Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited Second Quarter 2023 Earnings Conference Call [Operator Instructions]. 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 second quarter 2023 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 second quarter 2023 financial results on our IR Web site 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 statement, 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.

In the second quarter of 2023, the company's top priority was to foster a healthy ecosystem across our game-centric community. We stepped up the production of premium content to diversify our content metrics and enrich interactions across the community. We also heightened the importance of content management and strengthened the content review procedures on our platform. By ensuring the health of our ecosystem, we have solidified the foundation for our strategic long-term sustainable growth. On the operations side, we placed heavy emphasis on improving the quality of our users. We actively refined our monetization and marketing strategies and deepened our cooperation with game developers, with a focus on refining how we promote new games and their operations. The combination of these adjustments supports the overall stability of our business operations, healthy user metrics, and promote our improved profitability. In the second quarter, our mobile MAUs were 50.3 million. Quarterly average paying users were 4 million. And our adjusted net income was RMB61.4 million, surging 138% quarter-over-quarter. To begin with our user base. Our mobile MAUs for the quarter declined 9.8% year-over-year, but were on par with the last quarter. The main reasons for the year-over-year change includes: First, early this year, we refined our operating strategy to focus on improving user quality. This means that we have cut back on our low ROI marketing spend. As a result, our user acquisition expenses for the quarter significantly decreased year-over-year. The quality of our users has improved. However, the lack of user acquisition from promotional channels led to a year-over-year decline in quarterly MAUs. Second, we adhered to our content-driven approach to user growth. We attracted and retained users through continuous investments in high-quality content. We expect the regular updates we make to revenue-generating products and deeper cooperation with game developers to…

Thank you, Lingling. Hello, everyone. In the second quarter, we continued to implement our refined growth strategy aimed at ensuring a healthy and balanced business outlook. Emphasizing the development of healthy-margin business and optimizing operations, we continued to adjust our revenue-generating activities and streamlined operating efficiencies, including those that optimized content costs and further reduced marketing spending. As a result, despite some short-term impact to our revenue, we once again grew our adjusted net profit, showing a solid increase quarter-over-quarter. Let's now look at our financial performance in more detail. Total net revenues in the second quarter of 2023 decreased by 24.1% year-over-year to RMB1.39 billion. Live streaming revenues were RMB1.26 billion, a decrease of 28.8% from RMB1.77 billion in the same period of 2022. The decrease was mainly attributable to ongoing operational adjustments in our live streaming business to promote a healthy and sustainable ecosystem in a more cost-effective manner, as well as the challenging macro environment. These adjustments impacted spending from new paying users and price-sensitive paying users, combined with a lower user base caused by scaled-back promotions, we saw a year-over-year decrease in the total number of paying users. Amid changes, our core paying users exhibited relatively stable paying behavior, contributing to an 18.2% increase in ARPU to RMB326 in the second quarter, up from RMB276 in same period last year. Advertising and other revenues were RMB133.9 million, an increase of 106.5% from RMB64.9 million in the same period of 2022. The year-over-year increase was primarily attributable to the increase in other revenues contributed by game-specific membership services. Cost of revenues in second quarter of 2023 was RMB1.2 billion, a decrease of 21.1% compared with RMB1.52 billion in the same period of 2022. Revenue-sharing fees and content costs decreased by 25.4% to RMB0.98 billion from RMB1.31 billion…

[Operator Instructions] Today's first question comes from Lei Zhang with BofA Securities.

The question is on regulatory environment. We noticed that we have a regulator on-site review in May. Any updates on this? And how should we look at the current regulatory environment and the impact to our business?

During the one month on-site inspection by the Hubei Brew of China's Cyberspace Administration Working Group, the working group provided supervision and guidance on various matters. Our team was in complete cooperation and readily represented any company information that was requested, such as our policies and procedures for content review and our content approval review process. We also took this opportunity to continue to enhance the capabilities and skill sets of DouYu's content-related support team. During the inspection period, our business operations continued as [euro]. After the conclusion of the inspection, we have continued to make improvements to relevant rules and procedures across our platform. More specifically, as we discussed earlier, we improved our content management procedures, particularly on those related to content monitoring, review and approval. We are now back in our normal internal supervision mode, which has been strengthened by the continued improvements we have made to our internal progresses. In general, regulators have been strengthening and improving their supervision of the live streaming industry. Our goal is the long-term healthy development of our platform. We actively cooperate with regulatory authorities and are committed to fulfill regulatory responsibilities for the safe operation of our users, such as content monitoring across our platform. We have actively participated and examined multiple special remediation actions by regulators, including the nationwide [Foreign Language] campaign to purify the online environment, the fight against the cyber bullying and cyber rumormongering, the cyber protection initiative to provide a clean online environment for [players] and the remediation programs that flag streamers and associated accounts engaged in prohibited activities. Our regular internal supervision mainly includes the review, approval and control content on a daily basis; as well as enacting special remediation actions, regular disclosure of typical cases; et cetera. Through the DouYu security center, we will regularly disclose the results of sections that were implemented and announced and update any special remediation actions that we've taken. We have also built compliance awareness across the platform through compliance training and DouYu classroom and anti-fraud lectures. And we are continually optimizing the cyber environment across our platform. Going forward, we will continually strengthen our compliance programs and regulate our operation across the platform. We will also continue to optimize the content ecosystem and increase our investments in high-quality tournaments and programs that spread positive energy and other quality content. These combined efforts are aimed at fostering a harmonious and healthy live streaming environment.

And our next question comes from Thomas Chong at Jefferies.

My question is that there's a number of hit games coming online this year. I just want to get a sense about how these new games can drive our user growth as well as our revenue.

Certainly this year, with the public testing, prelaunching, promotions and official launch of many new games, we saw more growth opportunities. New games bring not only great content to attract new users, but also provide more content choices for our existing users. New games are more aligned with current gamer demands and interest. They all provide us with more opportunities to harness content in diverse formats across different game channels. We expect the addition of new games will mainly benefit us in two ways. First, new games provides great opportunity for us in game promotion. For new games, we are actively involved in the earliest stages, from the selection of streamers and content buildup all the way through securing in-depth cooperation with game developers. We provide the content arrays that best fits the games. New game-exclusive benefits and various innovative operational solutions to effectively attract users early in process. Let's take Justice online as an example. We promoted Justice online through multiple channels, including joint promotion with star streamers, building momentum for the game through live streaming sessions, reviews, graphics such as gaming strategies as well as gamer community operation. We are pleased to see the positive effects on promotions. And second, new games have a positive effect on game operations. We have rolled out various activities based on the status of different games. Take [Eggy Party] as an example. With its strong social attributes leveraging key timing like gameplay updates, we launched the same day tournament activities and enhanced our community operations, keeping users active and engaged. For the operations of Honkai: Star Rail, we captured its ACG attributes and participated in [Ni Hao] anime event. Our combined online and off-line content operations help us attract more user addition. Looking ahead to the second half of the year. The domestic launch of Valorant and its official tournaments of -- are major operations project for us. As users typically enjoying watching competitive games, Valorant is a great fit for live streaming, empowered by our resources of high-quality streamers and [Indiscernible] tournament content, we were glad to see our remarkable search in both segment-specific traffic and viewing hours after the game's initial release. We have thoroughly assessed the new games that are scheduled to be released in the second half of the year and have operation plans in place to ensure proper allocation and rapid integration of our resources to support this new game launch. Our planned promotions and operational support for the new games place us in a strong position to capitalize on the game promotions going together to acquire more users.

And our next question comes from Henry Sun with JPMorgan.

My question is about your operating strategies. Could management share the progress and the target of our operating strategy adjustments?

As I have mentioned in our previous earnings calls, considering the changing market dynamics across our industry in the past two years, we remain committed to our key objective of long-term sustainable health growth. For our traditional business, we ensured stable fundamentals, optimize our operating efficiency and successfully improved profitability. And for new business, we have been exploring potential areas for growth based on user needs. After two years of exploration and implementation of our operating strategy, we have made meaningful progress. First off, on user acquisitions, we transitioned from channel promotions that target growing market to a content-driven approach that attracts users in mature markets. We have been building a diverse product system since 2020. By strengthening our in-depth cooperation with game developers, we have evolved from a single-content live streaming format to a successfully developed multilayer content system that includes live streaming, videos, graphics and community interactions. And we continue to enrich our content to enhance our content operations. DouYu has gradually formed a positive cycle of content production and user growth. Based on the content system, we have directed more attention to maintaining our core users. In the first half of 2023, the average monthly viewing hours of mobile users showed an increase from the second half of 2022. This reflects the positive effects of our strategy to focus on improving user quality and the gradual optimization of our platform's ecosystem. Second, on the revenue front, to achieve our goal for the platform's long-term development, we have been making adjustments to our operating strategies for some time. We have reduced our operating activities that target revenue growth so that our streamers can concentrate on the production of high-quality content. As a result, our users found it easier to consume content and have become more willing to engage…

And our next question today comes from Raphael Chen with BOCI Research.

I have two main questions. Firstly, we have noticed recently a top host left the platform after his contract expired in end July. Could management share some latest updates on the stability of other hosts on the platform? Also, could we have more color on the measures that platform takes to motivate these hosts? My second question is related to MAU and paying user trend. Could management give some color regarding the MAU and paying user trend in the near to mid-term, given current visibility?

Let me answer your first question. With high-quality call streamers, we signed long-term exclusive cooperation agreements. The binding agreements are governed by law and supported by game developers and publishers. Therefore, streamer stability is secured during their contracts' period. For call streamers whose agreements are about to expire, we actively discuss renew with them ahead of time. We have been doing this for many years, and the nonrenewal rate is very low. Overall, DouYu has a robust and high-quality moat of streamers. As an established game content platform, we have worked with streamers on a win-win base for many years, building streamers' individual IP and enhancing DouYu's competitive edge. As our industry environment evolved and our users' game consumption needs became more diverse, we began introducing new innovative streamer cooperation models. Here are what we have been working on: First, under our overall stream operations strategy, we are strengthening streamer collaborations and depending our cooperation with game developers. We regularly roll out innovative high-quality content and operational activities to maintain and increase user activity in our game segment. And the streamers have become more willing to go on live streaming sessions, with notably more new games launched in the first half of the year, we worked on an array of streamer recruitment recall and [Technical Difficulty]. Let me continue to answer your first question, about the streamer stability. With notably more new games launched in the first half of the year, we worked on an array of streamer recruitment recall and growth programs through operating activities supported by game developers. We have added new resources to the platform streamer pool, offering additional content for new games so that the streamers can grow and prosper in more diverse ways. As part of our normal course of operations, we launched more streamer…

And our next question comes from Cathy Tang at Morgan Stanley.

Could you suggest how the company could improve the profitability through operational adjustments? Also, could you share with us a profitability outlook for the second half this year?

I will answer this question. As we have constantly noted, the company's operating strategy targets long-term sustainable growth across our platform. To this end, we have continuously, fine-tuned our live streaming business, improved platform's ecosystem and fostered a healthy spending landscape. We have also significantly elevated the company's overall operating efficiency by investing in high-quality content, refining our business operations and improving our IR operations. With these meaningful operational adjustments underway, we have successfully achieved net income and adjusted net income for two consecutive quarters. Let me elaborate on the two primary areas where we have improved our operating efficiency. Regarding our cost of revenues, the offset increased copyright costs and the costs of our innovative business. We optimized the costs of our traditional businesses to effectively keep our overall cost stable. For revenue-sharing fees and content costs, we made array of adjustments to live streaming activities that help us maintain overall revenue-sharing ratio at current healthy level, facilitating the continued healthy development of our sustainable live streaming ecosystem. We also enhanced production efficiency and ROI of self-produced content; and manage to control payments to streamers, which reduced our related content costs year-over-year. Overall, we expect our total costs as a percentage of revenues to remain flat year-over-year in 2023. Regarding our operating expenses, we actively optimize each core expense and significantly reduced our channel-related user acquisition expenses. We also improved staff efficiency by optimizing the company's organizational structure, further boosting our operating efficiency. Our goal, of course, is to achieve sustainable adjusted net income. To summarize: We are managing the macro uncertainties by more effectively controlling our costs and expenses, and we plan to further stabilize and improve the profitability of our traditional live streaming business. We will also focus on identifying and developing new areas within our innovative business. We plan to work with game developers on all fronts, fully leveraging the traffic and content resource advantages we have accumulated within our traditional live streaming business to further diversify and empower our commercialization capabilities. These coordinated efforts are aimed at fostering long-term sustainable profitability and development across our platform.

Thank you. And this is 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, thank you for joining our call. 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.