Earnings Call: Q1 2021

May 18, 2021

Earnings release

Hello, ladies and gentlemen. Thank you for standing by for the Q1 2021 Earnings Conference Call for HUYA, Inc. At this time, all participants are in listen only mode. Today's conference call is being recorded. I will now turn the call over to Ms. Dana Chang, Company Investor Relations. Please go ahead. Hello, everyone, and welcome to HUYA's 2021 Q1 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 Participants on today's call will be Mr. Rong Zhedong, Chief Executive Officer of Huya and Ms. Katherine Lu, Chief Financial Officer. 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. 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 views and Other risks and uncertainties is included in the company's prospectors and other public filings as well as the U. S. SEC. The company does not assume any obligation to update any forward looking statements except as required under applicable laws. Please also note that Huya's earnings press release on this conference call include discussion of unaudited 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 be audited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Rongjedong. Please go ahead. Hello, everyone. Thank you for joining our conference call today. We are pleased with the continued momentum we saw across our business in the Q1, Which set us on a solid path to begin the New Year. Total net revenues Q1 increased to RMB2.6 billion, demonstrating growth of 8% year over year. Despite the higher comparable revenue base associated with the Pandemic lockdown period in Q1 2020. We continue to see new growth and Liu said our relentless focus on content enrichment and Product innovation will drive the future growth of our business and create more value for our users. The user growth that we enjoyed during the pandemic lockdown period has persisted And we continue to bolster our user community. In Q1, mobile MAUs of Huya Live reached $75,500,000 up slightly from the same period last year. Additionally, the next month retention rate of our Huya Life app Remained stable at over 0.70% in Q1. Mobile users have been the pillars Our business and our primary focus. In the Q1 this year, mobile users Contributed to over 80 5 percent of HUYA Live's live streaming revenues And they also constitute close to 80% of our core daily active users on Huya Live. Our mobile first strategy has enabled us to become the industry leader, And we plan to further emphasize and grow this consumer, say, Focusing on mobile users as our primary user metric, We believe our investments in content and products will gradually pay off. Our accumulated content has become the engine driving us forward, Attracting new users and fulfilling more online needs as users Funding our platform to be progressively more comprehensive, attractive In Q1, we continued to reinforce our product offerings And the content library with a number of successful initiatives. In March, we launched an open platform for interactive features to offer more innovative Gameplay and the improved uniqueness of Huya to game studios, broadcasters and the viewers A series of interactive features have been developed, including gift dropping, We believe the new features will not only strengthen our value prop position in the industry value chain, but also help shape a new model for game operations And they improve our capabilities in monetization diversity. As a First step, we cooperated with Cheesecake Alight and embedded the Interactive gameplay features within the game's live streaming and our Peacekeeper A Flight channel. For example, when a game broadcaster strikers are checking dinner or receives Certain virtual gifts, the live streaming room will be triggered To send out designated in game rewards for viewers to claim. The success of such new features has assisted Peacekeeper Alight to both acquire New traffic and retain existing users and can also provide our viewers And broadcasters with more fun and immersive experience. Our open platform for 3rd party application developers also continued to expand in Q1. By the end of Q1, There were close to 220 tools developed and over 600,000 broadcasters had used these tools. On a quarter over quarter basis, the daily active Users and daily active broadcasters, both of Hu have used the 3rd party applications From the open platform grew over 100% 40%, respectively. In April, we signed a licensing agreement with Tianjin Sport And locked down the exclusive broadcasting rights in China for League of Legends, Pro League, LPL. League, our Legends Developer League, LPL And the LPL All Star Weekend Series as well as related licensing Rights from 2021 to 2025, securing This exclusive broadcasting live will enrich our content offerings and strengthen our Collaboration with Tianjin Sports to explore various opportunities. With that, I will now turn the call over To our CFO, Catherine, to share her insights on the operating metrics and the financial details. Katherine, please go ahead. Thank you, Mr. Dong, and hello, everyone. Following Mr. Dong's remarks, I will start from the updates on content enrichment and diversification. In Q1, we broadcasted 92 third party esports tournaments, among which the top tournaments included LPL Spring, PGIS, I. E, PUBG Global Invitational S and KTL Spring. Total viewership for this tournament reached around 535,000,000 in Q1, representing 41% year over year growth. On the front of our self produced content, we organized 36 Esports tournaments and entertainment shows and generated a total viewership of 195,000,000, representing 73% Year over year growth. Recall that in Q1 last year, COVID-nineteen impacted the schedule of 3rd party Esports tournaments and the hosting of our own offline events. We are glad that tournaments and events are back, which is also reflected in the higher viewership. Huya's game for Peace Spring event is the top performing self produced event in Q1 that has leveraged The influence of HUYA's celebrity broadcasters to compete with professional gamers. Additionally, we optimized the regional tournament for team fight tactics within Huya's community and helped the rising game Accomplish another signature event. On the entertainment PGC shows side, I'm the styling team, I. E. I'm Shichuan Dawa and fashion styling competition show and Last Winner, and Role Playing Detective Show are the leading examples of Q1. Moving on to our overseas business. The MAUs of our overseas business was around $25,000,000 in the Q1, slightly higher than the same period last year. Our strategy has been shifted to focus on regions and countries with higher monetization potential. And as a result, our overseas revenues almost doubled year over year and our overseas loss also narrowed down. Next, I will walk you through our financial highlights. In Q1, our total net revenues grew by 8% year over year to over RMB2.6 billion. Our live streaming revenues increased by 5% year over year, close to RMB2.4 billion in Q1. The growth was primarily due to the increase in revenue for paying user. The number of paying users for Huya Live in Q1 reached 5,900,000 compared with 6 $100,000 for the same period last year, mainly because the users spend more time per day and are more willing to pay on our platform during the pandemic lockdown period last year. Advertising and other revenues increased by 55% year over year to close to RMB230 1,000,000 in Q1, Primarily driven by revenues from content licensing. Our profit continued to improve in Q1. Our non GAAP gross profit increased by 8% to RMB531 1,000,000. Non GAAP gross margin was 20.4%. Our non GAAP operating profit increased by 7% to RMB242 1,000,000. Non GAAP operating margin was 9.3%. Our non GAAP net profit increased by 1% to RMB266 1,000,000 and our non GAAP net margin was 10.2%. Now let me move on to our financial details. If not specified, all growth rates are on year over year terms. Cost of revenues increased by 7.9 percent to RMB2.1 billion for Q1, Primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 14.1 percent to RMB1.7 billion for Q1, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues and the increase in spending in esports content. Bandwidth costs decreased by 24.4 percent to RMB182 1,000,000 for Q1, Primarily due to improved management in bandwidth costs and continued technology enhancement efforts, Gross profit increased by 8.2% to RMB540 1,000,000 for Q1. Gross margin was 19.7% for Q1. Research and development expenses increased by 27.6 percent to RMB199 1,000,000 for Q1, mainly attributable to increased personnel related expenses. Sales and marketing expenses increased by 35.7% to RMB145 1,000,000 for Q1, primarily attributable to the increased marketing expenses to promote the company's content, Products, services and branding. General and administrative expenses decreased by 6.8% to RMB84 1,000,000 for Q1, mainly due to lower share based compensation expenses. Operating income increased by 21.6 percent to RMB162 1,000,000 for Q1 And operating margin was 6.2% for Q1. Non GAAP operating income, which excludes share based compensation expenses, increased by 6.7 percent to RMB242 1,000,000 for Q1 and non GAAP operating margin was 9.3% for Q1. Income tax expenses increased by 4.9% to RMB39 1,000,000 for Q1. Net income attributable to Huya Inc. For Q1 increased by 8.4% to RMB186 1,000,000. Non GAAP net income attributable to HUYA Inc. For Q1, Which excludes share based compensation expenses, gain on fair value change of investments and equity investees investments And Equity Investisse's partial disposal of this investment, net of income taxes increased by 0.9% to RMB266 1,000,000. Diluted net income per ADS was RMB0.77 for Q1 and non GAAP diluted net income per ADS was RMB1.1 for Q1. As of March 31, 2021, the company had cash and cash equivalents, short term deposits and short term investments of RMB10.7 billion compared with RMB10.5 billion as of December 31, 2020. The The increase was primarily due to net cash provided by operating activities of RMB166 1,000,000 for Q1. With that, I would now like to open the call to your questions. Thank Your first question comes from the line of Lei Zhang from Bank of America Merrill Lynch. Please ask your question. Thanks management for taking my question. Two questions here. First, Can you give us some updates in the competitive landscape, especially the competition with Bilibili which saw a good growth in live streaming in recent quarter? Secondly, any color on growth of our advertising and other revenue? What's the major driver here? Thank you. All right. I will check-in for Mr. Dong regarding your first question. For the Wodenway afternoon entry into the offline streaming industry, it is pretty Natural for them to be a relatively higher year over year growth as it's due in the growth phase for them, Especially thinking about that in the old days, both JOYY or Huya also enjoyed An outstanding year over year growth as well. So it is quite natural thing to happen. And from our internal perspective, we don't really feel pressured or threatened by the entrance of FFO, that's still the attitude. And talking from the perspective of competition landscape, There is almost no change compared from the situation in the last quarter. And what we can do is to strengthen our own capabilities facing the current competitive landscape. And we see more opportunities in the second half of this year. But if you look back at the past 1.5 years. There weren't really many of the good games, especially the blockbuster games Industry, which is why we are more optimistic and expecting more opportunities from the new game launches in the second half of this year. And Tessa will take your next question. As for your question of the faster growth of advertising and other revenues, this is mainly Driven by revenues from licensing of content. Okay, hope this answers your question. And next. We'll proceed to the next question from Vincent Yu of Needham and Company. Please ask your question. Hi, Ms. Zhong and Catherine. Good evening. Thanks for taking my question. I have three questions. First is about what is our strategy For international market for this year, how much top line contribution will we see in this market will bring in 20,000,000,000 and Will we see breakeven on the stand alone basis in 2021? 2nd, can management help us understand more on the strategy around Content investments in 2021. Will we focus on acquiring license for e sports tournaments for in house developments of PUGC content? And can we share the size of investments we are ready to deploy? The third question is how should we think about the recent waves of antitrust Brought by the regulators. Can management share any process that we have for our current merger with Stoyu? Thanks. Regarding your first question, for the international business, we are still at the investment stage and we still In fact, we probably will continue to invest in overseas business for the next couple of years. But the good news is that, this year, our strategy has been focused on monetizing improve Our monetization. So in the Q1, our overseas revenue has doubled year over year. And we also expect that the overseas business revenue contribution will be increasing this year. At the same time, the loss of overseas business has also narrowed down both in terms of absolute Dollar or as a percentage of revenue. We think in some countries, We will be able to make breakeven points. But overall, the overseas business is still going to be at the investment And then for your next question, I will relay to Mr. Dong to answer this. All right. I will translate for Mr. Zhang regarding your questions for the content investments. We have already And ask about the progress of the current ongoing merger with Stowe. From what we can see right now, It is quite likely that in the Q3 this year, the deal will reach some sort of Conclusion and see some color in the near term in the future. And given these circumstances, We think they might adjust the current strategy in terms of the content investment. And In terms of the balance played between the self produced content and purchasing the 3rd party Esports tournaments. And we think Huya has been doing quite well in terms of producing its own Branded content, whether in the form of non gaming or in the form of game esports tournaments. For example, we have just recently posted a new series of the Huya Kung Fu Carnival And it has been a lot of attractions among the Internet users, Which is why we will not only focus on purchasing the quality e sports tournaments from the 3rd parties, We will also solidify our capabilities to produce our own branded content. Your next question is from Thomas Chong of Jefferies. Please ask your question. Taking my questions. My first question is could management provide some updates about the cooperation with Tencent? The second one is, could management comment on the strategy this year in game and the non game broadcasting? Thank you. Regarding to your first question, this quarter we have continued the collaboration with Tencent. For example, in March, we also launched the booking platform for interactive features To offer more innovative game life. The first game that we have cooperated with It is Chief Keefer Elight and then the results was in terms of increasing the users and also increasing the interactive features, interaction between The users and then the platforms. At the same time, we continue to collaborate with Tencent in various Such as games and also some of the major Tencent products as well. So we expect the collaboration with Tencent will continue to go on. And In the future, it will also bring us more users and also monetization opportunities. Mr. Dong, I have answered your question regarding the current strategy. Firstly, we would like to strengthen that HUYA is actually the platform In the game live streaming industry that has gained the vast majority of the 3rd party Esports tournaments broadcasting rights, That is for the Esports tournaments. And for the professionally generated content, we also have gained the leading Production capabilities among the industry players. And secondly, from a gaming perspective, We have to say that a lot of new opportunities will be there for the new games in the second half of This year, it is quite likely that some of the new potential blockbusters will be released in the second half of the year and it's quite expected by the users to gain traction. And thinking about that Huya has a natural advantage and a strong capability to promote new games And all the way to the new game live streaming sessions on our platform, we will say the opportunities It's all about the year in the second half of this year, which is why we're going to invest some of our resources Until the promoting those new games. And on the front of the non game content, Looking at the data in the past, the growth rate for the non gaming content is actually higher than the growth rate of the gaming content. And our content pool for the gaming sectors are actually enjoying a prosperous Well, over the past few quarters, for example, traditional sports is actually quite outstanding in the past. And that makes us think whether we will need to invest into gaming the 3rd party Non gaming content is broadcasting right in future. That is also quite potential for us. So these are our content strategy for the rest of the year. And we can take the next question. Yes. So for the next question is from Ritchie San of HSBC. Please ask your question. Thank you management for taking my questions. I have a question about game video strategy. So how is the traction of game video strategies? Any operating metrics to update us? And with more and more game video users, how will that affect Paying ratio and ARPU trends going forward, can we assume game video users less hardcore and Hence, the paying ratio in ARPU will be lower. Thank you. I will transfer for Mr. Zhong regarding a question for our video business. Our video business has been running for 1 or 2 quarters already and we already have some new thoughts In terms of how to develop the new strategy for the video business. As I said before, Previously, we have been focusing on the on demand videos to be involved with acquiring new users for the video business. That actually requires a longer time. But thinking about the nature of HUYA's Platform as of live streaming platform. We feel like the power to like rolling streaming sessions will be more natural form for Huya to engage in the video business, Which is why we have already tested this new form of video business, the Coruso Weighing Streaming Business In the Q1, we've been 1 or 2 content categories of our gaming sectors. And we have received positive feedback whether from the data of users or from the Figures of the industry value chain. And in the Q2, we will expand the content category coverage from those 1 to 2 The big growth of our video business that will actually help us strengthen our attractiveness I see a platform to attract those advertisers and that will also help us to strengthen our monetization capability Of the advertising business. That's it. Thank you. And we will take the final question from Tianhu of T. H. Capital. Please ask your question. I translate myself. So what's the management's expectation for Lord of Legend big of legend to be online? And also, once that gets started, what is the potential impact to our game that's streaming business? Thank you. For Legal Legends mobile version, we actually started the preparation for that beginning from earlier this year. Yes. We have already sorted out all the potential professional leagues and the broadcasters that we can gain on our platform. And we also quite emphasize the communications with the related games to use and the related will be released in the second half of this year. But from our own perspective and thinking about seasonality, it is just Quite favorable for us, if the game can be launched in the summer school holiday season. Thank you. There are no further questions. Now I'd like to turn the call back over to the company for closing remarks. All right. Thank you all for joining our conference call today. If you have further questions, feel free to contact iriahhuya.com. And