Q2 2023 HUYA Inc Earnings Call
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Speaker 4: Hello, ladies and gentlemen, thank you for standing by for the second quarter 2023 earnings conference call for Hoya Inc. At this time, all participants are in a listen-only mode.
Speaker 5: Today's conference call is being recorded. I will now turn the call over to Miss Hanyu Leo, company investor relations. Please go ahead. All right. We have nowhere to go.
Speaker 2: This cannot only meet the needs by gamers, to buy in-game items and discover and download new titles when watching live games, but also bring additional revenue channels for game manufacturers and increased revenues stream for broadcasters, which is beneficial to all the parties in the industry chain. We are continuing to take various team informations.
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Speaker 2: Hello, Mr. Speaker. Yes, I can hang in. Hang in. Yes. OK. Then we'll use this line. Should we start? Yes, please start. You may begin. Hello, everyone. Welcome to who you are. Second quarter 2023 earnings conference call. The happening financial and operational results were issued earlier today and the post date online. You can also view the earnings press release by visiting the IR website at IR.phuya.com. A replay of the call will be available on the RR website in a few hours. This depends on today's call will be Mr. Song Pauling chairman of Phuya, Mr. Jin Hong Kong, acting co CEO and senior vice president of Phuya and the
Speaker 2: At the same time, we strive to optimize the income structure of content creators on our platform and expand the income sources for broadcasters other than virtual gift revenue sharing and sign-on fees, and let the broadcasters get more income from the sales, distribution, and advertising of game items.
Speaker 3: This is also conducive to enhancing the relevance between Huya's content cost and income, and reducing the fixed sign-on fee cost and improve the efficiency of the content cost we expand.
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Speaker 2: made on the safe harbor provisions of the US private security solicitation reform act of 1995. Forwarding statements involve insurance risks and uncertainties. As such, the company's results may be materially different from the view expressed today. Further information regarding this and other risks and uncertainties is included in the company's procedures and other public fighting, as far as the US securities and exchange commissions. The company does not assume any obligation to update any forward-looking statements, except as required on the applicable law. We also know that who has earned express release and this conference calls, include discussions of unauthored, get financial information, as well as unauthored, non-get financial measures. Who has express release contains a reconciliation of unauthored, non-get measures to the unauthored, most directly comparable gas measures. I will now turn the call over to our CMS, Mr. Song Haolin. Please go ahead.
Speaker 3: At this stage, we are mainly engaged in the infrastructure building for new business, including the creation of functions and products needed to provide game-related services, and also negotiating commercial terms with relevant game studios and publishers. Earlier this month, we launched our Crystal
Speaker 3: We basically completed the development of the function of in-game item sales model and plan to activate the process of in-game item sales and game distribution this year and make them available on several games. Therefore, this part of business is expected to have a relatively small scale of income in the year 2020.
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Speaker 3: Next, we will expand game-related services to more games, including mainstream games and potential new titles, and further optimize the user experiences. And our goal is to continuously increase the revenue proportion of game-related services in the next three years.
Speaker 3: and strive to achieve a more balanced income structure for the company as a whole, by which we mean that we hope to make this part of game-related services income as about 30% of the total income. Thank you. Thank you. Let's have the next question, please.
Speaker 2: achieve a more balanced income structure for the company as a whole by which we mean that we hope to make this part of game-related services income as about 30% of the total income. Thank you. Let's have the next question, please. Thank you.
Speaker 4: We will take our next question. Your next question comes from the line of Daniel Han from UBS. Please go ahead. Your line is open.
Speaker 4: Let me translate myself. The company is going through a major strategic transformation. Given this, what is the outlook for the revenue and margins in the second half of this year? Thank you. Thank you very much.
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Speaker 3: In transforming our business in order to mobilize and allocate internal resources in a more targeted manner, we have begun to actively adjust various aspects of our existing business. For example, we are reducing some inefficient live broadcast functions, reducing the number
Speaker 2: adjusting the incentives for live broadcaster activities, and the proportion of fixed sign-on fees. These adjustments may cause fluctuations in our operational and financial indicators in the short term, especially in the second half of this year, when the scale of the new business revenue is relatively small and the year-over-year decline in the short term.
Speaker 3: due to the impact of resource rate allocation. So this will have a more obvious impact on the overall revenue.
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Speaker 2: At the same time, we'll continue to promote measures to reduce the cost and increase efficiency for the community.
Speaker 3: and adopt stricter control over expenditures. Although there will be some new investments, such as further research and development and talent acquisition related to new businesses, we'll continue to be cautious about the content expenses, such as copyrights and broadcasters.
Speaker 3: and we'll be cautious about channel promotion in terms of operating expenses. And in terms of the profits, we still maintain the expectation that the gross profit margin will increase for the whole year and the non-gap net loss will be narrower than that in 2022.
Speaker 2: In the medium and long term, the GP margin of the game-related business is expected to be higher than that of the existing market.
Speaker 3: To expand on our chairman's remarks, let me share some specific about we ask current key objectives with respect to our new strategy. First, we plan to shift our commercialization focus going forward, exploring and increasing our users' value by integrating more game-related service into our platform. Since we ask inception, we have largely monetized our user base to our live streaming service, which primarily generates revenue by commissioning users' visual gift pay to blockcasters, converting regular users into paying users in both a relatively long-plot process and our current core model. And conversion efficiency has yet to be improved. However, as most of you know, a significant part of our users are also gamers. And based on our service and insights, the active gamer user on we are live are willing to spend both on gameplay and related in-game purchase. Also, the proportion and amount of in-game spending by these gamer users tend to be higher than that of general gamers.
Speaker 7: we expect the overall profit situation will be improved and be maintained sustainably.
Speaker 2: Thank you. Let's have next question, please.
Speaker 5: Thank you.
Speaker 5: We will take our next question. And the question comes from the line of Li Zhang from Bank of American Securities. Please go ahead, your line is open.
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Speaker 3: Our rich game and its broad content offerings have already satisfied our gamer users' content consumption needs. We believe we can further capture this user's growth's commensual value by meeting their broader game-related needs, with expanded service models such as game distribution, in-game item sales and game advertising. Let's take in-game item sales as an example. We have previously held several successful in-game sales of game tools, but these were one-time events that functioned mainly as marketing and promotional activities for those games. Going forward, we plan to regularize in-game item sales and establish a recurrent corporation mechanism with various users' ongoing demand for in-game purchase of schemes, weapons and other items. Especially when users, which broadcasts utilized these items during live games, plays on VR. In addition to boosting monetization for our platform, this new service offering will provide additional channels for game publisher to promote their in-game products and expand our broad-custom income streams. We are currently discussing commensual terms for this type of corporation with an array of game studios and are looking forward to future partnerships with additional games. Furthermore, the technical support required to implement this business is already in place. Earlier this month, we completed development of our in-game item more function.
Speaker 2: My first question is regarding the updates on the recent regulatory enrollment and any impact to our business. Secondly, how should we look at the performance of Tencent's newly launched game Valorant in our platform. Thank you.
Speaker 7: Womin zang xing mou di shi wei la gong hou de zhuzhting han yer gui fa hua shui ping. Zhuzhting han yer da liang xing yi zi ke shi shi de ba zhan. At present, the authority requirements on the content of a live broadcast platform, the behavior of broadcasters and users, and the protection of minors are becoming more and more standardized and systematic.
Speaker 7: and therefore the overall management trend is also relatively standard and strict. We believe that the purpose is to better promote the standardization of the industry and promote the benign and sustainable development.
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Speaker 3: which will be embedded into certain of our live channels yellow sorting card items. Once game users buy their game accounts with their VR account, they can seamlessly buy in-game items when watching live streaming content for use in related games. According to our plan, we will implement the function on small scale sun. Another priority is to expand income streams for our content creators and optimize our content codes structure. At present, our broadcastes income mainly consisted of the site on fee we provide and their share and video gives revenue. For many game broadcastes, the relatively fixed site on fee is a major source of income. As we explore and develop a wider range of game related service, we will work to optimize our content creators income structure by enabling them to earn a greater share of game related service revenue, including revenues from in-game item sales, game distribution, and advertising among other service. Private income streams will also increase Fuyah's value proposition to content creators.
Speaker 7: As a leader in our industry, Weia has recently taken the initiative to upgrade and optimize the content and functions of our platform and refine the operation strategy and improve the efficiency and create a healthier platform environment. We will also continue to maintain a more standardized and healthy development model for the content on our platform to guide broadcasters and guilds to strengthen their compliance awareness and pay attention to improving the compliance capability on the platform through technical advancement.
Speaker 3: OK. So let me answer you question for the game's latest game. Watching live shows of the game is relatively warm, and we use streaming capability to attract commercial fans and audience involved in languages of design. Don't rely on already helpful camera screens and?ies for the game's latest game.
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Speaker 3: Attracting more broadcasters and their fan bases to our platform. We believe this adjootment to our content cost structure will boost the broadcasters financial rewards while better aligning our content cost with our revenue. To affect this transformation, we will first harness various technologies to upgrade the technical infrastructure required for our new service and product. As I mentioned above, our in-game item more function is already well underway. We also plan to upgrade interest attacks across our live platform, which will allow users to early identify in-game items meeting their personal needs, as well as to discover new games or other content catering to their interest.
Speaker 7: and we also expect that the game itself continues to be popular. It will attract more audiences of live and derivative content. Huya provides launch incentives and traffic support for the launch of the new games, and will also organize activities and provide some prop products together with the game companies and with weighted supports according to the different game characteristics.
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Speaker 3: If you have any questions or comments, please feel free to contact us.
Speaker 3: in embracing the latest action, we plan to actively explore the application of AI technologies, including last language model and AIGC, to capture user interest chance to and help create more engaging interactive content and experiences. In addition, we will further enhance our compliance capabilities by continuously investing in advanced technologies, including an AI-powered content monitoring system to minimize operational risk and sustain a healthy community atmosphere on our platform. We are actively re-structuring several aspects of our business for more targeted allocation of internal resource to advance our strategic, chance-season toward a more balanced and sustainable development pathway. To that end, we are planning to scale back certain
Speaker 7: For example, Valorant, Wu Wei Qiyue, we have achieved a leading market share, and for this popular esports game, we'll focus on establishing its advantages in the content ecology of events. And in addition to the official copyright events, we will launch more self-organized events for the scam, including events attended by the public.
Speaker 2: Okay, thank you. Next question, please.
Speaker 2: Okay, thank you. Next question, please.
Speaker 8: Thank you. We will take our next question.
Speaker 8: Your next question comes from the line of Yuen Zhang from China Inasals. Please go ahead, your line is open.
Speaker 9: Hi, I am a bit of a fan of the market. I am a bit of a fan of the market. I am a bit of a fan of the market. So thanks for taking my question. So with our commercialization focus shifting, what's our view of our content strategy? Is there any change we plan to make? Thank you. Thank you.
Speaker 3: generating campaigns and the proportion of our fixed spend on block actors. Although this judgment may result in black tuition in our operational and financial metrics in the near term, we believe our market leading position and strong execution capabilities will support our pursuit of long-term profitability in development.
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Speaker 7: Our new strategic plan is deeply embedded in Huya's existing user groups and content ecology. The rich esports and game content on Huya helps to attract and maintain active core game users, which will also help to support our goal of providing more game services.
Speaker 3: Our primary goal is to increase our PM-related service revenue through approximately 30% of total net revenues within three years, creating a more balanced and diverse revenue to strengthen our foundation for long-term success. We are confident with transformation initiatives we will empower our sustainable growth as we remain committed to serving the needs and interests of more users, contemporary ages and industry partners.
Speaker 3: Please subscribe to our YouTube channel.
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Speaker 3: With that, I will now turn the call over to our acting Co-CEO and VP of Finance, S. Ashley Wu, to share more details on our second quarter results. Ashley, please go ahead. Thank you, Jinhong, and hello everyone. I'll provide some updates on our operating metrics and financials for the second quarter of 2023.
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Speaker 3: Please check the description below. If you have any questions, please feel free to contact me. I will be happy to answer any questions you may have. Please contact me if you have any questions.
Speaker 7: The broadcaster content will continue to be an important part of content on HUYA's platform, especially our new commercial forms, such as game distribution and prompt sales, will also be achieved through cooperation with the broadcasters. We'll also provide more detailed content operations for potential and promising
Speaker 2: On the user side, Huya Live mobile MAUs reached 82.9 million in the second quarter, compared with 82.1 million in the first quarter and 83.6 million for the same period last year.
Speaker 7: They will also bring technical support of products such as bullet chatting, interactive games, live interactive functions and virtual live broadcast technologies. At the same time, this will help us to improve the application of AIGC which will also help to enhance the diversity of the content presentation. Thank you very much.
Speaker 2: Meanwhile, users and broadcasters time spent on offline entertainment activities continue to affect us to some degree, especially given several short public holidays during the quarter. Overall, we maintain a stable user scale in the second quarter. With the next month's user retention rate is about 70%. Now, the content signs in terms of license is for event. We broadcast it around 70.
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Speaker 2: 5th party professional Eastward tournaments in the second quarter of 2023, attracting a viewership of approximately 490 million. We broadcasted a higher number of events in Q2 than in Q1, as more tournaments were scheduled. For fewer events than in the same period of last year, as we continue to implement.
Speaker 7: As for the content of Copyright Sports, we will also continue to implement cost reduction measures and cover the top tier events of major games on the basis of cost performance evaluation. As for the self-made content, due to its relatively high ROI, we will give more attention to self-made content and create a high quality, self-organized IP matrix.
Speaker 2: strict content procurement policies. Domestic professional leads for major game titles, such as the LPL summer, KTL Spring, and CFTL summer, continue to deliver strong performances.
Speaker 7: such as Huya Thunder Series, Huya All-Star Cup, and Tianming Cup. Through our own events, we will also better absorb the user traffic from large-scale copyright events.
Speaker 2: Also, both the LOL, mid-season, imitational and the CSGO Bradst Paris major prove very popular.
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Speaker 2: In June , we broadcasted Waterland Master Tokyo, a tournament featuring professional teams from China and around the world. Given the timing of this major event, just before the official China launch of Waterland in July , it attracted attention from our users.
Speaker 7: In addition, we'll continue to pay attention to the integration of live broadcast, video, game community and other content forms and continue to bring user quality experiences. Thank you. Thank you. There seems to be no further questions. Now I'd like to turn the call back over to the company for closing remarks.
Speaker 7: and serve as an engaging teacher for this new game on our platform. Currently, one of us is gradually calculating its streamers and co-ordinates on the UYAH, and we expect to offer more related content, including self-organized tournaments, as the domestic east coast system develops.
Speaker 7: We also brought up the more than 30 self-organized these both tournaments and entertainment TGC shows in the second quarter, with a total viewership of approximately 100 million. For self-produced content, we aim to create a magic of high quality in health IT. The new systems of our Koya branded all stock up for peacekeeper elite. And ThunderCalf for honor of King were among our most watched events during the quarter. After multiple seasons, the Thunder series has become one of the most influential ITs for each HK tournament on our platform alongside the official KPL competitions.
Speaker 2: Thank you once again for joining us today. If you have further questions, please feel free to contact Huya Investor Relations through the contact information provided on our website, OPSMPA Financial Communications.
Speaker 8: This concludes this conference call. You may now disconnect your line. Thank you.
Speaker 7: During the CSO press Paris major event, we conducted our commentary program, Husha Major, Life from a studio in Paris. We named this from the tournament audience and increasing our user community into action with the event. In addition, we held the eighth season of Huya Kung Fu, Canada during the quarter, extending this long-running program popularity. It's also worth mentioning that we recently established the event to launch a series of carnival-type programs, integrating both of my and online activities.
Speaker 7: such as BackTip or Carnival and Billions Carnival, capitalizing on the growing demand for entertaining sports content. In life with our new strategies, we will continue to focus on developing our user community and enhancing our content ecosystem across user generated content.
Speaker 7: Professional user-generated content, as well as nice and self-produced professional programs. We are confident that our high quality content and your favorite user experience will continue to support our business transformations. In terms of financial performance,
Speaker 10: I'll see you next time.
Speaker 7: We achieved total net revenue of RMB 1.82 billion and non-gap net profit of RMB 115 million for the second quarter of 2023. Despite the year-over-year revenue decrease, amidst a challenging micro and regulatory environment.
Speaker 7: we continue to make progress in optimizing costs and expenses. In Q2, our growth margin improves both year-over-year and quarter-over-quarter, primarily driven by savings in content costs as we continue to scrutinize content-related spending, particularly content licensing and broadcaster-related costs. Along with the efficiency gains we maintain, we further narrow our operating loss with a non-GAAP operating loss.
Speaker 7: of approximately RMB 2 million in the second quarter. Let's move on to our Q2 financial details. Our total net revenues were RMB 1.82 billion for Q2, a decline from RMB 2.28 billion for the same period last year. Live streaming revenues were RMB 1.72 billion for Q2.
Speaker 7: compared with RMB 2.05 billion for the same period last year. Primarily due to a decrease in the number of quarterly paying users on Hoya Life to 4.6 million for the second quarter of 2023. So long.
Speaker 7: 5.6 million for the same period of 2022. The decline in the number of quarterly paying users was primarily attributable to the soft market and industry environment, as well as the increase in offline entertainment activities, which affected the time spent by long tail users on our platform. Advertising and other revenues were RMB 106 million for Q2, compared with RMB 223 million for the same period last year. This was primarily due to a significant decrease in content licensing revenues. If we exclude the impact of the reduction in content licensing revenue, as a result of our amended licensing agreement for LOL metrics in January , the remaining portion of error testing and other revenues recorded single-digit growth year over year.
Speaker 7: Cost of revenues decreased by 25% year-over-year to RMB 1.55 billion for Q2. Himer reduced to decreased revenue shareings in content cost as well as bandwidth cost. Rm new shareings is then content cost decreased by 25% year-over-year to RMB 1.34 billion for Q2. Himer reduced to decreased revenue shareings associated with the decline in live streaming revenues. And no cost related to e-boss content as well as content creators. Himer reduced by 34% year-over-year to RMB 101 billion for Q2. This was primary due to improved bandwidth cost management and continued technology enhancement efforts. Growth profit was RMB
Speaker 7: 273 million and growth margin was 15% for Q2. Excluding share-based compensation expenses, non-gap growth profit was RMB 278 million and non-gap growth margin was 15.3% for Q2. Research and development expenses decreased by 14% year over year to RMB 144 million for Q2.
Speaker 7: PIMER-RE due to decreased personal related expenses. Sales and marketing expenses increased by 6% year-over-year to RMB-106 million for Q2. PIMER-RE due to increased promotional fees.
Speaker 7: General and administrative expenses decreased by 9% year-over-year to RMB 75 million for Q2, primarily due to decreased personnel-related expenses and share-based compensation expenses. Other income was RMB 24 million for Q2. Compared with RMB 30 million, RMB 75 million for Q2 was $2.5 million.
Speaker 7: for the same deal with of 2022. I'm redo to lower indirect tax reforms and governments of the business. As the result, operating loss was RMB 29 million for Q2 compared with RMB 81 million for the same deal with of 2022.
Speaker 7: Interest and short-term investment income was RMB $125 million for 2-true, compared with RMB $66 million for the same period of $2022. Primary due to increased interest rates and improved management of deposit products. consumer equity contacts on average and social innovations I need to dedicate some of the transactions which may excuse me for I need to reduce size.
Speaker 7: compared with a net loss attributable to Hu Ya of RMB 19 million for the same period of 2022. Excluding the share-based compensation expenses and impairment loss of investments, non-GAAP net income attributable to Hu Ya Inc. was RMB 115 million for Q2, compared with RMB 6 million for the same period of 2022. non-GAAP net income margin was 6.3% for Q2. Diluted net income per ADS was RMB 0.09 for Q2.