted? And how many top broadcasters need to relieve their contract in the next one year? And then I have some follow-up questions. Thank you..

Okay, so regarding your question on the streamers. We currently have generally five year term contract with majority of steamers.

So all of our top 100 streamers, currently none of them will have their contract to expire within a year, and we always believe that, top streamers are less conflicted on our platform in terms of full traffic and revenue contributions.

And historical data also shows that streamer who do not renew their contract with us, will have very minimal impact on both revenue and traffic.So going forward, we will continue our streamer management strategy of finding exclusive contracts with top streamers and at the same time, collaborating with talent agencies to cultivate and train the mid-tier and long tail streamers.

The top streamers contribute significantly to premium content viewership. Well, we believe that mature to long term streamers help us diversify on content offering and improvement in addition efficiency.In the meantime, we will also continue our cost management for our streamers to increase overall operational efficiency.

And then we have also taken several measures to improve our efficiency of the mid -tier streamers group. First we continued to leverage talent agencies to achieve efficient management of midyear streamers and as compared to 2018.

Now we have established a very comprehensive talent agency model.And second, we kept updating our interactive features to enhance our monetization capabilities. And for example, the launch of our streamers competition system, effectively increased the exposure and popularity of the mid tier streamers while also enhancing monetization efficiency..

My follow on questions about our content strategies, um, what are the new products that we are going to be launched as well as the business model going forward?.

So regarding your question on conference plan and innovation going forward, first of all in terms of gaming content, we will continue to strengthen our investment in eSport content such as LoL, PUBG, King of Glory and Call of Duty, et cetera.

We will also pay close attention to the new blockbuster games and explore the suitable live-streaming categories throughout the industry verticals.So to give you an example since the streaming of Cod15 on our platform in this quarter, in the first two weeks of March, we experienced significant growth in both the number of streamers as well as the total streaming hours for this game platform as compared to February.

And we also explore other areas related to gaming content, such as game video, and being short videos.

For our non-game segments, we will continue to enrich the content ecosystem doesn't our cooperation with talent agencies and also provide more diversified content covering multiple sectors such as talent show, outdoor, ACG, music, et cetera, to meet a broader range of the users viewing preference.And in terms of monetization, we have been exploring different ways of revenue diversification.

For example, our recently launched game partner business is a fast-growing business model in China. And after we launched in October this last year, the revenue and paying users of the game talent business increased rapidly.

And all the data showed that the average ARPU of the thing game talent business has increased very quickly and has high potential, and will help us improve our monetization efficiency.And for mid to long run, we are actively preparing for the deployment of cloud gaming.

And expect the game distribution as well as advertising of cloud games through to come on our next growth engine. Thank you..

And the last question for this evening will be Alex Liu of China Renaissance. Please go ahead..

My first question is on the overseas users. Could management shares some color on our current overseas business strategy and growth strategy into 2020? My second question is on a revenue sharing and content cost. Could management give us a rough breakdown of this cost side and walk us through the drivers of these costs into 2020? Thank you.

So, regarding your first question on our overseas development, in the fourth quarter, we continue to explore these overseas markets that we have invested. And after market investigation in Southeast Asia, India and South America, we figured that these markets have limited potential to grow further.

Although, we achieved over 10 million MAU in these areas, these markets demonstrated very low, user reputation and limited monetization potential.And therefore we decided to shift our main focus to Vietnam and Indonesia and gradually reduce our exposure in the remaining of the market. We already invested.

But in the meantime, our product in the Japanese market, Mildom, has been launched by end of September last year and is currently performing very well. We would continue to maintain in-depth corporation with our Japanese partners to take advantage of the local results. Thank you..

So, your regarding your second question on a revenue sharing and content costs, we will maintain our revenue sharing policy at half-half split between the platform and the streamers and add agency.

We will also offer certain incentive to the streamer and patent agencies during our promotional period and therefore the overall revenue sharing ratio may fluctuate slightly quarter over quarter..

As a game centric live stream platform, we will continue to invest more in content related to the eSport games and potential blockbuster games, especially in top eSport tournament and self-produces premium content.

And thanks to industry wide adoption of the standardized guidance for streamer behavior in early 19, we launched ranking based streamer contract as incremented more strictly on a streamers performance assessment to further optimize the signing bonus for exclusive top streams, which we believe do have further room for improvement.

So, overall, we believe that content costs will show an upward trend in absolute values, but it will decline as a percentage of total revenue..

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

Thank you for joining our call today. We look forward to speaking with everyone next quarter. If you have any questions, please contact the IR team of DouYu. Thank you..

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