Ashley Wu
Hello everyone. Thank you for joining our conference call today. I'm pleased to deliver the following brief remarks on behalf of Mr. Dong. In the first quarter of 2023, amidst the soft microenvironment and seasonal headwinds, we achieved steady development, maintaining a stable user scale year-over-year and delivering total net revenues of RMB1.95 billion and non-GAAP net income of RMB 85.5 million. During the quarter, we continued to make improvements in our content offerings, product and technology in preparation for a more favorable market environment ahead. On the user side, Huya Live mobile MAUs reached 82.1 million in the first quarter, up slightly compared with the same period last year. The first quarter is typically a low season for live-streaming activities due to the Chinese New Year holidays. Furthermore, given China's reopening early in the first quarter this year, users and broadcasters dedicated more time to offline entertainment activities. With this in mind, we continue to spend prudently on promotional and marketing channel, reaching 37% year-over-year decline in sales and marketing expenses in the first quarter. We believe our appealing e-sports and entertainment programs offering, as well as our continued efforts to enhance our process with interactive features help us sustain user engagement during the period. We have been closely monitoring changes in the dynamic market environment and striving to quickly and flexibly refine our content and operational strategies to better meet our users' need. Next let me share with you some updates on our recent product and technology development. In March, we held Huya Boom Night, our annual gala event and our first large-scale offline event after more than a year. Huya Boom Night recognizes and rewards our broadcasters, talent agencies and various business partners and [indiscernible] streamers and our most popular streamers. This year, we also introduced a virtual stage for the galas live broadcast for the first time, representing an upgrade from the virtual e-sports venue we launched last year. With this virtual stage, online viewers felt as if they were on-site in an immersive live atmosphere. We also add the greatest interaction features to make this viewing experience even more fun and exciting. For example, we were assessing the virtual screen were able to join live performance [indiscernible] showing their support through their Avatar costumes and decoration and vote for their favorite team. Most of our viewers also had access to our [indiscernible] graffiti tools which allow them to draw pictures and graffiti designs and simultaneously display them on the screen of the live stage for the on-site audience to enjoy. Encouragingly, the number of total online interaction and the popularity index of this event on our platform also less cost [indiscernible]. We believe features like these help to promote the integration of online and offline performances and thus enables cooperation and interaction with users. Building on the success of this flagship event, we plan to bring these features to our broadcasters and users in more scenarios in the future. Recently, the interactive game category on our platform has been gaining more traction as interactive games allow viewers to directly engage with broadcasters and influence game outcomes in real-time, creating a highly interactive and engaging experience. In response to the [indiscernible] we have introduced several interactive games through our Huya mini tool open platform. Enable broadcasters to select and apply those tools during their streaming section. Currently, our most popular interactive game, [indiscernible] feature streamers and relationships built while user participation in competition through gifting and bullet chatting. [indiscernible] offers real-time interaction between broadcasters and viewers from [indiscernible]. Although still at an early development stage, our interactive game category is gradually calculating its core audience. We will continue to release upgrades to our existing tools and welcome additional good quality interactive games to our platform in an effort to bring more monetization opportunities to our broadcasters. We are also focusing on further building gamification elements and integrating interactive content into live streaming sections for a more dynamic [indiscernible] and interaction effect, thereby increasing real-world engagement. As more game titles has received approval in China in recent months, we also plan to diversify our operational activities and deepen our core operation with game companies to seize the opportunities brought by new game launches. For example, through our Gift Drop feature, broadcasters and viewers can gift the exclusive game tools and other free gifts [indiscernible]for use in new games such as [indiscernible]. We are also organizing platform-based competition for new games, inviting popular broadcasters to participate, leveraging our strong ability to monitor new games and our proven success in game promotions. We are confident we can identify and offer attractive new game content and enhance new games popularity, thus further solidifying our leading position in games live streaming market and increasing our presence in the game value chain. While we're still facing some external uncertainties in the near-term, we remain positive about the overall market recovery process. Our efforts across content enrichment, product advancement and exploration of commercial opportunities, as well as our cost improvements in operational efficiency, assessing the stage for our long-term development. Also, as Tencent recently increased its holding of Huya's share, we look forward to deeper collaboration with Tencent Group and enjoy the synergies we can create together. We will continue to seek growth opportunities as the business environment rebounds with an eye to creating sustainable value for our users, broadcasters and all other stakeholders. This concludes Mr. Dong's remarks. Now I will continue with some updates on our content enrichment and diversification initiatives. During the first quarter of 2023, we broadcasted around 35 third-party professional e-sports tournaments, attracting a viewership of over 400 million. While we experienced a gradual uptick in the number of professional talents, starting from the beginning of this year, the overall quantity of tournaments in the first quarter was lower than that of Q1 last year, primarily due to our stricter content procurement policies and some scheduling disruptions immediately following China's reopening. Our most popular events during the quarter included LPL Spring, KPL Spring and CFPL, as well as our exclusive broadcast of LCK Spring and CS:GO tournament, EPL Season 17, and IEM [indiscernible]. We also broadcasted around 15 self-organized e-sports channels and entertainment PGC shows in the first quarter, generating total viewership of approximately 77 million. Two stand-outs this quarter were Huya Zhanshen Cup for Peacekeeper Elite and [indiscernible] Cup for Crossfire Mobile. Our partnership with CFM enable our viewers to create a variety of Huya custom game tools while watching [indiscernible] cup matches, showcasing our cross-promotional capabilities also, as we strive to enrich our content calenderer, we launched Huya [indiscernible] capturing the attention of [indiscernible] across our platform. As always, we will dramatically adjust our offering of self-produced tournaments and programs according to users' interest as we seek to complement the licensed professional content supply on our platform. In addition, during our annual gala period in March, we hosted an e-sport event Huya Boom Night, inviting popular streamers, celebrities and [indiscernible] player to enjoy competition among the game titles, including the League of Legends, Honor of King and Identity 5 held in Macau. These large e-sports events not only engage a wide audience, both online and on-site, it also helped more e-sports culture exchange among youth group in the Guangdong, Hong Kong, Macau, Greater Bay area. Next, let me provide some color on our operational optimization efforts. In the first quarter, our content licensing costs decreased significantly year-over-year and quarter-over-quarter, primarily due to the pricing term adjustments following the amended licensing agreement for LoL matches in January, as well as our reduced procurement and production of license and self-organized content. We also continue to realize saving of broadcaster related costs and bandwidth usage through detailed ROI analysis and efficient use of technical resources. As a result, we achieved a nice rebound in our gross margin, nearly reaching the first quarter of 2022's level despite lower total revenues this quarter. We also solidified our efficiency gain, reducing our total operating expenses in the first quarter by 26% year-over-year and 7% compared with the previous quarter. Therefore, we narrow our operating loss and achieved a positive net profit this quarter. I also would like to point out that while we expect overall tournament content costs to decline this year compared to 2022, tournament content costs will still weigh more heavily in the second half of the year due to the seasonality of event schedule. This may create some ongoing fluctuations in our profit level. Next, moving on to our Q1 financial details. Our total net revenues were RMB1.95 billion for Q1, a decline from RMB2.46 billion for the same period last year. Live streaming revenues were RMB1.86 billion for Q1 compared with RMB2.15 billion for the same period last year. The decrease was primarily due to a decreased number of paying users on Huya Live. As the micro and regulatory environment continue to adversely affect paying user sentiment. Advertising and other revenues were RMB89.3 million [indiscernible] RMB313 million for the same period last year. This was primarily due to a significant decrease in content sub-licensing revenues, as well as soft demand for advertising services resulting from the challenging macro environment. As we mentioned previously, following our amended licensing agreement for LoL matches in January, we no longer own the licensing rights for LPL matches during the 2023 to 2025 period. While the sub-licensing of those LPL matches was a primary contributor to our content sub-licensing revenues in 2022. Cost of revenues decreased by 25% year-over-year to RMB1.69 billion for Q1, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content costs decreased by 18% year-over-year to RMB1.49 billion for Q1, primarily due to the decrease in revenue sharing fees associated with the decline in live streaming revenues and lower costs related to the e-sport content, as well as content creators. Bandwidth costs decreased by 44% year-over-year to RMB94 million for Q1. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts, as well as less bandwidth usage as a result of strategic adjustments in our overseas business to remain focused on key markets. Gross profit was RMB256 million for Q1, primarily due to lower revenues. Gross margin was 13.2% for Q1. Excluding share-based compensation expenses, non-GAAP gross profit was RMB265 million and non-GAAP gross margin was 14.6% for Q1. Research and development expenses decreased by 22% year-over-year to RMB152 million for Q1, primarily due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 37% year-over-year to RMB91 million for Q1, primarily due to decreased marketing and promotion fees, as well as personnel-related expenses. General and administrative expenses decreased by 16% year-over-year to RMB68 million for Q1, primarily due to decreased personnel-related expenses and share-based compensation expenses. Other income was RMB4 million for Q1 compared with RMB28 million for the same period of 2022, primarily due to lower tax refunds and government subsidies. As a result, operating loss was RMB51 million for Q1 compared with RMB60 million for the same period of 2022. Interest and short-term investment income were RMB96 million for Q1 compared with RMB59 million for the same period of 2022, primarily due to increased interest rates. Net income attributable to Huya Inc. was RMB45 million for Q1 compared with a net loss attributable to Huya of RMB3 million for the same period of 2022. Non-GAAP net income attributable to Huya Inc. was RMB86 million for Q1 compared with RMB47 million for the same period of 2022. Non-GAAP net income margin was 4.4% for Q1. Diluted net income per ADS was RMB0.18 for Q1. Non-GAAP diluted net income per ADS was RMB0.35 for Q1. As of March 31, 2023, the company had cash and cash equivalents, short-term deposits, short-term investments and long-term deposits of RMB10.3 billion compared with RMB10.7 billion as of December 31, 2022. With that, I would now like to open the call to your questions.
