Q3 2021 LIZHI INC. Earnings Call
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Hello, Ladies and gentlemen, thank you for standing by for <unk> third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded I will now turn the call over to your host.
If he kung head of capital markets for the company. Please go ahead.
Thank you very much and Hello, everyone and welcome to the Inc. Third quarter 'twenty or 'twenty, One earnings conference call, We released our financial and operating results our newswire services earlier today and they are available.
But he spends on today's call will include all the all the founder and CEO, Mr. Michael lives and our CEO, Mr. Tony <unk> CFO, Mr Paulo <unk>.
Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded in addition, or in his highlights presentation and webcast. A replay of this conference call will be available on the IR section of our website.
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Before we continue please note that today's discussions will contain forward looking statements made under the safe Harbor provisions of the U S. Private Quickie Litigation Reform Act of 1995. These statements typically contain words, such as May we all expect target.
Estimated impact, but less potential continue or other similar expressions forward looking statement PMO being habit and the uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those.
For Jackie.
<unk>.
Many of which factors are beyond our control the company, it's a fit at Budweiser Representatives and underwriter its do not undertake any obligations to update these forward looking information except as required under the applicable law. Please also note that leaches unused press release and this conference.
Call include discussions of unaudited GAAP financial measures as well as an audited non-GAAP financial measures. Please refer to me just unused approach really as far as the conciliation of audio to use non-GAAP measures to GAAP measures I will now turn the call over to our founder and CEO Mr. <unk>.
Please go ahead.
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Hello, everyone. Thank you for joining us today I will share also quarter, a business overview and future development strategy that our CEO. Mr. Shlomi will provide more details on the operations of each business line.
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Overall leisure continue to strive to build a competitive global audio ecosystem. He does so quarter of 'twenty 'twenty. One total average mobile how many you've reached a 58, one to 9 million and average monthly paying users was 485000 in the third quarter we remain.
We're focused on improving user experience and fostering our audio centric commencing ecosystem to increase audio entertainment user base, because I'm, sorry user connections in stickney and support our sustainable growth. We are delighted to see the audio lines, depending on average mobile and they use grew by 21%.
Year over year to $9 17 million at.
We prioritize unlocking commercialization potential presented in audio and dependent business.
Coupled with our effective execution of our operational strategy.
Our third quarter revenue grew by 40% year over year to RMB 505 minutes.
Pushing our total revenues for the first nine months of this all 2021 to surpass the revenues for the full year of 2020. Yeah addition to revenue growth. We are pleased with the continued expansion of our overall gross margin, which grew to 30% up 500 basis points year over year.
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In terms of our strategic priorities in the near future first of all we'll continue to build a sustainable and a high quality community ecosystem.
Whiting more valuable compounds and audio centuries interactive scenarios. He has the all commercialization capability and supporting more content creators to grow and develop in niches audio community.
On stage, all globalization strategy is to optimize product and ramp up of localization King we strive to meet users' social networking needs in the digital era, capturing more growth opportunities for future prospect.
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Jobs into the cloud that are twofold.
With respect to two hour ordeal roadmap here for multiple devices at a cost stayed pulled our optimization and technology innovation. Our main focus is in this area.
The same time, we are strengthening our underlying architecture.
Addition, we continued to establish collaborations with more cap ons to expand our reach in the in car audio market.
In addition, we will adhere to the long term development pathway with technological empowerment and further apply our in house developed the audio technology solution.
System to more gigabytes at Yum.
Beyond that we are definitely off the development of our new house instant messaging technology, which is I am technology, we are expecting to provide more tailor the technological support to all whatever product.
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In conclusion, we have great confidence in our pros that we will continue to execute our globalization strategy in the next case by maximizing the interest or the vouchers, we are expecting to unlock greater growth potential globally.
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Thanks to everyone with that I will now turn the call over to our CEO, Mr. Tao, Li who will discuss our business development in more detail.
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Hello, everyone and thank you for joining us today next I would like to provide more detailed updates of each business line.
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And with all audio entertainment business.
To foster a sustainable ecosystem across all commodity by people rushing to optimizing product functions and harnessing several key content categories to further amplify our commercialization capabilities and efficiency, we are working to refine our Florida operations, which involves team.
40, more precise user targeting.
Focusing heavily on content categories with strong commercialization capabilities.
Optimizing our marketing strategy and hunting high performance channels.
We believe that taking these important steps now will lay a solid foundation for us to grow our sense so far.
On the mobile ecosystem.
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And operational efficiency and ultimately enable us to achieve a solid long term growth.
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Moving to our global business. She is positioned as a digital social networking tablet for young people, we continue to improve and optimize our product to meet their social needs and diverse nevertheless, based on their different harvest interests and a trendy lifestyle in.
In the third quarter, we concentrated on building a local team and flowers overseas business development and upgrading product features and functions to position ourselves among a wide variety of user groups.
Our emphasis on user experience and user retention is designed to allow our user base to achieve organic growth.
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As part of our protocol optimization strategy, we have created a T. I asked Frank that it was feature and the discovery channel.
I'll offer a more interactive features to guide users to adopt a different tools for their interactions on the platform in particular.
We launched the my friends life. That's a feature that allows users to find friends you know stimulus that there was a mood, which reinforces friendship bonds on the papillon and ensure a smooth certainly my social experience. We continue to rollout innovative features to tee up.
Some of these reality of the recently include newly optimized Dominion gas and screen sharing options, both of which provide a more diverse ways for users to interact socially enhancing the user thickness and engagement. After these product upgrades were launched we observed a master increasingly.
Interaction rates of new T. Our users with friends and the uptick in the average time spent per user on here.
In September the daily average number of messages sent per users grew by 57% compared with June and users number of friends Perez was 64% higher than in June.
The near term.
Surety to continue refining I'll call dogs to improve these metrics. Even further we will be paying close attention to key metrics such as user active minutes and interaction levels, while further cultivating user habits and strengthening the relationships on the platform.
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In the third quarter. We also continued to expand lead to podcast footprint in the Colorado market by broadening and deepening our collaborations with auto companies and the Internet of vehicles pass on we have also achieved a more official recommendations from auto companies car.
Currently our strategic focus revolves around product optimization and technology innovation.
Clothing audio application functions for the income scenarios, such as was the activation of the controls gesture operation and seamless connectivity.
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We are pleased that our strong technological capabilities are boosting Egypt block has a competitive performance in the new car market.
For instance, we have recently been integrated into Huawei, how many you're all asking ecosystem through technological innovation.
And as a first pass onto Laughman cardiac streaming podcast needs. Your podcast rolled out one seamless connectivity feature is support cross screen connection to achieve two wastefulness connectivity between mobile devices and vehicles.
Through this technology.
Why don't I interrupted luxury NIM forecast experiences to users.
<unk>, becoming the first a podcast platform in China that enables two way seamless connectivity in multiple scenarios.
We believe that.
Our technology expertise and product innovation are key to securing a competitive action doesn't call auto market.
In the future we will continue to optimize our in house audio technology solution I'll call is to accumulate more technologically experiences and ensure that core technology for multi devices applications of the podcast popcorn, while satisfying the differentiated demands of wherewithal.
Auto companies and I Hope we pass on.
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In summary, our achievements and the experience we have done in the third quarter have set the stage for our future development. We are optimistic about future growth opportunities in the audio industry. We will continue working for long term success and building a leading global is the audio platform.
Akshay.
So I mentioned women die daily CFO, Bluetooth I'm used to women's yourself Taiwan.
Thanks, everyone with that I will now turn the call over to our acting CFO Mitch can phone, Luke who will discuss our financial results in more detail.
Okay. Thank you Carlo and Hello, everyone first wherever it leads to see another solid year over year revenue growth for third quarter.
Driven by our improved operational strategy of course margin grew to 30% up 500 basis points year over year, we believe the auto entertainment ecosystem with built it's fundamental to our long term growth.
Looking ahead, we will continue optimizing our audio entertainment business in house, and commercialization capabilities and leverage our technology innovation and expertise.
We are actively exploring the international market in order to achieve sustainable growth.
And providing a brief overview of our financial results for the so called top 2021.
In the third quarter. Our total net revenue were RMB $504 8 million, representing an increase of 40% year over year, primarily driven by the girls are paying users and in your house or commercialization capabilities of our audio entertainment products.
Cost of revenue was RMB $353 six minutes in the third quarter up 2021, representing an increase of 31% year over year.
Many attributable to an increase in your revenue should be to all content creators salary and welfare benefit expenses and bandwidth costs, which was in line with our business growth.
Gross profit was RMB $151 3 million in the so called top 2021, representing an increase of 67%.
Prevent you over here.
And non-GAAP gross profit was RMB 154.5 minutes, so caught up 2021, representing an increase of 68% year over year.
Gross margin for the third quarter of 2021 increased two 7% from 25% in the so called out for 2020.
And non-GAAP gross margin for the so called out 2021 go to 31% from 25% in the so called top 2020.
Our operating expenses increased by 1% year over year to RMB, one Hunter and Lucky $1 3 million in the third quarter of 2021.
Research Anti-war money, it's about just were RMB $73 4 million, so caught up to <unk> 21, representing a year over year increase of 32%.
Increase was primarily due to the increase in salary and welfare benefits expenses related to an increase in the number of our research and development staff and average salary.
Selling and marketing expenses were RMB 88, one to 2 million, you'll start caught up 2021 compared to RMB 27, 1 billion in so called out for 2020.
This increase was primarily due to our increased promotion and marketing activities.
General and administrative expenses were RMB $29 7 million in the sort of caught up to him. He said he liked representing a year over year increase of 51%.
The increase was mainly due to the increase in salary and with a benefit expenses and other professional service fees.
Operating loss was RMB 41 minute, so caught up 2021 compared to RMB nine 6 million in the third quarter of 2020.
As long as GAAP operating loss was RMB 31 million in the so called up to in your 'twenty, one compared to RMB two points lamina, so caught up to uncertainty.
Net loss was RMB 37.1 minute, so caught up 2021 compared to RMB six two up and let you know so caught up to uncertainty.
Non-GAAP net loss was RMB 27, 2 million compared to non-GAAP net income of RMB, they're important 6 million you know sort of caught up to the 20.
Basic and diluted net loss per ads were RMB. The report of seven three and so caught up 2021 compared to IV, they're put into one three so caught up in 2020.
I Love GAAP basic and diluted loss per Mcf, well I'd be disappointed by parts in a so-called helped anytime you want compared to non-GAAP basic and diluted net income of argue they're open they're what I caught up 2020.
As of September 30th 'twenty, 'twenty, one, we had cash and cash equivalents and restricted cash of RMB five.
515 point lime in them.
Okay. This concludes our prepared remarks today, and we will now open the call to questions.
Operator, Please go ahead.
In Q2.
Ladies and gentlemen, we will now begin the question and answer session to answer questions on the phone. Please press star one and with brand name to be announced.
Do you like to cancel your request please press the pound or hash key for the benefit of all participants on today's call. If you wish to ask your questions to burnish once its Chinese.
Please see immediately repeat your question in English for the sake of clarity. Please ask one question at a time management will respond and then feel free to follow up with your next questions.
Our first question comes from the line of Ricky way of Citi. Please go ahead.
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Morning management. Thanks for taking my question. My question is regarding to the use of spending in user growth and the other challenging regulation in Rodman and something like full conviction what is the impact to the needs of user growth and you said spending thank you.
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I would translate for Michael.
The recent regulatory environment is getting tightened, but we think it's beneficial to the long term development of the entire industry give them more standardized digital content and operation maximum does it especially from a to a company like us we get more.
Vintages.
In terms of production and operations. We are also actively monitoring their regulatory policy changes and the unused three optimizing and they're trusting all product did the accuracy enable us to meet compliance requirements, while also providing bathroom services for all users.
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In terms of user spending in the third quarter. The overall user spending Oh, I'll tack ons decreased slightly.
Which was affected by some factors, including the optimization of our operational strategy.
So culture, we began to focus more on the content categories with higher potential for monetization.
So the investments on those pre recorded content with relatively lower long term commercialization potential and we are focused more on the.
Content categories, we've longer term commercialization potential.
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In the short term.
The adjustments may have temporary impacts on certain user metrics such as the overall user base.
In the long run we are confident in further increasing the paying user base through more precise operational and marketing strategies, while maintaining a stable user spending level.
We are confident it may further foster the both topline growth and improve the operational efficiency.
Thank you.
Okay.
This is Mike.
Yes.
Thank you. Thank you for the questions.
Next question will come from the line.
So in view of the Tam and co. Please go ahead.
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Our colleagues are now working the.
I think management for taking my question I have two questions. The first question is about to commence mass to share insights on our strategy and improving user paying ratio.
The question is in terms of our overseas business a business with our current focus.
Product, Oh Foundation, and how should we expect the growth in the revenue contribution from this business in 2022, and so questions as we have seen weakness from user base.
Can use a baseball the commencement you more details on what we have done.
Product change sites and the content sites.
Causing such results and what we should expect the trend in 2018. Two also we are seeing some it looks like we are seeing the revenue sharing too.
Broadcasters has been declining and we have them.
Can we can you share more.
Information on that on the end as well thank you.
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I'll translate for Mr sold only with respect to the growth of paying ratio, we have actually two strategic priorities in the next stage.
First off Bob at the operating strategy level, we will focus on our audio entertainment business and improve user engagement to diverse promotional activities.
<unk> lowering the produce patient threshold okay.
Vance and activities and enhancing ties between users and housed.
As for pre recorded a settlement, we will further stockpiles and they exploit the cost categories with strong monetization potential and Bachelor attractive content creators and users to interact and in audio entertainment segment, so as to improve their user engagement and paying user conversion rate.
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On the other hand in terms of the marketing strategy. We will also focus on categories with higher commercialization potential and optimizing the promotional model and material.
We will execute on precise user acquisition strategy to reach call user groups with shrunk willingness and ability to pay.
So I have to increase the overall pay user base, we are confident that the cascade effect to be sure our overall opinion Rachel.
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The second question is about the overseas business expansion. So all kinds of focus revolves around user experience as we constantly optimize the product functions and features to meet users' social demand driving the organic user growth also we have experienced that.
A marked increase.
And the user time spent and user engagement following the launch of new programs integration, including the launch of more innovative functions.
In the near term, we will continue to optimize multiple aspects of our products and all featured and pay close attention to key metrics such as user interaction levels and times back to lay a solid foundation for the long term growth.
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So it's a high volume program with a good Houston, if you're going to tend to do well.
Well my Samsung How're, you Tyler couldn't do this argue hockey's, yet, especially a woman deals in country.
In the future, we will test the waters with respective to the commercialization step by step at a profit of timing, we expect that the overall revenue growth in the short term will be menu driven by the audio entertainment business.
In the longer term with a growing user base and a stronger networks. In fact, we believe the overseas business expansion could bring us more commercialization potential and build our satcom curve.
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For the third question is about the slowing growth on the user base sides so for that.
Mainly because of our optimized our strategies in the cell culture. So we made a strategic adjustments to our content operations in the domestic business pre recorded content segment.
Accordingly, we choose to optimize our promotional strategy.
Targeting the contact with more commercialization opportunities and we also reduced marketing expenditures and investments related to the pre recorded content categories with a week a lower commercialization capabilities.
And the last relevant to the audio entertainment business and.
And it did have like certain impacts on the overall user base in the short term.
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In the next year, the commercialization of our audio entertainment business will continue to be the primary driver of our topline growth in the quarter.
Though the total user growth slowed it down from last year are all joined determine in the US grew by 21% year over year, which provides growth potential for the commercialization of our all drilling dependent business.
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We believe that with our chassis the operating strategy and refine the promotional model, we are targeting to improve the paying ratio to foster the topline growth.
In addition, with the development of our overseas business. We believe that that keeps you have social networking business could also bring us more growth opportunities.
Conversely, if it does happen.
Thank you that concludes my answer.
Thank you for the conclusions.
<unk> no further questions now I would like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today.
You have further questions. Please feel free to contact me true Investor relations through the contact information provided on our website at <unk> dot need should all FM other P&G group Investor Relations.
Thank you.
This concludes the conference call you May now disconnect your lines. Thank you.
Thank you.
Yeah.
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Hello, Ladies and gentlemen, thank you for standing by for <unk>, Inc.
What a 2021 earnings conference call at this time, all participants are in a listen only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded I will now turn the call over to your host Effie Coke head of capital markets for the company. Please go ahead.
Thank you very much Hello, everyone and welcome to the Inc. Third quarter 221 on this conference call, we released our financial and operating results, we our newswire services earlier today and they are minimal.
But he spends on today's call will include all the all our founder and CEO and Mr. Mark go lives and all of our CEO, Mr. Shlomi <unk> CFO, Mr. Pablo <unk>.
I will begin with prepared remarks, and the call will conclude the Q&A session.
As a reminder, this conference is being recorded in addition highlights presentation and a webcast a replay of this conference call will be available on the IR section of our website and I thought maybe you don't have that.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S. Private Security Litigation Reform Act of 1995. These statements typically contain words, such as May will expect target asked.
He made intact, but less potential continue or other similar expressions forward looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those four.
Jackie all anticipated.
Many of which factors are beyond our control the economy, it's a fit at Budweiser refuse catheter and underwriters do not undertake any obligation to update these forward looking information except as required under the applicable law. Please also note that leaches on your press release and this conference call.
Could the discussion so for them or they can get financial matters as well as an audited non-GAAP financial measures.
Please refer to majors unused approach really as far as its conservation of unaudited non-GAAP measures to our audited GAAP measures I will now turn the call over to our founder and CEO Mr. Michael <unk>. Please go ahead.
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Hello, everyone. Thank you for joining us today I will share also quarter, a business overview and if you could give us on strategy there.
Our CEO Mr. Zhao Lonely will provide more details on the operations of each business line.
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Overall leisure continuing to strive to build a competitive global audio ecosystem. He does so quarter of 2021 total average mobile and they use reached eight $1 million to $9 million and average monthly paying users was 485000 in the third quarter, we redeemed.
<unk> focused on truly user experience and fostering our audience centric kamensky ecosystem to increase audio in September user base, because I'm, sorry user connections in stickney and support our sustainable growth. We are delighted to see the audio and give him the average mobile and they use grew by 21%.
That year over year to 917 million at.
We prioritize on Lockheed commercialization potential presented in audio independent business.
Coupled with our effective execution of our operational strategy.
Third quarter revenue grew by 40% year over year to RMB 505 minutes.
Pushing all the total revenues for the first nine months of 2021 to surpass the revenues for the full year of 2020, you have fusion to revenue growth. We are pleased with the continued expansion of our overall gross margin, which grew to 30% up 500 basis points year over year.
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In terms of off all strategic priorities in the near future first of all we'll continue to build a sustainable and a high quality community ecosystem by providing more valuable compound and audio centuries interrupted narrowed in housing all commercialization capability and supporting more content.
Creators to grow and develop in niches audio humanity.
At the current stage all globalization strategy is to optimize product and ramp up localization chains, we strive to meet users' social networking needs in the digital era, capturing more growth opportunities for future prospect.
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With respect to our audio roadmap here for multiple devices at a current stage product optimization and technology innovation. Our main focus is in this area.
At the same time, we are strengthening our underlying architecture.
In addition, we continue to establish collaborations with more cat bonds to expand our reach in the in car audio market. In addition, we will adhere to the long term development pathway with technological empowerment and for the tie our in house developed the audio technology solution.
Our immune systems to modernize it.
Beyond that we are definitely up.
The development of our new house instant messaging technology, which is I am technology, we are expecting to provide more tailored technology called support to all whatever product.
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In conclusion, we have great confidence in our prospects, we will continue to execute our globalization strategy in the next phase by maximizing the interests of the advantages we are expecting to unlock greater growth potential globally and achieve long term sustainable development.
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<unk> Ching woman the C O needs, along with I doubt yourself or you would send the GT part that did Sheila since it.
Thanks, everyone with that I will now turn the call over to our CEO, Mr. Li who will discuss our business development in more detail.
Thank you all.
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Hello, everyone and thank you for joining us today next I'd like to provide more detailed updates of each business line.
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And with all audio entertainment business, we aim to foster a sustainable ecosystem across our communities by converting to optimizing product functions and harnessing several key content categories to further amplify our commercialization capabilities and efficiency, we are working to refer.
Our filter operation, which involves employing more precise user targeting.
Focusing heavily on contact categories with strong commercialization capabilities.
Optimizing our marketing strategy and hunting high performance channels.
We believe that taking these important steps now will lay a solid foundation for us to grow our since a sustainable ecosystem further improve pay user commercial rate and operational efficiency and ultimately enable us to achieve a solid long term growth.
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Moving to our global business. She is positioned as a digital social networking capital for young people, we continue to improve and optimize our product to meet their social needs and diverse scenarios based on their different harvest interest in the trendy lifestyle.
In the third quarter, we concentrated on building a local team and for our overseas business development and upgrading product features and functions to position ourselves among a wide variety of user groups. Our emphasis on user experience and user retention is designed to allow our youth.
Debates to achieve organic growth.
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As part of our protocol optimization strategy, we upgraded a T apps branded Staten feature and the discovery channel. We now offer a more interactive features to guide users to adopt a different tools for their interactions on the platform in particular, we launched the my friends livestock feed.
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<unk> users to find friends.
That is a mood, which reinforces friendship bonds on the path.
Ensure a smoother online social experience, we continue to rollout innovative features to tee up some of these we added recently include the newly optimized dominion gas and screen sharing options, both of which provide a more diverse ways for users to interact and socially he has.
The user stickiness and engagement.
These product upgrades were launched we observed a marked increase in the interaction rates of new T. Our users with France and the uptick in the average time spent per user or <unk>.
In September the daily average number of messages sent per users grew by 57% compared with June and users number of friends, Paris was 64% higher than June.
In the near term our priority is to continue refining our products to improve these metrics. Even further we will be paying close attention to key metrics such as user active minutes and interaction levels, while further cultivating user habits and strengthen relationships on the platform.
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Our economy and continued opponents.
In the third quarter. We also continued to expand lead to broadcast footprint in the Colorado market by broadening and deepening our collaborations with auto companies and the Internet of vehicle platforms. We have also achieved a more official recommendations from auto companies.
Currently our strategic focus we both around product optimization and technology innovation, including audio application functions for the income scenarios such as was the activation of the controls gesture operations and seamless connectivity.
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We are pleased that our strong technological capabilities are boosting leisure park has competitive performance in the new car market.
For instance, we have recently been granted into Huawei, how many you're all asking consistent Sui technology called innovation.
And as a first the platform to launch new cardiac streaming podcast needs from Comcast rolled out one seamless connectivity feature is support cross screen connection to achieve two wastefulness connectivity between mobile devices and vehicles.
Through this technology, we have.
Why don't I interrupted that luxury NIM forecast experiences to users fast becoming the first a podcast platform in China that enabled two way seamless connectivity in multiple scenarios.
We believe that.
Our technology expertise and product innovation are key to securing a competitive action in the in car audio market.
In the future we will continue to optimize the all in cost of audio technology solution. Our goal is to accumulate more technologically experiences and ensure that core technology for multi devices applications of the podcast popcorn, while satisfying the differentiated demands of wherewithal.
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In summary, our achievements and the experience we have down in the third quarter have set the stage for our future development. We are optimistic about future growth opportunities in the audio industry. We will continue working for long term success and building a leading global as the audio platform.
Alex This is Roger.
Chad mentioned women <unk> CFO loosen Tommy Women's yourself, Taiwan.
Thanks, everyone with that I will now turn the call over to our acting CFO, Nick <unk>, who will discuss our financial results in more detail.
Okay. Thank you so long and Hello, everyone first we're very pleased to see another solid year over year revenue growth in the third quarter.
Driven by our improved operational strategy, our gross margin grew to 30% up 500 basis points year over year, we believe the audio entertainment ecosystem with built it's fundamental to our long term growth. Looking ahead, we will continue optimizing our audio entertainment business you have some commercialization come up.
The entities and leverage our technology innovation and expertise.
We are actively exploring for international market in order to achieve sustainable growth.
And providing a brief overview of our financial results for the so called top 2021.
In the third quarter. Our total net revenue were RMB 500 at $4 8 million, representing an increase of 40% year over year, primarily driven by the growth of our paying users and <unk> house of commercialization capabilities of our audio entertainment products.
Cost of revenue was RMB $353 six minutes in the third quarter up 2021, representing an increase of 31% year over year.
Many attributable to an increase in revenue sharing fees to our content creators salary and benefit expenses and bandwidth costs, which was in line with our business growth.
Gross profit was RMB $151 3 billion in a so called top 2021, representing an increase of 67%.
But that year over year.
And non-GAAP gross profit was RMB 154.5 minutes in the so called out 2021, representing an increase of 68% year over year.
Gross margin for the third quarter of 2021 increased two 7% from 25% in the third quarter of 2020.
And last GAAP gross margin for so called out into 'twenty, one grew to 31% from 25% in the third quarter 2020.
Our operating expenses increased by 11, 1% year over year to RMB, one counter unlucky $1 3 million in the third quarter of 2021.
Research and development expenses were RMB $73 4 million in the so called up 2021 representing a year over year increase of 32%.
The increase was primarily due to the increase in salary and welfare benefits expenses related to an increase in the number of our research and development staff and average salary.
Selling and marketing expenses were RMB 81 to two minutes, you'll start caught up to <unk> 21, compared to RMB 27, 1 billion, so caught up 2020.
This increase was primarily due to our increased promotion and marketing activities.
General and administrative expenses were RMB $29 7 million in the so called substituted delight, representing a year over year increase of 51%.
The increase was mainly due to the increase in salary and with a benefit expenses and other professional service fees.
Operating loss was RMB 41 million, so caught up to <unk> 21, compared to RMB nine 6 million in the third quarter of 2020.
Non-GAAP operating loss was RMB 31 million in the third quarter, and you don't do well compared to RMB two ports lamina, so caught up 10 to 20.
Net loss was RMB 37.1.
<unk> 2021 compared to RMB six two wanted to let you know so caught up to uncertainty.
And the last couple of loss was RMB 27, 2 million compared to love GAAP net income of RMB 46 million, so caught up 2019.
Basic and diluted net loss per avs and these are reported to have a three quarter of 2021 compared to abbvie there upon to one three in the third quarter of 2020.
Non-GAAP basic and diluted loss per ads.
Well I'll be there by far in the third quarter, often in 'twenty, one compared to last GAAP basic and diluted net income of argue they're open they're walking in the store.
Quarter of 2020.
As of September 30th 'twenty, 'twenty, one we had cash cash equivalents and restricted cash of RMB 515 point laminates.
Okay. This concludes our prepared remarks today and we will now open the call to questions. Operator. Please go ahead.
Alright, thank you.
Ladies and gentlemen, we will now begin the question and answer session to answer questions on the phone. Please press star one and week trend name to be announced.
If you'd like to cancel your request. Please press to Paul who has key for the benefit of all participants on today's call. If you wish to ask your questions to management fees Chinese.
Please see immediately repeat your question in English for the sake of clarity in order to please ask one question at a time management will respond and then feel free to follow up with your next questions.
Our first question comes from the line of Vicky Wei of Citi. Please go ahead.
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Morning management. Thanks for taking my question. My question is regarding to use those spending in user growth and the other challenging regulation at Rodman and south of Nashville conviction, what is the impact to the needs of the user growth and user spending thank.
Thank you.
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I will translate for Michael.
The recent regulatory environment is getting tightened, but we think it's beneficial to the long term development of the entire industry, even more standardized digital content and operation Maxine.
It, especially from a to a company like us we get more advantages.
In terms of products and operations. We are also actively monitoring the regulatory policy changes and the earliest to be optimizing and adjusting our product did the efforts enable us to meet compliance requirements, while also providing better services for all users.
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In terms of user standing in the third quarter. The overall user spending oil have homes decreased slightly which was affected by some factors, including the optimization of our operational strategy.
In the third quarter, we began to focus more on the content categories with higher potential for monetization and reduce the investments on those pre recorded content with relatively lower long term commercialization potential and we focus more on the.
Content categories with longer term commercialization potential.
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<unk> consistently been shall EBIT Houston.
Now you have seen.
In the short term.
Adjustments may have temporary impacts on certain user metrics such as the overall user base.
In the long run we are confident in further increasing the paying user base through more precise operational and marketing strategies, while maintaining a stable user spending level.
We are confident it may further foster the both topline growth and improve the operational efficiency.
Thank you.
This is Mike.
Thank you. Thank you for the questions.
Next question will come from the line of business.
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I think management will taking my question has a few questions. The first question is about to commence mass to share insights on our strategy and improving user paying ratio.
And the question is in terms of our.
Our overseas business a business with our current focus.
Product All foundation and how should we expect the growth in the revenue contribution from this business in 2022, and so questions as we have seen weakness from user base.
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I will translate for Mr. Along.
With respect to the growth of paying ratio, we have actually two strategic priorities in the next stage.
First of all at the operating strategy level, we will focus on our audio entertainment business and improve user engagement to diverse promotional activities, including lowering the produce patient threshold of events and activities and enhancing ties between users and housed.
As for pre recorded a settlement, we will further stockpiles and they expired the cost categories with strong monetization potential and that can attract us content creators and users to interact in audio entertainment segment, so as to improve their user engagement and paying user conversion.
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On the other hand in terms of the marketing strategy. We will also focus on categories with higher commercialization potential and optimizing the promotional model and materials.
We will execute on precise user acquisition strategy to reach call user groups with strong willingness and ability to pay.
I have to increase the overall pay user base, we are confident that the cascade <unk>.
To be sure our overall opinion ratio.
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The second question is about the overseas business expansion. So I'll call him to focus revolves around user experience as we constantly optimize the product functions and features to meet users' social demand.
In the organic user growth.
Also we have experienced a marked increase.
In the user time spent and user engagement following the launch of new product integration, including the launch of more innovative functions in the near term, we will continue to optimize multiple aspects of our product and our features and pay close attention to key metrics such as the <unk>.
User interaction levels and turns back to lay a more solid foundation for the long term growth.
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In the future, we will test the waters with respective to the commercialization stepped back that's at a profit of timing, we expect that the overall revenue growth in the short term will be mainly driven by the audio entertainment business, but in the longer term.
With our growing user base and a stronger network. In fact, we believe the overseas business expansion could bring us more commercialization potential and build our satcom curve.
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For the third question is about the slowing growth on the user base size. So for that is because mainly because of our optimized our strategies in the cell culture. So we made strategic adjustments to our content operations in the domestic business pre recorded comps.
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Accordingly, we choose to optimize our promotional strategy.
Targeting the Comcast with more commercialization opportunities and we also reduced marketing expenditures and investments related to the pre recorded content categories with a week a lower commercialization capabilities.
And our last relevant to the audio entertainment business.
And it did have like certain impactful on the overall user base in the short term.
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Are you familiar with home based cellular backup Cedar City, Utah, where realized into either you or the southern Iraqi Cola couldn't target soon.
Yes.
In the next year, the commercialization of our audio entertainment business will continue to be the primary driver of our topline growth in the third quarter. Although the total user growth slowed down from last year are all joined determine among us grew by 21% year over year.
Which provides growth potential for the commercialization of our onshore and dependent business.
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Korea, essentially harder to control.
No it isn't.
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We believe that with our adjusted operating strategy and refine the promotional model, we are targeting to improve the paying ratio to foster the topline growth.
Patients with the development of our overseas business, we believe that the digital social networking business could also bring us more growth opportunities.
Thank you that concludes my cancer.
Thank you for the conclusions.
Okay. No further questions now I would like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today.
You have further questions. Please feel free to contact the <unk> investor relations through the contact information provided on our website at IR don't need to go after that are the P&G will be investor relations. Thank you.
This concludes the conference call you May now disconnect your lines. Thank you.