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..

First, due to the implementation of our selective corporate procurement strategy in early 2022, we experienced a decline in all MAUs since the fourth quarter of the year.

Nevertheless, in the fourth quarter, despite the negative impact on user traffic from the absence of the world -- of the LoL World Championship Tournament, our creative user campaigns and operations on existing copyright tournament events effectively attracted and engaged our core users.

As a result, mobile MAUs on our platform achieved growth for the third consecutive quarter. Second, we continue to advance our innovative membership business, extending our game-specific membership services to broader game segment. By combined game features with users' needs, this initiative has gained traction among both new and existing users.

Moving on to our content ecosystem. Capitalizing on the widespread popularity of eSports, we continue to sharpen our products and operations, including the consistent upgrades of our game content. Based on gaming features, we continuously created an even broader selection of more interactive and engaging premium content.

On top of that, we built a healthy and vibrant interactive ecosystem for users through innovative services, providing them with the community-based platform and a novel membership business.

These efforts cannot only ensure long-term retention by meeting certain gamers' needs for upgraded game content, but also increase overall user engagement and stickiness on our platform, that's driving user growth in the long run.

In the fourth quarter, we continued to improve our diversified self-produced tournament system and organized more than 90 eSports tournaments. Leveraging our top-tier streamer resources, we focused on promoting IP content in partnership with star game streamers.

In this effort, we created a series of premium gaming content combined with entertainment-oriented activities in our game segment, such as League of Legends and Honor of Kings.

This content in general, coupled with the joining parties, has proven to increase users' motivation to engaging interaction and the line-up of our game communities, appealing to both new and existing users. Self-produced tournaments have become one of our main avenues to promote eSports popularity across the board.

For example, based on Honor of Kings large gamer base, we housed Honor of Kings user cup national challenge. This competition opened enrollment to all Honor of Kings players and both its easy access to rewards and wider user participation. Specifically, we integrated the tournament's content with our user community.

Users were able to enroll, participate and advancing rank within our community channel, while other users could take part in a series of fun activities such as [indiscernible] a single player competition and interactive reward. Combining game content with our user communities captivated mind-like gamers.

And at the same time, it has tightened bonds with heavy users. As we improved our self-produced tournament system and further enhanced its value, we launched a series of eSports partner selection mechanism based on these tournaments. In the user cup mentioned earlier, we unveiled the eSports project.

We've seen growth opportunities to discover high potential streamers and fortify user segment. In the fourth quarter, we launched all new eSports school team selection season for colleges.

The competition covered three mainstream eSports games and attracted more than 2,000 college teams from 11 provinces, providing more college for spend with the platform to showcase their skills. It has also helped us to discover potential sports talent and enhanced stores appeal and brand influence among college and university.

In terms of corporate detergents, we reinforce user engagement and stickiness to reach derivative content and diverse operation activities. In the Honor of Kings Champions Cup KIC, we added auxiliary functions such as home team support and watching reminder to further elevate our user experience.

Moreover, the team, Wuhan.eStar, which we signed and invested in, maintained its excellent performance throughout the year and became the champion of the Champions Cup.

With the purchase of some co-copyrighted content, we continue to deepen cooperation with game developers, fully integrating tournament content with our platform's operational characteristics to provide differentiated tournament derived content and customized user services.

Meanwhile, aligning with the tournament’s content, we will explore more commercialization channels to improve the ROI of tournament’s copyright. Moving on to our monetization strategy. Our total number of paying users in the fourth quarter was 5.6 million with a quarterly average ARPU of RMB293.

We continued our paying user segmentation strategy from last quarters, which included canceling marketing activities for new paying users with low rates of returns, maintaining our core users' readiness to pay and promoting more consumption of mid-range payment users. We also made progress in generating revenue from non-virtual gifting.

For Q4, we continued to refine and promote our platform-wide membership service system, strengthened the companionship and interaction between streamers and platform members and consistently iterated membership features.

In the fourth quarter, we launched sound effects and privilege gifts for members, leading to a sustained, steady increase in members renew rates compared with the third quarter, demonstrating high user stickiness among our fans. Furthermore, we extended our game-specific membership service to multiple segments.

Based on the characteristics of each game, we launched customized game membership services to meet users' needs for in-game item. Going forward, we will strengthen our cooperation with game developers that fit into users' gaming needs and explore more commercialization channels.

In terms of our product R&D and function innovation, we continue to deepen cooperation with game developers.

In compliance with laws and regulations and based on our partial game-based sharing partnership with game developers, we integrated gaming data, content and function with DouYu’s content and gameplay, making live streaming content close fit with these games.

For example, the Honor of Kings live streaming channel, users can easily team up with streamers and other users to play the game through the join with one-click function, making user streamer interactions significantly simpler than before. In the past, users had to manually add friends into the game to form teams.

In addition, with this excited more game-related data and gaming strategies through partial game data sharing in games such as [indiscernible] and Peacekeeper Elite, further optimizing our user experience and stimulating live streaming engagement.

Overall, in a challenging year of 2022, we created a healthy and vital gaming content ecosystem through various operational strategies, including adjusting revenue-generating activities and increasing investments in self-produced content, thereby maintaining stability in the company's overall business and financial performance.

Going forward, we will continue to execute on our diversified game-centric content strategy and focus on maintaining the scale and quality of our core users, by further improving game content and strengthening our connection with core users where we enhance user segment on our platform and [indiscernible] as a gaming content ecosystem.

Meanwhile, we will continue to explore more commercialization channels and new growth avenues to maintain our leading position in the domestic game live streaming industry. 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..

First, the decrease in revenue sharing fees was mainly in accordance with the decrease in live streaming revenues. In addition, the lower revenue sharing ratio, which was achieved through the implementation of our prudent operating strategies, led to a further reduction in revenue sharing fees.

Second, the copyright cost decreased significantly as a result of our selective copyright procurement strategy, whereby we seized acquiring overpriced content rights for eSports tournaments. The decrease was partially offset by an increase in self-produced content costs, driven by additional year-end events launched during the quarter.

Bandwidth costs in the fourth quarter of 2022 decreased by 17.6% to RMB138.4 million from RMB167.9 million in the same period of 2021. The decrease was mainly due to the year-over-year reduction in peak bandwidth usage in the absence of the purchased copyright of major eSports tournaments.

Gross profit in the fourth quarter of 2022 was RMB186.1 million compared with RMB244.7 million in the same period of 2021. Gross margin in the fourth quarter of 2022 was 11.1% compared with 10.5% in the same period of 2021.

This margin improvement was mainly driven by the decrease in both revenue sharing fees and copyright costs as a percentage of revenues. The improvement was partially diluted by the rising percentage of revenues attributed to self-produced content costs.

Sales and marketing expenses in the fourth quarter of 2022 were RMB123.9 million, a significant decrease of 45.9% in from RMB229.2 million in the same period of 2021. This was mainly attributable to a decrease in both marketing expenses for user acquisition and branding expenses.

Research and development expenses in the fourth quarter of 2022 were RMB80.6 million, representing 39.2% decrease from RMB132.6 million in the same period of 2021. This decrease was primarily due to a decrease in personnel-related expenses.

General and administrative expenses in the fourth quarter of 2022 were RMB55.2 million, a drop of 44.1% from RMB98.8 million in the same period of 2021.

The decrease was primarily due to decreased share-based compensation expenses as the vast majority of shares and our share incentive plans were fully vested as well as decreased professional service fees.

Adjusted operating loss, which adds back share-based compensation expenses, was RMB56 million in the fourth quarter of 2022 compared with RMB168.7 million in the same period of 2021. Net income in the fourth quarter of 2022 was RMB41.8 million compared with net loss of RMB193.2 million in the same period of 2021.

Adjusted net loss which excludes share-based compensation expenses, share of loss or income in equity method investments and impairment loss of investments was RMB4.3 million in the fourth quarter of 2022 compared with RMB150.7 million in the same period of 2021.

For the fourth quarter of 2022, basic and diluted net income per ADS were RMB0.14 and RMB0.14, respectively, while adjusted basic and diluted net loss per ADS were RMB0.003 and RMB0.003, respectively.

As of December 31, 2022, the company had cash and cash equivalents restricted cash, and short-term and long-term bank deposits of RMB6.81 billion compared with RMB6.64 billion as of December 31, 2021.

Moving forward, as part of our strategic focus on healthy long-term growth, our revenue may experience some immediate impact, which we believe is critical to our balanced growth.

We will also strive to explore more commercialization channels and fine-tune our operations, supporting the sustainable long-term development of our platform, while also delivering greater value for our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions..

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

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?.

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..

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..

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

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?.

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..

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..

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

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?.

First, the increase in our cash balance is primarily a result of reporting currency translation as appreciation of the U.S. dollar increased value of the large amount of U.S. dollar-denominated cash assets we hold, totaling RMB480 million. Second, in terms of cash outflow, we used a total of RMB110 million in cash for the share repurchase.

Other total cash outflow was RMB210 million, of which the operating cash outflow was RMB77.8 million. Thank you..

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

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?.

First of all, we will put more emphasis on maintaining core paying users to ensure core business stability. We launched various tiers of paying products based on our users' different abilities to pay in order to sustain and improve their willingness to do so.

Meanwhile, we rolled out more companionship-oriented functions and activities for our fans, but only maintaining the day-to-day interactions between streamers and the fans, but also enhancing the fans' willingness to pay.

Last year, we upgraded our user benefits and strengthened our interactive functions, substantially improving fan stickiness and steadily increasing members' renewal rates. Second, we will explore more new non-virtual gifting business model based on game characteristics to improve our revenue mix.

The game-specific membership service that we launched in the second half of 2022 is progressing smoothly. Despite its relatively small revenue currently, we believe this business can satisfy some gamers' demands for the games themselves.

It not only attracts large number of game fans, thereby adding new users to our platform, but also appeals to existing users. So promoting a virtuous cycle in our game content ecosystem. In short, developing our membership business will be a priority for 2023.

Specifically, we will continue strengthening our platform-wide membership service, while reinforcing our close cooperation with game developers to delve deep into users' gaming needs and extend our game-specific membership service to multiple segments. Thank you..

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

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

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