HUYA Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for the Second Quarter 2023 Earnings Conference Call for Hoya Inc. At this time, all participants are in a listen only mode. Today's conference call is being recorded. I will now turn the call over to Ms. Hanyu Layo, Company Investor Relations.

Operator

Please go ahead.

Speaker 1

Hi, guest. Can you hear?

Operator

Hello, this is the operator. Yes, I can hear you.

Speaker 1

Okay. Then

Speaker 2

we will use this line. Shall we start?

Operator

You may begin.

Speaker 2

Hello, everyone, and welcome to Hoya's Q2 2023 earnings conference call. 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. Hoya.com. A replay of the call will be available on the IR website in a few hours.

Speaker 2

Participants on today's call will be Mr. Song Hao Lin, Chairman of WUYA Mr. Junhong Hua, Acting Co CEO and Senior Vice President of Huya and Ms. Ashley Wu, Acting Co CEO and the Vice President of Finance. Management will begin with prepared remarks and the call will conclude with a Q and A session.

Speaker 2

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. As such, the company's results may be materially different from the views expressed today.

Speaker 2

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. The company does not assume any obligation to update any forward looking statements except as required under applicable law. We also note that Hoya's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures.

Speaker 2

Hoya's press release contains a reconciliation of the unaudited I will now turn the call over to our Chairman, Mr. Song Hao Lin. Sorry, can you hear us? Because there are some technical issues, I will help to deliver the remarks from our Chairman, Mr. Li.

Speaker 1

Can you hear?

Speaker 2

Yes, we can hear now.

Speaker 3

Hello, everyone. Thank you for joining our conference call today. It's my pleasure to participate in Huya's earnings call for the first time and to speak with all of you. Hoya celebrated its 7th anniversary last week, a remarkable milestone in this industry. Since I assumed my role as Hoya's Chairman in May, I have adopted a comprehensive review The company's business strategies is the company's management and business operations team As a leading game live streaming platform, Hoya has served a large number of game studios, Concentrators and the partners in the industry value chain since its inception.

Speaker 3

Now we aim to build on Hoya's success and experience to expand the company's role In the game industry, there will be exploring more opportunities that complement we have, well as Established user community and the content ecosystem to drive long term sustainable business development. We shared a brief strategy update with you earlier this month, and we'd like to Given Hoya has proven track record in the game live streaming market and growth collaboration with industry partners, We are well positioned to achieve this new goal as the company enters a new phase of development. I am confident that our upgraded vision to promote sustainable vitality and propel Hoya Now I would like to turn the call over to our acting Co CEO and SVP,

Speaker 4

Okay. Thank you, Mr. Lin, and hi, everyone. I'm glad to speak with you today. To expand on our Chairman's remarks, let me share some specifics about Hoya's current key objectives with respect to our new strategy.

Speaker 4

1st, we plan to shift our commercialization focus going forward, Exploring and increasing our users' value by integrating more game related service into our platform. Since Hoya's inception, we have largely monetized our user base through our live streaming service, Which primarily generated revenue by commissioning users' visual gift paid to broadcasters, Converting regular users into paying users involves a relatively long process under our current core model and conversion efficiency has yet to be improved. However, As most of you know, a significant part of our users are also gamers. And based on our service and insights, The active gamer user on Huya Live are willing to spend both on gameplay and related in game purchase. Also, the proportion and amount of in game spending by these gamer users tend to be higher than that of general gamers.

Speaker 4

Our rich game and sports content offerings have already satisfied our gamer users' content consumption needs, And we believe we can further capture this user group's commercial value by meeting their broader game related needs with expanded service models such as game distribution, in game item sales and game advertising. Let's take in game item sales as an example. We have previously held several successful in game sales of game tools, But these were one time events that sponsored mainly as marketing and promotional activities for those games. Going forward, we plan to regularize in game item sales and establish a recurrent cooperation mechanism With various games to meet users' ongoing demand for in game purchase of skins, weapons and other items, Especially when user watch broadcasters utilize these items during live games played on Huya. In addition to boosting monetization for our platform, this new service offering will provide additional channels for game publishers to promote their in game products and expand our broadcaster income streams.

Speaker 4

We are currently discussing commercial terms for this type of cooperation with an array of game studios and I'm looking forward to future partnerships with Edison Nogames. Furthermore, the technical support required to implement this business is already in place. Earlier this month, we completed development of our in game item mall function, Which will be embedded into certain of our live channels yellow shopping cart items. Once game users buy their game accounts with their Hoya account. They can seamlessly buy in game items when watching live streaming content According to our plan, we will implement the function on small scale CERN.

Speaker 4

Another priority is to expand income streams for our content creators and optimize our content cost structure. At present, our broadcasters' income mainly consisted of the sign on fee we provide and their share of video gift revenue. For many game broadcasters, the relatively fixed sign on fee is a major source of income. As we explore and Develop a wider range of game related service, we will work to optimize our content creator income structure by Enabling them to earn a greater share of game related service revenue, including revenues from in game item sales, Game distribution and advertising among other service. Driver income streams will also increase Huya's value proposition to content creators, attracting more broadcasters and their fan bases to our platform.

Speaker 4

We believe this adjustment to our content cost structure will boost the broadcasters' financial reward While better aligning our content cost with our revenue, to affect this transformation, We will first harness various technologies to upgrade the technical infrastructure required for our new service and product. As I mentioned above, our in game item mall function is already well underway. We also plan to upgrade interest tax across our live platform, which will allow users to early identify in game items meeting their personalized needs, as well as to discover new games or other content catering to their interest. In embracing the latest tech trend, We plan to actively explore the application of AI technologies, including large language model and AIGC to capture user interest trends and help create more engaging interactive content and experiences. In addition, we will further enhance our compliance capabilities by continuously investing in advanced technologies, Including an AI powered content monitoring system to minimize operational risk and several aspects of our business for more targeted allocation of internal resource to advance our strategic Transition towards a more balanced and sustainable development pathway.

Speaker 4

To that end, We are planning to scale back certain less cost effective live streaming features as well as Financial incentives for live streaming revenue generating campaigns and the proportion of our fixed spend on broadcasters. Auto, auto, adjustment may result in fluctuation in our operational and financial metrics in the near term. We believe our market leading position and strong execution capabilities will support our pursuit Our primary goal is to increase Our game related service revenue grew approximately 30% of total net revenues within 3 years, creating a more balanced and diverse revenue mix to strengthen our foundation for long term success. We are confident this transformation initiatives will empower our sustainable growth as We remain committed to serving the needs and interest of more users, content creators and industry partners. With that, I will now turn the call over to our acting Co CEO and VP of Finance, Ask Ashley Wu to share more details on our Q2 results.

Speaker 4

Ashley, please go ahead.

Speaker 5

Thank you, Junhong, and hello, everyone. I'll provide some updates on our operating metrics and financials for the Q2 of 2023. On the user side, Hoya Life's mobile MAUs reached $82,900,000 in the 2nd quarter compared with $82,100,000 in the 1st quarter an ATP $3,600,000 for the same period last year. The slight sequential improvement was mainly attributable to the increased esports content and entertainment programs we offer in the quarter. Recent new game launches also enriched the platform's game content.

Speaker 5

Meanwhile, Users and broadcasters' time spent on offline entertainment activities continue to affect us to some degree, especially given several short public holidays during the quarter. Overall, We maintained a stable user scale in the Q2 with the app next month's user retention rate staying above 70%. Now the content size in terms of license Esports event. We forecasted around 70 5 3rd party professional Esports tournaments in the Q2 of 2023 Attracting a viewership of approximately 490,000,000. We broadcasted a higher number of events In Q2 than in Q1, as more tournaments were scheduled for fewer events than in the same period of last year as we continue to implement stricter content procurement policies.

Speaker 5

Domestic professional leagues for major game titles such as the LPL Summer, KPL Spring NCFPL Summer continues to deliver strong performances. Also, both the LOL Midseason Invitational and the CSO brass Paris Major proved very popular. In June, we broadcasted Water Link Master Tokyo, a tournament featuring professional teams From China and around the world, given the timing of this major event just before the official China launch of Waterfront in July. It's attracting attention from our users And serve as an engaging teacher for this new game on our platform. Currently, Vulnerability is gradually cultivating its streamers and co audience on Hoya and we expect to offer More related content, including self organized tournaments as its domestic e sports league system develops.

Speaker 5

We also broadcasted more than 30 self organized Esports tournaments and entertainment PGC shows in the 2nd quarter With a total viewership of approximately $100,000,000 for self produced content, We aim to create a metric of high quality in house IPs. The new systems of our Hoya branded All Star Cup for Peacekeeper Elite and Thunder Cup for Honor of Kings were among our most watched events during the quarter. After multiple seasons, the Thunder series has become one of the most influential IPs for HOK tournament on our platform alongside the official KTL competitions. During the CSO press Paris major event, we conducted our commentary program, Hu Xia Major, Live from a studio in Paris, winning rates from the tournament audience and increasing our user community In addition, we held the 8th season of HUYA kung fu panel During the quarter, extending these long running programs popularity, it's also worth mentioning that We recently leveraged its success to launch a series of carnival type programs integrating both offline and online activities such as Basketball Carnival and Billions Carnival, capitalizing on the growing demand for entertaining sports content. In line with our new strategy, We will continue to focus on developing our user community and enhancing our content ecosystem across user generated content, professional user generated content as well as licensed and self produced professional programs.

Speaker 5

We are confident that our high quality content and European user experience We'll continue to support our business transformation. In terms of financial performance, We achieved total net revenue of RMB1.82 billion and non GAAP net profit of RMB115,000,000 for the Q2 of 2023. Despite the year over year revenue decrease amidst a challenging micro and regulatory environment, We continue to make progress in optimizing costs and expenses. In Q2, Our gross margin improved both year over year and quarter over quarter, primarily driven by savings In content costs, as we continue to scrutinize content related spending, particularly content licensing and broadcaster related costs. Along with the efficiency gains we maintain, we further narrow our operating loss with a non GAAP operating loss of approximately RMB2 1,000,000 in the second quarter.

Speaker 5

Let's move on to our Q2 financial details. Our total net revenues were RMB1.82 billion for Q2, a decline from RMB2.28 billion for the same period last year. Live streaming revenues were RMB1.72 billion for Q2 compared with RMB2.05 billion for the same period last year, primarily due to a decrease in the number of quarterly paying users on Hoya Life to 4,600,000 For the Q2 of 2023, from $5,600,000 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 as well as the increase in offline entertainment activities, which affected the time spent by long tail users on our platform. Advertising and other revenues were RMB106 1,000,000 for Q2 was primarily due to a significant decrease in content sub licensing revenues. If we exclude the impact of the reduction In content, the licensing revenues as a result of our amended licensing agreement for LOL Magic in January, The remaining portion of advertising and other revenues recorded single digit growth year over year.

Speaker 5

Cost of revenues decreased by 25% year over year to RMB1.55 billion for Q2, primarily due to decreased revenue sharing fees and content costs as well as bandwidth costs. Revenue sharing fees and content costs decreased by 24% year over year to RMB1.34 billion for Q2, primarily due to the decrease in revenue sharing fees Associated with the decline in live streaming revenues and lower costs related to esports content as well as content creators. Service costs decreased by 34% year over year to RMB dollars 101,000,000 for Q2. This was primarily due to improved bandwidth cost management and continued technology enhancement efforts. Gross profit was RMB273 1,000,000 And gross margin was 15% for Q2.

Speaker 5

Excluding share based compensation expenses, Non GAAP gross profit was RMB278 1,000,000 and non GAAP gross margin was 15.3% for Q2. Research and development expenses decreased by 14% year over year to RMB144 1,000,000 for Q2, increased by 6% year over year to RMB106 1,000,000 for Q2, primarily due to increased Promotional fees. General and administrative expenses decreased by 9% year over year to RMB75 1,000,000 for Q2, primarily due to decreased personnel related expenses and share based compensation expenses. Other income was RMB24 1,000,000 for Q3 Compared with RMB30 1,000,000 for the same period of 2022, primarily due to lower indirect tax reforms and government services. As a result, operating loss was RMB29 1,000,000 for Q2 compared with RMB81 1,000,000 for the same period of 2022.

Speaker 5

Interest and short term investment income was RMB125 1,000,000 for Q2 compared with RMB66,000,000 for the same period of 2022, Net income attributable to HUYA Inc. Was RMB $47,000,000 for Q2 compared with a net loss attributable to Hoya of RMB 19,000,000 for the same period of 2022. Excluding the share based compensation expenses An impairment loss of investments, non GAAP net income attributable to Hoya Inc. Was RMB115,000,000 for Q2 compared with RMB6 1,000,000 For the same period of 2022, non GAAP net income margin was 6.3% for Q2. Diluted net income per ADS was RMB0.09 for Q2.

Speaker 5

Non GAAP diluted net income per ADS was RMB0.47 for Q2. As of June 30, 2023, the company had cash and cash equivalents, Short term deposits and long term deposits of RMB10.8 billion compared with RMB RMB 10,300,000,000 as of March 31, 2023. Before we conclude, I'm pleased to announce that Hoya's Board of Directors has approved a share repurchase program, under which the company may repurchase up to USD 100,000,000 of its ASC's Our ordinary shares over the next 12 months, I believe this move further deepens our commitment to building long term value for our shareholders. With that, I would now like to open the call to your questions.

Operator

Thank you. Inc. We will take our first question. Your first question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Operator

Your line is open.

Speaker 6

Thanks management for taking my questions. My first question is about our new strategies. Can management give us more details about the implementation? And secondly, talking about the target For our new strategies, are there any short, medium and long term targets that we can share? Thank you.

Speaker 1

Based on Hoya's existing user community and content ecosystem, we hope to further enhance the commercialization of game Inc. Bring new breakthroughs to HUYA and improving our position in the game market and develop long term opportunities in the game value trend and promote the long term sustainable development of the business. And our main goals and plans include the following points. We shift the focus of commercialization towards game related services such as game distribution, game item sales and game advertisements so as to deeply explore the commercial value of game users. This is based on our significant gamer population.

Speaker 1

Although our users are willing and able to spend money on games, The related consumption on HUYA platform has been very limited due to our previous business model, and therefore, we plan to provide more game related This can not only meet the needs of the gamers to buy in game items and discover and download new titles when watching live games, but also bring additional revenue channels for game manufacturers and increase the that revenue stream for broadcasters, which is beneficial to all the parties in the industry chain. At the same time, We strive to optimize the income structure of content creators on our platform and expand the income sources for broadcasters other than virtual gift revenue sharing and sign on fees and let the broadcasters get more income from the sales, Distribution and advertising of game items. This is also conducive to enhancing the relevance between HUYA's content cost and income and reducing the fixed sign on fee costs and improved efficiency of the content cost we expand. At this stage, We're mainly engaged in the infrastructure building for new business, including the creation of functions and products needed to provide game related services and also negotiating commercial terms with relevant game studios and publishers.

Speaker 1

Earlier this month, We basically completed the development of the function of in game item sales more and plan to activate the process of in game item sales and game distribution

Operator

this year and

Speaker 1

make them available on in the year 2023. At the same time, we're also making some adjustments to the live broadcast monetization business to reduce some inefficient resource investment. And next, we will expand game related services to more games, including mainstream games and potential new titles and further optimize the user experiences. And our goal is to continuously increase the revenue proportion of game related services in the next 3 years and strive to achieve a more balanced income structure for the company as a whole, by which we mean that we hope to make this Part of game related services income as about 30% of the total income.

Speaker 2

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

Operator

Thank you. We will take our next question. Your next question comes from the line of Daniel Han from UBS. Please go ahead. Your line is open.

Speaker 7

Let me translate myself. The company is going through a major strategic transformation. Given this, what is the outlook for the revenue and margins in the second half of this year? Thank you.

Speaker 1

In transforming our business, in order to mobilize and allocate internal resources in a more targeted manner, We have begun to actively adjust various aspects of our existing business. For example, we are reducing some inefficient live These adjustments may cause fluctuations in our operational and financial indicators in the short term, especially in the second half of this year when the scale of the new business revenue is relatively small and the year over year decline of Live broadcast business revenue may be larger than that in the first half of this year due to the impact of resource reallocation. So this will have a more obvious impact on the overall revenue. At the same time, we'll continue to promote measures to reduce the costs and increase efficiency and adopt stricter control over expenditures. Although there will be some new investments such as further research and development and talent acquisition related to new businesses.

Speaker 1

We'll continue to be cautious about the content expenses such as copyrights and broadcasters, and we'll be cautious about channel promotion in terms of operating expenses. And in terms of the profit, we still maintain the expectation that the gross Profit margin will increase for the whole year and the non GAAP net loss will be narrower than that in 2022. In the medium and long term, the GP margin of the game related business is expected to be higher than that of the existing live broadcast business With a bigger mix of high gross margin business revenue and because of the content cost related to broadcasters more Closer to income, we expect the overall profit situation will be improved and be maintained sustainably.

Speaker 2

Thank you. Let's have next question please.

Operator

Thank you. We will take our next question. And the question comes from the line of Li Zhang from Bank of America Securities. Please go ahead. Your line is open.

Speaker 1

Thanks management for taking my question. My first question is regarding the update on the recent regulatory environment and any impact to our business. 2nd delay, How should we look at the performance of Tencent's newly launched game Valorant in our platform? Thank you. At present, the authority requirements on the content of a live broadcast platform, the behavior of broadcasters and users and the protection of miners are becoming more and more standardized and systematic.

Speaker 1

And therefore, the overall management trend is also relatively standard and strict. We believe that the purpose is to better promote the standardization of the industry and promote the benign and sustainable development. As a leader in our industry, Hoya has recently taken the initiative to upgrade and optimize the content and functions of our platform and refine the operation strategy and improve the efficiency and create a healthier platform environment. We will also continue to maintain a more standardized and healthy development model for the content on our platform to guide broadcasters and guilds to strengthen their compliance awareness and pay attention to improving the compliance capability on the platform On the front of the new game, The live streaming performances of the new games is relatively stable as a whole and we also expect that the game itself continues to be popular. It will attract more audiences of live and derivative content.

Speaker 1

Hoya provides launch incentives and traffic support for the launch of the new games and we'll also organize activities and provide some prop products together with the game companies and with weighted supports according to the different game characteristics. For example, Valorant, we have achieved a leading market share and for this popular esports game will focus on establishing its advantages in the content ecology of events. And in addition to the official copyright events, We will launch more self organized events for this game, including events attended by the broadcasters and professional players to further enhance the activity of this game sector.

Speaker 2

Okay. Thank you. Next question please.

Operator

Thank you. We will take our next question. Your next question comes from the line of Yuan Zhang from China Renaissance. Please go ahead. Your line is open.

Speaker 7

So thanks for taking my question. So with our commercialization focus shifting,

Speaker 1

Our new strategic plan is deeply embedded in Huya's existing user groups and content ecology. The rich esports and game content on Hoya helps to attract and maintain active core game users, which will also help to support our goal of providing more game services.

Speaker 3

Okay.

Speaker 1

The broadcaster content will continue to be an important part of content on HUYA's platform, Especially our new commercial forms such as game distribution and prompt sales will also be achieved through cooperation with the broadcasters. We'll also provide more detailed content operations for potential and promising broadcasters and help create more popular content by combining event commentary with daily content and digging deep into the game content. They will also bring technical support of products such as bullet chatting interactive games, live interactive functions and virtual live broadcast technologies. At the same time, this will help us to improve the application of AIGC, which will also help to enhance the diversity of the content presentation. As for the content of copyrighted sports, we will also continue to implement cost reduction measures and cover the top tier events of major games on the basis of cost performance evaluation.

Speaker 1

As for the self made content, Due to its relatively high ROI, we will give more attention to self made content and create a high quality self organized IP metrics such as HUYA Thunder Series, HUYA All Star Cup and Tianming Cup. Through our own events, We will also better absorb the user traffic from large scale copyright events. In addition, we'll continue to pay attention to the integration of live broadcast, video, game community and other content forms and continue to bring user quality experiences.

Speaker 5

Thank you.

Operator

Thank you. There seems to be no further questions. Now I'd like to turn the call back over to the company for closing remarks. Thank you once again for joining us today. If you have further questions,

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HUYA Q2 2023
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