HUYA Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 9 speakers on the call.

Operator

Prepared remarks and the call will conclude with a Q and A session. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties.

Operator

As such, the company's results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U. S. Securities and Exchange Commission. Conclude the company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Operator

Conclude. Please also note that Huya's earnings press release and this conference call include discussions of unaudited cover GAAP financial information as well as unaudited non GAAP financial measures. Huya's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. With that, be concluded. I'm pleased to turn the call over to our acting Co CEO and SVP, Mr.

Operator

Junhong Huang. Please go ahead.

Speaker 1

Okay. Hello, everyone. Thank you for joining our earnings conference today. The Q3 of 2023 was a transition period for Huya. Be RMB1.65 billion in the Q3.

Speaker 1

We also reported positive net profit exceeding our expectations come with non GAAP net income reaching RMB103 1,000,000 in the quarter. As we continue to strengthen our user base, We are also beginning to make progress in our strategic transformation. As we discussed last quarter, Our transformation targets are shifted in our commercialization focus, building on our deep experience and success will follow the results of Huya's game live streaming business. We plan to provide more game related services such as game distribution, require to support these new services, while developing terms of cooperation with game studios. Let me share some details of our Q3 efforts.

Speaker 1

First, to enhance our game distribution capabilities, We recently upgraded the Huya Live app's existing game center, a one stop shop where users can preorder and download new games, obtain Huya exclusive gift game toolkits and view latest game information. Conclude the game center's game library and improve the product download function, while also encouraging our streamer to participate be presented in game promotion activities. During the quarter, we participated in the distribution of Demigods be presented in semi devo to mobile and promoted the game on both our game center and broadcasters channel pages. Conclude. This early game distribution cooperation's outcome was encouraging with Huya's distribution channel achieving good initiate results in terms of gross billings generated on the 1st day of the game's launch.

Speaker 1

While we continue to optimize our game distribution process and functions, we will also look to partner with more upcoming games for these services. Conclude. As for the in game item sales business, we have completed development of our in game item mall function and added to our app. Help us to maintain users' purchase signals. So far, we have reached completion will be released in the Q1 of 2019.

Speaker 1

Come as the first step. A small number of skins or weapons from these games have been made available be in the mall and in the yellow shopping cart on selected broadcasters live channels. Users can purchase them directly from the yellow shopping will be watching this broadcaster's live content. Going forward, we will further refine the entire purchasing experience come from buying game pops on Huya and building users Huya accounts with their respective game accounts grow claiming purchased virtual items within games. At the same time, we are exploring various operational activities be around in game item sales.

Speaker 1

For example, in September, one of Huya's broadcaster held a live event showcasing the first wearing of a newly designed item and describe the skins characteristics and effect in detail during gameplay. The session not only attracted fans' attention, but also gave players a unique opportunity to gain insight into product be before its official launch. Furthermore, in October, we collaborated with a game publisher to introduce a customized for popular broadcaster of that game on our platform. The Skin Shield limited time exclusive sale on that broadcaster's provide proved quite successful with sales exceeding expectations. Come as activities like this game traction, we will also develop and adopt operational strategy targeting different tiers of broadcasters, help us increase in broadcast willingness and ability to participate in game item sales services.

Speaker 1

On the advertising services side, We have thoroughly analyzed our ad slots and ad types and have been begun adjusting our approach accordingly cover our brand advertising, which accounts for the majority of our ads. We are deepening our collaboration with advertisers especially on upcoming game promotions. For example, we worked with game studio to organize cross platform campaigns involving our streamers improve to increase brand exposure for its new game. Meanwhile, we are increasing our emphasis on performance based be advertising especially for the currently popular mini games and exploring other users to increase its effectiveness on our platform. Conclude.

Speaker 1

Along with these new strategic initiatives, we believe that sustainable development of our platform's content ecosystem remain vital to Huya's future growth and success. Game related services will both complement and enhance our live streaming business conclude as we realize the myriad of synergies emerging across content and operations. We are committed to solidifying Huya's call user community and maintaining a healthy broadcaster ecology through high quality broadcaster generated content and professional esports content, continue to be a key driver for our customers. We are also leveraging new technologies such as AI generated content. Let me give you an update on our latest progress be on the AI front.

Speaker 1

We are actively exploring the application of AIGC across the entire broadcast content production chain to further improve content creation quality and efficiency as well as user engagement. For example, Our recently developed AI assistant feature offers intelligent chat, fan into action, game analysis and mini game widgets function as well as array of content creation tools. Powered by our tensor billions parameter large language model chain on data from broadcasters streaming content on our platform as well as natural language processing Technologies, AI assistant can imitate a broadcaster style and tone while chatting with viewers during live session be for an authentic and entertaining user experience. Furthermore, broadcaster can create customize digital avatar using AI assistance 2 d and 3 d digital human technologies and AIGC technologies to satisfy various scenarios specific requirement. AI assistant is also equipped with image be an AI reasoning capabilities for viewing and evaluating game schemes, empowering broadcasters to seamlessly provide real time analysis of gameplay.

Speaker 1

In addition, we our intelligent editing and generation tool help broadcaster quickly generate high quality video highlights of their live broadcast content and e sports tournament, greatly improve the professionalism and production efficiency to the derivative content. Come. In summary, steady execution of our strategy and transformation plan in this quarter lay a solid foundation for our future development. We are confident that as strengthen our game live streaming content ecosystem and expand our presence in the game value chain, drive more balanced and sustainable business growth in the long term. With that, I will now turn the call over lead to our acting Co CEO and VP of Finance, Ashley Wu, to share more details on our Q3 results.

Speaker 1

Asuri, please go ahead.

Speaker 2

Thank you, Vincent, and hello everyone. I'll continue with some updates on our operating metrics be recorded and financials. On the user front, although we continue to be affected to some extent provide users and broadcasters' time spent on offline entertainment activities. Our diversified esports tournaments be an entertainment programming during the summer session, boosted Hoya's live mobile MAUs translate to RMB 86,000,000 for the Q3 of 2023, up 3.7% come from 82,900,000 for the previous quarter and flat year over year. Come.

Speaker 2

Meanwhile, we maintain our strict marketing and channel spending policies to keep our expenses down. Come. In the Q3, the Huya Live app's next month user retention rate remained above 70%, demonstrate high user stickiness. Let me elaborate on our professional content enrichment. Come.

Speaker 2

For licensed Esports events, we broadcasted about 80 third party professional Esports tournaments conclude in the Q3 of 2023 with total viewership of approximately 480,000,000. Conclude. The summer space of LPL, KPL and LCK were the most watched tournaments of the quarter. Come. The Counter Strike 2 events, EPL Season 18 and IEM column, which are exclusive to Huya in China, were also quite popular among our users.

Speaker 2

Conclude. Overall, we will continue to focus on implementing strict procurement processes for licensed esports tournaments help us to improve our content. We continue to enhance our own IP metric and increase our IP's market influence. Come. In the Q3, we broadcasted about 30 self organized Esports tournaments be an entertainment PGC shows with a cumulative viewership of more than 110,000,000 be released.

Speaker 2

League of Legends Hero Cup, Peacekeeper Elite All Star Cup Summer and Honor of Kings Streamer League were our top performing self produced events. We also hosted the Wake Up All Star Invitational be for Walderant, raising the profile of this newly launched game on our platform. Come. During the China Joint Gaming Expo in Shanghai, we held a series of on-site competitions cover our HOK, LOL, LOL Y Reef and Waterfronts involving our fans, professional players end popular broadcasters promoting the integration of live content and offline activities. I also want to highlight that Huya broadcasted the Asian Games 2023 come in Hangzhou from late September to early October.

Speaker 2

This year's event featured the debut be of Esports competitions as major programs. Chinese Esports teams performed well this year, which boosted public awareness of esports nationwide. The Asian Games Esports events also attract more attention from our users with our League of Legends and Honor of Kings events be ranking among the top 5 of all our tournaments this quarter in terms of peak concurrent users. Conclude, our Asian Games Esports broadcast, showcase our advanced 4 ks HDR provide our commitment to superior viewing experiences. We were the only broadcast platform provide 4 ks HDR support across multiple devices, including Android and iOS app, website, MPC client, for both live streaming and on demand video replay, conclude with our real time super solution image quality technology that supports various devices.

Speaker 2

We were also able to improve video quality under weak network environments to better meet users' requirements provide clarity and smoothness, optimizing their event viewing experience. In addition, we produced be a commentary programs tailored to the Asian Games Esports events to provide new Esports viewers come with competition related background information, enhancing their understanding of the events follow the results of Huya's high quality engaging content. Come. Turning now to our financials. Our 3rd quarter revenues continue to decline due to the challenging market environment end our proactive business adjustments in support of our strategic transformation and prudent operations.

Speaker 2

Come. Nevertheless, our gross margin remained resilient and reached 13.9% in Q3 come as we continue to realize savings in content costs, particularly content licensing and broadcast related costs follow as well as bandwidth usage. Our total operating expenses in the Q3 decreased 20.7% year over year and 8.7% quarter over quarter, be reflecting our ongoing operational optimization efforts across the organization. Come. Let's move on to our Q3 financial details.

Speaker 2

Our total net revenues be RMB1.65 billion for Q3 compared with RMB2.38 billion be recorded for the same period last year. Live streaming revenues were RMB1.53 billion for Q3 compare with RMB2.002 billion for the same period last year, be primarily due to a decrease in the number of quarterly paying users on Huya Life contribute to JPY 4,200,000 for Q3 from JPY 5,500,000 be recorded for the same period of 2022. The decline in the number of quarterly paying users was primarily attributable to the soft micro and industry environment and our proactive business adjustments as well as the increase in offline entertainment activities, which affected the time spent by long tail users focus on our platform. Advertising and other revenues were RMB116 1,000,000 for Q3 compare with RMB361 1,000,000 for the same period last year. Conclude.

Speaker 2

This was primarily due to a significant decrease in content sub licensing revenues. Conclude if we exclude the impact of the reduction in content sub licensing revenues. As a result

Speaker 3

cover the full year of

Speaker 2

our amended licensing agreement for LOL matches in January. The remaining caution of advertising and other revenues recorded single digit growth year over year. Conclude. Cost of revenues decreased by 30% year over year to RMB1.42 billion for Q3, be primarily due to decreased revenue sharing fees and content costs as well as standard costs. Conclude.

Speaker 2

Revenue sharing fees and content costs decreased by 31% year over year come to RMB1.23 billion for Q3, primarily due to the decrease focus on revenue sharing fees associated with the decline in live streaming revenues as well as lower costs be related to e sports content and content creators. Bandwidth costs decreased by 28% year over year translate to RMB83 1,000,000 for Q3. This was primarily due to improved bandwidth cost management, cover favorable pricing terms and continued technology enhancement efforts. Gross profit was RMB228,000,000 and gross margin was 13.9% for Q3. Conclude.

Speaker 2

Excluding share based compensation expenses, non GAAP gross profit was RMB231 1,000,000 And non GAAP gross margin was 14% for Q3. Research and development expenses decrease by 17% year over year to RMB142 1,000,000 for Q3, be primarily due to decreased personnel related expenses and share based compensation expenses. Conclude. Sales and marketing expenses decreased by 24% year over year to RMB95 1,000,000 be fulfilled primarily due to decreased marketing and promotional fees as well as personnel related expenses. Conclude.

Speaker 2

General and administrative expenses decreased by 23% year over year translate to RMB60 1,000,000 for Q3, primarily due to decreased share based compensation expenses. Be recorded. Other income was RMB40 1,000,000 for Q3 compared with RMB44 1,000,000 for the same period last year, come primarily due to lower indirect tax refunds and government subsidy. Come. As a result, operating loss was RMB 29,000,000 for Q3 compared with operating income be of RMB12 1,000,000 for the same period last year.

Speaker 2

Interest and short term investments income was RMB 128,000,000 for Q3 compared with RMB be RMB72,000,000 for the same period last year, primarily due to increased interest rates improve management of deposit products. Net income attributable to HUYA Inc. Was RMB12 1,000,000 for Q3 compared with RMB60 1,000,000 for the same period last year. Conclude. Excluding the share based compensation expenses and impairment loss of investments, be discussed.

Speaker 2

Non GAAP net income attributable to HUYA Inc. Was RMB103 1,000,000 for Q3 compare with KRW106 1,000,000 for the same period last year. Non GAAP net income margin was 6.3% for Q3. Diluted net income per ADS was RMB0.05 for Q3. Non GAAP diluted net income per ADS was RMB0.42 for Q3.

Speaker 2

As of September 30, 2023, conclude. The company had cash and cash equivalents, short term deposits and long term deposits be recorded of RMB10.6 billion compared with RMB10.8 billion as of June conclude the Q1 of 2019. Finally, let me provide an update on our share repurchase program. Conclude. We announced our share repurchase program of up to US100 $1,000,000 over a 12 month period begin in mid August 2023.

Speaker 2

Since then, we have repurchased a total of be US$9,000,000 of shares as of the end of Q3. We will continue to execute our share repurchase program, reinforcing our commitment to enhancing shareholder value. Come. With that, I would now like to open the call to your questions.

Operator

Thanks, Ashley, and hello, everyone. Be recorded. If you are dialing in by phone, please press 5 to ask a question, then press 6 to unmute yourself. Be recorded. If you are accessing the call from the Tencent Meeting or VoIP meeting applications, please click the raise hand button at the bottom left.

Operator

For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese, please immediately repeat your question in English. Today's first question comes from Ewen Zhang from China Renaissance.

Speaker 4

Begin. So my question about our strategic transformation, it has been 3 months since we first introduced back in August. Okay. You guys discuss about the latest update there. Thank you.

Speaker 3

In August, we announced the key transformation of commercialization and planned to provide more game related services, include game distribution, game prop sales, and game advertisements. In addition to meeting the needs of the game users focus on our platform and content consumption. It can also further meet their broader needs in game related aspects, thus obtaining higher commercial value for these users. We believe that the main advantage of Huya in developing these businesses be the active game users and streamers on the platforms. The content output of the streamers and their interaction with users can help achieve more game related services and a close cooperation relationship between Huya and game manufacturers in terms of the content.

Speaker 3

Come. According to our plan, our main goal this year is to build the infrastructure needed further new business, including the development of relevant functions and products, the connection of users' Huya account and game account. Conclude. At the same time, we would also establish new business cooperation with some game studios and games continue to reach cooperative business terms and to run through business processes. For instance, If we take it from the perspective of products and functions, we have now added the in game item more function further sell of GamePropped in Huya's live broadcast app, and we also realized the connection with the yellow shopping cart function begin in a live broadcasting room.

Speaker 3

At the same time, we also upgraded the game center model for the distribution and in model provide an optimized download function and expand the game library that we have. In terms of game cooperation, we have reached cooperation with 8 games, including The Owner of King, Crossfire, demigods and semi devils to mobile in terms of the selling of props and carry out small scale streamer cells. Conclude. At the same time, we also begin to explore the cooperation activities related to the sales of gamepods as well. For example, we have a streamer who carry out the first launch of the owner of King skin suits begin high attention from users on the platform.

Speaker 3

We also began to try streamer customized skin suits and other props. Summarize. We also made some initial cooperation with several games in game distributing, including be the new Diamonds Gods and Semi Devils Mobile and the MapleStory M, which was launched in August. In terms of game advertising, we have tried to explore some deeper forms of advertising cooperation with game companies, be a discussion of the cross platform brand exposure events. And for the currently popular mini games, we also pay more attention to the mini games advertising be in the form of performance based advertising.

Speaker 3

Come. At present, our overall progress is pretty much in line with our expectations. However, due to the limited number of corporate games right now, the cooperation of these games are still in a small scale. Be relatively small this year. But we also hope conclude that after all the preparation work have been completed this year, the business scale of game related services can be effectively expanded and more income can be obtained from next year.

Operator

Conclude. Thank you. We will have next question. The next question comes from Richard Sun from HSBC. Please go

Speaker 5

ahead. Will explain myself. Thank you management for taking my question. Can management dissect the revenue impact from Huya's own strategic transformation as well as the operating adjustments to improve the regulatory compliance and how does management feel the revenue trends in the future and when can we see the new revenue streams to have a better growth profile. Thank you.

Speaker 3

Conclude. At the last quarter meeting, we mentioned that in the process of strategic transformation of our business, summarize the internal resources in a targeted manner, we will make some proactive adjustments to the existing live streaming businesses. At the same time, in order to create a healthier platform environment, help us understand how to optimize the content and functions on the platform. Be recorded. These adjustments caused the decline of our live streaming revenue in the Q3.

Speaker 3

Be in addition, the overall industry environment and the users' willingness and affordability still need time to be fully restored, However, it is worth pointing out that we are actively optimizing the content cooperation and user experience in the Q3. The impact of live streaming revenue was slightly smaller than the company's previous expectations. Summarize. In the Q4, we expect to continue to be affected by the above mentioned factors. And because it is a complete quarter affected vary by the business adjustments.

Speaker 3

The year on year decline of live streaming revenue may be greater than that in the Q3. We hope that after these adjustments, the live streaming revenue will gradually return to a stable trend. In terms of advertising and other income, be recorded. The 3rd quarter was mainly affected by the decline in copyright income, which was due to higher amount of copyright income in the same period last year. Although the income of new business will be in a relatively reflect the impact of the decline in copyrighted income, conclude.

Speaker 3

Our Q3 advertising and other income level have achieved both a year over year and quarter over quarter growth. Conclude. When our preparations for the new game related services business are completed, we expect be the key driver of the company. The new business income will increase faster next year, and its proportion to the total income will increase. Conclude.

Speaker 3

Our goal is still to strive to achieve a more balanced income structure by 2025, be with the proportion of game related services income accounting for about 30% of the total revenue.

Operator

Come. Thank you. We will take next question. The next question comes from Fiona Fan from Jefferies. Fiona, please go ahead.

Speaker 6

Come. So I will transfer myself. Thanks management for taking my I asked a question on behalf of Thomas Chong from Jefferies. My question is, what did HUYA compare or what Huya have done for the major events such as Asian Games and S13 and how it impacts on the Huya platform traffic? Thanks.

Speaker 3

From the end of September to the beginning of October, Huya platform broadcasted the events of esports in Hangzhou Asian Games, including the, be recorded when the Esports became the first time as an official event in the Asian Games. Be recorded. We cherish this chance of broadcasting the Asian Games' e sports events. In order to better serve the audiences of the Asian Games, be provided 4 ks HDR support across multiple devices for the Asian Games' e sports events, end through real time super resolution image quality technology on the 4 devices side in order to ensure the clarity and smoothness of users viewing in a weak network environment. In terms of the content, we also made commentaries and comment on the esports events at Asian Games to help the users understand the corresponding events.

Speaker 3

Conclude. The esports events of the Asian Games has received extensive attention from users on our platform, amongst which be the peak concurrent users or PCU of League of Legends and Honor of King related to Asian Games events be ranked among the top 5 in the 3rd quarter. In addition, because of the influence of Asian Games and its rich content of esports and events, be available. It has also helped us to attract some new users. We hope to maintain these users through the high quality and diversified be content provided on our platform.

Speaker 3

On the whole, due to the short duration of the engine games, the positive impact on quarterly MAU post diluted. Be recorded. The League of Legends World Championship is an important event in Q4. Tuya has broadcasted this event for 6 consecutive years, gradually cultivating the audience's awareness of the event brand and also cultivated the habits of watching it on Huya platform be from the professional event users. We continue to focus on users' viewing and interactive experiences in order to provide industry, in addition to providing industry leading broadcast quality, this be time.

Speaker 3

We also provide users with professional event services such as customized reservation services, game watching assistance and MVP voting functions and other interactive functions. In addition, will better enhance the attention and user royalty of the event by combining online and offline operations in HUYA's own PGC programs.

Speaker 2

Be recorded.

Speaker 3

This year's S13 competition has not yet completed ended. We're very glad be the 1 team from LPL made it into the final, and we look forward to their great performance in the final. So far, the overall viewing data of this event is quite good, including the number of users and other key metrics, which have increased compared with S12 in the year of 2022. It had also we will continue to maintain the leading market share. We will also further evaluate the impact of this event after the event closes up.

Operator

Come. Thank you. We will take the next question. The next question comes from Lei Zhang from Bank of America. Please go ahead.

Speaker 7

Thank you, management, for taking my question. My question is mainly regarding margin trend. Specifically, we have some seasonality impact for Q4 historically. So can you give us more color on the margin trend for Q4? And be recorded, if any preliminary target for the profits in 2024 will be appreciated.

Speaker 7

Thank you.

Speaker 3

Conclude. In the Q3, we continued to work hard to control the cost and improve the efficiency. The costs related to streamers and bandwidth were optimized. And therefore, despite the decline in income, the gross profit rate show some resilience, reaching 13.9%. We also continue to control various operating expenses, help us to improve our financial performance.

Speaker 3

In the Q3, the total operating expenses declined by 20% year over year grow 8.7% quarter over quarter and achieved a net profit under GAAP and non GAAP. Conclude. In the Q4, due to the concentrated schedule of large events, especially the League of Legends S13, appear to play a role and may lead to a quarterly loss. However, due to the overall optimization of content costs and continuous be a streamlining of operating expenses over the entire year. It is expected that the loss in the Q4 of this year will be less extend the same period last year.

Speaker 2

Cushion Ping.

Speaker 3

From what we can see currently, because the Company's profit level in the 1st 3 quarters be better than previously expected. We expect that non GAAP net profit level in 2023 will turn positive with a small profit level, which is also ahead of our previous expectation of a breakeven time for the year. For the year of 2024, we hope that with the increase of the proportion of game related services businesses, be recorded, which by the way has a higher gross margin level than the existing live streaming business. And with cautious and continuous optimization of content costs and operating expenses, we can further enhance the profitability level of our company.

Operator

Begin. Thank you. Now we will take our last question today. It is from Evan Su from Morningstar. Kevin, please go ahead.

Speaker 8

Can you share more of your thinking on shares buyback? Will you accelerate your buyback going into the next few quarters? And lastly, can you share your plan on spending down your strong net cash position? Thank you.

Speaker 2

Will go.

Speaker 3

Middle of August, we announced have a plan of buying back of up to US100 $1,000,000 worth of shares in the next 12 months. We also hope to use cash more effectively and show the confidence of the Board of Directors and management of Huya and the future development. And as of September 30th, be recorded. We had bought back shares worth $9,000,000 We will continue to implement the buyback plan in good place serve as to improve shareholders' value.

Speaker 2

Be recorded.

Speaker 3

Regarding our usage of cash, under the current microenvironment and competitive climate, we believe that holding enough cash is conducive to maintaining a competitiveness of Huya. On the one hand, we'll continue to invest in content ecology, be challenged in the upper stream or downstream of our ecosystem and carefully consider possible potential opportunities. Further improve our outlook. We would also dynamically adjust according to the company's operating conditions and market climate. Follow.

Speaker 3

At the same time, we will also seriously consider various forms of return to our shareholders, including repo or dividends, be in order to repay the all long term support of our shareholders and improve the efficiency of our cash.

Operator

Begin. Okay. Thank you. Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations go through the contact information provided on our website or PSNT Financial Communications.

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Earnings Conference Call
HUYA Q3 2023
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