Huya: 1Q20 earnings call minutes will launch e-commerce live streaming business overseas and will try business models such as subscription and advertising

On May 20, 2020, Huya announced its unaudited financial results for the first quarter of 2020 ending March 31 after the US stock market closed. Huya's Director and CEO Dong Rongjie, Chief Financial Officer Liu Xiaozheng (Catherine Liu), and Investor Relations Manager Dana Cheng attended the subsequent 2020 Q1 earnings conference call to interpret the key points of the financial report and answer questions from investors.

Meeting Minutes:

Huya's director and CEO Dong Rongjie said that the average monthly active users on mobile terminals accelerated in the first quarter, increasing 39% year-on-year to 74.7 million, further consolidating Huya's leadership. Affected by the public health incident, non-mobile users were negatively affected, but the total number of users continued to grow. During the same period, the average monthly active users of Huya Live increased by 22.2% year-on-year to 151 million. Mainly due to the accelerated growth of mobile users, revenue in the first quarter increased by 48% year-on-year to 2.4 billion yuan.

Dong Rongjie said that since Tencent (00700) became Huya's controlling shareholder, Huya has been strengthening its close cooperation with Tencent in the fields of games, e-sports and artificial intelligence technology. With Tencent's strong business support and user base, Huya can strengthen its leading position in the field of game live broadcasting. This cooperation is the beginning of a new journey for Huya.

Chief Financial Officer Liu Xiaozheng said that the rich and diverse content on the Huya platform is the key to user growth. In the first quarter of 2020, Huya anchors broadcast a total of 55 million hours of content on the platform, a year-on-year increase of 53% and a month-on-month increase of 21%. The average number of active anchors per month also hit a new high, exceeding 800,000. Third-party e-sports competitions are also an important source of content for the Huya platform. Due to the impact of the public health incident, only 67 third-party e-sports competitions were broadcast in the first quarter. But the number of viewers for these events was the same as the same period last year, at about 380 million people. In terms of content diversification, Huya continues to cultivate non-game content such as talent shows, animation, outdoor activities, online chats, and online theaters, aiming to retain existing game users while attracting new users.

Revenue increased by 47.8% year-on-year to 2.41 billion yuan, exceeding management guidance for eight consecutive quarters since the IPO. Net profit attributable to the parent company was 170 million yuan, up 169.8% year-on-year. Under non-GAAP, net profit was 260 million yuan, up 100.7% year-on-year.

Question and Answer Session:

Question: The first question is about the user and traffic trends in April and May after the public health incident was basically under control? The second question is about the cooperation with Tencent. Just now, the management emphasized games, e-sports and artificial intelligence technology. When can we see the synergy of the industry? Will there be any changes in the competitive landscape in the future?

Liu Xiaozheng: We expect users to continue to grow in Q2, especially after the public health incident recovers, non-mobile PC users will accelerate our growth.

Dong Rongjie: Since Tencent became our controlling shareholder, the cooperation between the two sides has been strengthened in all aspects.

On the macro side, we will continue to improve the user experience. Secondly, we will explore innovative business models with Tencent, especially in the licensing of e-sports cooperation content. Our goal is to work with them to find other innovative value-added service business models for e-sports cooperation.

From a more detailed perspective, first of all, in terms of data, we will cooperate with Tencent in big data so that our services can be connected with Tencent. For example, we can share the results of e-sports competitions with the audience in real time. Secondly, we will provide viewers with a smooth switching service between playing games and watching live broadcasts.

Question: The first question is about paying users. Can you tell us about the payment situation of new and existing users? What will be the trend in the next few quarters? Second, do you think the overseas business will develop faster?

Liu Xiaozheng: Our paid user growth is very good. The main reason for the growth is the increase in mobile users. Mobile users actually contribute more than 80% of paid users. So we expect that as our mobile users continue to grow, paid users should also continue to grow.

The payment behavior of new users is similar to that of existing users, but the ARPU will be a little lower than that of existing paying users. So in the next few quarters, we will continue to cultivate the payment behavior of these new users. As for e-sports events and game events, the impact on paying users is relatively small, because these activities and events mainly attract some active users, but do not contribute much to paying users.

Due to social isolation, we have seen similar trends in overseas markets as in China in February and March. Therefore, we expect our overseas user growth to accelerate in the second quarter. However, we are still paying attention to the development trend of the public health incident and its impact on the whole world.

Question: First, can you analyze the information about the game companion app? For example, what is the ARPU valuation of this business? Second, many schools require students to go to school on weekends and shorten the summer vacation. How does this affect the business, such as MAU?

Liu Xiaozheng: We just launched a player companion product last month, called Foreign Language. We may share more details with investors in the third quarter. Currently, we see that the behavior of these users is similar to that of users who use such products and features in the main application.

At present, our user retention rate is still very good. The user retention rate is over 70%, and the user usage time is over 107 minutes. We are still able to retain most of the users we attracted in the first quarter. And as the economy recovers, PC users will also increase. So in general, MAUs will continue to grow. Of course, the composition of users may be somewhat different.

Question: The first question is about the competitive landscape. Has Huya's strategy changed since Tencent became the controlling shareholder? Have key performance indicators (KPIs) been set for Huya? In addition, how do you think the competitive landscape will change? Other competitors, such as Douyu (DOYU.US) and Bilibili (BILI.US), also have Tencent's investment. As Huya's relationship with Tencent becomes closer, what changes will there be in the resources and opportunities allocated to Huya? What impact will Bilibili's recruitment of an agency have on Huya?

Dong Rongjie: Since Tencent became our controlling shareholder, the cooperation between the two parties is moving in a more in-depth direction. From a medium- to long-term perspective, as the cooperation deepens, it may have a disruptive impact on the future competitive landscape. The competitive landscape of the industry is stable. Whether it is Bilibili or Kuaishou, they did not enter the game live broadcast industry this quarter. They have been in this industry for several quarters. But what is certain is that they have brought some changes to the industry. The first is in terms of anchors and brokerage companies. At present, for anchors and brokerage companies, they pay more attention to the content combination of game live broadcasts and game videos. This will be one of the focuses that Huya will continue to pay attention to in the future.

Secondly, the anchors’ own business model is becoming more and more diversified and dynamic, because in the past, the anchors’ income was only the signing bonus and the revenue share of virtual gifts. But now, in addition to these two sources of income, they also enjoy the income from advertising and e-commerce live broadcasts. So I think as these new businesses enter the industry, the anchors’ income structure will continue to optimize in the future.

Third, regarding the revenue share of brokerage companies, we have seen that Bilibili is providing a larger revenue share to brokerage companies. It does not have much impact on us because we have always maintained a very good relationship with brokerage companies, although the proportion has changed and we have also provided a larger absolute amount in terms of revenue share.

Question: Two questions. One is about revenue diversification. We have seen peer platforms launch other types of business models, such as e-commerce live streaming, cloud gaming, short videos, and so on. So how does management view the future profit model of game live streaming platforms? Will the non-game part be further expanded? My second question is about the increase in mobile users. We have seen significant growth in mobile users this quarter. So can management share the situation of these incremental users? For example, which city are they from, what age group, and what content do they tend to consume?

Liu Xiaozheng: In terms of revenue diversification, we do see and expect that revenue diversification will continue. At present, we are also exploring new opportunities and business models. In the next few months, we may also launch our e-commerce live broadcast business, but we will only serve as a service platform for anchors to sell goods through live broadcasts.

The new users attracted in Q1 are similar to existing users in age and region. A higher proportion of new users are from second- and third-tier cities than existing users. But in terms of the content they watch, they are similar to existing users. Most of them still watch gaming content. Some of them also watch non-gaming content.

Question: Can management explain the current cash allocation strategy? Are there any areas that require further reinvestment?

Liu Xiaozheng: We plan to make internal investments in products and content, and also consider potential investments or acquisitions.

Question: As esports becomes more and more popular, can we make some updates on the advertising business? What is the advertising strategy going forward?

Dong Rongjie: We do see a lot of non-game advertisers starting to advertise on our platform. In terms of the number of advertisers, non-game advertisers currently account for about 40% on our platform. However, in the first quarter, due to the pandemic, game advertisers spent more advertising dollars on our platform, while advertisers in the non-game space spent less. But we believe that as the economy recovers, non-game advertisers will continue to increase their spending, and we will continue to diversify our advertising. In terms of advertising formats, we are also trying to explore new opportunities in different advertising formats.

Question: Can you tell us about the company's full-year gross profit margin and profit margin expectations and overseas expansion?

Liu Xiaozheng: We hope to maintain or increase profits in the next few quarters. In terms of overseas development, in the first quarter, the overseas MAU has reached 24 million. In the second quarter, we still expect MAU to continue to grow. Overseas, we will also try to explore new business models this year, such as subscriptions and advertising.

via Zhitong Finance Network