HUYA Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 16, 2023

There are 6 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for the Q1 2023 Earnings Conference Call for Huya Yin. Yin. Today's conference call is being recorded. I'll now turn the call over to Ms.

Operator

Hanju Liu, Company Investor Relations. Please go ahead.

Speaker 1

Hello, everyone, and welcome to Huya's Q1 2023 earnings conference Yin. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website in a few hours. Participants on today's call will be Mr.

Speaker 1

Rongjie Dong, Chief Executive Officer of Huya and Ms. Ashley Wu, Vice President of Finance. Management will begin with 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.

Speaker 1

Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. 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.

Speaker 1

Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under applicable law. Please also note that Huya's earnings press release and this conference call include discussions of our unaudited GAAP Financial information as well as unaudited non GAAP financial measures. Huya's press release contains a reconciliation of I will now I'll turn the call over to our VP of Finance, Ashley Wu, who will read today's prepared remarks on behalf of Mr.

Speaker 2

Dou. Please go ahead. Hello, everyone. Thank you for joining our conference call today. I'm pleased to deliver the following brief remarks On behalf of Mr.

Speaker 2

Dong, in the Q1 of 2023, in the soft micro environment And seasonal headwinds, we achieved steady development, maintaining a stable user scale year over year and delivering total net revenues of RMB1.95 billion and non GAAP net income of RMB RMB85,500,000. During the quarter, we continued to make improvements in our content offerings, Yin. Products and technologies in preparation for a more favorable market environment ahead. On the user side, Huya Life mobile MAUs reached 82,100,000 in the 1st quarter, up slightly compared with the same period last year. The Q1 is typically a low season for live streaming activities due to the Chinese New Year holidays.

Speaker 2

Furthermore, Given China's reopening early in Q1 this year, users and broadcasters dedicated more time to offline entertainment activities. With this in mind, We continue to spend prudently on promotional and marketing channels, driven a 37% year over year decline in sales and marketing expenses in the Q1. We believe our appearing Esports and entertainment program offerings as well as our continued efforts to enhance our products with interactive features help us sustain user engagement during the period. We have been closely monitoring changes in the dynamic market environment and striving to quickly and effectively refine our content and operational strategies to better meet our users' needs. Next, let me share with you some updates on our recent product and technology development.

Speaker 2

In March, we held Huya Bong Night, our annual gala event and our 1st large scale offline event Yin. After more than a year, Huya Gong Lite recognizes and rewards our broadcasters, talent agencies and various business partners and feature great performances by renowned streamers and our most popular streamers. This year, we also introduced a virtual stage for the gallant live broadcast for the first time, representing an upgrade from the virtual e sports venue we launched last year. With this virtual stage, online viewers fell as if they were on-site in an immersive life atmosphere. We also added creative interaction features to make this viewing experience even more fun and exciting.

Speaker 2

For example, Viewers assessing the virtual scene were able to join live performance same camp, showing their support through their avatar, costumes and decorations, and both for their favorite teams. Virtual viewers also had access to our virtual Gravity tools, which allow them to draw pictures and Gravity Design and simultaneously display them on the scene of the live stage for the on-site audience to enjoy. Encouragingly, the number of total online interactions and the popularity index of this event on our platform rose the record of peer risk gallows. We believe future features like this help to promote the integration of online and off line Performances and better enable co creation and interaction with users. Building on the success of this threat event.

Speaker 2

We plan to bring these features to our broadcasters and users in more scenarios in the future. Recently, the interactive game categories on our platform has been gaining more traction as interactive games allow viewers to directly engage with broadcasters and influenced game outcomes in real time, creating a highly interactive and engaging experience. In response to the trend, we have introduced several interactive games Yin. Through our Huya Mini 2 open platform, enable broadcasters to select and apply those tools during their streaming session. Currently, our most popular interactive games Our Battle of Law and crashes.

Speaker 2

Battle of Law features streamers' fan interrelationships View wire user participation in competition through gifting and bully checks, Wildcatchers offers real time interaction between broadcasters and viewers from 2 camps. Although still in an early development stage, our interactive game category is gradually cultivating its core We will continue to release upgrades to our existing tools and welcome additional good quality interactive games to our platform in an effort to bring more monetization opportunities to our broadcasters. We are also focusing on further building Gamestication elements and integrating interactive content into live streaming sections for a more dynamic viewing and interaction effect, thereby increasing viewers' engagement. As more game titles have received approval in China in recent months, We also plan to diversify our operational activities and deepen our cooperation with game companies to seize the opportunities brought by new game launches. For example, through our gift shop feature, Roadcasters and viewers can give free exclusive game chews and other free gifts provided by game studios for use in new games such as Anjum Matosla and Honkai: Star Rail.

Speaker 2

We are also organizing platform based competition for new games, inviting popular broadcasters to participate. Leveraging our strong ability to monitor new games and our proven success in game promotion. We are confident we can identify and offer attractive new game content and enhance new games popularity, thus further solidifying our leading position in game live streaming markets and increasing our presence in the game value chain. While we are still facing some external uncertainties In the near term, we remain positive about the overall market recovery process. Our efforts across content enrichment, product advancement and exploration of commercial opportunities, as well as our constant improvements in operational efficiency are setting the stage for our long term development.

Speaker 2

Also, as Tencent recently increased its holding of Huya's shares, we look forward to deeper collaboration with Yin and enjoy the synergies we can create together. We will continue to seek growth opportunities As the business environment rebounds, we intend to creating sustainable value for our users, broadcasters and all other stakeholders. This concludes Mr. Dong's remarks. Now I will continue with some updates on our content enrichment and diversification initiatives.

Speaker 1

During the Q1 of 2023,

Speaker 2

we broadcasted around 55 3rd party professional Esports tournaments, attracting a viewership of over 400,000,000. While we experienced a gradual uptick in the number of professional tournaments starting from the beginning of this year, The overall quantity of tournaments in the Q1 was lower than that of Q1 last year, primarily due to our stricter content procurement policies and some scheduling Our most popular events during the quarter included LPL Spring, KPL Spring and CFPL as well as our exclusive broadcast of LCK Spring and CSO Tournament, ETL Season 17 and IEM Yin. We also broadcasted around 15 self organized Esports tournaments an entertainment PGC show in the Q1, generating total viewership of approximately $77,000,000 Two standouts this quarter were Huya Chaoshen Cup for Peacekeeper Elite and JIn Cup for Courtfire Mobile. Our partnership with CFM Inn, enable our viewers to claim a variety of Huya custom game juice while watching Jayin Cup matches, Showing casing our cost promotional capabilities, also as we strive To enrich our content genre, we launched Huya by below top slow Couture, capturing the attention of 4th Sents across our platform. As always, We will dramatically adjust our offering of self produced tournaments and programs According to users' interest, as we seek to complement the licensed professional content supplied on our platform.

Speaker 2

In addition, during our annual gala period in March, we hosted an Esports Yin. Huya Boon Fight, inviting popular streamers, celebrities and attemeter players to join Competitions among the game titles, including League of Legends, Owner of Kings and Identity 5. Held in Macau, this large esports event not only engaged a wide audience, both online and on-site. It also helped more Esports culture exchange among youth groups in the Guangdong, Hong Kong, Macau Greater Bay Area. Next, Let me provide some color on our operational optimization efforts.

Speaker 2

In the Q1, Our content licensing costs decreased significantly year over year and quarter over quarter, Primarily due to the pricing term adjustments following the amended licensing agreement for LOL Magic in January, as well as our reduced procurement and production of licensed and self organized content. We also continue to realize savings On broadcast charge related costs and bandwidth usage, full detailed ROI analysis and efficient use of Technical Resources. As a result, we achieved a nice rebound in our gross margin, nearly reaching the Q1 of 2022 level despite lower total revenues this quarter. We also solidified our efficiency gains, reducing our total operating expenses in the Q1 by 26% year over year and 7% compared with the period quarter. Therefore, we narrowed our operating loss and achieved a positive net profit this quarter.

Speaker 2

I also would like to point out that while we expect overall tournament content costs to decline this year compared to 2022, permanent content costs will still weigh more heavily in the second half of the year due to the seasonality of event schedule. This may create some ongoing fluctuations in our profit levels. Next, moving on to our Q1 financial details. Our total net revenues were RMB1.95 billion for Q1, a decline from RMB2.46 billion for the same period last year. Live streaming revenues were RMB1.86 billion for Q1 compared with RMB2.15 RMB 2,150,000,000 for the same period last year.

Speaker 2

The decrease was primarily due to A decreased number of paying users on Huya Life as the micro and regulatory environment continued to adversely affect paying user sentiment. Advertising and other revenues were RMB89 1,000,000 for Q1, RMB313 1,000,000 for the same period last year. This was primarily due to a significant decrease in content sub licensing revenues as well as soft demand for advertising services resulting from the challenging micro environment. As we mentioned previously, following our amended licensing agreement for LOL matches in January. We no longer own the sub licensing rights for LTL matches during the 2023 to 2025 period.

Speaker 2

While the sub licensing of those LTL metrics was the primary contributor to our content licensing revenues in 2022. Cost of revenues decreased by 21% year over year to RMB1.69 billion for Q1, primarily due to decreased revenue sharing fees and content costs as well as bandwidth costs. Revenue sharing fees and content costs decreased by 18% year over year to RMB1.49 billion for Q1, primarily due to the decrease In revenue sharing fees associated with the decline in live streaming revenues and lower costs related to the Esports content as well as content creators. Buyervers costs decreased by 44% year over year to RMB94 1,000,000 for Q1. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts, as well as less bandwidth usage as a result of strategic adjustments in our overseas business to remain focused on key markets.

Speaker 2

Gross profit was RMB 2 and $56,000,000 for Q1, primarily due to lower revenues. Gross margin was 13.2% for Q1. Excluding share based compensation expenses, Non GAAP gross profit was RMB265 1,000,000 and non GAAP gross margin was 13.6% for Q1. Research and development expenses decreased by 22% year over year to RMB152 1,000,000 for Q1, primarily due to decreased personnel related expenses and share based compensation expenses. Sales and marketing expenses decreased by 37% year over year to RMB91 1,000,000 for Q1, primarily due to decreased marketing and promotion fees, as well as personnel related expenses.

Speaker 2

General and administrative expenses decreased by 16% year over year to RMB68 1,000,000 for Q1, primarily due to decreased personnel related expenses and share based compensation expenses. Other income was RMB4 1,000,000 for Q1, compared with RMB28 million for the same period of 2022, primarily due to lower tax response and Government Facilities. As a result, operating loss was RMB51 1,000,000 for Q1, compared with RMB60 1,000,000 for the same period of 2022. Interest and short term investment income were RMB96 1,000,000 for Q1, compared with RMB59 1,000,000 for the same period of 2022, primarily due to increased interest rates. Net income attributable to Huya Inc.

Speaker 2

Was RMB45 1,000,000 for Q1 compared with a net loss attributable to Huya of RMB3 1,000,000 for the same period of 2022. Non GAAP net income attributable to Huya Inc. Was RMB86 1,000,000 for Q1, compared with RMB47 1,000,000 for the same period of 2022. Non GAAP net income margin was 4.4% for Q1. Diluted net income per ADS was RMB0.18 for Q1.

Speaker 2

Non GAAP diluted net income per ADS was RMB0.35 for Q1. As of March 31, 2023, the Company had cash and cash equivalents, Short term deposits, short term investments and long term deposits of RMB10.3 billion compared with RMB10.7 billion as of December 31, 2022. With that, I would now like to open the call to your questions.

Operator

Thank you. We will now begin the question and answer session. Huya

Speaker 3

Huya

Operator

Yin. Huya Yin. 1st question comes from the line of Richard Sun from HSBC. Please go ahead.

Speaker 4

Huya Yin. So thank you management for taking my questions. I will translate it myself. So after reopening and we've seen more offline entertainment activities coming back, so how does the impact online in terms of the user behavior as well as the consumption? Thank you.

Speaker 3

In the Q1 of this year, the behavior of users and streamers on our platform was mainly affected by the following aspects. Generally speaking, the Chinese New Year period used to be the off season for live broadcast activities And the frequency of the streamers are usually reduced with less corresponding as well as less corresponding events. So the viewing was affected. In addition, the Chinese New Year this year was earlier than previous years, coupled with huge infections numbers of streamers. Therefore, it affected the behaviors of users and streamers.

Speaker 3

With the optimization of prevention and control measures across the country, we noticed that some users and streamers shifted to offline entertainment activities in a compensatory manner, which affected the live streamers as well as the users' viewing in the short term, especially the viewing frequency and duration of the long tail uses that's affected the users consumption on the platform to a certain We believe that these impacts are relatively temporary and also on the whole, we expect that our user yin. In the Q2 of this year, there are some short vacations And these vacations had increased the travelings and other entertainment activities taking place to our users and causing some fluctuations to the viewing times on our platforms. So in the future, we'll continue to monitor the users' and streamers' behaviors and to provide appropriate content and operational activities for them. Despite these external influences, we continue to fine tune our content and product In order to strive to increase the user participation and so that we'll be able to maintain a Steady growth of our user scale in the Q1 on a year over year basis maintained a prudent spending on promotion Yin channels. For example, we have upgraded the virtual esports venue launched last year in March, in.

Speaker 3

Last March, bringing a more interactive virtual stage to the annual brand gala of Huya. The total number of online interactions of this activity also exceeded the record of previous parties. This function is also conducive to better integration of online and offline content in the context of an increased offline activities. We also plan to further expand these applications of the technologies and offer this The video content and community functions provided on our platforms are also conducive to use this consumption of content during the non live broadcast period during the speaker of the streamer.

Speaker 1

Thank you. Let's have the next question please.

Operator

Thank you for the questions. One moment for the next question. Next up, we have the line from Yiwen Zhang from China Renaissance. Please go ahead.

Speaker 5

So thanks for taking my question. So my question regarding this year's revenue trend. Can you discuss it in details including both

Speaker 3

We communicated this in the last quarter's earnings call. The live broadcast revenue in the first Half of this year is still relatively weaker on a year on year basis, mainly because of the macroeconomic factors and the year on year impact of last year's live broadcast policy on the revenue. Although the live broadcast revenue in the first quarter is still ying. Through our operational efforts, the decline was narrowing down than the previous quarter. And as I mentioned earlier, we noticed that the recent increase in offline entertainment activities may also have some short term influences over the revenue of live streaming activities.

Speaker 3

So we will continue to observe and monitor its impact. We are still really optimistic about the recovery of the overall economic environment And also we remain positive about the future launch of more game titles. We also hope that by Solidating our position in the live game market and by seizing the opportunity of new games, we'll be able to promote new forms of live broadcasting such as live interactive games and also improve our monetization capability in overseas from live broadcasting, so that we'll be able to gradually recover the revenue in the subsequent quarters. In terms of advertising and other revenue, If we exclude the impact of the significant decline in copyright revenue caused by the revision of the amendment of LOL copyright agreements, advertising revenue in the Q1 was also relatively low due to seasonal and macroeconomic environment. However, we expect that advertising business will benefit from the recovery of the market environment and increased the demand for our game advertising brought by the new launch of games, so its revenue will have an opportunity to gradually recover.

Speaker 3

At the same time, we'll continue to optimize the video content and game community so as to lay the good foundation for future and subsequent increases of advertisement and monetization on new games and continue to explore new revenue growth possibilities.

Speaker 1

Thank you. Next question please.

Operator

Thank you. Huya Yin. Next question comes from the line of Lei Zhang from Bank of America. Please

Speaker 3

Huya Yin. Thanks management for taking my question. My first question is mainly regarding the impact from new game supply to our live streaming business this year. Secondly, can you give us some updates on the cooperation with Tencent? Thank you.

Speaker 3

As a live platform for games, Huya is closely related to the gaming industry. So from the perspective of game players, the platform can provide opportunity for the players to understand and discover new games and consume the relevant content after playing the game. And for the Game companies, we are able to help them promote and expand their influence for existing game users to retain Yin and to help the old users to return. With the normalization of game title approval, new game titles will become available in the market. And we believe that this will help us to bring more opportunities for user expansion and promotion cooperation opportunities with the game companies.

Speaker 3

Because the new games will bring increased supply of live content and if these content and new games become popular, It would be very conducive to increase the users and to promote their activities on our platforms. We would also like to attract users and improve their viewing levels through diversified activities, including providing Launch and viewing incentives, holding platform events, and we can also strengthen our cooperation with the game companies such as the joint launch of interactive play methods and platform specific game props, so that we can help the users increase their participation and to strengthen our role in the game industry. Compared with competitive games such as mobile or FPS, Well, these probably would have better live viewing experiences for the users and would be very conducive to accumulating new users. But for other types of scams, especially those that are really attractive to users, we would also allocate Our resources accordingly according to the launch and viewing data to better meet the demands of our users. And the impact of new game titles would have an impact on our revenue as well, even though it's a little bit slower because it takes some time for their live broadcasters to accumulate their core users and transform them into paying users.

Speaker 3

And of course, we would provide some opportunities for them to cooperate and interact with one another through our operational activities on the platforms. As for our cooperation with Tencent, we have always been there because Yin with Tencent on the business level, especially in games and events. And through Huya featured live To function in a number of Tencent owned games, we have deepened length between game accounts and platform accounts. We help to enhance the activity of the game while bringing users to a better live viewing experiences. And with more games coming online, we could also promote those the popularity of those new games and their relevant live content.

Speaker 3

And for example, recently there's And Dawn and Metalswap as well as the Valorant that will soon be launched. We are actively cooperating with Tencent on these scams. In terms of the Esports events, we have established a strategic cooperation relationship with a member of Tencent's game event Together with our industry leading live broadcast technologies and activities, we are able to touch and reach a wider range of users. And also at the same time, we held a number of officially licensed events and tournaments so as to enrich our self organized Events is content and we are also exploring new ways of cooperation by utilizing Yin. Our technologies in audio and video streamers and game content and etcetera, so as to have deeper cooperation and generate better synergy with Tencent.

Speaker 1

Thank you. Next question please.

Operator

Huya Yin. Next questions will come from the line of Jasmine Wang

Speaker 3

Thanks management for taking my question. After effective cost control in 1Q, how should we think about The cost saving in terms of CogS and OpEx for the rest of the year and what is the In terms of streamer costs, The overall market composition environment has not changed much from the previous period and so We maintained a similar sharing ratio in the Q1. At present, we had also made some fine tuning Of the sharing policies, these can enable us to provide different levels of According to the performance and demand in different categories. In terms of the signing fees, We continue to conduct a more strict analysis and control of the cost of the signing fees, so the cost in the Q1 was reduced. And at present, we expect that the future market trend will remain relatively stable and we'll continue to pay attention to the trend of our competitors and make flexible adjustments to the swimmer incentive policy.

Speaker 3

In terms of the cost of copyright events Since self organized content, we had also achieved very effective savings in the Q1. On one hand, the number of events was reduced due to more strict screening of event procurement and production. At the same time, the prices of some of our events, especially the LPL enjoyed better terms through the amendment of the copyright So we are expecting that the cost of events and self organized content in the whole year will be significantly lower Then that in the year of 2022. And of course, the cost of events will be affected by the scheduling of events. So there will be more large scale events and activities in the second quarter and in the second half of the year compared with the first quarter.

Speaker 3

So this will probably bring some fluctuations to the total cost of our copyright events and content.

Speaker 4

Huya

Speaker 3

Yin. Overall speaking, we made very good progress in Past optimization in the Q1, even though with the decrease in the revenue, our gross profit margin in the Q1 had significantly improved from quarter over quarter basis and reached a level similar to the same period last year. And from the perspective of the whole year, we believe that the gross margin will improve compared with 2022. And in terms of the operating costs, our Q1 total operating expenses decreased by 26% year over year and 7% quarter over quarter. And since we strengthened our cost cutting and efficiency improvement measures Yin.

Speaker 3

In the second half of in the second quarter of last year, our Q1 total operating expenses has decreased by double digits for 4 consecutive quarters. And we are hoping to further consolidate the achievements that we had got so far in efficiency improvements and to look forward to have an even better optimization of operating costs We made a net profit in the Q1 of this year. And even though the profit rate probably will be subject to subsequent fluctuations due to seasonality in later quarters. We will aim to further narrow the losses And improve the profitability capability from the perspective of the whole year.

Speaker 1

Okay. Thank you. Let's have next question, please.

Operator

Certainly. One moment for the next question. Next up, we have the line from Thomas Chong from Jefferies. Please proceed.

Speaker 3

So I'll transfer myself. Huya Yin. My question is, how should we think of the current evacuation environment on the live streaming and this impact? Thanks.

Speaker 2

Huyaing.

Speaker 3

As far as we understand, the overall life Yin. The regulatory environment has not changed much compared with previous quarters and the requirement for the content For the behavior of swimmers and users and the protection of miners have always been relatively stringent from the government. So our industry continues to come under regulatory attention. I believe that the purpose of doing so is to better regulate the industry and to promote healthy and sustainable development as a whole. So under current environment climate, Huya will continue to strengthen our supervision and maintain an effective monitoring mechanism for the content on our platform And to guide the 3Maths and the guild to strengthen their compliance awareness and improve our platform's compliance capability through technical advancement and operation.

Speaker 3

As you know that In May last year, there was a new set of streaming related policies from the government, and we made Adjustment accordingly on our products and operations on time in order to make sure that we meet the policy requirements and therefore caused some fluctuations in the live broadcast revenue in subsequent quarters. So we expect that the impact of such policy changes in our revenue will gradually be reduced after the Q2 of this year. And at the same time, we will keep a close eye on the policy changes by communicating regularly with our authorities and pay close attention to relevant requirements and better adapt our product and operations to make sure that we can meet the policy requirements.

Speaker 1

Okay. Thank you.

Operator

There's no further questions. Now I'd like to turn the call back over to the company for closing remarks.

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact in. Huya's Investor Relations through the contact information provided on our website or the PS and T Group Investor Relations. Thank you.

Operator

This concludes this conference call. You may now disconnect your line. Thank you.

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