Good morning and good evening ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please note today’s event is being recorded. I will now 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 third 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 third 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 second quarter, we continued to innovate game content and optimize our operational model. We both retain our current user base and attracting new users by developing high quality content, while optimizing each game segment's rate of return by enhancing existing value-added services and launching new ones. We achieved a second consecutive quarter of profitability on an adjusted basis as we stabilize our revenues improving revenue quality, while augmenting our cost controls and optimizing expenses. This quarter, MAUs numbered 57.1 million and total revenues were RMB1.8 billion. Our quarterly paying user count was 5.6 million and adjusted net profit reached RMB25.7 million. This quarter, our average mobile MAUs were 57.1 million, a decline of 7.7% year-over-year but a 2.5% increase quarter-over-quarter. Our steady growth in MAUs for two consecutive quarters demonstrate that the negative impact of our selective corporate procurement strategy has been absorbed. Looking back on third quarter, the changes in MAUs was driven by two factors. First, the execution of our selective copyright procurement strategy led to a year-over-year traffic loss from users who primarily viewed eSports tournaments on our platform. This led to a decline in MAUs beginning in the fourth quarter of this year. However, we were able to stabilize traffic by increasing our investment in self-produced content and the combination of high quality tournament-related content and streamer content on our platform has helped us retain existing users and attract new ones. For instance, the launch in September of our top streamer tournament in the League of Legends gaming segment was a showcase event for our users, and demonstrated the potential of investing in self-produced content. Second, we continue to innovate our membership services emphasizing their value as an avenue for exploring monetization opportunities outside of virtual gifting. Together with a series of promotional activities,…

Thank you, Lingling. Hello, everyone. In the third quarter, we maintained the stable financial performance of our core live streaming business, while continuing to execute effective cost and expense controls. As a result, we generated an adjusted net profit for the second consecutive quarter. On top of this, we have been investing in new forms of premium content and exploring new monetization channels. We believe that our healthy financial status will enable us to write-out a changing market environment with more flexibility in our operations. Let's now look at our financial performance in more detail. Total net revenues in the third quarter of 2022 decreased by 23.4% year-over-year to RMB1.8 billion. Live streaming revenues were RMB1.71 billion, a decrease of 22.9% from RMB2.21 billion in the same period of 2021. The decrease was due to the continued implementation of prudent operating strategies such as adjustments to certain interactive features and related efforts prioritizing the healthy long-term development of our platform. As we seek a more balanced revenue structure, we focus on maintaining our core paying user base. In doing so, we intentionally canceled some promotional campaigns for new paying users starting this quarter as this provided a low ROI. As a result of the decreased number of paying users, our quarterly ARPU was RMB319, a 3.9% increase from RMB307 in the same period last year. Advertising and other revenues were RMB93.3 million, compared with RMB137.5 million in the same period of 2021. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models, which use a portion of advertising traffic that could otherwise have been directly monetized, as well as the soft demand for brand advertising under the weak macro economy. The decrease was partially offset by the increase in other revenues contributed by game specific membership…

[Operator Instructions] And our first question will come from Lei Zhang of Bank of America. Please go ahead.

[Foreign Language] Thanks management for taking my question. My first question is [indiscernible], notice that we made some business adjustments and we changed our content plan this year, which was a margin improvement. So, can you share with us your current strategic focus and our business plan for the next year? Secondly, notice that we have a Q-on- improvement impacted two quarters in mobile MAU, what are the drivers for this? And how should we look at our MAU trend going forward? Thank you.

[Foreign Language] Since updating our strategy two years ago, we have consistently executed towards the development of a game centric comprehensive content system. As we have communicated in the past earnings calls, this includes building an integrated content system, refining our operations and innovating services, while cultivating a healthy, positive, game-focused content ecosystem. In the line of current economic capacities, we have adjusted our short-term operational focus. Internet companies has been operating in average changing and highly complex [excellent environment] [ph] since last year. As such, we have adopted a more sustainable operating strategy pre-actively cease acquiring overpriced copyrighted content and optimize our cost structure to ensure operational and financial stability for our business. [Foreign Language] So far, this adjustment has delivered positive results. We grew our mobile MAUs for two consecutive quarters through continued investment in self-produced content and innovative services without relying on traffic from overpriced premium tournaments. We also managed to achieve positive adjusted net income for two consecutive quarters by streamlining our operations, improving revenue quality, and implementing stringent cost controls. [Foreign Language] We also refined our internal management practices. We adjusted our allocation of resources by dynamically evaluating and altering our operating strategies based on the ROI of each game. In the Peacekeeper segment, for example, our decision now to purchase the copyright of the Peacekeeper Elite League spring tournament early this year, was based on the relative low ROI performance of this segment. As we refine our operations and deepen our cooperation with game developers ROI improved and we concluded that the timing was right to purchase the copyright of the Peacekeeper Elite League summer tournament. This allows us to regain the traffic from the tournament content well maintaining our operational prudence. [Foreign Language] We have a deep understanding of gaming industry, use of…

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

[Foreign Language] Thanks management for taking my questions. Just now, management talks about content and operations are crucial in maintaining traffic, which is a very key reason for the [severity] [ph] in terms of the traffic source. I just want to get some more color from the management perspective in terms of the progress and our plans in content and operations side? Thank you.

Certainly [indiscernible], our gaming content is generated from a streamer's content and our collaboration with game developers. This is gradually developed for better quality based on user feedback. As our high [indiscernible] clients continue to attract more users, most [payments] [ph] are drawn to our platform and [indiscernible], high quality content is the core of our business. As such, we continue to upgrade our opportunity and continue to meet the evolving demand of leaders and to create a healthy gaming ecosystem through high quality content and operational refinement. On top of having [indiscernible] our main form of content that we have added videos and the community poster contends to diversify and enrich our market based content center. We have also further strengthened and [refined] [ph] the operation of our existing gaming content to stabilize our core user base. At the same time, we excluded our [internal coverage] [ph] in order to [indiscernible] long tail users and expand our overall user base. We continue to improve the quality of our sales projects content, and the key investing in professional automotive [indiscernible]. For [private gaming] [ph], such as [all our teams] [ph] and our teams by headwinds. We successfully launched a significant sales producer for our professional tournaments. We were supported and acknowledged that by each game developers and were well received by hardcore gamers. Meanwhile, we continued our efforts producing a major tournament, our content and production initiatives this quarter were concentrated upon enhancement of our interactions between streamers and users. Based on precise consumer recommendation, we provide users with content relevant to the interest and users were more effectively directed to continuing [indiscernible]. This improved users of our experience and without increased [indiscernible]. Based on the strong performance of our 12 streamers on the [indiscernible] LoL gaming segment, we subsequently…

The next question comes from Raphael Chen of BOCI. Please go ahead.

[Foreign Language] I will translate for myself. Thanks for taking my question. My question is regarding the quarterly paying users. We noticed that this quarter experienced quarter-over-quarter decline, could management share more color on the underlying users? And can management comment on the paying user trends going forward and main contributors? Thank you.

As we briefly explained in our prepared remarks, the change in paying user count was due to our decision to cancel low ROI promotion activities for new paying users. This decision was consistent with our operating strategy of lowering costs and increasing operating efficiency. Based on analysis, the ROI of our promotional activities for new users has to keep [record business] [ph]. One of promotion activities that don't have followed up ongoing streamer and user interactions are less effective at converting new paying users into record paying users. As such, we started to better manage our paying user groups in order to improve revenue quality. We have gradually reduced for ROI promotion activities and started to focus on improving the overall quality of paying users. We are developing and improving our revenue streams in two ways. First, we focus on maintaining core paying users to utilize our core business. For example, [streamers fan] [ph] have always been a high quality paying user base. In addition to utilizing our effectively commercialized platform wide membership and game specific memberships. We also launched the non-monetized fans [indiscernible] feature. This is a space where fans record their [gross pass] [ph] along with streamers. Activities in the future were designed to be completed over a long period of regular participation, promoting frequent fans streamers interactions and gradually cultivating pain and habits among clients. Second, we are focused on developing new business model other than the traditional [tapping business] [ph] model. We upgraded our platform wide membership service to provide value-added services based on streamers' characteristics and games unique features. The service is developing well and has already improved our revenue mix. We also work to identify further opportunities for monetization and launched game specific memberships across several gaming segments. Looking ahead, we will continue to leverage our competitive advantage of our in-depth gaming centric ecosystem to explore the potential of new and innovative business models. Thank you very much.

The next question comes from Ritchie Sun of HSBC. Please go ahead.

[Foreign Language] Thank you, management, for taking my questions. Could you elaborate more on the platform why as well as game specific membership services. What is our progress on that and can you talk out monetization potential in the future? Thank you.

Let me answer your question. As our membership service determined positive components of our non-keeping monetization model. We are actively carrying this membership to suit different user needs. Examples include our [employment section] [ph] of our platform-wide membership and the team, dedicated game-specific membership services. In line with our refined operating expenses, we plan to launch customized membership services based on their needs within different segments. Platform wide membership is an important tool to maintain interaction between our streamers and users. With a monthly subscription, members have more opportunity to interact with three months in games and games special access to [indiscernible] value-added service. This increased engagement between gamers and streamers has led to an increase in workload gifting revenue. We kept in handling the [indiscernible] and upgraded the members previously returned this quarter. Leading to a significant increase in renewal rates and high single sales techniques to our platform. As a way to experiment with news magazine for monetization, we also launched games that we take membership based on the spend stake nature of in-game items and game [indiscernible]. We are currently rolling out this service amount top streamers in certain games segment and have achieved good results through what our [market promotion] [ph] so far. Three months [pro forma] [ph] to the service can be great to explore and their channel traffic increased by 15% to 6%. Our significant number of game fans were attracted to participate in the new membership. This strategy allows us to both protect new users and galvanize [and retain] [ph] our inactive users promoting [indiscernible] secure content ecosystem in the gaming segment. Going forward, we will continue to explore commercialization opportunities based on games unit centers and launch more game-specific membership services, meaning more gaming segments. By exploring gamers in game demand we can provide our users with a richer game play experience to supplement their existing and consistent exemption on our platform. And at the same time, this new initiative to build also of more diversified revenue channels to our streamline and further promote our platform of gaming continued ecosystem. Thank you. Please next question.

The next question comes from Cathy Tang of Morgan Stanley. Please go ahead.

[Foreign Language] I'll translate myself. Thanks to management for taking my questions. Could you help actually understand a little bit more about drivers behind shipping margin saturation in third quarter this year? Also, how should we think about the future [shipping margin] [ph]? Thank you.

Thank you for your question. The slight quarter-over-quarter increase in cost of revenues was mainly due to three factor: First, we managed to stabilize [revenue share] [ph] ratio sequentially, thanks to our adoption of our long-term and steady development strategy for our virtual gifting business. We also reduced those revenue streams with lower ROI while improving our revenue quality. We expect that our overall revenue share ratio will remain at the current healthy level with only slight fluctuations between quarters as we further adjust and fine tune our revenue generating operations. Second, our content costs increased sequentially during the quarter. This was mainly due to increases in copyright and self-produced content costs, which were partially offset by a reduction in streamer payroll. In terms of copyright costs, we purchased copyright of [Peacekeeper EL] [ph] regarding a slight increase in copyright costs, compared to the previous quarter. Our self-produced content front, we continue to explore innovative content formats. During the quarter, we launched content updates for new versions of games and promoted our platform new initiatives leading to a sequential increase in content costs. We have also been continuously optimizing our streamer resources of overseas business leading to a quarter-over-quarter decrease in streamer payroll. Looking forward, we will prudently evaluate our procurement decisions for large scale tournaments and optimize our streamer payroll structure. At the same time, we will continue to increase our investment in high quality self-produced content. In summary, we expect our gross margin for 2022 to improve slightly on a year-over-year basis. 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.

On behalf of the management team, thank you for joining our call. We look forward to speaking with everyone next quarter.

Thank you. That concludes the call today. Thank you everyone for attending and you may now disconnect.