Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. I'd now like to turn the call over to the first speaker today, Ms. Mao Mao, Investor Relations at DouYu. Please go ahead ma'am.

Thank you, operator. Hello everyone. Welcome to our second quarter 2020 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and CEO; Ms. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Branding. You can refer to our second quarter of 2020 financial results on our IR website at ir.douyu.com. You can also check a replay of this call, when it becomes available in a few hours on our IR website. Before we start, please note, that this call may contain forward-looking statements made pursuant to Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements risk factors and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. Now I will speak on behalf of our Chairman and CEO, Mr. Shaojie Chen. This evening we issued a press release, which was furnished to the Securities and Exchange Commission under the Form 6-K reporting that we have received a non-binding proposal letter from Tencent Holdings Limited. You can see it in the release in the Investor Relations section of our IR website at ir.douyu.com. According to the proposal letter, Tencent proposed to DouYu and HUYA Inc. to enter into a stock-for-stock merger to be effected pursuant to applicable laws as a result of which Huya or its…

Thank you, Emma. Hello everyone. I'm pleased to announce that our total revenues in the second quarter of 2020 continued to grow increasing by 33.9% to RMB 2.51 billion from RMB 1.87 billion in the same period of 2019 and exceeding the high-end of our previous guidance range. In addition, during the second quarter of 2020, gross margin expanded to 20.8% from 16.1% in the same period of 2019. Net income increased to RMB 319.3 million from RMB 23.2 million in the same period of 2019. And adjusted net income increased to RMB 322.9 million from RMB 52.6 million in the same period of 2019. Now please allow me to provide you with some more details regarding our key financial metrics. Total net revenues in the second quarter of 2020 increased by 33.9% year-over-year to RMB 2.51 billion with RMB 2.32 billion in live streaming revenues and RMB 108.3 million in advertising and other revenues. Live streaming revenues in the second quarter of 2020 increased by 35.8% to RMB 2.32 billion from RMB 1.71 billion in the same period of 2019. This increase was primarily attributable to the optimization of our platforms interactive features, as well as our continuous requirement of event mechanism, both of which helped to further cultivate users' paying habits. These initiatives helped to increase both user streamer interactions and user payment frequencies on platform, especially for our game segment. As a result, our paying users in the second quarter of 2020 increased by 13.4% to 7.6 million from 6.7 million in the same period of last year. Advertising and other revenues in the second quarter of 2020 increased by 14.6% and to RMB 188.3 million from RMB 164.4 million in the same period of 2019. This increase was mainly driven by the ongoing growth of our…

We will now begin the question-and-answer session. [Operator Instructions] First question comes from Lei Zhang, Bank of America. Please go ahead.

[Foreign Language] Thanks management for taking my questions I congrats on the strong results. My first question is regarding the M&A proposal announced today, earlier if I may. Could management share with us your view on this? And secondly, can you give us an update on your current collaboration with Tencent in game area? What are the major ways of projects we have with Tencent now? And do we expect any further synergy or change in the future? Thank you.

[Foreign Language] Thanks for your question. I will help to translate. So as discussed, because our Board has now had the chance to review and reevaluate the proposal letter in detail how to make any decision on the proposal transaction, so please refer to our press release and SEC filings for the details, which is related to the transaction. In terms of the second question, as we can see the game live streaming is an important part in Tencent's strategy. This is good for our developments actually going forward. So we have also -- we maintained a close collaboration relationship with the live streaming middle office and multiples in projecting of Tencent. So at the early stage of the cooperation, we conducted a much more exploration with Tencent's mid-office regarding potential initiatives. Currently we are discussing the implementation of initiatives including such as the data exchange and also selling of platform engine portal inside of games with our major shareholder Tencent. So we believe this will significantly help to improve our mobile traffic and also the market penetration rate in the future. So, thank you. So, operator, please address the next question.

Thank you. The next question comes from Yiwen Zhang of Citigroup. Please go ahead.

[Foreign Language] Thanks management for taking my question. So the question is regarding, I mean, you -- so after the resumption of work and the school, we still see sequential MAU growth on both PC and the mobile end. So from our internal data, do we see any change in user behavior? Thank you.

[Foreign Language] So thanks for your question. I will help to translate. Actually, our user behavior is basically consistent with the trend over the past few quarters, which shows our high user signing. And in the second quarter, the average net month active user retention rate actually remains about -- above 70% -- 75% which was stable compared to the previous quarter. Meanwhile, our user behavior data also shows that with the increasing number of years users spend on our platform, their average monthly time then also increased. This growth curve would remain consistent across users who join us at different times. And we have gradually become high quality. And also the loyal -- loyalty finds of our platform -- and there had been -- not any changes which is compared to the last few quarters. So operator, are we clear to ask the next question?

Thank you. The next question comes from Thomas Chong of Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my questions and congratulations on a very solid set of results. My question is about the Q2 revenue in particular the live streaming revenue. What are the key factors which drive the revenue growth? Thank you.

[Foreign Language] Yes. Thank you for your question. I will help translate. Actually in the second quarter due to the resumption of work abroad and also school growth in platform traffic and the number of paying users actually faced kind of the short-term pressure. However, our constant refinement of operations has already developed users' paying habits. Meanwhile, our continuous development and the requirement of platform interactive features and products have enhanced user streamer interactions and increased users' readiness to pay and the paying frequency. So as a result, the number of our total paying users remains stable at 7.6 million compared to the first quarter of this year. And our ARPPU also increased by 9.5% quarter-on-quarter to RMB 300.06. Our refinement of operation across segments helped to improve each segment monetization efficiency. In particular, our game segment monetization capabilities continue to improve in this quarter. We also continue to diversify our content to improve the monetization efficiency and the revenue contribution of the non-gaming segment. We have also improved the mid-tier streamers' monetization efficiency to deeper collaboration with the talent agency and also sellers' monetization products. Apart from this, the combination of large-scale events and also the deployment of weekly rank in the second quarter continue to boost our platform monetization capabilities and also to improve our total net revenue. So thank you. Operator, please address the next question.

Thank you. The next question is from Alex Poon of Morgan Stanley. Please go ahead.

[Foreign Language] I'll translate my question. My first question is regarding your streamer recruitment situation, especially for new games, Brawl Stars and DnF mobile coming soon. Can you share with us what's your strategy to acquire, to recruit these top streamers for new games? Thank you.

[Foreign Language] Thanks for your question. I will help to translate. In terms of new game titles, where you recruit streamers in kind of two ways. The first play we'll discover and encourage streamers with high-growth potential from the similar type of games to stream the new game titles. This help us generate high-quality content and can attract new users to our platform. So we also recruit a large amount of streamers by collaborating with the top game agency to ensure the quantity and also the quality of new game-related content. Actually on top of this we keep monitoring the streamers' performance in the new segment and also provide the high-quality streamers with resources on our platform to help them become the top or mid-tier broadcasters. The large number of premium streamer and indeed partnership with industry-leading game talent agencies enable us to maintain our leadership in promoting and distributing the new game titles. Because of the advantage mentioned above we were able to keep a leading position in key metrics, such as total builds and also the user engagements of Brawl Stars and other new game titles. Going forward, we actually will continue to leverage our strength to maintain our leader edge in the operation of new titles such as DnF mobile. Operator, please address the next question.

Thank you. The next question comes from Daniel Chen of JPMorgan. Please go ahead.

[Foreign Language] I would translate myself. Thanks and congrats on a very strong quarter. My question is firstly on the content side. What kind of plan do we have on the content diversification? And what's the future strategy in the content in both eSport and non-eSport? The second one is that are we exploring some new product besides our current live streaming platform? And also what's our future strategy in some non-live streaming monetization model? Thank you.

[Foreign language] So thanks for your question. I will help to translate. In terms of our future game content strategy, we will continue to invest in eSport such as League of Legends, PUBG, Free Fire. And we will also pay close attention to the new blockbuster game titles and explore suitable live streaming games throughout the industry verticals. For example, in the second quarter actually we have seen that the new game Brawl Stars delivered outstanding results on our paper. Actually, meanwhile we continue to recruit streamer for different new game segments to maintain a stable supply of high-quality content and also attract more users to our platform. We will keep -- build the eSport content communities and grow more game-related areas such as game video. In terms of our non-game segment, actually we will continue to enrich the content ecosystem to meet with users' diversified content demand in terms of like the food, life, talent show or so and also the ACG. In terms of the innovation, we have been exploring ways to diversify our revenues. For example, we launched the new business model the voice chat in October of 2019 and the revenue has grown steadily. The new segment has helped us to further improve our monetization efficiency and also capability. In the mid to long run we are actively preparing for the deployment of cloud game and expect the cloud game-related game distribution and also the advertising business to become our next growth engine when it's mature. So operator, we can take now next question.

Thank you. The next question comes from Alex Liu of Chinese Renaissance. Please go ahead.

[Foreign language] I'll translate myself. Two housekeeping questions here. First what's the major drivers of bandwidth cost this quarter? And how will this trend up in the next few quarters? Also for sales and marketing -- the sales and marketing expense was up quite a bit sequentially this quarter. Any color on what's driving that? Thank you.

[Foreign language] Thanks for your question. I will help to translate. The bandwidth cost increased quarter-over-quarter, because that there are more tournaments and higher user engagement in the second quarter. In addition, we have always been committed to improving our user gaming experience, and thus provided the user with the higher-quality images and content during the period. We expanded that -- the bandwidth cost in the second half of 2020 to increase slightly quarter-over-quarter since there will be more intensive tournaments in the third and also the fourth quarter.

[Foreign Language] In terms of your second question, which is related about sales and marketing expense, actually that will include the staff direct and other related expense, channel promotion cost, online and offline activity expense as well as the sponsor's fees to the eSport teams. In the second quarter of 2020, the sales and marketing expense increase is mainly due to the tournaments-related marketing costs as the tournaments gradually recovering and also the increase in sponsorships to the crucial eSport teams and also the channel promotion expense, as we're quite positive to wider development of the eSport industry in the long run. We'll continue to increase the investment in the eSport-related activities and also the eSport teams' sponsorship. Meanwhile we will upgrade our products to improve the monetization efficiency and also intend to enhance the channel promotion. Therefore, the absolute revalue of our sales and marketing expense will increase. But, if we look at while the -- as a percentage of the total net revenue and we will continue to decrease. So, thanks for your question. Operator, please address the last question.

Thank you. The next question is from Tian Hou of T.H. Capital. Please go ahead.

[Foreign Language] So my question is related to the overseas expansion. In the opening remarks, company management mentioned the success in Japan. So, I would like to have some clear color on that such as MAU paying ratio and what are the games or the top games in that Japanese platform? And going forward, the company's plan -- what's the company's plan to put more -- or what game are you planning to release in that platform? Thank you.

[Foreign Language] Yes. As we mentioned before our earnings call that we have already -- have the investment into Southeast Asia and also Latin America investments. And we have already noted that the users' quality is not quite good in that kind of the area. So, actually, we have decreased kind of the investment there. During the second quarter, we continued to enhance our investment in Japanese market. We launched the Mildom game live streaming platform in Japan in the late September of 2019 and the development is better than our expectations. According to the ABeam Consulting Mildom ranked among the top platforms in the Japanese game live streaming market, which is in terms of the mobile app downloads, the user base and also the user engagement. And we think that we will continue to explore the Japanese market and deepen our collaboration with the Japanese partners in terms of the local resources to achieve the better economies of scale. The reason why we think the Japanese market is very important for us, it's mainly because, actually, Japan is the third largest gaming market in terms of the market size after North America and the China. It has almost double spending power compared with South America and also the European countries and gamers are more willing to pay. However, the development of the game live streaming industry in Japan is still at the early stage, so which is not consistent with this large and mature gaming market. So that means there will be a huge potential the wallet of live streaming in the Japanese market. So thank you operator.

This concludes your question-and-answer session. I'd now like to turn the conference back over to management for any closing remarks. Please, go ahead.

Yes. Thank you for joining our call. We are looking forward to speaking with everyone in the next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.