DouYu International Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 5 speakers on the call.

Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DU Holdings Limited's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. We will be hosting a question and answer session after management's prepared remarks. As a reminder, this call is being recorded.

Operator

I will now turn the call over to the 1st speaker today, Ms. Lingling Kong, IR Director at Du Yu. Please go ahead, ma'am.

Speaker 1

Thank you. Hello, everyone. Welcome to our Q2 2023 earnings call. Joining us today are Mr. Xiaojie Chen, Chairman and Chief Executive Officer Mr.

Speaker 1

Maming Su, Chief Strategy Officer and Mr. Hao Cao, Vice President of Finance. You can refer to our Q2 2023 financial results on our IR Web site at ir. Deyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR Web site.

Speaker 1

Before we start, please note that this call may contain forward looking statements made pursuant to the Safe Harbor provisions for the Private Securities Litigation Reform Act of 1995. These forward looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward looking statements. All forward looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward looking statements for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr.

Speaker 1

Xiaojie Chen. In the Q2 of 2023, the company's top priority was to foster a healthy ecosystem across our Game Century community. We stepped up the production of premium content to diversify our content metrics and enrich interactions across the community. We also heightened the importance of content management and strengthened the content review procedures on our platform. By ensuring the health of our ecosystem, we have solidified the foundation for our strategic long term sustainable growth.

Speaker 1

On the operations side, we placed a heavy emphasis on improving the quality of our users. We actively refined our monetization and marketing strategies and deepened our cooperation with a focus on refining how we promote new games and their operations. The combination of these adjustments supports the overall stability of our business operations, healthy user metrics and promote our improved quarterly average paying users were 4,000,000 and our adjusted net income was RMB61.4 million, surging 138 percent quarter over quarter. To begin with our user base, our mobile MAUs for the quarter declined 9 point 8% year over year, but were on par with the last quarter. The main reasons for the year over year change include: 1st, early this year, we refined our operating strategy to focus on improving user quality.

Speaker 1

This means that we have cut back on our low ROI marketing spend. As a result, our user acquisition expenses for the quarter significantly decreased year over year. The quality of our users has improved. However, the lack of user acquisition from promotional channels led to a year over year decline in quarterly MAUs. 2nd, we adhered to our content driven approach to user growth.

Speaker 1

We attracted and retained users through continuous investments in high quality content. We expect the regular update we make to revenue generating products and deeper cooperation with game developers to drive organic and better quality MAU growth over time. With our expanded entertainment content offerings, innovative membership services and the launch and promotion of new games. We successfully attracted new user in the 2nd quarter, which partially offset the year over year decrease in mobile MAUs resulting from the adjustments we made in our marketing strategy. Moving to our content ecosystem.

Speaker 1

In the Q2, we also continue to refine our diversified tournament system. We broadcasted over 20 large scale official events and organized almost 60 self produced Esports tournaments. This included major worldwide official gaming events such as the spring tournaments of LPL, King Pro League and the Peacekeeper Elite League as well as CS:GO Blast Majors. As the peak season for mainstream esports twin tournaments came to an end in the second quarter, we offered an array of premium self produced tournaments for the off season, including the Douyu On Off Kings National Challenge at 7, which has now been held for 7 consecutive seasons, the League of Legends Polar Contest led by star streamers and the Peacekeeper debate on Haruna Cup. With this rich and exciting off season content offering, we have kept users actively engaged on our platform.

Speaker 1

In addition to tournaments, in the second quarter, we interactive entertainment content by leveraging our top tier streamer resources. For example, we worked with top LOL streamers on fan club activities such as singing competitions featuring streamers and users, Building upon the profound influence of top tier streamers, a powerful effect was generated by fan club activities, which attracted many streamers and users. We also adopted the bullet chat format to enrich our event scoring system. This format addition greatly elevated user participation and the frequency of user interactions. The fan club activities got incredible visibility across and beyond our platform.

Speaker 1

Its success gained traction among both new and existing users, further increasing overall user engagement. We continued to deepen our cooperation with game developers, particularly on the launch and the promotion of new games. Just is online, the launch at the end of June, it's a major game that we're working on this year. We build momentum for it across our game segment and through multi channel promotions, capitalizing on our outstanding streamer resources, rich game related content such as game news and game guides. We were pleased to see a good deal of downloads and game activations.

Speaker 1

The month that follows the game's launch is considered the golden season for game promotion. As such, we use this time to work with game developers to promote our diversified live streaming content, community discussions and activities, generating traffic and engagement across our platform. We also did a second round of promotions of select streaming content on multiple external channels, driving traffic beyond our platform. Additionally, we worked more closely with game developers on the development of customization tools, such as the game guide library and the character customization, building a comprehensive game segment that incorporate multiple content formats. Furthermore, while we were promoting the new AGC game Honkai Starry, we were deeply involved in the game developers' large scale offline activities and we were the only live streaming platform invited to join the undertaking.

Speaker 1

Based on the game's product features, we tailored an every off game segment activity specifically for AJC users. Through onlineoffline interactions and audience benefits, we successfully attracted more users to our platform. In the Q2 of 2023, we optimized our content metrics, while also enhancing our content management review and across the platform. First, we upgraded the review criteria adding and refining over 30 items. 2nd, we applied innovative review technology, improving technical features such as content monitoring, filtering and inventory handling.

Speaker 1

3rd, we strengthened our management system and staff training and elevated the awareness of content management and regulatory guidelines. We will further enhance the company's procedure and operational compliance programs to provide our users with better content and service offerings, improve user experience and continuously optimize the healthy system of our game centric community. Moving on to our monetization strategies. The number of quarterly paying users in the 2nd quarter was 4,000,000 with a a quarterly ARPU of RMB326. The reason for the change in the number of paying users are threefold.

Speaker 1

First, as we executed our strategy of fostering a healthy, sustainable game centric community ecosystem, we reduced some of our revenue generating activities to level up the platform, including canceling marketing activities aimed at attracting new paying users. 2nd, on the revenue side, we improved our operating efficiency by scaling down low gross margin operating activities. 3rd, the decrease in our overall user base was partially the result of reduced marketing spend. To some extent, these adjustments affected our users' willingness to pay, including both new users and the price sensitive users, resulting in an overall decline in paying users. Nevertheless, we shifted our focus to upgrading our revenue generating products and maintaining our co paying users.

Speaker 1

Internal data show that in the Q2, our co paying users maintained stable spending habits as reflected in our quarterly ARPU, which rose both year over year and quarter over quarter. In terms of traditional virtual gifting, we launched our brand new user profiling system based on how much they spend Any user that spends over a certain threshold is automatically entitled to exclusive user privileges, such as identity marks and exclusive services. These identity based privileges are automatically granted HMAS, which improved our paying users' experience and fortified their stickiness. Apart from traditional virtual gifting, we continue to iterate and upgrade membership functions and benefits. Our membership business, which represents a sustainable source of revenue for us, is also on track towards steady growth.

Speaker 1

This added benefit to our members, an attachment to how much we care about our co paying users as well as our sustainable relationships with them. Over the past quarters, we have developed a dual service system featuring platform, platform wide membership and game specific membership. Based on our platform wide membership service in the Q2, we offered additional cross sell membership benefits to users. Specifically, with each purchase of a platform wide membership in certain game streamers' live streaming channel, users get certain in game items and game specific benefits for free. Owing to the complementary benefits of our dual membership system, our users became more actively engaged and willing to pay.

Speaker 1

We also rolled out innovative privilege gifts such as gifts with sound effects customization, rewinding our revenue generating product to elevate user interaction with streamers and to maintain good vibes across our live streaming channels. In general, our membership renew rate has been steadily on the rise for several consecutive quarters, demonstrating our consistent optimization of the core paying users' ecosystem. In terms of our product R and D and functionality innovation in the Q2, we launched our own new big data system for stream analysis, featuring real time collection statistics and analysis of data on their live streaming content, hours, bullet chats, user traffic changes, etcetera. The system enabled our operation support team to provide timely measure of the streamers' performance against the various indicators, so that we can better support our streamers with more precise feedback data. The system's built in algorithms enable visualization of the streamers' live streaming data from multiple perspectives, providing data support for operational decision making.

Speaker 1

With the system, our operation support team can directly capture high quality content, of course, videos, images and the bullet chats from the streamers' live streaming channels, which helps us identify content that best appeals to audience for more effective recreation, enhancing the visibility of high quality content. In conclusion, we remain committed to executing our core growth strategy of fostering a vibrant game centric content ecosystem. Our key objective is long term sustainable growth. As we work to enhance our ecosystem, we remain focused on maintaining the scale and quality of our core users, attracting more high quality users to our diverse and growing content, fortifying user interaction and stickiness through innovative operations and stimulating community wide interactions. Looking forward, we will continue to explore more commercialization channels and new growth avenues, while maintaining our leading position in the domestic gaming content industry.

Speaker 1

With that, I will now turn the call over to our Vice President, Finance, Mr. Hao Cao to go through the details of our financial performance in the quarter.

Speaker 2

Thank you, Lin Lin. Hello, everyone. In the Q2, we continued to implement our refined growth strategy aimed at ensuring a healthy and balanced business outlook. Emphasizing the development of a healthy margin business and optimizing operations, we continue to adjust our revenue generating activities and streamline operating efficiencies, including those that optimized content costs and further reduced marketing spending. As a result, despite some short term impact to our revenue, we once again grew our adjusted net profit, showing a solid increase quarter over quarter.

Speaker 2

Let's now look at our financial performance in more detail. Total net revenues in the Q2 of 1023 decreased by 24.1 percent year over year to RMB1.39 billion. Live streaming revenues were RMB1 point two six billion, a decrease of 28.8 percent from RMB1.77 billion in the same period of 2022. The decrease was mainly attributable to ongoing operational adjustments in our live streaming business to promote a healthy and sustainable ecosystem in a more cost effective manner as well as the challenging macro environment. These adjustments impacted spending from new paying users and price sensitive paying users.

Speaker 2

Combined with a lower user base caused by our scaled back promotions, we saw a year over year decrease in the total number of paying users. Amid these changes, our core paying users exhibited relatively stable paying behavior, contributing to an 18.2% increase in up to RMB3 RMB326 in the 2nd quarter, up from RMB276 in the same period last year. Advertising and other revenues were RMB133.9 million, an increase of 106.5 percent from RMB64.9 million in the same period of 2022. The year over year increase was primarily attributable to the increase in other revenues contributed by game specific membership services. Cost of revenues in the Q2 of 2023 was RMB1.2 billion, a decrease of 21 0.1% compared with RMB1.52 billion in the same period of 2022.

Speaker 2

Revenue sharing fees and content costs decreased by 25.4 percent to RMB0.98 billion from RMB1.31 billion in the same period of 2022. The decline was primarily driven by a decrease in revenue churn fees, which were largely aligned with the decrease in live streaming revenues. The decrease was partially offset by an increase in copyright costs resulting from the purchase of LPL tournament copyright. Final waste costs in the Q2 of 2023 decreased by 17.3 percent to RMB118.8 million from RMB143 point 7,000,000 in the same period of 2022. The decrease was mainly due to enhanced efficiency of peak bandwidth usage.

Speaker 2

Despite a year over year increase in peak bandwidth usage as a result of the rising tournament viewing demand. We managed to control bandwidth costs through dynamic bandwidth adaptation strategies and other optimization measures. Gross profit in the Q2 of 2023 was RMB 188.9 million compared with RMB309 1,000,000 in the same period of 2022. The decrease in gross profit was mainly attributable to decreased net revenues and increased other costs. Other costs include the cost of game specific membership services, which grew largely in line with the increase in other revenues.

Speaker 2

Gross margin in the Q2 of 2023 was 13.6% compared with 16.9% in the same period of 2022. The decrease in gross margin was mainly attributable to the increase in other costs as a percentage of revenues, which was partially offset by the decreasing percentage of revenues attributed to revenue sharing fees. Sales and marketing expenses in the Q2 of 2023 were RMB87.1 million, a significant decrease of 48% from RMB 167.5 million in the same period of 2022. This was mainly attributable to a decrease in marketing expenses for user acquisition. Research and development expenses in the Q2 of 2023 were RMB71 1,000,000, representing a 30 0.2% decrease from RMB101.9 million in the same period of 2022.

Speaker 2

This decrease was primarily due to a decrease in personnel related expenses. General and administrative expenses in the Q2 of 2023 were RMB46.9 million, a drop of 48.2 percent from RMB90.7 million in the same period of 2022. The decrease was primarily due to decreased share based compensation expenses as the shares and our share incentive plans were fully vested. Loss from operations significantly narrowed to RMB 1,000,000 in the Q2 of 2023 from RMB30.6 million in the same period of 2022. Net income in the Q2 of 2023 was RMB6.8 million compared with a net loss of RMB38.8 million in the same period of 2022.

Speaker 2

Adjusted net income, which excludes share based compensation expenses, the share of loss or income in active method investments and impairment loss of investments was RMB61.4 million in the Q2 of 2023 compared with RMB23.5 million in the same period of 2022. For the Q2 of 2023, basic and diluted net income per ADS were both RMB 0.02, while adjusted basic and diluted net income per ADS were both RMB0.1 9. As of June 30, 2023, the company had cash and cash equivalents, restricted cash and short term and long term bank deposits of RMB7.06 billion compared with RMB6.81 billion as of December 31, 2022. Going forward, we remain committed to stabilizing our core business operations while actively seeking opportunities to enhance our monetization capabilities and explore more commercialization channels. By improving revenue quality and maintaining a prudent cost management approach, we aim to support the long term healthy development of our platform with sustainable profitability.

Speaker 2

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator

Thank session. Today's first question comes from Lei Zhang with BofA Securities. Please go ahead.

Speaker 1

Thanks, management for taking my question. The question mainly on the regulatory enrollment. You noted that we have a regulator on set review in May. Any updates on this? And how do we look at the current regulatory enrollment and the impact of our business?

Speaker 1

Thank you. During the 1 month on-site inspection by the Hubert Group of China's Cyberspace Administration Working Group, the working group provided supervision and guidance on various matters. Our team was in complete cooperation and readily represented any company information that was requested, such as our policies and procedures for content review and our content approval review process. We also took this opportunity to continue to enhance the capabilities and the skill sets of Douyu's content related support teams. During the inspection period, our business operations continued at 0.

Speaker 1

After the conclusion of the inspection, we have continued to make improvements to relevant rules and procedures across our platform. More specifically, as we discussed earlier, we improved our content management procedures, particularly on those related to content monitoring, review and approval. We are now back in our normal internal supervision mode, which has been strengthened by the continued improvements we have made to our internal progresses. In general, regulators have been strengthening and improving their supervision of the live streaming industry. Our goal is the long term healthy development of our platform.

Speaker 1

We actively cooperate with regulatory authorities and are committed to fulfill regulatory responsibilities for the safe operation of our users, such as content monitoring across our platform. We have actively participated in and examined multiple special remediation actions by regulators, including the nationwide Qingwong campaign to purify the online environment, the fight against the cyberbullying and cyber rumor mongering, the cyber protection initiative to provide a clean online environment for minors and the remediation programs that flag streamers and associated accounts engaged in prohibited activities. Our regular internal supervision mainly includes the review, approval and control of content on a daily basis as well as enacting special remediation actions, regular disclosure of typical cases, etcetera. Suzie Douyu Security Center will regularly disclose the results of sections that we've implemented and announced and update any special remediation actions that we've taken. We have also built compliance awareness across the platform through compliance training at Douyu classroom and anti fraud lectures.

Speaker 1

And we are continually optimizing the cyber environment across the platform. Going forward, we will continually strengthen our compliance programs and regulate our operation across the platform. We will also continue to optimize the content ecosystem and increase our investment in high quality tournaments and programs that spread positive energy and other quality content. These combined efforts are aimed at fostering a harmonious and healthy live streaming environment. Thank you.

Speaker 1

Next question please.

Operator

Thank you. And our next question comes from Thomas Chong at Jefferies. Please go ahead.

Speaker 2

Thanks management for taking my questions. My question is that there's a number of hit games coming online this year. Just want to get a sense about how these new games can drive our user growth as well as our revenue? Thank you.

Speaker 3

Thank you for your question. Starting early this year with the public testing pre launch promotions and the office show launch of many new games, we saw more growth opportunities. New games bring not only increase to content supply to attract new users, but also provide more content choices for our existing users. New games are more aligned with current gamers' demands and interest. They also provide us with more opportunities to harness content in diverse formats across different game genres.

Speaker 3

We expect the addition of new games to mainly benefit us in 2 ways. First, new games provide greater opportunities for us in game promotion. For new games, we are actively involved in the earliest stages from the selection of streamers and content build up, all the way through securing in deep cooperation with game developers. We provide content offerings that best fits the game, new game exclusive benefits and various innovative operational solutions to effectively attract users early in process. Let's take Justice Online as an example.

Speaker 3

We promoted Justice Online through multiple channels, including joint promotions with star streamers, building momentum for the game through live streaming sessions, video graphics such as gaming strategies as well as gamer community operations. We are pleased to see the positive effects on promotion. And the second, new games have a positive effect on game operations, we have rolled out various activities based on the status of different games. Take edgyparty as an example. With its strong social attributes leveraging key timing like gameplay updates.

Speaker 3

We launched themed tournament activities and enhanced community operations, keeping users active and engaged. For the operations of Honking's story, We captured its ACG attribute and participated in the Hyo anime event. Our combined online and offline content operations help us attract more user attrition. Looking ahead to the second half of the year, the domestic launch of Valorant and its official tournaments offer a major operations project for us. As users typically enjoying watching competitive games, Valorant is a great fit for live streaming.

Speaker 3

Empowered by our sources of high quality streamers and the self produced tournament content, we were glad to see a remarkable search in both segment specific traffic and viewing hours after the game's initial release. We have thoroughly assessed the new games that are scheduled to be released in the second half of the year and have operation plans in place to ensure proper allocation and the rapid integration of our resources to support this new game launch. Our planned promotions and operational support for the new games place us in a strong position to capitalize on the game promotions golden season to acquire more users. Thank you. Please, next question.

Operator

Thank you.

Speaker 4

Thanks management for taking my question. My question is about your operating strategies. Could management share the progress and the target of your operating strategy adjustment? Thank you.

Speaker 1

As I have mentioned in our previous earnings calls, considering the changing market dynamics across our industry in the past 2 years, we remain committed to our key objective of long term sustainable health growth. For our traditional business, we ensured stable fundamentals, optimized our operating efficiency and successfully improve profitability. And for new business, we have been exploring potential areas for growth based on user needs. After 2 years of exploration and implementation of our opening strategy, we have made meaningful progress. We transitioned from channel promotions that target growing markets to a content driven approach that attracts users in mature markets.

Speaker 1

We have been building a diverse product system since 2020. By strengthening our in-depth cooperation with game developers, we have evolved from a single content live streaming format to a successfully developed multilayer content system that includes live streaming, videos, graphics and community interactions. And we continue to enrich our content to enhance our content operations. Though you had gradually formed a positive cycle of content production and user growth, based on the content system, we have directed more attention to maintaining our core users. In the first half of twenty twenty three, the average monthly viewing hours of mobile users showed an increase from the second half of twenty twenty two.

Speaker 1

This reflects the positive effect of our strategy to focus on improving user quality and the gradual optimization of our platform ecosystem. 2nd, on the revenue front, to achieve our goal for the platform's long term development, have been making adjustments to our operating strategies for some time. We have reduced our operating activities that target revenue growth so that our streamers can concentrate on the production of high quality content. As a result, our users found it easier to consume content and help become more willing to engage in paying behaviors, which has also invigorated our platform's ecosystem. We have also upgraded our revenue generating product to help maintain our co paying users and keep our overall revenue stable.

Speaker 1

Additionally, to improve the company's revenue structure, we explored new potential sustainable revenue streams. By stabilizing our revenue scale, we were able to further reduce our low ROI virtual gifting activities and improve the platform's overall operating efficiency by optimizing our costs and expenses. We are glad to see progressive improvements in both gross margin and adjusted net margin as a result. In addition, over the second half of twenty twenty three, we plan to improve our gaming community ecosystem in various ways. This includes increasing our investment in algorithms used for content based recommendations to provide more targeted content that better fit our users' diverse preferences, thereby improving the efficiency of content utilization.

Speaker 1

We will also prioritize operations that enhance community features through product updates, operational innovation, etcetera, to foster a positive community atmosphere for gamers across the platform, further enhancing user engagement and stickiness. Our product updates, content investments and the exploration of new models all require time and patience to bear fruit. Through trial and error and subsequent improvement, we believe the effectiveness of our operational strategies will become more evident. Of course, adjustment to revenue and expenses have an immediate impact on our financial performance, especially amidst the current macro uncertainties. Against this backdrop, we expect our revenue to experience short term pressure, but we are prepared for this and we can chill costs and expenses to secure our long term profitability.

Speaker 1

Thank you. Next question please.

Operator

Thank you. And our next question today comes from Rafael Chen with BOCI Research. Please go ahead.

Speaker 4

Thanks management for taking my questions. I have two main questions. Firstly, we have noticed recently a top host left the platform after his contract is filed in July. Could management share some latest updates on the stability of other hosts on the platform? Also, could we have more color on the measures that platform takes to motivate these hosts?

Speaker 4

My second question is related to MAU and paying user trend. Could management give some color regarding the MAU and paying user trend in the near to mid term given current visibility? Thanks.

Speaker 3

Thank you. Let me answer your first question. With high quality call streamers, we signed long term exclusive cooperation agreements. The binding agreements are governed by law and supported by game developers and publishers. Therefore, streamer stability is secured during the contract period.

Speaker 3

For more for call streamers, host agreements are about to expire, we actively discuss renewal with them ahead of time. We have been doing this for many years and the non renewal rate is very low. Overall, Douyu has a robust and high quality mode of streamers. As an established game content platform, we have worked with 3 modes on a win win basis for many years, building 3 more individual IP and enhancing DoEI's competitive edge as the industry environment involved and our users' game consumption needs became more diverse, we began introducing new innovative streamer cooperation models. Here are what we have been working on.

Speaker 3

1st, under our overall stream operation strategy, we are strengthening stream collaborations and depending our cooperation with game developers. We regularly roll out innovative high quality content and operational activities to maintain and increase user activity in our game segments. And the streamers have become more willing to go on live streaming sessions. With notably more new games launched in the first half of the year, we worked on a re of streamer recruitment recall and

Operator

Pardon the interruption everybody. This is the conference operator and I do apologize. It looks like we've lost our speaker connection. I'm going to place music in the call and we will be right back with you. Please stand by.

Speaker 3

Let me continue to answer your first question about the streamer stability. With notably more new games launched in the first half of the year, we worked on an array of stream record recruitment recall and growth programs through operating activities supported by game developers. We have added new resources to the platform stream pool, offering additional content for new games so that the streamers can grow and prosper in more diverse ways. As part of our normal course of operations, we launched more streamer streaming programs as well as various offline activities of searching streamers. We effectively promoted user interactions, made our streamers more popular and enhance our live streaming sessions.

Speaker 3

Our second effort has been on the commercialization front. Through multi dimensional product upgrades, we enhanced the interaction between streamers and users and further optimized our paying users' ecosystem. For example, we added the gift collection and display functions such as gift collection display and gift photo book. Users giving gifts for the first time and the user who gives the most gifts are immediately special on live streaming channels and all the gifts given to streamers are displayed on the user interface. We also upgraded our user profiling system in the Q2, highlighting paying user privileges and further improved paying user experience.

Speaker 3

This product upgrade facilitated better streamer user interactions, extending our monetization opportunities. Additionally, we provide streamers with more live streaming support and management tools. Our content production tools help streamers improve their live streaming quality and efficiency. Our big data analysis enables us to best support our streamers with more precise and quicker data feedback to optimize live streaming content and operations. Overall, streamers are the part of our valuable high quality content.

Speaker 3

We implemented a complete some of our streamer requirement of training, growth management and cooperation, make sure that our streamers are actively engaged and well compensated. Our enhanced operations have also strengthened our relationships with streamers.

Speaker 2

Let me answer the second question about the user trends. Our operating strategy is focused on long term sustainable growth across the platform. Regarding revenue, we reasonably adjusted our live streaming revenue generating activities and reduced promotion frequency, which may squeeze out some users and some paying users in the short term. Let me explain this in more detail. First, the quarter over quarter decline in MAU was mainly the result of our significant reduction in marketing expenses for promotions and, constantly, the loss of some low quality users.

Speaker 2

Our analysis indicates that most of the user accretion was from users who spent a short time on the platform. As a result, the changes in MAU will not significantly affect our platform's content operations and monetization efficiency. Looking at the second half of the year, we will continue to execute our prudent marketing strategy. As the impact of our upcoming product upgrades on user behavior is still unknown, we expect MAU to remain at current level in the second half of the year with some degree of fluctuation. 2nd, regarding paying users, the number of paying users was influenced by both internal operations and external macro environment.

Speaker 2

According to our analysis, the change in paying users in the first half of the year was mainly attributable to our internal operational adjustments. These adjustments included reduced marketing expenses for customer acquisition and decreased purchasing from some users relying on low ROI marketing activities that we canceled. These changes resulted in a decline of all number of users and paying users. We believe that the upgrades we have made to our revenue generating products will enhance our ability to maintain a core paying user. That being said, we have stabilized the number of paying users within a comfortable range.

Speaker 2

Looking into the second half of the year, we believe that the macro environment could further affect our paying user base. So far, there is still no sign of a strong macro recovery. Users' purchase awareness has declined, and the users are more cautious about discretionary spending. Therefore, we anticipate that in the second half of the year, macro uncertainties may lead to slight fluctuation in the number of paying users. As we see it, based on our operational adjustments, we in content, which offers more sustainable growth.

Speaker 2

However, it may take more time to see the benefit of these investments. Meanwhile, we will continue to closely track operational adjustments progress, and we look forward to keeping you updated. Thank you. Next question?

Operator

Thank you. And our next question comes from Kathy Tang at Morgan Stanley. Please go

Speaker 1

Thanks, management. Could you suggest how the company could improve the profitability through operational adjustments? Also, could you share with us a profitability outlook for the second half this year? Thank you.

Speaker 2

I will answer this question. As we have constantly noted, our company's operating strategy targets long term sustainable growth across our platform. To this end, we have continuously fine tuned our live streaming business, improved platforms' ecosystem and fostered a healthy spending landscape. We have also significantly elevated the Company's overall operating efficiency by investing in high quality content, refining our business operations, and improving our eye of operations. With these meaningful operational adjustments underway, we have successfully achieved net income and adjusted net income for 2 consecutive quarters.

Speaker 2

Let me elaborate on the 2 primary areas where we have improved our operating efficiency. Regarding our cost of revenues, to offset increased copyright costs and the cost of our innovative business, we optimized the cost of our traditional businesses to effectively keep our costs stable. For revenue sharing fees and common costs, we made an array of adjustments to live streaming activities that helped us maintain overall revenue share ratio at current healthy level, facilitating the continued healthy development of our sustainable live streaming ecosystem. We also enhanced production efficiency and ROI of self produced content and managed to control payments to streamers, which reduced our related content costs year over year. Overall, we expect our total costs as a percentage of revenues to remain flat year over year in 2023.

Speaker 2

Regarding our operating expenses, we actively optimized each core expense and significantly reduced our channel related user acquisition expenses. We also improved staff efficiency by optimizing the company's organizational structure, further boosting our operating efficiency. Our goal, of course, is to achieve sustainable adjusted net income. To summarize, we are managing the macro uncertainties by more effectively controlling our costs and expenses, and we plan to further stabilize and improve the profitability of our traditional live streaming business. We will also focus identifying and developing new areas within our innovative business.

Speaker 2

We plan to work with game developers on all fronts, fully leveraging the traffic and content resource advantages we have accumulated within our traditional live streaming business to further diversify and empower our commercialization capabilities. These coordinated efforts are aimed at furthering long term sustainable profitability and development across our platform. Thank you.

Operator

Thank you. And this is all the time we have for questions. I will now turn the call back over to management for closing remarks.

Speaker 1

On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation.

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Earnings Conference Call
DouYu International Q2 2023
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