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HUYA (HUYA -0.68%)
Q4 2023 Earnings Call
Mar 19, 2024, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Hanyu Liu
Good day and good evening and thank you for standing by. Welcome to Huya's fourth quarter and fiscal year 2023 earnings webinar. I am Hanyu Liu from Huya's investor relations. At this time, all participants are in listen-only mode.
Please be advised that today's webinar is being recorded. 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 of management on today's call will be Mr. Junhong Huang, Huya's acting co-CEO and senior vice president; and Ms. Ashley Wu, acting co-CEO and 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 provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties. As such, the company's result may be materially different from the views expressed today.
Further information regarding this and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. 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. With that, I am pleased to turn the call over to our acting co-CEO and SVP, Mr. Huang. Please go ahead.
Junhong Huang -- Senior Vice President and Acting Co-Chief Executive Officer
Hello, everyone. Thank you for joining our earning conference. Today, I'd like to share an overview of our recent performance and business development and technology offerings and oversea initiatives, as well as our corporate social responsibility efforts. 2023 marked a year of transformation for Huya.
We launched a strategic plan to transition our commercialization focus toward game-related services and expand our presence in the game industry. I'm pleased to report that we have made great strides in this area while also strengthening our core capabilities to maintain our leadership and competitiveness in the game livestreaming industry. Against the backdrop of challenging macro and industry environment and this proactive business adjustment, we experienced revenue decline this year. However, we achieved a turnaround on the margin side, posting a non-GAAP net income of RMB 119 million for the full year as we continue to optimize costs and improve operational efficiency.
We also kept our user community engaged through our extensive content and service offerings, with Huya Live's average mobile MAUs holding steady year over year at 84.1 million for full year 2023. Next, a brief update on our strategic transformation. Our main goal for 2023 was to build the business infrastructure required to support our new game-related service and to establish collaboration with related game studios. We have largely completed this work, including upgrading the game center module, developing and integrating the in-game item mall function, and optimizing account building with related games.
We have also begun collaborating with various major game titles to provide distribution and promotion service, as well as in-game virtual item sale service on our platform. Although revenues from game-related service was modest in 2023 as we were in preparatory phase, we saw encouraging signs of growth in the fourth quarter and expect that trend to strengthen in 2024. We are confident that game-related services will continue to scale as we add newly launched and existing titles and ramp up public participation from our broadcasters. Revenues from our advertising and other segment increased 41% quarter over quarter and 29% year over year in the fourth quarter, primarily driven by game-related service contribution.
Our recent efforts in the promotion and distribution of an early awaited new game, DreamStar, clearly demonstrate our game-related service capabilities, as well as this business' vast potential. We conducted a comprehensive promotional campaign, loaded with innovative features, resulting in industry-leading levels in terms of promotional performance and the number of reservations and downloads through our channel during the game's launch period. Specifically, we invited popular broadcasters on our platform to stream their gameplay and rewarded livestream viewers with video DreamStar gift packs through our unique interactive gift drop feature. We also created a DreamStar preorder and download area in our game center and provided broadcasters with commission-generating reservation links to place on their channels, incentivizing their participation while boosting user preorders.
Meanwhile, users who downloaded the game through our platform received exclusive in-game props and other gifts provided by both DreamStar and Huya. In addition, we held cross-platform entertainment competition incentivized the creation of gameplay delivered videos and organized activities for broadcasters to design exclusive game maps, all of which effectively expanded this new game's reach on our platform. As a livestreaming platform primarily serving the game vertical, Huya provide a more professional, more feature-rich game streaming experience than nondedicated platforms. We are committed to further differentiating our superior game livestreaming platform and continue to drive progress through tech innovation.
For instance, we're currently leveraging deep game data and our proprietary large language model trained on data from our platform streaming content and 270 million bullet chats to enhance the traditional livestreaming viewing mode with real-time analysis and interaction based on game content and events. This immersive upgrade makes game livestreaming content more professional and entertaining, boosting engagement across the board. For example, in our content current Honor of King livestreams, our AI tech can help streamer dynamically generate customized commentary based on real-time information such as game battle status and weapon used. In addition, viewers can use our AI intelligent editing function to instantly capture and replay broadcasters' past moves, increasing user's sense of participation.
Turning now to our overseas expansion. We view our overseas initiatives as strategically important, providing revenue diversification while supporting our overall growth as we capitalize on opportunities arising from the overseas activities of Chinese game companies. In December 2023, we acquired a 100% equity interest in a global mobile application service provider, in line with our strategic transformation. This acquisition is intended to enhance our game promotion and distribution capabilities in international markets.
It will also create synergies with our overseas game livestreaming platforms, Nimo TV, empowering better utilization of localized resources and improving efficiency. Lastly, as part of our corporate social responsibility efforts, we continue to expand our portfolio of content with positive social impact through our livestreaming plus model, connecting online interactions and offline activities. In 2023, more than 4,600 broadcasters contributed a total of over 50,000 streaming hours of positive social impact content to our platform, covering areas such as cybersecurity, education, minor protection, and rural revitalization to complement our game and entertainment programming. We leverage our innovative technology and brand awareness to increase this content's influence, enhancing our platform's healthy atmosphere.
Going forward, Huya will remain committed to and upholding its corporate social responsibility and contributing to the healthy development of the livestreaming industry. Looking ahead to 2024, we face the rapidly changing market conditions, and that presents both challenges and opportunities. We will continue to solidify our core livestreaming business and actively promote the development of game-related service to expand our business and revenue streams. As we steadily implement our strategic transformation plan, we'll remain confident in our future business prospects.
With that, I will now turn the call to -- over to our acting co-CEO and VP of finance, Ashley Wu, to share more details on our results. Ashley, please go ahead.
Ashley Wu -- Vice President, Finance and Acting Co-Chief Executive Officer
Thank you, Vincent, and hello, everyone. I'll provide some updates on our operating metrics and financials. Overall, we maintained a stable user base. In the fourth quarter, we continued to engage users in rich game and esports content during the period, particularly some major esports tournaments, while upgrading interactive features to enhance the viewing experience.
Huya Live mobile MAUs for the fourth quarter of 2023 was 85.5 million, flat compared with the same period last year and slightly lower compared with the summer season's higher base. On the other hand, as we develop more innovative game-related services, more users started to pay for these new services in the fourth quarter, driving a slight sequential increase in Huya Live's paying users for the fourth to 4.3 million despite a decrease in livestreaming products and services paying users. Turning to our professional content enrichment. On the licensed content front, we broadcasted over 70 third-party professional esports tournaments in the fourth quarter of 2023, with a total viewership of over 360 million.
As we have become more selective in licensing tournaments, we will continue to improve the ROI and content utilization efficiency of these events by enhancing event experience and related operational activities. A variety of year-end events, including the LoL Worlds, The Honor of Kings International Championship and Challenger Cup, the CrossFire CFS Grand Finals, and the PUBG Mobile Global Championship, attracted broad user attention. The Valorant China Evolution Series also gained traction on our platform as Valorant's esports events continue to develop. Notably, our coverage of this year's LoL Worlds 2023, one of the most influential esports events in the world, demonstrated our vast content enhancement capabilities.
We once again maintained our leading market share of these events' viewership, with several of its key viewing metrics on our platform improving compared to the previous edition. Huya has broadcasted this event for six consecutive year, gradually increasing our users' awareness of the brand and cultivating a strong habit of watching it on Huya's platform among the professional esports audience. To provide best-in-class broadcast quality, this year, we continued to focus on upgrading users' viewing and interactive experiences, introducing enhanced features such as 120 FPS high frame rate video quality and AI camera for taking live scene photos and our game-watching assistant. In addition, we boosted user attention and engagement through a combination of online and offline operational activities and our self-produced commentary programs such as [Inaudible] S13.
In terms of self-produced content, we broadcasted nearly 30 self-organized esports tournaments and entertainment PGC shows in the fourth quarter, with a total viewership of approximately 120 million. Among these events, League of Legends Huya platform qualifier for Demacia Cup and Peacekeeper Elite MNC Challenge Match were quite popular. For our in-house developed IPs, we will focus on producing their feature content and expanding its reach through cross-platform and cross-category collaborations. In December, we hosted the first event in our Village Game series, the Lianghe Village Game, for Honor of Kings in Lianghe County, Yunnan Province.
The Village Game series represents our first foray into building a rural esports tournament brand. With county government support, this event attracted massive attention among local communities, bringing together people of all ages and more than 300 teams to compete. Our event integrated esports with traditional cultural activities, successfully expanding the influence of esports content among local audiences while also promoting the local culture. Honor of Kings named this Lianghe Village Game as Best Authorized Esports Tournament in 2023, a powerful testament to our tournament and brand-building capabilities.
Let's move on to our Q4 financial details. First, I would like to point out that because our December acquisition of the mobile application service provider is a business combination under common control, we have consolidated the financials of the acquired business on a retrospective basis from the first quarter of 2022. Therefore, on this call and in the earnings release, we have included these results in our fourth quarter and full year 2023 figures and retrospectively adjusted the financials from the comparable period of 2022 to reflect the changes. Our total net revenues were RMB 1.53 billion for Q4, compared with RMB 2.12 billion for the same period last year.
Livestreaming revenues were RMB 1.34 billion for Q4, compared with RMB 1.98 billion for the same period last year, primarily due to the soft macro and industry environment and our proactive business adjustments to support our strategic transformation and prudent operations. Advertising and other revenues were RMB 186 million for Q4, compared with RMB 144 million for the same period last year, primarily due to increased revenues from game advertising and distribution services. Cost of revenues decreased by 37% year over year to RMB 1.51 billion for Q4, primarily due to decreased revenue sharing fees and content costs, as well as bandwidth costs. Revenue sharing fees and content costs decreased by 39% year over year to RMB 1.32 billion for Q4, primarily due to the decrease in revenue sharing fees associated with the decline in livestreaming revenues, as well as lower costs related to esport content and content creators.
I'd also like to point out that our content spending for Q4, while meaningfully lower year over year as a result of our cost optimization efforts, was still higher than in Q3. This was primarily due to the costs related to some large events, particularly the content costs booked for LoL Worlds 2023. Bandwidth costs decreased by 19% year over year to RMB 82 million for Q4. This was primarily due to improved bandwidth cost management, favorable pricing terms, and continued technology enhancement efforts.
Gross profit was RMB 15 million and gross margin was 1% for Q4. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 15 million and non-GAAP gross margin was 1% for Q4. Research and development expenses decreased by 6% year over year to RMB 137 million for Q4, primarily due to decreased share-based compensation expenses. Sales and marketing expenses decreased by 11% year over year to RMB 113 million for Q4, primarily due to decreased personnel-related expenses.
General and administrative expenses increased by 18% year over year to RMB 100 million for Q4, primarily due to provisions and increased professional service fees, partially offset by decreased share-based compensation expenses. Other income was RMB 13 million for Q4, compared with RMB 44 million for the same period last year, primarily due to lower indirect tax refunds and government subsidies. As a result, operating loss was RMB 322 million for Q4, compared with RMB 581 million for the same period last year. Interests and short-term investments income was RMB 129 million for Q4, compared with RMB 102 million for the same period last year, primarily due to increased interest rates and improved management of deposit products.
Net loss attributable to Huya Inc. was RMB 275 million for Q4, compared with RMB 563 million for the same period last year. Excluding the share-based compensation expenses, impairment loss of goodwill and investments and amortization of intangible assets from business combination acquisitions, net of income taxes, non-GAAP net loss attributable to Huya Inc. was RMB 190 million for Q4, compared with RMB 439 million for the same period last year.
Non-GAAP net loss margin was 12.4% for Q4. Diluted net loss per ADS was RMB 1.14 for Q4. Non-GAAP diluted net loss per ADS was RMB 0.79 for Q4. As of December 31, 2023, the company had cash and cash equivalents, short-term deposits, and long-term deposits of RMB 9.9 billion, compared with RMB 10.7 billion as of September 30, 2023.
Moving on to our full year 2023 results. Total net revenues were approximately RMB 7 billion for 2023, compared with RMB 9.26 billion for the prior period. Livestreaming revenues were RMB 6.45 billion for 2023, compared with RMB 8.2 billion for the prior period. Advertising and other revenues were RMB 544 million for 2023, compared with RMB 1.07 billion for the prior year.
Nevertheless, we achieved a meaningful year-over-year profitability improvement across the board. Non-GAAP gross profit was RMB 831 million and non-GAAP gross margin was 11.9% for 2023. Non-GAAP net income attributable to Huya Inc. was RMB 119 million and non-GAAP net margin was 1.7% for 2023.
Non-GAAP diluted net income per ADS was RMB 0.48 for 2023. For additional details on our full year 2023 financial results, I encourage listeners to refer to our earnings press release issued earlier today. Finally, let me provide an update on our capital allocation. Under our up to $100 million share repurchase program that began in August 2023, we have repurchased 9.2 million ADS, with a total aggregated consideration of $28.8 million as of the end of 2023.
In addition, I'm pleased to announce the declaration of a special cash dividend, totaling approximately $150 million for our shareholders. We will remain committed to enhancing shareholder returns and creating long-term shareholder value. With that, I would now like to open the call to your questions.
Hanyu Liu
Thanks, Ashley, and hello, everyone. [Operator instructions] Today's first question comes from Lei Zhang from Bank of America Securities. Lei, your line is open. Please go ahead.
Lei Zhang -- Bank of America Merrill Lynch -- Analyst
[Foreign language] Thanks, management, for taking my question. Congrats on the long-term special dividend. And my question is mainly about 2024 outlook in terms of user and revenue, and can you give us more color on the impact from your new business? Thank you.
Junhong Huang -- Senior Vice President and Acting Co-Chief Executive Officer
OK. [Foreign language] Vincent taking the question first. On the user front, Huya Live mobile MAUs in Q4 and for the full year 2023 were generally flat compared to prior periods. On one hand, we lowered our marketing and channel promotion spending, and we're more selective with our esports content offering.
The first half of 2023 was also negatively impacted, to some extent, by the increase in offline activities from our users. On the other hand, we continue to enhance our operational capabilities around esports events and improve the efficiency of utilizing quality content while also upgrading interactive features to improve viewing experience and user engagement levels. As a result, we were able to maintain an overall stable user case. [Foreign language] For 2024, we'll continue to solidify Huya's core user base, better operate our existing users, and also reach more high-quality gamers.
At the same time, we will aim to attract more paying users through enriched game-related services. For example, user payments for in-game virtual items in Q4 drove an increase in total paying users compared to Q3, indicating some initial success in this area.
Ashley Wu -- Vice President, Finance and Acting Co-Chief Executive Officer
[Foreign language] Answer from Ashley. In terms of livestreaming revenues, we saw a net decline in Q4 due to the full quarter impact from business adjustment, driven by strategic transition and shifts in internal resources allocation, as well as from the continued weak industry environment. For the year 2024, livestreaming revenues will experience some seasonal fluctuations in Q2 -- Q1 due to the low -- traditional low season. Currently, we are seeing livestreaming revenue trends starting to stabilize, and we hope that they can gradually recover to a steady state in the subsequent quarters.
[Foreign language] On the advertising and other revenues, despite the game-related services business still being at an early stage, we achieved significant growth of 41% quarter over quarter and 29% year over year in Q4, particularly driven by game advertising and distribution revenues. In the coming year, as we offer more distribution, promotion, and virtual item sale services to more games, coupled with more broadcasters joining our platform, we're confident that advertising and other revenues can achieve faster growth.
Hanyu Liu
Thank you. And our next question comes from Yiwen Zhang from China Renaissance. Yiwen, please go ahead.
Yiwen Zhang -- China Renaissance -- Analyst
[Foreign language] So, thanks for taking my question. My question is regarding our content strategy in 2024. So, under our current market dynamics, how will the company plan to maintain competitive edge? Thank you.
Junhong Huang -- Senior Vice President and Acting Co-Chief Executive Officer
[Foreign language] Our overall content strategy remains relatively stable currently. We will continue to optimize and dynamically adjust it given the rapidly changing market environment and competitive landscape. Broadcaster content is an important component to our offerings, and we'll continue building an ecosystem of influential broadcasters, working with game publishers to enhance broadcasters' commercialization opportunities and capabilities, and strengthening our platform's appeal to the broadcasters. At the same time, we're actively exploring the application of AIGC, and the AI-powered tools we provide can help lower the entry barriers for broadcasting while improving the content production efficiency and quality.
[Foreign language] For professional content, Huya has a comprehensive portfolio of licensed esports events and a mature system of self-produced tournaments, enabling us to bring more high-quality esport content to users. Especially with an increased focus on ROI for the events in 2024, we'll continue to cover major mainstream esports tournaments, including LPL, KPL, PEL, and others. We will also strengthen our professional event operations capabilities while emphasizing on the creation of derivative content. User experience during large esports events broadcast is crucial.
And not only does Huya possess industry-leading audio-video technologies, but we are also continuously iterating and upgrading them. For example, for the League of Legends S13 tournaments, we introduced an industry-leading 120 FPS high frame rate video quality feature for the livestream. [Foreign language] Huya's self-produced tournaments are also an important part of our professional content offerings, and we'll continue solidifying our own IP metrics and enhancing the influence of our own tournaments and events to create distinctive proprietary content. It is worth mentioning that we combine esports with rural culture and, with government support, promote esports for all through Huya's self-produced rural esports events.
The Lianghe Village Game events held in December last year was the first stop of our Village Game series, garnering attention and enthusiastic participation from local residents. This tournament was also awarded the Honor of King Best Authorized Esports Tournament in 2023 by the game officially, attesting to the high quality and professionalism of Huya's tournaments. [Foreign language] As a livestreaming platform primarily serving the game at the gaming vertical, Huya gathered high-quality game users and cultivated strong brand awareness through our community by providing a more professional, more feature-rich game streaming experiences than nondedicated platforms. We are committed to further differentiating our superior game livestreaming platform and continue to drive progress through tech innovation.
For instance, we are currently leveraging deep game data and our proprietary large language model, LLM, trained on data from our platform streaming content and bullet chats, to enhance the traditional livestreaming viewing mode with real-time analysis and interaction based on game content events. This immersive upgrade makes game streaming content more professional and more entertaining. [Foreign language] In addition to the above, strengthening collaborations with various platforms and products is an important strategy for us in 2024. In an overall more open environment, these collaborations will bring more development opportunities and enhance Huya's competitiveness.
This includes not only deepening interconnectivity and cooperations with Tencent's PCG products such as QQ and Tencent Video, as well as close collaborations with the IEG business units, but also content and operational partnerships with other livestreaming and video platforms. For example, in February this year, we hosted a New Year esports all-star events that was co-streamed across three other major livestreaming platforms with good reception. In the long run, this will not only help our content reach a wider user base and bring more enriched offerings to existing users but will also contribute to enhancing Huya's scale and influence.
Hanyu Liu
Thank you. And our next question comes from Ritchie Sun from HSBC. Ritchie, please go ahead.
Ritchie Sun -- HSBC -- Analyst
[Foreign language] Thank you, management, for taking my question. I would like to understand more on the cost control planning this year. What's management expectation on cost, operating expense, and margin this year? Thank you.
Ashley Wu -- Vice President, Finance and Acting Co-Chief Executive Officer
[Foreign language] We continued our cost optimization and efficiency enhancement efforts in 2023 to better manage our costs and expenses and improve operational efficiency. The loss in Q4 2023 was mainly due to the seasonal impact of content costs as some larger and more costly tournaments like S13 took place in Q4. However, driven by declines in events and broadcaster costs, as well as bandwidth costs, compared to the same period in 2022, we saw a significant improvement in gross margin profits for Q4, with overall losses also narrowing year over year. For the full year, despite our revenue decline, revenue share and content costs decreased by 29% year over year, bandwidth costs decreased by 33%, and gross margin improved from 7.1% in 2022 to 11.7% in '23.
Meanwhile, we achieved cost savings across all three operating expenses items, i.e., sales, R&D, and G&A, with total opex down by 13.1% year over year. As a result, Huya's operating cost loss narrowed in 2023, where we achieved non-GAAP net profitability of approximately RMB 120 million. [Foreign language] In 2024, in terms of costs, we'll continue to strive for further optimization of event costs and relatively fixed signing costs for broadcasters through a strict ROI analysis and optimized content investment strategies. As the game-related service business is still in its early stage, its gross profit margin is gradually stabilizing, but it will still be slightly higher than the livestreaming segment.
With the gradual growth of the game-related services business, which has a higher gross profit margin, and the increase in its proportion of total revenue, we expect the overall gross profit margin to increase compared to 2023. In terms of operations, we will also continue to maintain prudent spending, especially in the sales expenses and labor costs. Based on our current plans, we are confident in achieving profitability in 2024, with profit indicators improving compared to 2023.
Hanyu Liu
Thank you. Now, we will take our last question today from Thomas Chong from Jefferies. Thomas, please go ahead.
Unknown speaker
[Foreign language] Thanks, management for taking my question. My question is about our capital situation and the strategy of cash usage. Thanks.
Ashley Wu -- Vice President, Finance and Acting Co-Chief Executive Officer
[Foreign language] As of the end of 2023, Huya held nearly $1.4 billion in cash, cash equivalents, and deposits. The change in the amount compared to the end of this September last year was mainly due to the business mergers and acquisitions and stock repurchase expenditures at the end of the year. In terms of distribution, majority of our cash, cash equivalents, and deposits are held in our offshore accounts in U.S. dollars.
[Foreign language] As we mentioned earlier, we expect the profitability level in 2024 to have further room for improvement compared to the year before, and we also expect to achieve positive operating cash flow for the full year. Therefore, we'll continue to have sufficient cash reserves to well support the development of our business. At the same time, we will continue to carefully consider potential investment opportunities upstream and downstream of Huya's ecosystem to enhance the company's competitiveness. With a healthy balance sheet and cash reserves, the company's board of directors and management hope to use cash more efficiently, enhancing investor returns and convey long-term development confidence.
[Foreign language] In the $100 million repurchase plan we announced last August, as of the end of December, we have repurchased $28.8 million worth of Huya stock, and we have continued to actively repurchase in the first quarter of this year. Today, we are also pleased to announce our first-ever dividend payout of $0.66 per ADS, or per ordinary share, constituting a special cash dividend totaling at $150 million for our longtime supportive shareholders. In the future, we will continue to explore ways to improve the efficiency of capital utilization and return to our shareholders.
Hanyu Liu
Thank you. 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 Piacente Financial Communications. [Operator signoff]
Duration: 0 minutes
Call participants:
Hanyu Liu
Junhong Huang -- Senior Vice President and Acting Co-Chief Executive Officer
Ashley Wu -- Vice President, Finance and Acting Co-Chief Executive Officer
Lei Zhang -- Bank of America Merrill Lynch -- Analyst
Yiwen Zhang -- China Renaissance -- Analyst
Ritchie Sun -- HSBC -- Analyst
Unknown speaker
