Douyu International Holdings Ltd (DOYU) Q4 2022 Earnings Call Transcript

Douyu International Holdings Ltd (NASDAQ: DOYU) Q4 2022 earnings call dated Mar. 20, 2023

Corporate Participants:

Lingling Kong — Investor Relations Director

Shaojie Chen — Chairman and Chief Executive Officer

Hao Cao — Vice President, Finance

Analysts:

Lei Zhang — Bank of America Securities — Analyst

Thomas Chong — Jefferies — Analyst

Yiwen Zhang — China Renaissance — Analyst

Raphael Chen — BOCI — Analyst

Presentation:

Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to DouYu International Holdings Limited’s Fourth Quarter and Full-Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. We will be hosting a question-and-answer session after management’s prepared remarks. I will now turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma’am.

Lingling Kong — Investor Relations Director

Thank you. Hello, everyone, welcome to our fourth quarter and full-year 2022 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer; Mr. Mingming Su, Chief Strategy Officer and Mr. Hao Cao Vice President of Finance.

You can refer to our fourth quarter and full-year 2022 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website.

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 statements, 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. Shaojie Chen.

Shaojie Chen — Chairman and Chief Executive Officer

Throughout 2022 against the backdrop of a complex and volatile macroenvironment, we remain committed to our long-term growth strategy of fostering a wide range, game centric content ecosystem. We ended the year with a stable business performance achieved through a mix of operational adaptation and innovation that included optimizing our revenue structure, streamlining our operations, creating new services and enhancing monetization capability.

In the fourth quarter, we continue to produce premium games content, upgrade our content operating model and improve the interactive features of our platform to further enhance user engagement. Our mobile MAU growth [Indecipherable] today on a sequential basis to 57.4 million during the quarter, with the total number of paying users of 5.6 million. And our adjusted net loss was RMB4.3 million.

Through a couple of strategic adjustments over the past few quarters, our ecosystem has been shown to be healthier, which will empower us to deliver long-term, sustainable growth.

As we progressed further into 2023, we are continuing to retain content with community interaction playing a key role in our ecosystem. We are shifting the focus of our user growth strategy from increasing scale to improving quality without being overly concerned about the short-term growth of our business.

Furthermore, we will optimize our marketing strategy through strengthened partnership with game developers, coupled with our interactive gaming content community to enhance user engagement. In addition, with the price level of copyrighted tournaments gradually returning to a reasonable range, we believe that prudently purchasing some core copyright tournaments will help us to meet our own competitiveness in the industry. This investment will also foster the ecosystem of our Green Century Communities and enhance our core users engagement and retention rate, thereby facilitating the Company’s long-term development.

Next, I’d like to share with you our business update from the fourth quarter in more detail. First of all, our average mobile MAU for the quarter was 57.4 million, a slight sequential increase despite the year-over-year decline of 8 points. The main reason for the year-over-year and quarter-over-quarter MAU changes include, first, due to the implementation of our selective copyright procurement strategy in early 2022, we experienced a decline in overall MAU since the fourth quarter of the year.

Nevertheless, in the fourth quarter, despite the negative impact on user traffic from the absence of the worlds of the LoL World Championship Tournament are accretive event teams and operations on existing copyrights determined events, it’s actually attracted and engaged our core users. As a result, mobile MAU platform achieved growth for the third consecutive quarter.

Second, we continue to advance our innovative membership business. Extending our game specific membership services to water game segment, by combining game features with users’ needs, this initiative has gained traction among both new and existing users.

Moving onto our content ecosystem, capitalizing on the widespread popularity of eSports, we continued to sharpen our products and operations, including the consistent upgrades of our game content. Based on gaming features, we continuously created an even wider selection of more interactive and engaging premium content. On top of that, with a healthy and vibrant interactive ecosystem for usage through innovative services, providing them with a community-based platform and a lower membership services. This effort can not only ensure long-term retention by meeting certain gamers’ need for upgraded game content, but also increased overall user engagement and stickiness on our platform, that’s driving user growth in the long-run.

In the fourth quarter, we continue to improve our diversified, self-produced tournament system and organized more than 90 eSports tournaments. Leveraging our top-tier streamer resources, we focused on promoting IP content in partnership with stocking streamers. In this effort, we’ve created a series of premium game content, combined with entertainment R&D activities in our game segment, such as League of Legends and Honor of Kings. This content in general coupled with the trending topics has proven to increase users motivation to engaging interaction and to liven up our game community, appealing to both new and existing users.

Self-produced tournament has become one of our net revenues to promote eSports popularity across the board. For example, based on Honor of Kings large gamer base, we have the DouYu Honor of Kings in the comp national challenge. This competition has open enrollment to all Honor of Kings players and both have easy access to rewards and the wider user participation.

Specifically, we integrated the tournament’s content with our user community. Users were able to enroll, participate and advance in rank raising our community channel. While other users could take part in a series of fun activities such as accrete a single player competition and interactive rework. Combining game content with our new user community captivated [Indecipherable] gamers. And at the same time, it has [Indecipherable] with heavy users. As we improved our self-produced tournament system and further enhanced its value, we launched a series of e-Sports action mechanisms based on these tournament. In a year comp mention earlier, we reviewed the eSports top projects. We’re seeing growth opportunities to discover high-potential streamers and fortify users.

In the fourth quarter, we’ll launch the eSports coaching selection season for colleges. The competition covered tournaments, eSports games, and attracted more than 2000 college team from 11 provinces, providing more college eSports events with a platform to showcase their skills. It has also helped us to discover potential eSports power and enhance DouYu’s appeal and influence among college and universities.

In terms of copyrighted tournaments, we reinforced user engagement and stickiness through reach derivative content and the diverse operation activities. In the Honor of Kings Champions Cup KIC, we added a function such home King support and working reminder to further elevate our user experience. Our team, Wuhan eSports, which we signed and invested in, maintained its excellent performance throughout the year and became the champion of the Champion’s Cup. With the purchase of some core copyrighted content, we continue to deepen cooperation with game developers, fully integrating premium content with our platform’s operational characteristic to provide differentiated, tournament derived content and customized user service. Meanwhile, aligning the tournaments content, we will explore more commercialization channels to improve the ROI of tournament’s copyright.

Moving on to our monetization strategy, our total number of paying users in the fourth quarter was 5.6 million, with a quarterly average ARPU of RMB293. We continued our paying users segmentation strategy from last quarter, which included consulting marketing activities for new paying users with lower rates of return, maintaining our core users willingness to pay and promoting more consumption of midrange paying users.

We also made progress in generating revenues from non-virtual gifting. We continue to refine and promote our platform wide membership service system, strengthening the companionship and interaction between streamers and platform members, and consistently iterated membership features. In the fourth quarter, we launched sound effects and privilege gifts for members, leading to a sustained steady increase in members to a new rates compared with the third quarter, saw high user stickiness among other things. Furthermore, we extended our game specific membership service to multiple segments. Based on the characteristics of each games, we launched a customized game membership services to meet usage themes for in-game item.

Going forward, we will strengthen our cooperation with game developers to use this gaming needs and explore more commercialization channels.

In terms of our product R&D and function innovation, we continue to deepen cooperation with game developers in compliance with laws and regulations and based on our partial game based sharing partnership with game developers, we integrated gaming data content and function with DouYu’s content and gameplay, making live-streaming content closer with this game. For example, the Honor of Kings live-streaming channel, users can easily team up with streamers and other users to play the game, users can join with one click function, making users streamer interactions significantly simpler than before.

In the past, users had to manually add brands into the game to form a team. In addition, with these more game-related data and gaming strategy, so partial game data sharing in games such as Battle of Golden Spatula and Peacekeeper Elite, further optimizing our user experience and stimulating live-streaming engagements.

Overall, in a challenging year of 2022, we created a healthy and wider gaming content ecosystem through various operational strategies, including adjusting revenue-generating activities and increasing investments in self-produced content, thereby maintaining stability in the company’s overall business and financial performance.

Going forward, we will continue to execute on our diversified game centric content strategy and focus on maintaining the scale and quality of our core usage by further improving game content and strengthening our connection with core users, we will enhance user stickiness to our platform and [Indecipherable] at the gaming content ecosystem. Meanwhile, we will continue to explore more commercialization channels and new growth avenues to maintain our leading position in the domestic game live-streaming industry.

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

Hao Cao — Vice President, Finance

Thank you, Lingling. Hello, everyone. For the full year 2022, we focused on optimizing costs and developing revenue quality in order to improve financial performance. As we continue to invest in high-quality, self-produced content and improve our revenue structure, we enhanced operating efficiency through adjusting our live-streaming business together with effective cost and expense controls.

For the full year 2022, our gross margin expanded to 13.9%. Adjusted net loss narrowed significantly to RMB7.6 million. Let’s now look at our financial performance for the fourth quarter in more detail. Total net revenues in the first quarter of 2012 decreased by 27.8% year-over-year to RMB1.68 billion. Live-streaming revenues were RMB1.6 billion, a decrease of 27.7% from RMB2.21 billion in the same period of time 2021. The decrease was mainly attributable to two factors — our continued implementation of prudent operating strategies and the one-off impact of our decline in streamers activities following the end of COVID-19 restrictions. As a result, virtual gifting interactions were partially impaired which cost a year-over-year decrease in quarterly ARPU.

Our quarterly ARPU was RMB293, down 4% from RMB305 in the same-period last year. Advertising and other revenues were RMB84.3 million comparative with RMB118.5 million in the same-period of 2021. The year-over-year decrease was primarily attributable to the soft demand for brand advertising amid the challenging macroeconomic environment. The decline was partially offset by the increase in other revenues contributed by game specific membership services.

Cost of revenues in the fourth quarter of 2022 was RMB1.5 billion, a decrease of 38.2% compared with RMB2.08 billion in the same period of 2021. Revenue sharing fees and content costs decreased by 31.2% to RMB1.27 billion from RMB1.85 billion in the same period of 2021. The decline was primarily driven by the following two factors: First, the decrease in revenue-sharing fees was mainly in accordance with the decrease in live streaming revenues. In addition, the lower revenue-sharing ratio which was achieved showed implementation of our prudent operating strategies, led to a further reduction in revenue-sharing fees. Second, the copyright costs decreased significantly as a result of our selective copyright procurement strategy, whereby we ceased acquiring overpriced content rights for eSports tournaments. The decrease was partially offset by an increase in self-produced content costs, driven by additional year-end events launched during the quarter.

Bandwidth costs in the fourth quarter of 2022 decreased by 17.6% to RMB138.4 million, from RMB167.9 million in the same-period of time of 2021. The decrease was mainly due to the year-over-year reduction in peak bandwidth usage in the absence of the purchased copyright of major eSports tournaments.

Gross profit in the fourth quarter of 2022 was RMB186.1 million, compared with RMB244.7 million in the same period of 2021. Gross margin in the fourth quarter of 2022 was 11.1% compared with 10.5% in the same period of 2021. This margin improvement was mainly driven by the decrease in both revenue sharing fees and copyright costs as a percentage of revenues. The improvement was partially diluted by the rising percentage of revenues attributed to self-produced content costs.

Sales and marketing expenses in the fourth quarter of 2022 were RMB123.9 million, a significant decrease of 45.9% from RMB239.2 million in the same period of 2021. This was mainly attributable to decrease in post-marketing expenses for user acquisition and branding expenses.

Research and development expenses in the fourth quarter of 2022 was RMB80.6 million, representing a 39.2% decrease from RMB132.6 million in the same period of 2021. This decrease was primarily due to a decrease in personnel-related expenses.

General and administrative expenses in the fourth quarter of 2022 was RMB55.2 million, a drop of RMB44.1 million at present from RMB98.8 million in the same period of 2021. The decrease was primarily due to decreased share-based compensation expenses at the vast majority of shares and share incentive plans were fully vested as well as decreased professional service fees.

Adjusted operating loss, which adds back share-based compensation expenses was RMB56 million in the fourth quarter of 2022, compared with RMB168.7 million in the same-period of time 2021.

Net income in the fourth quarter of 2022 was RMB41.8 million compared with net loss of RMB193.2 million in the same period of 2021.

Adjusted net loss, which excludes share-based compensation expenses, the share of loss or income in equity method investments and impairment loss of investments was RMB4.3 million in the fourth quarter of 2022, compared with RMB150.7 million in the same period of 2021.

For the fourth quarter of 2022, basic and diluted net income per ADS was RMB0.14 and RMB0.14 respectively, while adjusted basic and diluted net loss for ADS were RMB0.003 and RMB0.003 respectively.

As of December 31st, 2022, the Company had cash and cash equivalents, restricted cash, and short-term and long-term bank deposits of RMB6.81 billion, compared with RMB6.64 billion, as of December 31st, 2021.

Moving forward, as part of our strategic focus, a healthy long-term gross, revenue may experience some immediate impact which we believe is critical to our balanced growth. We’ll also strive to explore more commercialization channels and fine tune our operations, supporting the sustainable long-term development of our platform, while also delivering greater value for our shareholders.

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

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Lei Zhang of Bank of America Securities. Please go ahead.

Lei Zhang — Bank of America Securities — Analyst

[Foreign Speech]

Thanks, management for taking my question. The first question is mainly on your strategy. We noticed that you have invested in eSports contract this year. Can you share with us your strategy for 2023, again how should we deliver operating efficiency while have additional in content costs up. Secondly, we noticed that at partaking traction this year, and can you share with us with performance in live-streaming, and we also know that there are more new games to be launched this year, will those games have user growth and game streaming open. Thank you.

Shaojie Chen — Chairman and Chief Executive Officer

[Foreign Speech]

Mr. Chen will take the first question. As a leading game live-streaming platform in China, we remain committed to our long-term growth strategy of fostering a wide range game centric content ecosystem. We continue to establish a diversified gaming platform by streamlining our operation and creating new services, propelling a vibrant game content ecosystem. Facing the ever-changing macro-environment in the past two years, we’ve made some adjustments to pursue long-term sustainable development. Those adjustments include actively modifying our operating strategy to optimize our revenue structure and controlling business spending through fine tuned operation. All the measures we’ve taken has not only stabilized the company’s business, but also improve our financial performance, and significantly narrowed our adjusted net loss for the full year 2022.

[Foreign Speech]

Looking ahead to 2023, we will continue to execute prudent operational strategies and focus on the long-term business prospects. We will reduce our investment in traditional business lines with low ROI and focus on exploring new growth avenues, while pursuing growth in user scale, we will target improving user quality. By delivering high-quality content, upgrading our product structure and strengthening our interactive features, we are able to enrich our platform ecosystem, so that we can enhance our user experience and retention rate.

[Foreign Speech]

In terms of cost allocations, we conducted a detailed evaluation of the ROI of each expenses and located Company’s resources rationally and dynamically, dedicating limited resources to business lines with greater potential. For example, in terms of our user acquisition strategy, when we compare it with content-driven user acquisition, we noticed that channel promotions drove user growth in the short-term, but with lower retention rate and conversion rates. As new acquisition have become more diversified, focusing on channel promotion is no longer a sustainable user acquisition strategy. Therefore, we have adjusted our overall marketing strategy in 2023, adhering to a content-driven approach to growth by continuously investing in high-quality content and cooperating with game developers to attract and engage users. Although, investing in content is a more long-term process than channel promotions, we believe it’s beneficial for our platform’s sustainable development.

[Foreign Speech]

In terms of our core copyright procurements, as we mentioned before, copyright tournaments are still of great value, and we would repurchase some core copyright tournaments if the price level returns to a reasonable range. On that basis, we repurchased some core copyright events in 2023 such as the LPL and the LoL World Championship Tournament. High-quality streamers content, diversified and self-produced game centric content along with copyright tournament content enable us to enrich our content ecosystem and foster our game centric community, thereby solidifying our overall competitiveness in inventory.

[Foreign Speech]

Meanwhile, in term of revenue, we will focus on ensuring that our users’ willingness to pay our platform is on a sustainable basis. Such focus shifts will have a short-term impact on our revenue. However, our offering leverage is expected to improve in the long run, which in-turn supports the company’s long-term profitability. At the same time, we are continuously exploring more innovative commercialization avenues. Thank you.

Hao Cao — Vice President, Finance

Let me answer your second question about hedging party. Hedging parties are casual interactive mobile gaming that is easy to operate and highly interactive patrons. For this game, we prepare that [Indecipherable] pre-marketing advance and adopted attractive incentives to [Indecipherable] among players to engage in games drivers live streaming. Meanwhile, leveraging the functionality of our user community, we organize the various gaming, clocking and teaming up activities within our community channel. We also provided plenty of in-game items as a reward to increase players’ demand and interaction. This helped us effectively promote the games popularity and improve our user stickiness on our platform, from general until now. Hedging parties live streaming volume has ranked as the top of the industry. More than half of the segment’s users participated in activities within our community channel during the promotional event.

In terms of new games that equally anticipated the launch of more [Indecipherable] games. For game thinking contender platform such as DouYu, high-quality games and their users are the most important for us for content generation and the user growth. Based on game features, we will continue to create premium gaming content with greater interaction and engaging features as well as wide ranging selection. We can’t predict the exact schedule of the launch of these games, but according to our practice, we will cooperate with game developers to promote the new games during the pre-launch date. We also selected experienced streamers and reach game contender for players to watch and discuss and then provide interactive content, such as game tutorials and the tournament events to increase user engagement, elevate user experience and enhance user stickiness. Thank you.

Operator

Thank you. Okay. And our next question today will come from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

[Foreign Speech]

Thanks, management for taking my questions. My first question is regarding our strategic direction given that the Company has made a lot of strategic adjustment in the past two years, how should we think about the industry trend? Or I will put in this way that, how should I think about the management thoughts regarding the game live broadcasting overall industry environment? And my second question is about the user scale for this year, are there any qualitative color? Thank you.

Shaojie Chen — Chairman and Chief Executive Officer

[Foreign Speech]

Mr. Chen will take the first question. As we mentioned before, the competition we face in our industry has already transitioned from gaming live-streaming to gaming content. Gaming content is a much larger market with a boarder user base expanding beyond hardcore gamers, watching video game live-streaming. This means users’ needs are evolving, which is both opportunity and challenge for us. Given the large-scale of our existing user base and revenue base, the challenge is how to adjust our products and operations to acquire new users and explore new commercialization channel.

[Foreign Speech]

We insist achieving success with premium game content. Specifically, we now reach high-quality game content to acquire new users and build a diversified products system to meet users’ diverse needs and improve users’ stickiness. Attracted by wide-ranging content, high-quality users can also generate content so interacting and self-producing, fostering a virtuous cycle on platform of content production and the user developments, that we have emphasized to build a healthy and sustainable platform. It’s what we’ve done in the past, and we’ll continue to do in the future.

[Foreign Speech]

Furthermore, for a long time we paid considerable attention to our revenue scale, based on live-streaming — based on our live-streaming platforms easy monetization features. However, we think this may harm our platform ecosystem and healthy development in the long run. Therefore, we have recently reduced our marketing activity that target revenue growth. Instead, based on our virtual gifting revenue mode, we provided diversified products to cater a different users’ paying habits and demand, while also emphasizing our products system stability. In addition, we are exploring new initiatives such as a membership business. It took time to make these changes. Therefore, we are refining our operations and improving our cost and expenses control. In this way, while making the above adjustments, we still managed to maintain our platform’s long-term profitability. Thank you.

Hao Cao — Vice President, Finance

Let me answer your second question about MAO. As we have consistently communicated before, so it is a game centric contender platform. There are checks and [Indecipherable] by providing high-quality game centric content and adopting user occasion appreciating strategies to state different business environment in 2023. To navigate the volatile macroenvironment with agility, we prioritized our long-term basis opex, reduced our investment in traditional things with low ROI. Focusing on our user growth strategy, our improving user quantity, we strive to strengthen our content operations as well as extra commercialization avenues. Our total revenue are mainly contributed by our content streaming users with steady playing habits. We plan to largely cut our promotional expenses this year, which will directly affect our platform MAO in the short-term. Nevertheless, since most of these MAOs are short-term users on the platform, this strategy only affects our content operations or our monetization efficiency.

In addition, with our purchase of copyrighted content, we expect to gain come tournament of users. By serving the traffic on our LoL gaming segment, we found that an increase of traffic could not offset the decline in user scale resulting from sustainability of decreased promotional expenses. We believe with that operational adjustments will enable us to increase our resource allocations in order to build a more sustainable content ecosystem. Although, the return on these investments takes time, they will ultimately enhance our overall competitiveness and support our platform for long-term development. Thank you.

Operator

Our next question today will come from Yiwen Zhang of China Renaissance. Please go ahead.

Yiwen Zhang — China Renaissance — Analyst

[Foreign Speech]

I have a couple of questions. First question is regarding about copyright procurement. Okay sure. Our plan on how we plan to improve our game content. And then secondly, can you give us an update on 2022 whole year cash flow. Have we achieved positive operating cash inflow? Thank you.

Hao Cao — Vice President, Finance

Thank you for your questions. As to the first question on copyright procurement. Copyrighted tournaments played an important in stabilizing our platform’s traffic and improving our user engagement. In the past year, we adopted a selective copyrighted procurement strategy due to our pricing of some copyrighted tournaments. With the price level of copyrighted tournaments gradually returning to a reasonable range, we have increased our investments in purchasing core copyrights in 2023. Major copyrighted tournaments we have purchased so far include League of Legends, Honor of Kings, Peacekeeper Elite, crossfire, SE Scoops and Dota 2. For a tournament copyrights, we purchased we will improve our return on investment through innovative operations.

In terms of the housing user engagement where we continue to upgrade interactive features on our platform to meet users’ diversified needs by building on our accumulated experience in live-streaming and operating copyright tournaments. For example, in LPL, by [Indecipherable] our top-tier streamer resources, we selected top streamers to do a co-streaming of the tournament’s events. The streamers included both official tournament commentaries and top-tier streamers with massive fan base in these tournaments and our platform. This co-streaming initiative achieved good results. The TAU, our live-streaming channel is on par with that our official channel. In addition, the number of footage it has is several times higher than that of our official channel. Furthermore, we featured a more user-friendly access to videos and community channels, our live-streaming channel, thereby gaining more exposure for our diverse gaming content and attracting more users to join.

In terms of commercialization, we continue to integrate our copyrighted tournaments content with more refined operations. For example, we promote again specific membership services to tournament viewers. Meanwhile, we will explore more direct monetization opportunities based on copyrighted tournament content. In addition to discussing the copyright price with copyright owners, we will communicate more proactively with them to explore reasonable, long-term cooperation. So on the second question of cash flows, as of December 31st, 2022, our cash balance including cash and cash equivalents — restricted cash and deposits amounted to RMB6.81 billion, an increase of RMB117 million, compared with RMB6.64 billion in the same-period of 2021. This is mainly due to two factors. First, the increase in our cash balance is primarily a result of reporting currency translation as the appreciation of the U.S. dollar increased the value of the large amounts of U.S. dollars denominated cash assets we hold, totally RMB480 million. Second, in terms of cash outflow, we used a total of RMB110 million in cash for the share repurchase. The total cash outflow was RMB210 million, of which operating cash outflow was RMB77.8 million. Thank you.

Operator

Our next question today will come from Rafael Chen of BOCI. Please go ahead.

Raphael Chen — BOCI — Analyst

[Foreign Speech]

Thanks for taking my question. My question is regarding the paying user trends. Can you elaborate on how the current operating strategy is impact paying users going forward? It would be great if management could share more insight on the paying user trend, especially in the year of 2023. Thanks.

Hao Cao — Vice President, Finance

Thank you for your question. As I mentioned previously, improving user quality is our key focus this year. In the second-half of last year, we cancelled some marketing activities for new paying users with lower rate-of-return. That reflects the high-quality of our current paying users with consistent paying behaviors for our services. In 2023, we plan to further reduce our marketing expenses and acquisition expenses for paying user acquisition, which will have an impact on paying user base. In 2023, we will continue to improve revenue quality and maintain our core paying user stickiness, and also the willingness to pay.

Shifting to focus of revenue generation to the falling two areas. First of all, we will put more emphasis on maintaining core paying users to ensure core business stability. We launched various tiers of paying products based on our users’ different abilities to pay in order to sustain and improve their willingness to do so. Meanwhile, we rolled out more companionship-oriented functions and activities for fans, but only maintaining the day-to-day interactions between streamers and fans, but also enhancing the fans’ willingness to pay.

Last year, we upgraded our user benefits and strengthened our interactive functions, substantially improving fans’ stickiness and steadily increasing members renewal rates. Second, we will explore more new virtual gifting business model based on game characteristics to improve our revenue mix.

The game specific membership service that we launched in the second-half of 2022 is progressing smoothly. Despite its relatively small revenue currently, we believe this business can satisfy some gamers’ demands for the games themselves. It not only attracts large number of game fans, thereby adding new users to our platform, but it also appeals to existing user, so promoting a virtual cycle of game content ecosystem. In short, developing our membership business will be a priority for 2023. Specifically, we will continue strengthening our platform wide membership service, while reinforcing our close cooperation with game developers to delve with into users gaming needs and extend of game specific membership service to multiple segments. Thank you.

Operator

Thank you. That’s all the time we have for questions. I will now turn the call back over to management for closing remarks.

Lingling Kong — Investor Relations Director

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

Operator

[Operator Closing Remarks]