Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note, today's event is being recorded. I would now like to turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our first quarter 2022 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer; Mr. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Finance. You can refer to our first quarter 2022 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 the 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. I will now speak on behalf of our Chairman and CEO Mr. Shaojie Chen.

During the first quarter, we continued the steady development of our core business, while adjusting our business operations and executing on our selective copyright procurement strategy. Mobile MAU for the quarter were 55.1 million. Total net revenues were RMB1.8 billion and quarterly average paying user accounts reached RMB6.4 million. Gross margin increased to 13.6%, demonstrating the effectiveness of our selective copyright procurement strategy. In addition, our successful implementation of a series of cost control measures has increased our offering efficiency, driving our adjusted net loss down to RMB52.5 million. During the quarter, our average MAUs decreased by 6.8% year-over-year to 55.1 million, a change that within our expectations. We believe that there are two factors at work. First, as we strive to improve operating efficiency by executing on our selective copyright procurement strategy, we have finished acquiring overpriced content rights for eSports tournaments, which have negatively affected our MAU. However, the level of the decrease was, in fact, better than our expectation, and MAU has stabilized and stayed within a narrow band. Additionally, our data analysis shows that high quality content from streamers and self-produced tournaments in different game segments successfully attracted new users, regardless of the absence of content from selected eSports tournaments. Second, the new games that belong to our platform in 2021 enabled us to continue to increase our MAU, partially offsetting the impact of terminating content rights for selected eSport tournaments. Despite a slow pace of the launch of new games last year, we were able to attract and retain users by offering them high quality gaming content within our collaboration with game developers and refining our customized operations for each game. Turning to our content updates. In the fourth quarter, we mentioned our effective execution of our strategy of building a game-centric comprehensive content platform.…

Thank you, Lingling. Hello, everyone. During the first quarter, we have been focusing on improving our operating efficiency through ROI enhancement and cost controls and achieved encouraging results. The Company's gross margin improved and adjusted net loss narrowed significantly on a year-over-year basis. Total net revenues in the first quarter of 2022 decreased by 16.6% year-over-year to RMB1.8 billion. Livestreaming revenues were RMB1.73 billion, a decrease of 13.6% from RMB2 billion in same period of 2021. The decrease was due to the implementation of prudent operating strategies, such as adjustments to certain interactive features and the related operational efforts. Considering the tightening regulatory environment, we have been making operational adjustments, and the feature updates in advance to comply with regulatory requirements for the long-term development of our platform as a result of these adjustments. Virtual gifting interactions were partially impelled, which cost decreases in both number of paying users with lower ARPU and the quarterly ARPU. Our quarterly ARPU was RMB270, a 5.5% decrease from RMB286 in the same period last year. Based on our analysis, the size of our core paying users largely remained stable. And we continued to stabilize the paying habit of our core users and cultivate the paying willingness of mid to long-term paying users. Advertising and other revenues were RMB68.4 million, compared with RMB154.1 million in the same period of 2021. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by using a portion of advertising traffic that could have been directly monetized as well as the soft demand for advertising caused by macro challenges and regulations aimed at gaming industry. Cost of revenues in the first quarter of 2022 was RMB1.55 billion, a decrease of 18% compared with RMB1.89 billion in the same period of 2021. Revenue sharing fees…

Today's first question comes from Lei Zhang with Bank of America Merrill Lynch. Please go ahead.

Thanks, management, for taking my question. My question is mainly regarding regarding the keeping cap and the regulator also launched the restrictions in ranking and the future activity. So could you please share with us your view on overall regulatory environment in China and how should I look at the impact to our business? Thank you.

Let me answer your question. This ongoing development of our regulatory guidelines for the live streaming industry. Industry players to probably implement measures and refine operations to comply with regulatory requirements. As of to date there is no strategic mentioned in the recently announced regulatory notice. Despite this, we have been making operational adjustments and data updates. This year, we are adopting a more prudent operational standard and stricter deal policy to improve our platforms community building and to the long-term development of our platform. In addition, in later April and early May, we implemented a series of on our platform to promote a rational consumption of our users. This include setting up keeping limiter for similar transaction on virtual gifts and requesting a second confirmation for each transaction. We have projected the financial impact of such adjustment in our 2022 forecast. And as far as regarding the live streaming industry announced in March were restatement of previous policies. The policies are related to online games, gaming content follow and protection of minors. We have been adjusting our operations according -- accordingly on this forefront, on-licensed games, for example. We have been gradually redirecting traffic and the streamers to licensed games of similar genres since the third quarter of 2021. To ensure proper traffic allocation between different game segments and to maintain streamer income levels and to stream. The impact of these adjustments was reflected in our paster quarters performance. Regarding appropriate creator content and minor protection, we have contended with BLC term, streamer reminder system and a mode that are continuously evolving as the industry develops. We are carefully monitoring any regulatory changes and maintain close communications with regulatory department. We will be able to react probably in the event of any changes. Thank you.

Yes. Thank you. Very helpful.

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

Okay. Thank you. Hello. I will first translate Thomas's question. Sorry, can you hear me?

Yes. This is the operator. We can hear you.

Okay, great. Okay. I will first translate Thomas questions. Thomas questions is regarding the changes in our copyright procurement strategy. What will happen after the change of procurement strategy in the absence of large scale eSport tournaments? How the company will adjust its operations to ensure the advantages in content as well as in operations? The second question is regarding there was a shift in the copyright procurement strategy put a impact on the sustainability of our platforms, streamers resources. I will first address the first question for Mr. Chen. First, we adjusted our strategy to selectively purchase copyrights not only because some of the content is overpriced, but also add operational adjustment in reaction to the changes in the game livestreaming industry. Our industry has already transitioned from competition in game livestreaming to gaming content. While users face more and more varying options, we believe differentiated content and refined operations are the key to our platform healthy and sustainable growth. On content front, we extended our offerings from livestreaming to videos and communities integrating various content to meet our users' diverse needs. Although we decide not to obtain selected overpriced copyrights, we continue to purchase cost effective copyrights for certain tournaments. For the purchase content, we are integrating official tournaments with our livestreaming video, graphics, operating activities and community discussion to increase user engagement and attract users. For example, we have launched multiple self-produced shows for the purchased KPL tournament, and we are actively exploring more collaborations with game developers to enhance the ROI for this copyright. Meanwhile, we increase our investment in self-produced content. For traditional eSports games, we have been hosting tournaments for professionals and amateurs, and are able to ensure a consistent supply of high-quality content, while remains the scalability of our platform traffic and increasing users' retention rate. For new games, on one hand, we recruit and calculate large quantities of new streamers to ensure content supply. On the other hand, we enrich our content offerings by producing more diverse TJC and UGC content. Leveraging our integration of livestreaming video content and community interactions, we are able to attract more users with our diverse content offerings. On the operation front, we are deepening our cooperation with game developers and distributors beyond content production. Our cooperation includes assisting game distributors to find appropriate marketing strategy, discovering professional game players for both game developers and distributors, evaluating new sales models for in game items, leveraging data sharing between games and our platform to improve our user livestreaming experience and more. For example, for the upcoming games, LoL eSports manager device developed by Riot Games, we actually partner with game developers to promote the game pre-registration and lead to a high number of pre-registration before the game is officially released. Thank you. That's the first question.

As to second question, I will of the streamer resources. We have further stabilized and enhanced our streamer resources by signing long-term and exclusive collaboration agreements with our premier streamers, follow the better support from game developers and distributors. These agreements bind top streamers to our platform and prevent them from switching between different platforms, helping us to build and maintain a competitive edge. Second, the MAUs impacted by our copyright strategy adjustment was generated by users who mainly view official tournaments other than streamers livestreaming content. Therefore, traffic generated by streamers was not significantly impacted by our selective copyright procurement strategy. I like to emphasize that our relationship with streamers is not limited to cooperation agreements. We also deepened our collaboration with streamers and enhanced operations in the following ways. First of all, in terms of overall operating strategies for streamers, we continue to offer high quality content and opportunities for users to interact with streamers, while maintaining or improving both the level of engagement and streamers willingness to stream. For example, we collaborated with Tencent, Riot to host the League of Legends scaler . We invited top tier streamers to watch the trailer and interact with users in our self-produced shows, thus, creating a second layer of promotion of our platform. As a result, the level of engagement in the LoL game segment was boosted significantly, as evidenced by increases in the of top streamers, livestreaming sessions, and interactions related topics in our community channel. Meanwhile, we further explored streamer commercialization opportunities. For example, we recently upgraded our membership system, Amazon's offering users with more customized privileged and additional functionalities to interact with streamers. As a result, interactions between streamers and the users increased, and the streamers gained more diverse source of income, further deepening their bond to the platform. Second, we leverage big data analysis to refine in-house operations. For example, we motivated mid-tier and long-term streamers to remain active by directing appropriate traffic to them and increase their involvement and exposure on our platform by engaging them in our self-produced tournaments. Therefore, mid-tier and long-term streamers are able to earn a competitive income. We believe those streamers are highly platform and expect to attract more talented and high potential streamers to livestream our platform. All in all, our platform streamers are foundation of our high-quality content. We have a comprehensive streamer resources management system, which includes recruitment, training, management and collaborations. Our system increases streamers willingness to stream and ensures that they receive a reasonable income. Meanwhile, as we have continued to refine our operations, we have deepened our relationships with our streamers. Thank you.

And our next question today comes from Yiwen Zhang with China Renaissance. Please go ahead.

Thank you, management, for taking my question. So I have two questions. in your prepared remarks you mentioned that 2021 title have successfully I tried to retain the new users. Can you -- yes, that'd be more on top . And also meanwhile, I want to check that game license approval assumption, what's the impact on operation? And secondly, you mentioned we're exploring a more diversified monetization model. Can you discuss more about the ? What's the progress and our expectation for the future? Thank you.

Let me answer your two questions. For your first question about new games. It's well-known that new games were released at last year even with fewer games such as on our teens and Peacekeeper. Leading to new user growth on our platform. this backdrop we created a rich content system that integrates livestreaming video content and graphics, which underpins our diversified game segment operations. We have also achieved promising results by implementing sophistic and successfully building and developing new game segments. Let me share some of the achievements of the new games launched in 2021. For NARAKA: BLADEPOINT launched in July, our user engagement remained robust as a result of our efforts in recruiting and training new streamers and producing related tournaments and shows. Total viewing time for NARAKA: BLADEPOINT was ranked within the top 10 games on our platform for three consecutive quarters. And as traffic ranking also steadily moved up on our platform. For LoL Mobile launched in November, the upgraded membership system targeting our core user base was very few of them. And that contributed to a healthy quarter-over-quarter revenue increase in this game segment. Looking into 2022, we will focus on bettering operating efficiency for each game segment as part of our KPI. And evaluate the ROI on a real time basis, especially for those new game segments to ensure the effective ROI improvement. At the same time, we were very pleased to see that approval support new games, new games resumed. We consider this to be a signal that is not the quantity of games related that is important, it is the quality. This also shows that the gaming industry is trending in the direction of severing diversity and quantity. We believe that this is beneficial for the gaming industry in the long run and…

Thank you. Our next question today comes from Alex Poon of Morgan Stanley. Please go ahead.

My question is related to content purchasing -- content strategy change. Can management explain the change, the impact on user scale and their behavior, their engagement so far and then how should -- what should we expect for future? Thank you.

Thank you, Alex. As we mentioned previously, we executed our selective copyright procurement strategy and fees acquiring overpriced copyrights for certain eSports tournaments. We anticipate with increasing MAU under this strategy and divides a series of matters in advance, such as increasing investment in self-produced content in order to stabilize our traffic. These results were positive and reflected operations. MAU were in fact better than our projection. Also, we kept tracking data and analyze the impact of our strategy of seizing acquisition of those overpriced content rights. Our data show that most of the traffic we lost those who primarily viewed tournaments on our platform. On the most of our return traffic was contributed by users who watched our livestreaming content in a long-term continuous and stable fashion. This large quantity of high quality users characterized by their high retention rates, longer video hours and techniques to highlight to high quality livestreaming content. Having a steady stream of resources has allowed us to stabilize user viewing time and interactions on our platform on quarter-over-quarter basis. Using our LoL segment as an example, despite the absence of LPL copyright, MAU generated by single generated content, and its total viewing hours to increase on a quarter-over-quarter basis. As we emphasized earlier, terminating our acquisition of overpriced copyrights does not imply that will decrease our investment in content. We actually self-produced to close to 150 tournaments during the quarter. For those game segments where we did not purchase copyright of official tournaments, we continue to deliver high quality self-produced and streamer content. Thank you.

Thank you. And our next question today comes from Ritchie Sun of HSBC. Please go ahead.

I'll translate it myself. So, can management talk about the cost decline across the lines by revenue sharing content costs, sales and marketing and can management explain what will attribute to those declines and how much of the decline comes from license content savings? And how should we assess the full year trends in terms of these costs? Thank you.

The decrease in cost of revenues is mainly attributable to 19.2% year-over-year decrease in revenue sharing fees and content costs. Revenue sharing fees decreased in line with the decrease in livestreaming revenues. Our overall revenue sharing ratio remained stable. The decrease in content costs mainly resulted from lower copyright fees, optimization of streamer payroll and a reduction is self-produced content cost. Reduction in copyright costs was mainly the result of us see the acquisition of large scale tournament content rights, such as LPL. In terms of streamer payroll, we have optimized our streamer resources in certain games segments, leading to a significant year-over-year decrease in the first quarter. On self-produced content front, we have utilized a variety of measures to reduce our costs, such as of partners resources and joint operations. As a result, we were able to launch more self-produced tournaments, while lowering production costs on a year-over-year basis. Looking ahead, we will prudently evaluate our procurement decisions for large scale tournaments, optimize our streamer payroll structure, and increase our investment in self-produced tournaments and PGC content for which we will control their related production costs. We expect a degree of decrease in our content costs this year. Overall, we expect our gross margin will improve at a modest pace for the year 2022. Thank you.

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

Thank you for joining our call today. We look forward to speaking with everyone next quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.