Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's second quarter 2020 earnings conference call. At this time, all participants are in listen -only mode. We will be hosting a question and answer session after management's prepared remarks. I would now like to turn the call over to the first speaker today, Ms. Emma Ma, investor relations of DouYu. Please go ahead, ma'am.
Thank you, operator. Hello, everyone. Welcome to our second quarter 2020 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and CEO; Ms. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Finance. You can refer to our second quarter of 2020 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the safe harbor provision for the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations expressed by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors, and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selective events or circumstances after the date of this conference call. Now, I will speak on behalf of our Chairman and CEO, Mr. Shaojie Chen. This evening, we issued a press release which was furnished to the Securities and Exchange Commission under the firm's 6-K, reporting that we have received a non-binding proposal letter from Tencent Holdings Limited.
You can find the release in the investor relations section of our IR website at ir.douyu.com. According to the proposal letter, Tencent proposed DouYu and HUYA Inc. to enter into a stock-for-stock merger to be effected pursuant to applicable laws. As a result of which, HUYA or a subsidiary would acquire each outstanding ordinary share of DouYu, including ordinary shares represented by American depository shares, in exchange for what are to be a great number of newly issued Class A ordinary shares of HUYA. The boards have just received the letter, and no decision has been made of any kind with respect to the proposed transaction. Our board will continue to assess the transaction. There is no assurance that a definitive offer will be made, that any agreement will be executed, or that this or any other transaction will be approved or consummated.
The company does not undertake any obligation to provide any update with respect of this or any other transaction, except as required under applicable law. Additional information will be provided if and when appropriate. Now, I will turn back to our second -quarter performance. We concluded the second quarter of 2020 with solid financial and operational results as both our total net revenues and profitability reached a record high. In the period, total net revenues increased by 33.9% year-over-year to RMB 2.51 billion. Additionally, gross profit increased by 73.7% year-over-year to RMB 522.9 million, while gross margin expanded to 20.8%. Meanwhile, net income was RMB 319.3 million, representing a net margin of 12.7%. Non-GAAP net income increased to RMB 322.9 million, representing a non-GAAP net margin of 12.9%, and ARPU increased by 19.7% year-over-year to RMB 306.
Although a resumption of people's regular work and school schedules led to a short-term pressure on our user traffic growth, our average mobile MAU count maintained its rapid growth trajectory in the second quarter, increasing by 15.4% year-over-year to 58.4 million. This steady improvement in operational results was mainly due to our promotion of new game live streaming content, our collaboration with celebrities, and cultivation of streamers with high growth potential, as well as our production of superior esports-centric live streaming content and events. Since our company's inception, we have firmly believed that high-quality game live streaming content is a fundamental growth driver for both user retention and user engagement. As such, we maintained our commitment to augmenting our user value proposition in the quarter by enriching our esport content and expanding our non-game segment content offering.
In the quarter, for example, we continued to broadcast and produce popular esports tournaments and deepen our collaboration with leading esports streamers. Such efforts help to grow our supply of premium esports content and thus serve to further bolster our industry leadership. In addition, through our exploration of different non-game content segments, we witnessed the user traffic growth of both our food and live content categories accelerate in the period. Our expansion, both upstream and downstream, the esports value chain also yielded end results during the quarter. For example, two of our sponsored esports teams won high-profile tournaments, including "League of Legends EAF" as a mid-season invitational 2020 and "PUBG Luminous Stars" as a PCL Spring 2020.
These types of dynamic esport team partnerships are providing us with the necessary tools to further amplify our brand presence, supercharge our content leadership, and establish our platform as the go-to destination for watching superior esport content in real-time. On the gaming front, we successfully broadcasted more than 50 large-scale esports tournaments as we continue to deepen our collaboration with leading game developers and game publishers such as Tencent in this quarter. For our broadcast of KPL, we worked hand-in-hand with the "Honor of Kings" project team to develop a new tournament plus platform streamer commentary broadcast model. This innovative model enabled users to enter into the live streaming room of their favorite platform streamers to watch the streamers converse and listen to their commentary during the event, which proved to be quite appealing in the period, helping us to further enhance our platform's stickiness and streamer-user relationship in turn.
Beyond our tournament broadcast, we also produced more than 50 eSports tournaments internally and through collaboration with external partners in this quarter. Our in-house production of DouYu Golden Grand Tournament Season 9, for example, upheld its tradition of excellence as it generated significant user traffic for our game segment and helped to ramp up our user engagement on our platform during the event. Going forward, we plan to accelerate our growth trajectory by implementing a three-pronged content strategy. First and foremost, we will continue to generate high-quality eSports content, including eSports-related game videos and tournament-centric content through in-house production and joint development with external partners. In addition, we plan to actively deploy and refine new eSports-related business models, such as cloud games.
We will also continue to optimize our systems for streamer training and recruitment so that we can capitalize on those opportunities, which emerge from new blockbuster game launches, deepen our market penetration, and accelerate our mobile user growth and conversion. On the monetization front, we continue to refine our event model and interactive features to better cultivate user paying habits and augment our monetization capabilities during the second quarter. We also focused on refining our operating tactics for each of our content segments, especially our game segment, to steadily improve each segment's monetization efficiency. As a result, our quarterly paying users increased by 13.4% year-over-year to 7.6 million in the second quarter, implying a paying ratio of 4.6% as compared to 4.1% in the prior year period. Moreover, our ARPU also increased by 19.7% year-over-year to RMB 306 in the second quarter.
At the same time, revenue contribution from media streamers on our platform grew on a sequential basis for the fourth quarter in a row, further validating the strength of our media streamers. Going forward, we plan to maintain our focus on the exploration of new interactive product features and event models to enhance our platform's overall operating efficiency. We also aim to further refine the operating efficiency of each content segment, which should help to upgrade monetization capabilities of each segment and live streaming room in turn. On the globalization front, we continue to invest in Japan to expand our market share and accelerate the growth trajectory of our Japanese live streaming platform, Mildom.
In the period, Japanese users continued to be highly attracted by Mildom's vibrant live streaming ecosystem, with the platform ranking among the top Japanese game live streaming platforms in terms of mobile downloads, user base, and user engagement, according to Bain & Company. In summary, we maintained our rapid growth trajectory to deliver solid financial and operational achievements in the second quarter of 2020. Going forward, we plan to continue deploying resources up and down the esports industry value chain while ramping up our R&D and operations investments to further optimize our user experience and invigorate our esports-centric live streaming community. We also aim to further refine our product development cycle, streamer management team system, and content operation strategies to upgrade our monetization and operating efficiency.
We remain confident in our ability to consistently enhance our financial performance, deliver lasting shareholder value, and spearhead the development of the game live streaming industry in China over the long term. With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao, to go through the details of our financial performance in the second quarter.
Thank you, Emma. Hello, everyone. I'm pleased to announce that our total revenues in the second quarter of 2020 continue to grow, increasing by 33.9% to RMB 2.51 billion from RMB 1.87 billion in the same period of 2019, and exceeding the high end of our previous guidance range. In addition, during the second quarter of 2020, gross margin expanded to 20.8% from 16.1% in the same period of 2019. Net income increased to RMB 319.3 million from RMB 23.2 million in the same period of 2019, and adjusted net income increased to RMB 322.9 million from RMB 52.6 million in the same period of 2019. Now, please allow me to provide you with some more details regarding our key financial metrics.
Total net revenues in the second quarter of 2020 increased by 33.9% year-over-year to RMB 2.51 billion, with RMB 2.32 billion in live streaming revenues and RMB 188.3 million in advertising and other revenues. Live streaming revenues in the second quarter of 2020 increased by 35.8% to RMB 2.32 billion from RMB 1.71 billion in the same period of 2019. This increase was primarily attributable to the optimization of our platform's interactive features as well as our continuous refinement of event mechanism, both of which helped to further cultivate user paying habits. These initiatives helped to increase both user-streamer interactions and user payment frequencies on platform, especially for our game segment. As a result, our paying users in the second quarter of 2020 increased by 13.4% to 7.6 million from 6.7 million in the same period of last year.
Advertising and other revenues in the second quarter of 2020 increased by 14.6% to RMB188.3 million from RMB164.4 million in the same period of 2019. This increase was mainly driven by the ongoing growth of our brand recognition and the corresponding increase in demand of integrated streamers promotion advertising forms. Cost of revenues in the second quarter of 2020 increased by 26.3% to RMB1.99 billion from RMB1.57 billion in the same period of 2019. More specifically, revenue sharing fees and content costs in the second quarter of 2020 increased by 32.3% to RMB1.75 billion from RMB1.33 billion in the same period of 2019. The increase in revenue sharing fees and content costs can be generally explained by the following drivers. During the quarter, our revenue sharing fees increased, which was largely in line with the increases in total net revenues.
Additionally, we also enriched our platform's esports -related content while continuing to advance our expansion initiatives in Japan. Furthermore, we increased our investment in tournament -related videos and in-house content production. Bandwidth cost in the second quarter of 2020 increased by 9.8% to RMB 168.4 million from RMB 153.3 million in the same period of 2019. The increases to bandwidth cost were mainly driven by increases in mobile user growth and total user engagement, as well as our ongoing efforts to improve the viewing experience of our users.
Gross profit in the second quarter of 2020 increased by 73.7% to RMB 522.9 million from RMB 301.1 million in the same period of 2019. Gross margin in the second quarter of 2020 expanded to 20.8% from 16.1% in the same period of 2019. Such expansion was mainly driven by our monetization capabilities, as well as our increased economies of scale. Now turning to our operating expenses.
Sales and marketing expenses in the second quarter of 2020 decreased by 15.3% to RMB 142.1 million from RMB 167.8 million in the same period of 2019, mainly due to the decrease in marketing expenses related to the postponement of large-scale offline events as a result of COVID-19 and related safety concerns. Research and development expenses in the second quarter of 2020 increased by 12.5% to RMB 94.9 million from RMB 84.4 million in the same period of 2019. This increase was primarily due to the increased investment in technological innovations as well as higher share-based compensation to related employees. General and administrative expenses in the second quarter of 2020 increased by 8.4% to RMB 79.5 million compared to RMB 73.3 million in the same period of 2019, mainly as a result of higher professional service fees related to the requirements of being a publicly listed company on the NASDAQ.
The amount of share-based compensation expenses allocated to operating expenses in the second quarter of 2020 was RMB33.9 million compared to RMB27.4 million in the second quarter of 2019, and RMB41.9 million in the first quarter of 2020. Other operating income net in the second quarter of 2020 was RMB32.5 million, compared with RMB14.5 million in the same period of 2019. Adjusted operating income in the second quarter of 2020, which excludes share-based compensation expenses, increased to RMB272.7 million compared to RMB17.4 million in the same period of 2019. Net income in the second quarter of 2020 improved to RMB319.3 million from RMB23.2 million in the same period of 2019.
Adjusted net income in the second quarter of 2020, which excludes share-based compensation expenses, share of loss in equity method investments, and impairment loss of investments, improved to RMB322.9 million from RMB52.6 million in the same period of 2019, implying an adjusted net margin of 12.9% for the second quarter of 2020. For the second quarter of 2020, basic and diluted net income per ADS were RMB1.06 and RMB1.02, respectively. While adjusted basic and diluted net income per ADS were RMB1.07 and RMB1.07, respectively. Looking ahead, we remain focused on improving our monetization capabilities and operating efficiencies, while also implementing the investment to continue upgrading our user experience, diversifying our platform offerings, and expanding our market share. We expect our total net revenues for the third quarter of 2020 to be in the range of RMB2.64 billion to RMB2.68 billion.
This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
We will now begin the question and answer session; as requested, you may press star then one on your touch-tone phone. If you use a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question. First ask in chinese then repeat it in english. At this time we will pause momentarily to summarize our roster. First question comes from Lei Zhang, Bank of America. Please go ahead.
[Non-English content] Thanks , management, for taking my question, and congrats on the strong results.
My first question is regarding the M&A proposal announced today earlier, if I may, could management share with us your view on this? Secondly, can you give us an update on your current collaboration with Tencent in game area? What are the major ways of projects we have with Tencent now? Do we expect any further synergy or change in the future? Thank you.
[Non-English content]
Thanks for your question. I will have to translate. As discussed, our board has not had the chance to review and evaluate the proposal letter in detail or to make any decisions on the proposed transaction. Please refer to our press release and the SEC filing for the details, which is related to the transaction. In terms of the second question, as we can see, the game live streaming is an important part of Tencent's strategy. This is good for our development actually going forward. We have also been maintaining a close collaboration relationship with the live streaming middle office and multiple game project teams of Tencent. At the early stage of the cooperation, we conducted multiple explorations with Tencent middle office regarding potential initiatives.
Currently, we are discussing the implementation of initiatives, including such as the data exchange and also displaying of platform entry portal inside of games with our major shareholder Tencent. We believe this will significantly help to improve our mobile traffic and also the market penetration rate, maybe in the future. Thank you. Operator, please address the next question.
Thank you. The next question comes from Hillman Chan of Citigroup. Please go ahead.
[Non-English content] Thanks , management, for taking my question. So, the question regarding MAU.
After the resumption of work and school, we still see sequential MAU growth on both PC and mobile. From our internal data, do we see any change in user behavior? Thank you.
[Non-English content]
Thanks for your question. I will help to translate. Actually our user behavior is basically consistent with the trend of the past few quarters, which shows our high user stickiness.
In the second quarter, the average last month active user retention rate actually remained about 75%, which was stable compared to the previous quarter. Meanwhile, our user behavior data also shows that with the increasing number of years users spend on our platform, the average monthly time spent also increased. This growth curve remained consistent across users who joined us at different times, and we have gradually become high -quality and also the loyal clients of our platform, and there have been not any changes which is compared to the last few quarters. Operator, we can address you the next question.
Thank you. The next question comes from Thomas Chong of Jefferies. Please go ahead.
Thanks , management, for taking my questions, and congratulations on a very solid set of results. My question is about the Q2 revenue, in particular the live streaming revenue. What are the key factors which drive the revenue growth? Thank you.
Yeah. Thank you for your question. I will help translate. Actually, in the second quarter, due to the resumption of work and also school, both in platform traffic and the number of paying users, actually, face kind of the short-term pressure. However, our constant refinement of operation has already developed users' paying habits. Meanwhile, our continuous development and the refinement of platform interactive features and products have enhanced user-streamer interaction and increased users' willingness to pay and the paying frequency. As a result, the number of our total paying users remained stable at 7.6 million compared to the fourth quarter of this year, and our ARPU also increased by 9.5% quarter-over-quarter to RMB 306. Our refinement of operation across segments helped to improve each segment's monetization efficiency. In particular, our game segment monetization capabilities continued to improve in this quarter.
We also continued to diversify our content to improve the monetization efficiency and the revenue contribution of the non-gaming segment. We have also improved the mid-tier streamers monetization efficiency through deeper collaboration with the talent agency and also talent monetization products. Apart from this, the combination of large scale events and also the deployment of weekly events in the second quarter continued to boost our platform's monetization capabilities and also to improve our total net revenue. Thank you. Operator, please address the next question.
Thank you. The next question is from Alex Poon of Morgan Stanley. Please go ahead.
I'll translate my question. My first question is regarding your streamer recruitment situation, especially for new games, Brawl Stars and DNF Mobile coming soon. Can you share with us what's your strategy to recruit these top streamers for new games? Thank you.
[Non-English content]
Thanks for your question. I will help to translate. In terms of new game titles, we recruit streamers in kind of two ways. The first way, we discover and encourage streamers with high growth potential from the similar types of games to stream the new game titles. This helps us generate high -quality content and can attract new users to our platform. We also recruit a large amount of streamers by collaborating with the top game talent agencies to ensure the quantity and also the quality of new game -related content. Actually, on top of this, we keep monitoring the streamers' performance in the new segment and also provide the high -quality streamers with resources on our platform to help them become the top of mid-tier blockbusters.
The large number of premium streamers and in-depth partnership with industry -leading game talent agencies enable us to maintain our leadership in promoting and distributing the new game titles. Because of the advantage mentioned above, we are able to keep a leading position in key metrics such as total views and also the user engagement of both sides and other new game titles. Going forward, we actually will continue to leverage our strength to maintain our leading edge in the operation of new titles such as DNF Mobile. Operator, please address the next question.
Thank you. The next question comes from Daniel Chen of J.P. Morgan. Please go ahead.
[Non-English content ] I would translate myself. Thanks , management, and congrats on your very strong quarter. My question is firstly on the content side. What kind of plan do we have on the content diversification? What's the future strategy of the content in both esports and non-esports? The second one is that, are we exploring some new products besides our current live streaming platform?
Also, what's our future strategy in some non -live streaming monetization models? Thank you.
[Non-English content]
Thanks for your question. I will help to translate. In terms of our future game content strategy, we will continue to invest in esports, such as League of Legends, PUBG, Crossfire, and we will also pay close attention to the new blockbuster game titles and explore suitable live streaming games throughout the industry verticals. For example, in the second quarter, actually, we have seen that the new game Brawl Stars delivered outstanding results on our platform. Actually, meanwhile, we continue to recruit streamers for different new game segments to maintain a stable supply of high-quality content and also attract more users to our platform. We will keep building the esports content community and explore more game-related areas such as game videos. In terms of our non-game segment, actually, we will continue to enrich the content ecosystem to meet users' diversified content demands in terms of food, live talent shows, outdoors, and also the ACG.
In terms of the innovation, we have been exploring ways to diversify our revenue. For example, we launched the new business model, the voice chat, in October of 2019, and the revenue has grown steadily. The new segment has helped us to further improve our monetization efficiency and also capabilities. In the mid- to long run, we are actively preparing for the deployment of cloud games and expect the cloud game -related game distribution and also the advertising business to become our next growth engine when it matures. Operator, we can address the next question.
Thank you. The next question comes from Alex Liu of China Renaissance. Please go ahead.
I'll translate myself. Two housekeeping questions here. First, what's the major drivers of bandwidth cost this quarter, and how will this turn up in the next few quarters? Also, for sales and marketing. The sales and marketing expense was up quite a bit sequentially this quarter. Any color on what's driving that? Thank you.
Thanks for your question. I will help to translate. The bandwidth cost increased quarter-over-quarter, because there are more tournaments and higher user engagement in the second quarter. In addition, we have always been committed to improving our users' reading experience and thus provided the user with higher -quality images and content during the period. We expected that the bandwidth cost in the second half of 2020 to increase likely quarter-over-quarter since there will be more intensive tournaments in the third and also the fourth quarter. In terms of your second question, which is related about sales and marketing expenses, actually, that will include the staff salaries and other related expenses, channel promotion costs, online and offline activity expenses, as well as the sponsorship to the esports teams.
In the second quarter of 2020, the sales and marketing expense increased mainly due to the tournament-related marketing cost as the tournament gradually recovering, and also the increasing sponsorship to the influential esports teams and also the channel promotion expense. We are quite positive towards the development of the e-sport industry in the long run; we will continue to increase the investment in the e-sport-related activities and also the e-sport team sponsorship. Meanwhile, we will upgrade our product. To improve the monetization efficiency and also intend to enhance the channel promotion. The absolute value of our sales and marketing expense will increase. If we look at the percentage of the total net revenue, it will continue to decrease. Thanks for your question. Operator, please address the next question.
Thank you. The next question is from Tian Hou of T.H. Capital. Please go ahead.
Yeah. My question is related to the overseas expansion. In the opening remarks, company management mentioned the success in Japan. I would like to have some clear color on that, such as MAU, paying ratio, and what are the top games in that Japanese platform. Going forward, what's the company's plan to put more, or what game are you planning to release in that platform? Thank you.
Yes. As we mentioned before in our earnings call, that we have already had the investment into Southeast Asia and also Latin America investments. We have already noted that the users' quality is not quite good in that kind of area. Actually, we have decreased kind of the investment. During the second quarter, we continued to enhance our investment in the Japanese market. We launched the Mildom game live -streaming platform in Japan in late September of 2019, and the development is better than our expectations. According to Bing consulting , Mail Dome ranks among the top platforms in the Japanese game live streaming market, which is in terms of the mobile app downloads, the user base, and also the user engagement.
We think that we will continue to explore the Japanese market and deepen our collaboration with the Japanese partners in terms of the local resources to achieve better economies of scale. The reason why we think the Japanese market is very important to us is mainly because actually Japan is the third-largest gaming market in terms of the market size after North America and China. It has almost double spending power compared with North America and also the European countries. Gamers are more willing to pay. However, the development of the game live -streaming industry in Japan is still at the early stage, which is not consistent with its large and mature gaming market. That means there will be a huge potential to develop live streaming in the Japanese market. Thank you, operator.
This concludes our question and answer session. I'd now like to turn the conference back over to management for any closing remarks. Please go ahead.
Yeah. Thank you for joining our call. We are looking forward to speaking with everyone next quarter.