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

I would now like to turn the call over to your first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead ma'am..

Thank you, operator and hello, everyone. Welcome to our fourth quarter and full year 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 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 known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual performance – without 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..

BLADEPOINT, further improving user engagement and stickiness. We invited game producers, gaming media editors and streamers to participate in an online talk show, which further boosted user participation and enhanced community experience.

Along with the continued improvement of our game-centric content ecosystem, we also deepen our cooperation with game developers, especially for newly launched games. For example, we worked closely with the developers of the blockbuster mobile game LoL Wild Rift.

Our participation in the games launch, including the initial stream by the official spoke person and various task-based incentive user campaigns raised the profile of both the game and our platform.

In addition to official collaborations, we also offered various feature content such as guides, teaching streamers how to host game-related QA sessions to create a supportive and engaging gaming environment for the community. As a result of this efforts our platform's LoL Wild Rift resilient traffic has maintained a leading position in the industry.

Going forward, we will continue to deliver and integrate a variety of game content and enhance operations to create a game-orientated community to provide a better user experience and to maintain our industry-leading position.

Furthermore, we will analyze the ROI for each game segment, evaluate optimization opportunities and improve our platform's overall operating efficiency by enhancing ROI for each game. Now turning to monetization. Total number of paying users in the fourth quarter was 7.3 million with an average quarterly ARPU of RMB 305.

We continue to enhance engagement and consumption levels from our core users through sustainable operating strategies and promotional campaigns, enabling us to sustain a healthy range for our ARPU. While maintaining the stability of revenue from virtual gifting, we will continuously endeavor to explore new revenue streams.

In terms of products and technology as we build our game-centric comprehensive content ecosystem, we added additional innovative features to existing functions and continue to upgrade our streaming platforms product. For example, the variety and interactivity of the live bullet chat commentary are highly valued by our users.

However, an inherent limitation of live bullet chat is the difficulty in retaining the content that it generates. To resolve this, we launched as the live streaming hot chat channel.

This feature is either manually analyzed or use AI to process training, discussion topics generated during a game stream from resources including live bullet chat commentary and non-real time content within the community, training topics are then aggregated and deliver to users through this channel, thereby increasing time spent on viewing video content and community engagement.

Successful rollout of these features further enhanced user experience and bolstered the sense of community on our platform. To summarize, we have been ever more innovative on both the content and operations front. Even as we executed our strategy upgrade that has maintained our leading position in the traditional live streaming industry.

As a result of our multi-dimensional collaboration with every MAU game developers, we have developed customized features for different game segments and provide users with content that integrates live streaming, video, graphics and interactive communities.

We have continued to explore commercialization initiatives, leveraging our competitive strengths in user engagement and paying behavior. Going forward, we will continue to execute our product, streamers and content strategy to further explore and strengthen our monetization capabilities and optimize our financial performance.

With that, I will now turn the call over to our Vice President of Finance, Mr. Hao Cao to go through the details of our financial performance in the quarter. .

Thank you Lingling. Hello everyone. Total net revenues in the fourth quarter of 2021 increased by 2.6% to RMB 2.33 billion. Live streaming revenues were RMB 2.21 billion, an increase of 6.7% from RMB 2.07 billion in the same period of 2020.

While the size of our core paying users largely remained stable, our effective operational strategies helped to improve our monetization efficiency, resulting in an 11.7% increase up to RMB 305 in the fourth quarter from RMB 273 in the same period last year.

Advertising and other revenues were RMB 118.5 million compared with RMB 198.5 million in the same period of 2020. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by using a portion of advertised traffic that could have been directly monetized.

Simultaneously, we were also partially impacted by soft demand for advertising cost by a challenging macro environment and regulations related to the gaming industry. Cost of revenues in the fourth quarter of 2021 was RMB 2.08 billion, remaining relatively flat compared with RMB 2.09 billion in the same period of 2020.

Revenue sharing fees and the content costs were RMB 1.85 billion, unchanged from RMB 1.85 billion in the same period of 2020. More specifically, there was an increase in revenue sharing fees, which is in accordance with increased live streaming revenues. Such increase was offset by the decrease in the cost of broadcasting rights.

Other common costs remained stable on a year-over-year basis, as we continue to optimize in-house production efficiency. Bandwidth costs in the fourth quarter of 2021 decreased by 1.6% to RMB 167.9 million from RMB 170.7 million in the same period of 2020.

This decrease was mainly due to lower per unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers. Gross profit in the fourth quarter of 2021 was RMB 245.7 million, an increase of 34.3% from RMB 182.2 million in the same period of 2020.

Gross margin in the fourth quarter of 2021 was 10.5% compared with 8% in same period of 2020. This increase was primarily due to higher revenues generated during the quarter, while cost of revenues remained flat.

Sales and marketing expenses in the fourth quarter of 2021 were RMB 229.2 million, an increase of 34.3% from RMB 170.7 million in the same period of 2020. This increase was mainly attributable to the increased costs from utilizing additional promotional channels for user acquisition.

Research and development expenses in the fourth quarter of 2021 were RMB 132.6 million, representing an increase of 11.5% from RMB 118.9 million in the same period of 2020. This increase was primarily due to increased technical staff costs, as we continue to invest in product upgrade to support our game-centric content strategy.

General and administrative expenses in the first quarter of 2021 were RMB 98.8 million decreased by 16.1% from RMB 117.7 million in the same period of 2020, primarily due to decreased professional service fees.

Adjusted operating loss in the fourth quarter of 2021 which aspect share-based compensation expenses was RMB 168.7 million compared with RMB 199.1 million in the same period of 2020. Net loss in the fourth quarter of 2021 was RMB 193.2 million compared with RMB 228.7 million in the same period of 2020.

Adjusted net loss in the fourth quarter of 2021, which excludes share-based compensation expenses, share of income and equity method investments, impairment loss of investments and settlement of class action lawsuits, was RMB 112 million, compared with RMB 176.9 million in the same period of 2020.

For the fourth quarter of 2021 basic and diluted net loss per ADS were RMB 0.53 and RMB 0.53 respectively, while adjusted basic and diluted net loss per ADS were RMB 0.29 and RMB 0.29 respectively.

As of December 31, 2021, the company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of RMB 6,643 million compared with RMB 7,622 million as of December 31, 2020.

We would also like to provide an update on execution of our share repurchase program announced on August 30, 2021, in which the company may repurchase up to US$100 million of its shares until August 2022. As of December 31, 2021, the company had repurchased an aggregate of US$16.7 million worth of its ADS under this program.

Going forward, we will continue enhancing our monetization capability while further improving our monetization efficiency. Additionally, as we continue to grow, we will focus on further utilizing our operating leverage to support the sustainable development of our platform. Operator, we are now ready to take questions..

Thank you. And we will now begin the question-and-answer session. And our first question today will come from Lei Zhang from Bank of America Securities. Please go ahead..

Thanks management for taking my questions. Two questions here. First, can you share with us some updates on the regulatory change recently and the impact to our business. Secondly, I noted that we have adjusted our content investments in eSports licensing content and can you share with us the logic behind this? Thank you..

Let me answer your first question. There have been continued advance in regulatory guidelines for the live streaming industry, internal industry results to probably implement measures and refine operations to comply with regulatory requirements. No new rules were introduced additionally.

We have made internal operational adjustments, future updates, adopted a more prudent operational strategy and implemented strict internal review to improve the platform’s community building and to promote the long-term development of our platform.

For example, for unlicensed games, we have been gradually redirecting traffic and streamers to license their games of similar genres since the third quarter of 2021 to ensure proper traffic allocation between different game segments, maintain streamer income levels and their willingness to stream.

The initial impact of these adjustments was reflected in our first quarter performance. We will also pay close attention to any regulatory changes and adjust our operational strategies in a timely manner. Thank you. .

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Okay. I will translate Mr. Chen's answers. So as we previously mentioned in the prepared remarks we have conducted extensive analysis and calculations in the context of the increasing tournament content license fees.

We concluded that the traffic -- the growth in game traffic or revenue generated by this large tournament has been outpaced significantly by the growth in corporate costs. Our analysis of user behavior data found that a majority of our users primarily watch games live streamed by individual streamers.

So within comparison the proportion of users who mainly watch the tournament is relatively low. Meanwhile, the return rate of inactive users through tournaments content has been declining. So in addition historical data always shows that large-scale eSports tournaments do not drive revenue growth.

They can even have a negative impact on our platform's revenue. This is due to the different user experience delivered by these two content segments. While watching tournaments is a complete immersive experience virtual gifting revenue is generated by interactions between users and streamers.

During the tournament users are immersed in watching the game and therefore tend to spend less time interacting with streamers which negatively impacts their willingness to pay. So based on this we have adopted a selective corporate procurement strategy.

We conduct comprehensive evaluation on the deliverable value of each tournament both in terms of traffic and monetization to determine our corporate copyright B price. We will continue ongoing dialogue with copyright owners regarding copyright prices and explore more rational and long-term models for corporation.

For those purchased content license, we aim to improve the return on investment through innovative operational methods. So we would like to emphasize that our selective purchase of permanent copyright does not mean that we will reduce our investment in content.

Based on our in-depth understanding of the gaming industry years of operational experience, we will deepen our cooperation with game developers and increase our investment in original content operations and community building in order to keep our competitive advantage in the premium content and game operations. Thank you. Operator, next please..

And thank you. Our next question today will come from Yiwen Zhang of China Renaissance. Please go ahead..

Thanks everyone for taking my question. So, three questions. So, just wondering you mentioned some adjustments how license corporate procurement, which actually generates a lot of discussion. So, what's your part will be in live streaming competition as if now.

And secondly, recently there was some streamers who are considered to be final participation and the minimal paying for back taxes on the amenities. So, just wondering if this has any impact on our new sharing policy.

And then lastly, we know that we have a game content-centric strategy, so what's the implication from our marketing strategy and also expand it? Thank you..

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As I mentioned earlier, we adjust our corporate procurement strategy because we believe, the value delivered to us by corporate is not in line with the increase in costs. Another factor behind this strategic adjustment is the evolving environment of the live streaming industry.

As previously mentioned, the growth rate of new user acquisitions through game live streaming is decreasing, take large-scale eSports tournament as an example. They delivered a substantial amount of new traffic in early stages of game live streaming, especially high-quality users in the eSports segment.

With the development of gaming live streaming, high-quality users have become regular users of live streaming platforms. So these users have certain preferences, for the platform's regular streaming content, so that their viewing hours and stickiness to the platform are relatively stable.

Therefore, it is very difficult to drive additional traffic growth by only broadcasting eSports tournament. However, we have seen that the continued expansion of short video platforms have attracted more diverse user groups to consume gaming content, while enlarging the potential user base for the entire gaming content industry.

So that is to say, our industry has already transitioned from a competition in gaming live streaming to gaming content. At the same time, our user acquisition strategy has also transitioned from a stage of capturing hard-core gamers to stabilizing our hard-core gamer base, while attracting new cash flow and meet core gamers.

Our platform primarily consists of hard-core gamers, whose live streaming service penetration rate is high. They have high expectations for the quality of our content and our streamers. This uses our core users and exhibit high-level of stickiness.

When contracted streamers cannot frequently switch between different platforms, the overall competitive environment is relatively stable. This user group is, very stable and provide steady traffic through our platform.

The live streaming penetration rate for casual and mid-core users is relatively low, as we have more diversified needs for game genres and game content. We believe that short video graphics and other comprehensive game content and community-centric features can attract casual and mid-core gamers.

This is the reason why we expand our content offerings and build our communities. So, as various options -- using options for users consistently grow, we believe that differentiated content, refine operations, and improve profitability as a key to stable and healthy growth for the platform.

Therefore, starting last year, we have been implementing platform strategy upgrades to continuously refine our live streaming video and graphic content. So as to we can enlarge our user base to more casual and mid-core gamers. Thank you..

Regarding the second question about the taxation, first of all, we have strictly and continuously adhered to our relevant laws and regulations regarding taxation. As a result, investigations into tax irregularities of individual streamers did not negatively impact our platform.

For streamers, who are directly contracted with us, we withhold their income taxes to ensure the tax obligations are fulfilled. Separately, there are a large number of streamers who signed their contracts with third-parties, as the obligation to pay income taxes lies with these third-parties.

We strongly advise those partners to comply with the taxation loss. At present, our streamer engagement models have not changed. As I just mentioned because we consistently uphold these strict tax compliance requirements, investigations into tax irregularities of individual streamers have not negatively impacted our platform.

Therefore, we will not adjust our revenue sharing fee structure. As a result of the recent investigations into tax evasion. About the last question on the sales and marketing strategy. As I mentioned previously, our high-quality traffic generation has been slowed down by pure gaming live streaming.

Competition within the industry has switched from gaming live streaming to gaming content. Our user acquisition strategy has also changed from hard-core gamers to stabilizing hard-core gamers while attracting new casual and mid-core gamers. Hard-core gamers are our core user group.

For a long time this user group has preferred specific game genres and live streaming with higher stickiness to our platform. Based on our long-term operating experience and accumulated user behavior data, we will maintain stable streamer resources to ensure continued supply of high-quality content.

We will also produce more exclusive self-produced content and launch additional marketing campaigns to increase user activity and build a healthy game-centric community. Casual and mid-core gamers user groups that we are increasingly impacting. This group is relatively large and has more diverse needs in terms of gaming content and categories.

By targeting this user group, we enhanced our cooperation with game developers to attract new users through our innovative operations and traffic acquisitions. Meanwhile, we leveraged our high-quality content to produce short videos to promote our platform and acquire users while improving users' stickiness utilizing our active community.

Both approaches delivered encouraging results demonstrating our platform's competitive advantages in our rich content library and a vibrant game-centric community. Thank you..

Our next question today will come from Thomas Chong of Jefferies. .

Thanks management for taking my questions. My first question is about the gaming approval. Does the slowdown in gaming approval affect our operations? And my second question is about our share repurchase plan. Can management comments are forced and the progress that we should anticipate in coming quarters? Thank you..

Let me answer your first question. We have not seen any significant impact on our existing users from the slowdown of approvals for new games as our businesses based on the conversion of gamers into viewing hours of game-centric content.

There are a large number of players of many high-quality games who are our existing or potential users following successful conversion of gamers into viewers of our game-centric content operational metrics such as user stickiness, time spend per user, and user engagement have remained very stable.

The primary impact from the slowdown in approval for new games has been new user growth which is reflected in our recent momentum. The approval of new games is not on hold rather the slowdown has been caused by stricter standards for approval of new games, which we believe will be advantageous for the gaming industry in the long run.

As for game-centric content platforms, such as DouYu, we will also benefit from these stricter standards since high-quality games and their users, are the most important resources for our content generation and user growth. And recently, the quality of the games launched on our platform has been very high.

Through the integration of live streaming video content, graphic content, community discussion and our customized operations for each game segment, we have been able to successfully promote these premium games and attract new users.

This has further demonstrated the effectiveness of our operational strategy of cultivating diversified game-centric content community. Cao Mr., answer the second question..

Okay. About the second question, by the end of August we had announced share repurchased program for a total amount of US$100 million.

As of December 31, 2021, we had repurchased an aggregate of US$16.7 million worth of ADS, due to the impact of certain SEC rules and restrictions, a large portion of the repurchase funds has been set aside for further repurchase but has not been settled yet. Thank you..

Our next question today will come from Alex Poon of Morgan Stanley. Please go ahead..

I have two questions. My first question is related to our -- the performance of our -- after our strategic change, is there any performance data that we can share? And second is -- my second question is related to -- for new games launch.

What is our operating policy for new games launch? And is there any data that you can share with us at this stage? Thank you very much..

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BLADEPOINT, LOL mobile, and the recently launched Tower of Fantasy by successfully executing our upgraded operating strategy. As a content platform, the evolution of our content ecosystem and changing user perceptions of our platform of both cumulative processes.

We are confident that we will continue to implement our operating strategy; the viewing time for nontraditional gaming content will increase as a proportion of overall viewing time. Our platform content will become more diversified and will cover more user groups. Thank you..

BLADEPOINT was ranked within the top 10 games on our platform for two quarters. Total viewing time for LoL Mobile, also ranked within the top 10 during the quarter of its launch. We are leading the market, in terms of, the proportion of sales, cultivated streamer, live streaming volume and user engagement for these new games.

Overall, we see pleasing results for our full life cycle operation for new games. We have attracted additional users to our platform, demonstrating that we are on the right track with implement our diversified game content ecosystem.

Furthermore, the system established of game segments has enabled us to build a slight foundation for improving our operating efficiency. I think this helps..

Thank you. That’s all..

Our next question today will come from Ritchie Sun of HSBC. Please go ahead..

So I noticed that the self-set marketing expenses grow much faster than the top line growth. Can management comment on why is that? And how do we assess the effectiveness of traffic acquisition? And how will this does the market can expand trend in the next few quarters? Thank you..

Okay. Sales and marketing expenses mainly consisted of staffing costs, China promotion costs, expenses for online and off-line events and sponsorship fees for eSports teams.

The year-over-year growth was mainly due to increased promotions for our new product features and increased costs from utilizing additional promotional channels for user acquisition along with the upgrade of our content offerings.

As previously mentioned in our discussion, regarding our platform strategy, we need to expand our promotional efforts to increase our coverage and influence attract more casual and mid-core games.

We will carefully select appropriate marketing channels based on continued data analytics to increase our marketing efficiency on a dynamic evaluation basis.

We will continue to increase spending on the channels, delivering high-quality users and cut back or stop spending on those channels, whose acquisition efficiency or user quality does not meet our standards. Thank you..

Great. Thank You. Okay. And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to management for any closing remarks..

Thank you for joining our call. We look forward to speaking with every one of you next quarter. Bye..

Ladies and gentlemen, the conference has now concluded and we thank you for attending today's presentation and you may now disconnect your lines..