Hello, ladies and gentlemen. Thank you for standing by for LIZHI INC Third Quarter 2021 Earnings Conference Call. At this time, all participants are in the listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Effy Kang, Head of Capital Markets for the company. Please go ahead.
Thank you very much. Hello, everyone, and welcome to LIZHI INC Third Quarter 2021 Earnings Conference Call. We released our financial and operating results via Newswire services earlier today, and they are available online. Participants on today's call will include our Founder and CEO, Mr. Marco Lai, and our COO, Mr. Zelong Li, and our acting CFO, Ms. Chengfang Lu. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, our earnings highlights presentation and a webcast replay of this conference call will be available on the IR section of our website at ir.lizhi.fm. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995.
These statements typically contain words such as may, will, expect, target, estimate, intend, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which factors are beyond our control. The company, its affiliates, advisors, representatives and underwriters do not undertake any obligation to update this forward-looking information except as required under the applicable law. Please also note that LIZHI's earnings press release and this conference call include discussions of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. Please refer to LIZHI's earnings press release for a reconciliation of unaudited non-GAAP measures to unaudited GAAP measures. I will now turn the call over to our Founder and CEO, Mr. Marco Lai.
Please go ahead.
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Hello, everyone. Thank you for joining us today. I will share our third quarter business overview and future development strategy. Our COO, Mr. Zelong Li, will provide more details on the operation of each business line.
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Overall, LIZHI continues to strive to build a competitive global audio ecosystem in the third quarter of 2021. Total average mobile MAUs reached 58.9 million, and average monthly paying users was 485,000 in the third quarter. We remain focused on improving user experience and fostering our audio-centric community ecosystem to increase audio entertainment user base, strengthen user connections and stickiness, and support our sustainable growth. We are delighted to see the audio entertainment average mobile MAUs grew by 21% year-over-year to 9.17 million.
As we prioritize unlocking commercialization potential presented in audio entertainment business, coupled with the effective execution of our operational strategy, our third quarter revenue grew by 40% year-over-year to RMB 505 million, pushing our total revenues for the first nine months of 2021 to surpass the revenues for the full year of 2020. In addition to revenue growth, we are pleased with the continued expansion of our overall gross margin, which grew to 30%, up 500 basis points year-over-year.
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In terms of our strategic priorities in the near future. First of all, we will continue to build a sustainable and high-quality community ecosystem by providing more valuable content and audio-centric interactive scenarios, enhancing our commercialization capability, and supporting more content creators to grow and develop in [Non-English content] audio community. At the current stage, our globalization strategy is to optimize products and ramp up localization teams. We strive to meet users' social networking needs in the digital era, capturing more growth opportunities for future prospects.
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With respect to our audio roadmap for multiple devices. At the current stage, product optimization and technology innovation are our main focuses in this area. At the same time, we are strengthening our underlying architecture. In addition, we continue to establish collaborations with more platforms to expand our reach in the in-car audio market. In addition, we will adhere to the long-term development pathway with technological empowerment and further apply our in-house developed audio technology solution, DOREME system to more devices. Beyond that, we are stepping up the development of our in-house instant messaging technology, which is the IM technology. We are expecting to provide more tailored technological support to our various products.
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In conclusion, we have great confidence in our prospects. We will continue to execute our globalization strategy in the next phase. By maximizing LIZHI's advantages, we are expecting to unlock greater growth potential globally and achieve long term sustainable development.
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Thanks everyone. With that, I will now turn the call over to our COO, Mr. Zelong Li, who will discuss our business development in more detail.
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Hello, everyone, and thank you for joining us today. Next, I would like to provide more detailed updates of each business line.
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Starting with our audio entertainment business. We aim to foster a sustainable ecosystem across our community by pivoting to optimizing product functions and harnessing several key content categories to further amplify our commercialization capabilities and efficiency. We are working to refine our product operations, which involves employing more precise user targeting, focusing heavily on content categories with strong commercialization capabilities, optimizing our marketing strategy, enhancing high-performance channels. We believe that taking these important steps now will lay a solid foundation for us to grow our sustainable ecosystem for the improved paying user conversion rate and operational efficiency, and ultimately enable us to achieve a solid long-term growth.
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Moving to our global business. TIYA is positioned as a digital social networking platform for young people. We continue to improve and optimize our products to meet their social needs in diverse scenarios based on their different hobbies, interests, and trendy lifestyles. In the third quarter, we concentrated on building a local team for our overseas business development and upgrading product features and functions to position ourselves among a wide variety of user groups. Our emphasis on user experience and user retention is designed to allow our user base to achieve an organic growth.
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As part of our product optimization strategy, we upgraded TIYA app's friends status feature and the discovery channel. We now offer more interactive features to guide users to adopt different tools for their interactions on the platform. In particular, we launched the My Friends live status feature that allows users to find friends in a similar status or mood, which reinforces friendship bonds on the platform and ensure a smoother online social experience. We continue to roll out innovative features to TIYA app. Some of these we added recently include newly optimized mini games and screen sharing options, both of which provide more diverse ways for users to interact socially, enhancing the user stickiness and engagement. After these product upgrades were launched, we observed a modest increase in the interaction rate of new TIYA users with friends and the uptick in the average time spent per user on TIYA.
In September, the daily average number of messages sent per user grew by 57% compared with June, and users' number of friend pairs was 64% higher than that in June. In the near term, our priority is to continue refining our products to improve these metrics even further. We will be paying close attention to key metrics such as users' activeness and interaction levels, while further cultivating user habits and strengthen user relationships on the platform.
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In the third quarter, we also continued to expand LIZHI Podcast footprint in the in-car audio market by broadening and deepening our collaborations with auto companies and the Internet of Vehicles platform. We have also achieved more official recommendations from auto companies. Currently, our strategic focus revolves around product optimization and technology innovation, including auto application functions for the in-car scenarios such as voice-activated controls, gesture operation, and seamless connectivity.
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We are pleased that our strong technological capabilities are boosting LIZHI Podcast's competitive performance in the in-car market. For instance, we have recently been integrated into Huawei's HarmonyOS ecosystem through technological innovation. As the first platform to launch in-car live streaming podcast, LIZHI Podcast rolled out one-click seamless connectivity feature. It supports cross-screen connection to achieve two-way seamless connectivity between mobile devices and vehicles. Through this technology, we provide uninterrupted live streaming podcast experiences to users, thus becoming the first podcast platform in China that enables two-way seamless connectivity in multiple scenarios. We believe that our technological expertise and product innovation are the key to securing a competitive edge in the in-car audio market. In the future, we will continue to optimize our in-house audio technology solution.
Our goal is to accumulate more technological experiences and improve the core technology for multi-devices applications of the podcast platform while satisfying the differentiated demands of various auto companies and IOV platforms.
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In summary, achievements and experience we have gained in the third quarter have set the stage for our future development. We are optimistic about future growth opportunities in the audio industry. We will continue working for long-term success and building a leading globalized audio platform.
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Thanks everyone. With that, I will now turn the call over to our Acting CFO, Ms. Chengfang Lu, who will discuss our financial results in more detail.
Okay, thank you, Zelong, and hello everyone. First, we are very pleased to see another solid year-over-year revenue growth in the third quarter. Driven by our improved operational strategy, our growth margin grew to 30%, up 500 basis points year- over- year. We believe the audio entertainment ecosystem we've built is fundamental to our long-term growth. Looking ahead, we will continue optimizing our audio entertainment business, enhancing commercialization capabilities, and leverage our technology innovation and expertise, as well as actively exploring the international market in order to achieve sustainable growth. Now, I'm providing a brief overview of our financial results for the third quarter of 2021.
In the third quarter, our total net revenue were RMB 504.8 million, representing an increase of 40% year-over-year, primarily driven by the growth of paying users and enhanced commercialization capabilities of our audio entertainment products. Cost of revenue was RMB 353.6 million in the third quarter of 2021, representing an increase of 31% year-over-year, mainly attributable to an increase in revenue sharing fees to our content creators, salary and welfare benefits expenses, and bandwidth costs, which was in line with our business growth. Gross profit was RMB 151.3 million in the third quarter of 2021, representing an increase of 67% year-over-year.
non-GAAP gross profit was RMB 154.5 million in the third quarter of 2021, representing an increase of 68% year-over-year. Gross margin for the third quarter of 2021 increased to 30% from 25% in the third quarter of 2020. Non-GAAP gross margin for the third quarter of 2021 grew to 31% from 25% in the third quarter of 2020. Our operating expenses increased by 91% year-over-year to RMB 191.3 million in the third quarter of 2021. Research and development expenses were RMB 73.4 million in the third quarter of 2021, representing a year-over-year increase of 32%.
The increase was primarily due to the increased salary and welfare benefits expenses, related to an increase in the number of our research and development staff and average salary. Selling and marketing expenses were RMB 88.2 million in the third quarter of 2021 compared to RMB 27.1 million in the third quarter of 2020. This increase was primarily due to our increased promotion and marketing activities. General and administrative expenses were RMB 29.7 million in the third quarter of 2021, representing a year-over-year increase of 51%. The increase was mainly due to the increase in salary and welfare benefits, expenses, and other professional service fee. Operating loss was RMB 40.1 million in the third quarter of 2021, compared to RMB 9.6 million in the third quarter of 2020.
non-GAAP operating loss was RMB 30.1 million in the third quarter of 2021 compared to RMB 2.9 million in the third quarter of 2020. Net loss was RMB 37.1 million in the third quarter of 2021 compared to RMB 6.1 million in the third quarter of 2020. non-GAAP net loss was RMB 27.2 million compared to non-GAAP net income of RMB 0.6 million in the third quarter of 2020. Basic and diluted net loss per ADS were RMB 0.73 in the third quarter of 2021 compared to RMB 0.13 in the third quarter of 2020.
non-GAAP basic and diluted net loss per ADS were RMB 0.54 in the third quarter of 2021 compared to non-GAAP basic and diluted net income of RMB 0.01 per ADS in the third quarter of 2020. As of September 30th, 2021, we have cash and cash equivalents and restricted cash of RMB 515.9 million. Okay, this concludes all of our prepared remarks today, and we will now open the call to questions. Operator, please go ahead.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To ask questions on the phone, please press star one and wait for your name to be announced. If you'd like to cancel your request, please press the pound or hash key. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one questions at a time. Management will respond, and then feel free to follow up with your next questions. Our first question comes from the line of Vicky Wei of Citi. Please go ahead.
[Non-English content] Good morning management. Thanks for taking my question. My question is regarding to user spending and user growth. Under the challenging regulation environment and soft macro conditions, what is the impact to LIZHI user growth and user spending? Thank you.
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I'll translate for Marco. The recent regulatory environment is getting tightened, but we think it's beneficial to the long-term development of the entire industry. Given more standardized digital content and operation mechanisms, especially for mature companies like us, we gain more advantages. In terms of products and operations, we are also actively monitoring the regulatory policy changes and earnestly optimizing and adjusting our products. These efforts enable us to meet compliance requirements while also providing better services for our users.
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In terms of user spending, in the third quarter, the overall user spending on our platforms decreased slightly.
Which was affected by some factors, including the optimization of our operational strategy. In the third quarter, we began to focus more on the content categories with higher potential for monetization and reduced the investment on those pre-recorded content with relatively lower long-term commercialization potential. We focused more on the content categories with longer-term commercialization potential.
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In the short term, these adjustments may have temporary effects on certain user metrics, such as the overall user base. In the long run, we are confident in further increasing the paying user base through more precise operational and marketing strategies while maintaining a stable user spending level. We are confident it may further foster both top-line growth and improve the operational efficiency.
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This is my answer.
Thank you.
Thank you.
Thank you for the questions. Next questions will come from the line of Vincent Yu of Needham & Company. Please go ahead.
[Non-English content] Thank management for taking my question.
I have three questions. The first question is about can management share insights on our strategy on improving user paying ratio.
Second question is in terms of our overseas business, what's our current focus on our on product optimization, and how should we expect the growth and the revenue contribution from this business in 2022? The third question is, as we have seen weakness in user base growth, can management share more details on what we have done on the product changes side and the content side causing such results, and what we should expect the trend in 2022. Also, we are seeing the revenue sharing to broadcasters has been declining. What we have done, and can you share more information on that on the end as well? Thank you.
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I'll translate for Mr. Zelong Li. With respect to the growth of paying ratio, we have actually two strategic priorities in the next stage. First of all, at the operating strategy level, we will focus on our audio entertainment business and improve user engagement through diverse promotional activities, including lowering the participation threshold of live events and activities, and enhancing ties between users and hosts. As for pre-recorded segment, we will further sort out and exploit the core categories with strong monetization potential and better attract the content creators and users to interact in audio entertainment segment so as to improve the user engagement and paying user conversion rate.
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On the other hand, in terms of the marketing strategy, we will also focus on categories with higher commercialization potential and optimizing the promotional model and materials. We will execute on precise user acquisition strategy to reach core user groups with strong willingness and ability to pay, so as to increase the overall paying user base. We are confident that these tactics could effectively improve our overall paying ratio.
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The second question is about the overseas business expansion. Our current focus revolves around user experience as we constantly optimize the product functions and features to meet users' social demands, driving the organic user growth. Also, we have experienced a marked increase in the user time spent and user engagement following the launch of new product iteration, including the launch of more innovative functions. In the near term, we will continue to optimize multiple aspects of our products and our features, and pay close attention to key metrics such as users interaction levels and time spent to lay a more solid foundation for the long term growth.
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In the future, we will test the waters with respect to the commercialization step by step at an appropriate timing. We expect that the overall revenue growth in the short term will be mainly driven by the auto entertainment business. In the long term, with a growing user base and a stronger network effect, we believe the overseas business expansion could bring us more commercialization potential and build our second curve.
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For the third question is about the slowing growth on the user base side. For that, it's mainly because of our optimized strategies in the third quarter. We made strategic adjustments to our content operations in the domestic business pre-recorded content segment. Accordingly, we choose to optimize our promotional strategy of targeting the content with more commercialization opportunities. We also reduced the marketing expenditures and investments related to the pre-recorded content categories with weak or lower commercialization capabilities and are less relevant to the auto entertainment business. It did have like certain impact on the overall user base in the short term.
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In the next year, the commercialization of our audio entertainment business will continue to be the primary driver of our top-line growth. In the third quarter, although the total user growth slowed down from last year, our audio entertainment MAUs grew by 21% year-over-year, which provides growth potential for the commercialization of our audio entertainment business.
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We believe that with our adjusted operating strategy and refined promotional model, we are targeting to improve the paying ratio to foster the top line growth. In addition, with the development of overseas business, we believe that the digital social networking business could also bring us more growth opportunities.
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Thank you. That concludes my answer.
Thank you for the questions. As there are no further questions now, I would 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, please feel free to contact LIZHI's Investor Relations through the contact information provided on our website at ir.lizhi.fm or The Piacente Group Investor Relations. Thank you.
This concludes the conference call. You may now disconnect your lines. Thank you.
Thank you.