HUYA Inc.
Q4 2021 Earnings Call Transcript

Published: 22 Mar 2022

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Fiscal Year 2021 Earnings Conference Call for Huya, Inc. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. Now I’ll turn the call over to Ms. Hanyu Liu, Company Investor Relations. Please go ahead.

[Hanyu Liu:]

Hello, everyone and welcome to Huya's fourth quarter and fiscal year 2021 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.huya.com. A replay of the call will be available on the IR website in a few hours. Participants on today's call will be Mr. Rongjie Dong, Chief Executive Officer of Huya, and Ms. Ashley Wu, Vice President of Finance. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements, made under the safe harbor provision of the US 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 these and other risks and uncertainties is included in the company's prospectors and other public filings as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Huya's earnings press release and this conference call include discussions of 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 the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Rongjie Dong. Please go ahead.

[Rongjie Dong:]

Hello, everyone. Thank you for joining our conference call today. 2021 was a solid year for Huya as we assumed to fortify our leadership position in China's game live streaming market. Amid macro headwinds related to the subsiding pandemic effects and the evolving regulatory landscape, we finished the fourth quarter with a record high mobile user base and the net revenues of RMB 2.8 billion. For full year 2021 we performed stably overall, generating RMB 11.4 billion total net revenues and RMB 454 million non-GAAP net income. Throughout the year we expanded our investments in licensed E-sports tournaments, self-produced content and content creators across our platform and continued to advance technology and product development launching innovative impactive features to further enhance user experience and boost user engagement. We also broadened our commitment to corporate social responsibility, fostering deeper bonds with our community, our users and broadcasters, as we promoted positive social values nationwide. First, let's look at our user growth, driven by e-sports events and the new game launches in Q4. Our user base sustained healthy growth momentum and our like mobile MAUs reached 85.4 million during the quarter, up by 7% year-over-year. On an annual basis, we are like mobile MAUs mails were 88.9 million in 2021 compared with 76 million in 2020. And we remained focused on ramping up content investment and rolling out product innovations. We maintained our Huya Live app next month user retention rate about 7% on average in 2021. Next I would like to provide some updates on our recent efforts to advance technology and product development. Let's begin with our open platform for third-party application developers, which is growing rapidly and gaining popularity with users, broadcasters and developers alike. By the end of December 2021, more than 320 Huya mini tools has been created and offered by developers through this open platform extensively diversifying and enlarging our users' live streaming interactions with new formats. Furthermore in the fourth quarter of 2021, the average number of broadcasters using mini tools they improved by approximately 160% year-over-year. And the sales force engaged more than 5 million daily active users during the quarter, up over 240% year-over-year. One noteworthy example is better our roads. Our recently added mini utilizing incremental game features to help streamers increase users' loyalty to their live broadcaster rooms by enticing users with virtual rewards when they visit. Also to build on the successful launch our service of inactive features, including gift droppers and one click to joint broadcasters gameplay. Earlier in 2021, we introduced more innovate features in the fourth quarter further enhancing game live streaming experiences, for instance in December, we joined forces with Peacekeeper Elite to roll out 3-day campaign featuring our live streaming sales for in-game virtual items inviting a few popular streamers to promote in-game skins and other virtual items during their live broadcaster . Notably, the campaign generated a record growth billing for our live streaming sales on our platform with users viewing, 6 game title on app doing the week of the campaign growing by 50% sequentially. On top of our general live streaming e-commerce functions which allows users to place orders directly driving streaming sanctions. So Peacekeeper elite event included inventive feature enabling users to receive virtual in-game purchases immediately in their game accounts by connecting CR game ID with their Huya account. While greatly benefiting the game's operations events like these also support new live streaming content creation and increased streamer engagement in the game value chain, thus potentially diversifying their income sources. Our initial success in this initial initiative also demonstrated the value of our enhanced cooperation with Tencent ecosystems game studios. In a concerted effort to propel growth, while delivering a better experience to our users and the broadcasters, we're also working to combine the above mentioned Huya mini 12 and the interactive features to re-enhance mutual benefits. As mini tools connects us with application developers and interactive features link us with game companies, we can leverage those synergies to integrate upstream and downstream partners raising our platform's profile as an industry leader. As for corporate social responsibility, we have read about our efforts by upgrading our risk control and compliance system, expanding our Huya volunteer team and encouraging our broadcasters to create more content in pursuit our positive social impact. In 2021, over 9,600 broadcasters on our platform joined our campaign to promote a healthier and a more positive social environment and performed appropriately 83,000 hours of related live streaming, covering a wide range of topics such as antifraud, education, volunteer social activities, and cultural heritage. We also made an encouraging progress with our business diversification initiatives in the past year providing game videos appealing to a wider range of audience demographics. Furthermore, our international product, NIMO TV recorded further user expansion and significant current revenue growth, driven by NIMO's solid performance. International business is emerging as a growth driven for our company. Ashley will elaborate on these two topics in just a moment. Last, but not least, although our revenue growth slowed in the fourth quarter, primarily due to a softer macro environment, we sustained our strategic efforts in content investment to expand our offering and drive continued user growth that we believe is the key to our sustainable business development. This however caused higher cost and lower margins for the first quarter. Overall, we are proud of our accomplishments in 2021 and are ready to embrace the challenges and the opportunities the new year is likely to bring. As we enter 2022, macroeconomic uncertainties and regulatory changes continue to post pressure for us thus we are experiencing a softer start compared with previous years. Nevertheless, we remain confident in our business fundamentals and operational capabilities given our leadership position in the game streaming industry and our strong value proposition in the massive game and the e-sports market. As the market evens out and user sentiment returns to more favorable levels, we expect to see a recovery in our financials with our investments paying off. Looking ahead, in order to deliver long-term value to our stakeholders, we will strategically focus on enriching quality and diversity of our content, cultivating content creators and advancing technology and product innovations, as well as further improving operational efficiency and exploring new business opportunities as we strive to support a better happier community. Given that E-sports titles are now included in the official medal programs of the Asian Games. We see tremendous opportunities to leverage our strengths in E-sports content to enhance Huya's brand image and promote overall industry development. With that overview, I will now turn the call over to our VP of Financial. Ashley Wu to share more details on our operating metrics and financial assessment. Ashley, please go ahead.

[Ashley Wu:]

Thank you, Mr. Dong, and hello everyone. To expand on Mr. Dong's remarks, I will start with updates on our content enrichment and diversification initiatives. Professional E-sports content remain viable on our platform. During the fourth quarter, we broadcasted 125 third-party E-sports tournaments, generating total viwership of approximately 605 million. Notably, the 2021 season of League of Legends World Championship over 2021 achieved record high viewership on our platform and peak concurrent viewers of this event doubled compared with the period addition in 2020. KPL Autumn demonstrated International 2021 and PEL Season 4 are also quite popular among our users. Furthermore we have some exciting news to share about E-sports broadcasting rights. Following our agreement with TC Sports last year through, which we locked down the 2021 to 2024 exclusive broadcasting rights in China for LPL, LTL and LPL AllStar Weekend series, we are securing rights for a greater variety of licensed E-sports tournaments by forming multiyear partnerships with E-sports event organizers. In November, we signed an exclusive Chinese media rights agreement with ESL Gaming for a series of its key events in 2022 and 2023 including ESL Dota 2 and ESL Mobile ecosystem, as well as the ESL Pro Tour for CS

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Thomas Chong from Jefferies.

[Thomas Chong:]

Thanks management for taking my questions. My question is about the 2022 outlook. Can management share about the overall strategic direction as well as the trend for user and revenue? Thank you.

[Rongjie Dong:]

Thank you for that question. This is from Mr. Dong, CEO of the company. We always believe that users are core of our business growth and we will continue to have user-driven growth for our long-term development strategy. For the year 2021, our user increased by 6.4% with Q4 MAU reached 85.4 million further cementing our leading position in game live streaming area. In 2022, Huya will continue to increase our market share in game live streaming and cement our leading position. Of course, Huya will continue to explore the diversification of our business and to enhance our monetization ability. In order to hit our user growth target, Huya in 2022 will continue to invest effectively on the content and product try to cover the mainstream tournaments and E-sports events and also to enhance our ability to make self-produced tournaments and content and increase the proportion of self-produced content. On top of that, we will continue to acquire streamers to adjust our incentive schemes according to the market dynamic and also keep an eye on overseas live streaming and video businesses. On top of that, Huya will continue to improve its technology and product, trying to have virtual streamers to optimize our audio and video technology to improve the users viewing experience and to promote interactive features on live streaming as well as Huya mini programs. Also we will try to step up our effort in partnering with Tencent and explore new operating models and commercialization models for E-sports as a whole. In terms of operation, we will try to enhance and continue to be compliant in our platform, trying to adapt to regulatory changes and to realize long-term business development.

[Ashley Wu:]

Ms. Ashley Wu, VP of Finance. As to the trend of user growth and revenue outlook for the year 2022, our target is to keep the mobile user number increase for the year by enriching our content in our platforms and also to enhance interactions with our users. It is worth noticing that the user numbers has seasonality changes pretty much depending on the scheduling of the big events as well as holidays and other seasonal issues.

[Ashley Wu:]

In terms of revenue we noticed that the paying behavior of our users in Q4 2021 somehow was affected by the macro economy, the negative impact. And because this regulatory changes and macro economy impact is still continuing, we expect that for the first half of 2022, our revenue probably will continue to be under some pressure. But generally speaking, the fluctuations in our revenue are mainly due to external forces. Our company will continue to work on and have the right confidence that our business will enjoy a sustainable growth for the long term. Generally speaking, the users are the key to our business development and we'll continue to have content-driven user growth. And we believe that when the market situation turns better our business will return to upgrowing business growth.

[Hanyu Liu:]

Okay. Next question please. Thank you.

[Operator:]

Thank you. Our next question comes from Lei Zhang from Bank of America Merrill Lynch. Please ask your question.

[Lei Zhang:]

Thanks management for taking my question. My question is mainly regarding your content strategy, in particular, on the E-sports tournament set. I consider your competitors adjustment in E-sports tournament recently and then also will share your thought here? Yes. Thank you.

[Rongjie Dong:]

Thank you for your question. This is from CEO Mr. Zhang. In order to enhance our competitiveness and continue to provide attractive content for our users, we'll continue to purchase and establish high-quality content including IP tournaments, self-produced events as well as PGC programs and streaming content. To be more specific in terms of IP tournaments, we'll continue to provide popular tournaments and events. In the mainstream games for instance in League of Legends, China, we have the LPL in China as well as the only platform that provides LCK, LEC, LCS as well as PCS. In terms of Honor of King and Peacekeeper Elite, we are also covering the main events and tournaments as well as the professional league in China. In terms of the new games for instance LLL Mobile, we had established the live streaming for its professional league WRL, Wild Rift League. And I also mentioned that last year in November, we have established two-year exclusive IP agreement with ESL for Dota2 and CS

[Hanyu Liu:]

Next please. Thank you.

[Operator:]

Thank you. Our next question comes from Brian Gong from Citi Group. Please ask the question.

[Unidentified Analyst:]

Thank you everyone for taking my questions. This is Nelson asking on behalf of Brian. I have a question on margin and cost. Can management share your view on content cost and streamer cost outlook in 2022? And how about the margin trend outlook going forward?

[Ashley Wu:]

Thank you for that question. Ashley Wu, VP for Finance. In order to increase our attraction to streamers since Q3 last year, while maintaining the split policy stable, we had tried to provide more incentives for our streamers according to the market dynamic. And due to the year-end event in Q4 last year, the split ratio was slightly higher. So that was a seasonal impact. So, based on our overall operation of the platform and monetization ability, I believe that our split policy for the streamers are now quite attractive. And for now we expect that the total split ratio for the year 2022 will be at the same level we had for the year 2021. We'll continue our investment in content and also to carry forward our split policy since the second half of 2021. We believe that the content cost as a percentage to our revenue for the year 2022 would be slightly higher than that in 2021 and therefore the whole year gross margin rate will somehow be affected a little bit. In terms of operating expenses, we'll try to continue to optimize our expenses -- operating efficiency, but due to a slightly lower gross margin level our operating margin will be lower than the year 2021. Given the major challenges for the whole industry and macro economy, we believe that it is necessary for us to continue to invest in content, because it would help us to increase competitiveness and increase the market share. Of course, we'll try to be more optimized in terms of operating efficiency, for instance, to be more specific in analyzing the content ROI and to allocate our resources to make more result and efficient. For instance, we would probably also trying to optimize our bandwidth technology, make it more efficient and also to optimize on our operating expenses such as marketing expenses. Our content investment strategy enjoys a certain level of flexibility, which can be adjusted to market situation. And for a long time, Huya has always been very healthy in our cash flow in our finance performances, which laid out a very good foundation for our further investment in content. Right now, the revenue situation is somehow subjected to the external impact. As we mentioned before, we have a good foundation for user growth. Our users are loyal to our platform. The second month retention rate for our users on the application is 70% and we have very nice commercialization capability. So when the market situation turns better, we believe that our revenue will continue to rebound and grow. On top of the gifting income, we would also actively explore other models for revenue and businesses. For instance to have overseas live streaming with video advertisement income we could also make money out of IP sales. Now streaming revenue in the year of 2021 accounted for over 10% of our total revenue. And we believe that for the mid and longer term, our non-streaming revenue as a percentage will keep growing. In terms of the profitability and margin, we will continue to optimize our cost and operating efficiency and to make our resources more effective. And we will also have better evaluation of content ROI. And once the competition landscape becomes stabilizes, we would be able to address our split costs as well as other costs for content producing. And our loss rates in overseas business will continue to narrow down. So for the longer term, I believe that we are able to drive a profit.

[Hanyu Liu:]

Thank you. Our last question, please.

[Operator:]

Thank you. Last question comes from Yiwen Zhang from China Renaissance. Please go ahead.

[Yiwen Zhang:]

Thank you management for taking my question. So I have a quick question regarding overseas business. Can management share the latest update of overseas business and our target for 2022? Thank you.

[Ashley Wu:]

In Q4, 2021, our overseas business achieved a very nice positive progress with an MAU over 30 million with a new record high. And our revenue also registered in year-on-year 110 percentage growth. The overseas business give us about 4% of the revenue for our company in the year 2021. In the year 2021, we allocate resources to Southeast Asia and those key areas. While optimizing our costs we increased our user base. In terms of Nimo content, while providing popular games and tournaments which are popular in region -- in the regional level, we had also increased pan-entertainment content on our platform to make our ecosystem more complete and it is also favorable for us to monetize on our content. Based on our experience in 2021, we will continue this strategy for our overseas business in 2022, with a goal to further consolidate and increase user base and increase our revenue and also at the same time trying to optimize and reduce loss.

[Hanyu Liu:]

Okay. We finished the answer.

[Operator:]

Right. Thank you. So now I'd like to turn the call back to the company for closing remarks.

[End of Q&A:]

[Hanyu Liu:]

Yes. Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website or TPG Investor Relations. Thank you.

[Operator:]

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