Lizhi Inc.
Q1 2021 Earnings Call Transcript

Published: 2 Jun 2021

[Operator:]

Hello, ladies and gentlemen, thank you for standing by for LIZHI's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks there will be a question-and-answer session. Today's conference is being recorded. I will now like to hand the call over to your host, Effy Kang, Head of Capital Markets for the company. Please go ahead.

[Effy Kang:]

Thank you very much. Hello, everyone, and welcome to LIZHI Inc's first 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 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 the webcast replay of this conference call will be available on the IR section of our website at ir.lizhi.fm.

[Marco Lai:]

Hello, everyone. Thank you for joining us today. We are very pleased to have started the year off strong as we maintain our robust growth momentum in the first quarter of 2021, laying a solid foundation for sustainable development throughout this year. Our overall user base continued to grow in the quarter, with average mobile MAUs reaching 59.7 million, while the average monthly paying users increased by 12% quarter-over-quarter to approximately 475,000. Thanks to the effective execution of our operational strategies. We also witnessed the strong growth in our first quarter revenue of RMB495 million, up 34% year-over-year and 18% sequentially. During the first quarter, we continued building and enhancing our link in the virtual audio ecosystem, in particular expanding our footprint overseas to further reinforce our globalization strategy. In the meantime, we continue to advance our core technology, core capabilities in AI and audio transmission and processing to empower our business development. I would now like to share with you more information on recent developments. First our audio-centric UGC community built on the LIZHI App maintained its high level of engagement in the first quarter. Notably, our average monthly interactions maintained 3.3 billion times during the period. As of the end of March, cumulative audio content across the platform reached 273 million as part of our operational strategies, we continue to enrich content genres and enhance the community atmosphere surrounding . Your effort to tap into genres that are widely sought by younger generation, including youth literature, emotional expression, and ACG, we joined the forces with a number of influential KOLs to create exclusive premium audio programs and promote these programs across and outside our platform.

[Chengfang Lu:]

Okay, thank you, Marco. Hello, everyone. I will now provide a brief overview of our financial results for the first quarter of 2021. First, we are very pleased to have achieved strong top-line growth in the first quarter of 2021. Our robust growth was driven by our continued efforts to build a competitive audio ecosystem, including a vibrant UGC community and advanced commercialization capabilities. In addition, we have strategically to enhance our brand equity, as we boost our LIZHI Podcast and in-car audio business, and to expand our footprint overseas through TIYA, all of which we believe will propel our business growth in the future. In the first quarter, our total net revenue increased by 34% to RMB495.1 million from the same period of 2020. Our audio entertainment business which contributed RMB489.3 million to net revenues in the first quarter of 2021 and represented year-over-year growth of 34%. The increase was mainly due to the continuous growth in our MAUs and pay user base as well as enhanced commercialization capabilities of our apps. Additionally, podcast advertising and other revenue grew by 50% year-over-year to RMB5.7 million in the first quarter of 2021. The increase was mainly due to the increase in the number of advertisers. Cost of revenue was RMB370 million in the first quarter of 2021 compared to RMB297.4 million in the first quarter of 2020. The year-over-year increase was mainly due to an increase in revenue sharing fees to our content creators payment handling costs and bandwidth costs, which are generally in line with the growth of the company's business.

[Operator:]

Thank you. For the benefit of all participants on today's call, if you wish to ask us your question to management in Chinese, please merely repeat the question in English. And for the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow for your next question. Your first question today comes from the line of Vincent Yu from Needham & Company. Please ask your question.

[Vincent Yu:]

Thank you and thanks management for taking my question. Actually I have quite a few questions three questions. The first question is, can management share some metrics on TIYA App and the world management start to focus more on - in addition would that be point one, for the metrics are remaining like accidental user time spend per day or in the likely user demographics. My second question is, can management give us a sense of the user demographic of LIZHI Podcast app, and how much do they overlap with LIZHI app. My third question and that is, we are seeing increased content investment by other players in the industry. Can management talk about the size of content investments, LIZHI looks to make in 2021 and how will they affect LIZHI's margin?

[Marco Lai:]

Okay, I'll translate for Marco. Currently we are focused more on the user scale and engagement on TIYA. In the first quarter, our user base achieved a strong growth and the user engagement reached the higher levels compared with the prior quarter. First, this was reflected by improved user signals and user engagement at a number of our user friendly connections increased by 230% from the December 2020. Based on various interesting and topics, users created a wider spectrum of the chat room topics which created for using interactions and tried the higher growth of user base. On the other hand, we noticed that both vibrancy and penetration of users in the group was gradually enhanced with the launch of our new group function, which also drove the user engagement in various segments. Currently, TIYA lays more emphasized on the growth of the user base as well as the user engagement. We are dedicated to providing users with our diversified social scenarios and innovative functions, while also popularizing the audio-centric social products to further satisfy the social and the home entertainment needs of the younger generation. We also remain committed to optimizing the product based on user feedbacks and user experiences to achieve a stronger network effect. Therefore, exploring commercialization is not actually our key focus at the moment. Once our user base grows to a certain scale, we will implement commercialization intent based on different stages of the product step-by-step and we will also keep the market updated of any developments in this regard. The second question is about the user base of LIZHI Podcast. That is actually a significant difference between the user groups of LIZHI Podcasts and those of the LIZHI App. In particular LIZHI Podcast features a higher proportion of users from Tier 1 and Tier 2 cities in China with a balance the gender distribution. Additionally, the proportion of users aged 25 to 34 is higher, followed by ages 35 to 44. This is almost in line with the target user group we originally ended to reach which is young and middle aged users in top-tier cities that we intend to target through our LIZHI Podcast and the application across multiple devices and scenarios. However we are seeing an increasing level of usage of the LIZHI Podcast from these user groups with average daily spending time per user reaching about 80 minutes, which is much higher than the LIZHI App. Users also demonstrated a stronger interest in our new podcast content offerings, where other metrics including our user subscriptions remain relatively competitive in the podcast market. In early April, we unveiled a new LIZHI new podcast feature only to podcast to bolster the real time interactions between audiences and podcasters which further enhanced our user engagement and the user activeness. Looking ahead, we will continue innovating LIZHI Podcasts while aiming to further propel the development of the Chinese podcast industry Okay, the third question is about the mass market impact continue focused this year accumulating the high quality and diversified company offerings, and also tend to make targeted investments towards building our content library that is aligned with our platform features. Overall, we believe these investments will have a limited impact on our profitability. First, the LIZHI App has a relatively low cost in terms of the content offerings, as it can leverage our unique UGC community to spur the organic growth in UGC content offering. Furthermore, we can discover and distribute high quality content using our advanced AI technology. In addition, LIZHI Podcast content to radiate podcast from the LIZHI App the extent of the content offering range, as well as exclusive podcast offerings from podcasters we have signed. So we have our own strategy roadmap for inclusive content investment. In this regard, we will adopt to diversify the strategy to attract some more outstanding podcasters and optimize our cost structure including discovery and cultivating more content creators with great potential, launching the innovative forecast feature, adopting the Blockchain technology for the copyright contraction to attract some more podcasters on platform and providing podcasters with more opportunities for their future development. In addition, it’s all about to differentiate ourselves from other platforms so we can have better strength on the cost structure and investment moreover, we’re actively developing and expanding the applicable scenarios for podcasts to help podcasters reach broader audience base, including like in-car scenario and other smart devices, indeed our strategic roadmapping variances that enable us to attract new podcasts while optimizing the content cost control and we can optimize the cost structure for more mature business step by step. Overall, I believe that our gross margin and the profitability will have a minimal space to grow.

[Operator:]

And our next question today comes from the line of Vicky Wei from Citi. Please ask your question.

[Vicky Wei:]

So good morning management. Thanks for taking the question. My question is about the scale of investment podcasts and its implication for the margin profile? Thank you.

[Chengfang Lu:]

Thank you, Vicki. Let me share some information about this question. Actually, in the first quarter, along with the launch of our new product, and our strategy to bolster podcast application, across multiple devices will increase the investment in branding and marketing. We also invest in clear expansion in overseas markets. But the investment still is relatively small as states. All this led to an overall increase in selling and marketing expenses compared to the prior quarter, which are going to lead to our net loss in this quarter. Additionally, we also paid a close attention to our counter offerings on these podcasts, which also increased content costs compared to the prior quarter. But I believe it has a limited impact on our overall margin. And, as Marco mentioned before, as we have diversified podcaster resources, including the content creator of the LIZHI App, and some inclusive podcasters we signed additionally, I think the overall investment is limited. In the future, we were focused more on local operating overseas, and in general, our investment at every stage will always be based on the company's long-term development plans, it will likely have some impact on our margin in a short time. But we realize our efforts towards efficient brand promotion can help the company established for higher reputation, and at least brand awareness among users, which is beneficial for our long-term diversification of our layout and acceleration of our business growth. So in future we’ll undertake dynamic adjustments for each business segment and diversify podcast metrics to further optimize our cost structure and enhance overall operating efficiency. Thank you.

[Operator:]

And our next question today comes from the line of Ivy Liu from Crédit Suisse. Please go ahead.

[Ivy Liu:]

Thank you management for taking my question. I have a quick one here. Could we have some color on update on the DOREME project. And thinking about longer-term, how do we think the technology development will continue to feel the business growth for LIZHI? Thank you.

[Marco Lai:]

Okay, I'll translate Marco’s answers. The first question is about the developments on the DOREME project. DOREME is our in-house developed audio technology solution providing real time online audio and audio features, audio research and optimizations. In the first quarter we achieved a great progress for our in-house audio technology. The DOREME project also provided technology infrastructure to support more businesses. Our in-house audio technology has also been applied to the live streaming podcast feature of the LIZHI Podcast ensuring that stable and smooth real time audio transmission particularly in addition to the mobile devices we have also made tailored configuration for the in-car scenario further supporting the live streaming forecast future for the in-car use, including the optimization of the echo suppression system to improve the sound quality and audio effects because like in the in-car scenario, the audio transmission with echo suppression is quite different from with mobile devices thereby delivering a competitive sound effects and user experiences with our in-house development technology. Going forward, we’ll continue to advance our in-house technology actually, besides the DOREME project, we also have other in-house development technologies that we might disclose in the future and the DOREME project will also be optimized and upgraded to empower more business lines. In the long-run, our in-house technology is able to bring true for our competitiveness in the market instead of relying on third-party technology platforms, we hope to apply more in-house technologies to further optimize our cost structure and offering to the operating efficiency and provide more personalized audio experiences to our users while achieving a scalable business growth because when we use the third-party technology platforms it’s hard for us to provide personalized audio experiences to our users.

[Operator:]

And our last question today comes from the line of from Haitong. Please ask your question.

[Unidentified Analyst:]

I will translate for myself. Thanks management for taking my question. I have a quick question regarding your future plan and focus especially for how to commercial LIZHI App? Thanks.

[Marco Lai:]

Thank you, Feya and I’ll translate for Marco. The question is about our strategy. So firstly, our overall strategy will be based only on our audio tend to be consistent, we will do through the diversified footprint and advancements of our technology infrastructure to create more growth potential and drive the continuous growth of the overall business. Firstly, our flagship product LIZHI App has grown into a comprehensive community which combines diversifying UGC audio content and abundant audio entertainment features, also providing users with wide ranging tools for audio content creation, audio content sharing and interaction. In the first quarter, our overall average mobile values and the views increased to 59.7 million, most of which generated from the LIZHI App also indicates that LIZHI App remains further commercialization potential in that by leveraging our operational strategies, we will further cultivate our highly engaged community and then enhance the integration of audio entertainment in the pre-recorded content segments to boost the user penetration in the audio entertainment segments. Meanwhile, we’ll continue improving the conversion of the paying users to achieve the solid top line growth. Our years of experience in the auto entertainment provides widespread support and sets the stage for our global expansion. As mentioned earlier, we’ll leverage our technical and operational advantages to further boost our global strategic footprint. We’ll also continue building the podcast ecosystem and improve the application of podcasts across multiple devices. Recently, we have been discussing the collaboration opportunities with more auto companies and we’ll implement our products in more auto systems. Meanwhile, we’ll continue the podcast innovation to provide better user experiences and create more development opportunities for our podcast content creators. In summary, LIZHI App will continuously drive our top line growth and the TIYA business in overseas market provides great potential for our globalization expansions, for the LIZHI Podcast, we think it provides more potential in the podcast markets in the era of the electric vehicle market. I’m very confident in LIZHI’s future developments. With our years of upgrading experiences and the strong technical capabilities in the online auto industry, we’re poised to capture the market opportunities and create more business value. I also expect to continue achieving stronger business growth for the full-year.

[Operator:]

Due to time constraints, that does concludes today’s question-and-answer session. I’d now like to hand the call back to the company for closing remarks.

[Effy Kang:]

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 our TPG Group Investor Relations. Thank you.

[Marco Lai:]

Thank you. Thank you, everyone.

[Chengfang Lu:]

Thank you, everyone.

[Operator:]

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