HUYA Inc. (NYSE: HUYA) Q4 2020 earnings call dated Mar. 23, 2021
Corporate Participants:
Dana Cheng — Investor Relations Officer
Catherine Xiaozheng Liu — Chief Financial Officer
Rongjie Dong — Director, Chief Executive Officer
Analysts:
Thomas Chong — Jefferies — Analyst
Lei Zhang — Bank of America Merrill Lynch — Analyst
Alex Liu — China Renaissance — Analyst
Tian Hou — T.H. Capital — Analyst
Vincent Yu — Needham & Company — Analyst
Presentation:
Operator
Hello, ladies and gentlemen, thank you for standing by for the Fourth Quarter and Full-Year 2020 Earnings Conference Call for HUYA Inc. [Operator Instructions] Today’s conference call is being recorded.
I’d now like to turn the call over to Ms. Dana Cheng, Company Investor Relations. Please go ahead.
Dana Cheng — Investor Relations Officer
Hello, everyone, and welcome to Huya’s 2020 fourth quarter and full-year earnings conference call. 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 on today’s call will be Mr. Rongjie Dong, Chief Executive Officer of Huya; and Ms. Catherine Liu, Chief Financial Officer. 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 US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company’s results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company’s prospectus and other public filings as filed with the US SEC. 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.
I will now turn the call over to our CFO, Ms. Catherine Liu, who will read prepared remarks on behalf of our CEO, Mr. Rongjie Dong. Catherine, please go ahead.
Catherine Xiaozheng Liu — Chief Financial Officer
Thank you, everyone, for participating in our conference call today. I am pleased to deliver today’s opening remarks on behalf of Mr. Dong. We are very pleased to report another quarter of solid performance across our businesses, allowing us to finish 2020 on a strong note. Total net revenues for the fourth quarter of 2020 increased by 21% year-over-year to close to RMB3 billion, while full-year revenues crossed the RMB10 billion mark for the first time. We believe our enhanced monetization capability set a solid foundation for us to reinvest into the business and strengthen our future. Robust user growth and higher user engagement also continue to underline our ability to execute well.
Mobile MAUs of Huya Live reached 79.5 million in the fourth quarter, a year-over-year growth of 29% and a net addition of 5 million compared to Q3, further reinforcing our leadership position on the mobile end. Strong mobile growth was driven by the continued build up of our quality content library, especially with e-sports tournaments and entertainment programs, plus improvements, as well as marketing activities. Meanwhile, our Huya Live app’s next month retention rate remained at over 70% in the fourth quarter. Driven by mobile growth, average MAUs of Huya Live in the fourth quarter increased by 19% year-over-year to 178.5 million.
Paying users for Huya Live increased by 18% year-over-year to 6 million in the fourth quarter, notably around 80% of our paying users paid will mobile devices and mobile users contributed to more than 85% of our live streaming revenue this quarter. This result further endorsed our mobile strategy focus as we continue to allocate resources to grow our mobile user base.
The growth in both financial and operating metrics validates the strong appeal of our content. Achieving such sound results in the midst of a global pandemic proves the resilience of our business and represents an important milestone for our Company as we move forward. We have also committed to creating more immersive experiences for our users. In the fourth quarter, our open platform for third-party application developers continued to gain popularity. By the end of fourth quarter, there have been around 200 tools available across the platform and over 400,000 broadcasters have used these tools during their streaming sessions. Most of the tools are game-centric, offering smart assistance to broadcasters to better engage users.
Since we officially launched our cloud streaming platform, YOWA in November last year. We have been able to reduce latency to deliver an industry-leading level of user playing experience. Thanks to our continuous technology advancement and our average daily time spent per user of YOWA has now reached around 90 minutes, including higher engagements. We have also started efforts in the integration of the cloud gaming function into our core Huya Live streaming for broadcasters to better interact with users.
Now, moving onto our collaboration with Tencent. In the fourth quarter, average MAUs who watched Huya Live streaming content from Tencent platform, which are not counted in our reported MAUs, was around 20 million, with WeGame, WeChat, Game Center and LoL games remaining as the most popular channels.
On the broadcaster front, Huya has collaborated with Tencent to help our broadcasters receive greater exposure within Tencent’s game communities, further increasing their influence. For example, the Honor of Kings game video recently cooperated with a celebrity broadcaster on Huya’s platform to release the broadcaster’s voice packet within the game. After the release, the broadcaster gained over 5 million fans in the in-game community, assessing a greater audience and expanding the potential streaming viewer base.
Next, I will provide you some updates on the ongoing merger with DouYu. After we announced our potential merger with DouYu in October last year, we have made relevant filings with SEC. And in China, we have voluntarily submitted the declaration of concentration of undertaking with the State Administration for Market Regulation, the relevant regulatory authority. And currently, the review is still in the process.
As we embrace 2021, we will continue to extend the breadth and diversity of our platform and invest in content ecosystem, product upgrades and technologies to better serve our growing user base.
This concludes Mr. Dong’s remarks.
Let’s start with updates on content enrichment and diversification. In Q4, we broadcasted 149 third-party e-sports tournaments, among which the top tournaments included LoL Worlds 2020, i.e., S10 and Demacia Cup, Fall Season of KPL and PCL and exclusively broadcasted National Electronic Sports Tournament, NEST. Total viewership for these tournaments reached around 665 million in the fourth quarter, representing a 24% year-over-year growth.
As far as our self-produced content, we organized 48 e-sports tournaments and entertainment shows and generated a total viewership of 109 million, representing 53% year-over-year growth. The top performing self-produced e-sports content in the fourth quarter, include our long-standing PUBG event, Huya PMC Season 8, and our commentary program for LoL Worlds [Indecipherable] S10.
In PMC S8, there are eight international teams also joined the competition for the first time. And the success of this global participation is a further testament to our ability to organize high-quality e-sports events. Among the entertainment PGC shows this quarter, Wake Up! Losers, an auto-chess themed reality show; The Voice of Huya, an outdoor talent show; and Huya Kungfu Carnival Season 3, a mixed martial arts competition has gained popularity, and we believe such shows will continue to improve user stickiness on Huya’s platform.
Turning to our overseas business. The MAUs of overseas business was around 30 million in the fourth quarter, representing a 50% year-over-year increase. We also achieved a leading market position in certain countries, and had some successful monetization attempts through our localized operational efforts.
Next, I will walk you through our financial highlights. In the fourth quarter, our total net revenues grew by 21% year-over-year to close to RMB3 billion. Our live streaming revenues increased by 20% year-over-year to RMB2.8 billion in the fourth quarter. The growth was primarily due to the increased number of paying users and the increase in revenue per paying user, both of which have expanded year-over-year.
Advertising and other revenues increased by 45% year-over-year to RMB175 million in the fourth quarter of 2020, primarily driven by the increasing and diversifying number of advertisers.
Our profitability continue to improve this quarter, given the leverage we have in bandwidth costs and our operational efficiency. Our non-GAAP gross margin improved to 20.6%, compared with 19.5% in the fourth quarter last year.
Our non-GAAP operating margin was 9%, compared with 7.4% in Q4 2019. And our non-GAAP net margin was 10.2%, compared with 9.8% in Q4 2019.
Now, let me move on to our financial details. If not specified, all the growth rates are on year-over-year terms. Cost of revenues increased by 19.6% to RMB2.4 billion for the fourth quarter, primarily attributable to the increase in revenue sharing fees and content costs. Revenue sharing fees and content costs increased by 29.8% to RMB2 billion for the fourth quarter, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues, and the increase in spending in e-sports and self-produced content, as well as on content creators.
Bandwidth costs decreased by 26.1% to RMB167 million for the fourth quarter, primarily due to improved management in bandwidth costs and continued technology enhancement efforts.
Gross profit increased by 28.1% to RMB598 million in the fourth quarter and gross margin increased to 20% for the fourth quarter.
Research and development expenses increased by 21% to RMB216 million for the fourth quarter, mainly attributable to increased personnel-related expenses.
Sales and marketing expenses increased by 63.2% to RMB193 million for the fourth quarter, primarily attributable to the increased marketing expenses to promote the Company’s contents, products, services and brand name, as well as increased personnel-related expenses.
General and administrative expenses decreased by 0.3% to RMB96 million for the fourth quarter, mainly due to improved management efficiency.
Operating income increased by 84.4% to RMB187 million for the fourth quarter and operating margin increased to 6.3% for the fourth quarter.
Non-GAAP operating income, which includes share-based — which excludes share-based compensation expenses, increased by 46.5% to RMB269 million for the fourth quarter and non-GAAP operating margin increased to 9% for the fourth quarter.
Net income attributable to HUYA Inc. for the fourth quarter increased by 58.6% to RMB253 million. And non-GAAP net income attributable to HUYA Inc. for Q4, which excludes share-based compensation expenses, gain on fair value change of investments and equity investee’s investments, and equity investee’s partial disposal of its investments, net of income taxes increased by 26.5% to RMB306 million.
Diluted net income per ADS was RMB1.05 for Q4 and non-GAAP diluted net income per ADS was RMB1.27 for Q4.
As of December 31, 2020, the Company had cash and cash equivalents, short-term deposits and short-term investments of RMB10.5 billion, compared with RMB10.8 billion as of September 30, 2020. The decrease was primarily attributable to the land use acquisition of approximately RMB310 million in Foshan City in November 2020.
And net cash provided by operating activities was RMB459 million for the fourth quarter.
Moving on to our full-year 2020 results. Total net revenues in 2020 increased by 30.3% to RMB10.9 billion. Live streaming revenues increased by 29.3% to RMB10.3 billion in 2020, primarily due to the increase in the number of paying users and the average spending per paying user on Huya Live. The increase in the number of paying users was primarily driven by the Company’s overall user growth. The increase in the average spending per paying user was primarily driven by the enrichment and enhancement of content, products and services.
Advertising and other revenues increased by 51.3% to RMB603 million in 2020, primarily driven by the increasing and diversifying advertiser base, mainly attributable to strengthened recognition of Huya’s brand name in China’s online advertising market.
Cost of revenues increased by 25.4% to RMB8.6 billion in 2020, primarily attributable to the increase in revenue sharing fees and content costs, bandwidth costs and personnel-related costs. Revenue sharing fees and content costs increased by 27.6% to RMB7.1 billion in 2020, primarily due to the increase in revenue sharing fees in relation to higher live streaming revenues, and then the increase in spending in e-sports and self-produced content, as well as on content creators.
Bandwidth costs increased by 9.8% to RMB879 million in 2020, primarily due to an increase in bandwidth usage as a result of the Company’s larger user base, partially offset by improved management in bandwidth costs and continuous technology enhancement efforts.
Gross profit increased by 53% to RMB2.3 billion in 2020 and gross margin increased to 20.8% in 2020.
Research and development expenses increased by 44.3% to RMB734 million in 2020, mainly attributable to increases in personnel-related expenses.
Sales and marketing expenses increased by 27.3% to RMB558 million in 2020, primarily attributable to the increased marketing expenses to promote the Company’s content, products, services and brand name, as well as increased personnel-related expenses.
General and administrative expenses increased by 26.1% to RMB445 million in 2020, mainly due to increase in personnel-related expenses.
Operating income increased by 177.4% to RMB725 million in 2020 and operating margin increased to 6.6% in 2020.
Non-GAAP operating income, which excludes share-based compensation expenses, increased by 108.6% to RMB1.1 billion in 2020 and non-GAAP operating margin increased to 10.4% in 2020.
Net income attributable to HUYA Inc. increased by 88.9% to RMB884 million in 2020 and non-GAAP net income attributable to HUYA Inc. in 2020, which excludes share-based compensation expenses, gain on fair value change of investments and equity investee’s investments, and equity investee’s partial disposal of its investment, net of income taxes, increased by 68.2% to RMB1.3 billion.
Diluted net income per ADS was RMB3.71 in 2020 and non-GAAP diluted net income per ADS was RMB5.29 in 2020.
Net cash provided by operating activities was RMB1.2 billion for the full-year of 2020.
With that, I would now like to open the call to your questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question comes from Thomas Chong from Jefferies. Please ask your question.
Thomas Chong — Jefferies — Analyst
[Foreign Speech] Thanks management for taking my question. My question is about our 2021 outlook. Can management comment about how we should think about the revenue and the user growth trend for this year? On the other hand, can management also comment about our strategies for the gaming and the long game segments? Thank you.
Rongjie Dong — Director, Chief Executive Officer
[Foreign Speech] Hi. I will translate for Mr. Dong. Regarding your first question, Mr. Dong has answered the strategic focus [Phonetic]. So, for the year 2021, on the business side, we actually had some several strategic focus. Firstly, on the live streaming business, we will try to seek the opportunity that provided by the new potential blockbuster games that is the potential way to launch earlier this year, so that will strengthen our competitive advantage. Meanwhile, we will strategically focus on the e-sports tournaments licensing line and the self-produced e-sports tournaments just so that viewers can enjoy a better e-sports tournament content on our platform. And meanwhile, we will also put some efforts on the self-produced PGC shows to provide users with a diverse and enriched content library.
In addition to the live streaming business, next, I will talk about our ambitions for the video business. As we have previously communicated, video business is actually a long shop business that potentially requires a relatively longer time for us to get the users manage to monetize. And actually, through the endeavor that we have put out in the past few quarters, we actually have already seen some promising results on the video business, as the viewership of the video business is actually on a year-over-year growth of 40% right now.
And the routine part for the video business is to do the on-demand viewing experience provided for those users. Going forward, we will like to maintain our advantage for the on-demand business. Meanwhile, try to integrate better the live streaming business together with the video business. And we actually have already tried some of them, and it’s actually making good effects.
And next, I will talk about the other business sectors that we will put the strategic focus on, which is game communities. On the gaming communities side, we plan to integrate the game-related information and the game-related know-how, knowledge, to integrate all that kind of services on our platform, so that viewers — users can have a one-stop shopping experiences. Our renowned [Phonetic] gaming side, these are actually similar to what we used to do in the past. We will continue our strategic focus on the common genres such as outdoor, traditional sports and ACG and try to strengthen the quality content on those genres and acquire new users from the market.
And having said much — said enough about the domestic market, next, I will share some color on the overseas markets. For the Nimo TV, this year, what we will focus on is, not only to strengthen our leading position in the existing countries, but also try to construct a comprehensive ecosystem. Meanwhile, we will actually focus on the breakeven point for each of the countries that we operate in and try to downsize the business in those countries who are — which are loss-making. So, with that being said, we will just strengthen our leading position in Southeastern Asian countries and some Middle East countries. So these are our leader’s outlook for Nimo TV.
And Catherine will take the other question, of course.
Catherine Xiaozheng Liu — Chief Financial Officer
Thank you, Thomas. I think with Mr. Dong’s remarks on our growth strategies in 2021, we believe the users and revenues will continue to increase this year. [Technical Issues] of game versus non-game strategies, obviously, our focus is still on game content, as Mr. Dong just mentioned. But, of course, non-game content is also an important part for our monetization. So, we will continue to invest in game content to help us to grow more users, and we will also invest in the non-game content for us to improve monetization. But, of course, for some of the non-game content categories, if we see them grow to a certain large scale, we will also try to invest more in those content categories, and potentially cultivate for new users in the future from those content categories.
Hope this answers your questions. And next?
Operator
Thank you. Next question comes from Lei Zhang from Bank of America Merrill Lynch. Please go ahead.
Lei Zhang — Bank of America Merrill Lynch — Analyst
[Foreign Speech] Thanks management for taking my question. Two questions here. First is, can you give us some outlook on the competitive landscape in 2021, especially in game streaming space?
And second is, since you mentioned your investments in e-sports VTube [Phonetic] related content. So, can you give us more color on your content investment plan in 2021? Thanks.
Rongjie Dong — Director, Chief Executive Officer
[Foreign Speech] All right. As a translation, regarding our competitive landscape question, especially related to those new entrants in those video platforms, we would like to say that for those video platforms like Bilibili and Kuaishou, what we have been doing for the live streaming business is to converting their existing VTubers and video users to the live streaming broadcasters and live streaming users, respectively. But the last benefit dropped by the conversion period has already come to an end, I would say. Going forward, for them, I will say, we will have to enter into the period try to cultivate a better and quality pool of the broadcasters and construct the [Indecipherable] own acquisition for the live streaming business. And we believe Huya is a — is at a industrial leading position compared with those video platforms, especially on the quality content and the quality broadcasters, especially our monetization capabilities. Those are areas we are superior to all those video platforms, I will say. So, basically, we think the competitive landscape for the live streaming business hasn’t really changed much.
And Catherine, will take your other question.
Catherine Xiaozheng Liu — Chief Financial Officer
Thank you, Lei. In terms of the content investments, this year, we will still focus on game content, such as, obviously, one important factor is the e-sports tournaments. We are pretty much going to have comprehensive and pretty much all — most of the important e-sports tournaments. And we will also increase the self-made content to help grow our users further.
In terms of video, this year, we do plan to add additional investments into game video for future user growth. And we believe that if we could have a successful video business, this will not only pave the way for future user growth, but it can also be a monetization opportunity in the future.
Hope this answers your question. And next?
Operator
Thank you. Our next question comes from Alex Liu from China Renaissance. Please go ahead.
Alex Liu — China Renaissance — Analyst
[Foreign Speech] Thanks, management. In the prepared remarks the management introduced that there is a sizable group of users that come from Tencent property right now, and this is not really in our reported MAU. Could management share some color on how to further grow this group of users? And how should we think about the monetization roadmap and the monetization potential for these group of users? Thank you.
Rongjie Dong — Director, Chief Executive Officer
[Foreign Speech] All right. As a translation, I will provide us some update about the ongoing collaboration that we have with Tencent. By the year-end of 2020, we have actually connected Huya’s Live streaming content across almost 20 games of Tencent and also [Indecipherable] product, that includes League of Legends, Honor of Kings, CrossFire and products includes by WeGame and WeChat’s game live streaming mini programs, mobile QQ gaming center. And earlier this year, during the spring festival, we actually collaborated with Weishi [Phonetic], the video — the short video platform of Tencent and we have collaborated with them during the spring festival.
Currently, the traffic brought by those external Tencent wins is not contained in the quarterly reported MAUs of ours. In the first quarter, the external Tencent wins contributed to around 20 million MAUs, which is still relatively lower, compared with Q3, as Q3 is the school holidays — school summer holidays.
And in terms of the collaboration on the gaming side with Tencent, we actually have just signed a five-year licensing agreement with PG Sports in terms of the broadcasting rights of League of Legends Professional League, LPL for short. Specifically stated in the agreement, we actually have discussed with the PG Sports in terms of exploring more opportunities to better monetize e-sports tournaments. As in the old days, e-sports tournaments is actually serving as a major traffic engine that brought a lot of users, but it’s contributed a little to monetization, which is why we’re trying to work with PG Sports on the e-sports tournament arm of Tencent to seek more opportunities on the e-sports monetization side.
And in terms of better engage users, we are trying to work with Tencent to integrate, to bridge through users Tencent game ID with their Huya account to provide better cross-functional or cross-platform experience for them. Just so that we can provide personalized recommendations on the — on precise targeting to those users. So that their user engagement — their user experience can be improved. That’s it.
Operator
Thank you. Our next question comes from Tian Hou from T.H. Capital. Please ask your question.
Tian Hou — T.H. Capital — Analyst
[Foreign Speech] Okay. So, two questions. One is, I feel like somehow, whatever brought us the major users and the user growth for the games from Tencent and is that possible for us to bring in the games from other vendors domestically and internationally to further grow our user base and paying user base? That’s number one.
And number two, as over the last many years, Huya grew pretty rapidly, still like already past its peak and, however, the game broadcasting industry relatively still young. In which area Huya is going to invest for the further higher growth in 2021?
[Foreign Speech]
Rongjie Dong — Director, Chief Executive Officer
[Foreign Speech] All right. As a translation, in terms of your first question regarding whether there is a future for us to broadcast specifically on Tencent games, we are actually — it’s not because currently Tencent games are the back of performing games in the market, especially in the domestic regions. So, it is more of a result of the current industry situation rather than the purpose of our activities in the market.
And speaking of the investments for this year, I will start with the overseas market. As we always do, we hope the overseas market one day can achieve the breakeven point. And we think it’s quite promising because revenue growth of the overseas market is actually on a surge right now. And for the domestic market, like we said earlier, we would like to strengthen or build up our content genres, specifically on the video business. You can consider it as a defensive or more of an aggressive move for us to try to make the video business prosperous. And we aim to grab some certain market share for the video business in the industry.
And in addition to the video business, whether it’s cloud gaming or other new initiatives, we actually had a wide spend in terms of the effort moving. So, yeah, seems like platform is driven [Phonetic].
Operator
All right. Thank you. Your next question comes from Vincent Yu from Needham & Company. Please ask your question.
Vincent Yu — Needham & Company — Analyst
[Foreign Speech] Thank you, management, for taking my question. My first question is about the 2021 game releases by Tencent. There are several flagship models will be scheduled to release by Tencent in 2021. Which game launches in 2021 does Company think will have the biggest impact on Huya?
And second question is on the regulatory guidelines. Can management share some comments on the potential impact on our business with regards to the regulatory guidelines issued back in November 2020? Thank you.
Rongjie Dong — Director, Chief Executive Officer
[Foreign Speech] All right. For your first question regarding the new games, actually there are several games that we consider as a potential blockbuster games for the year. The first one is the in-app [Phonetic] mobile. The second one is the League of Legends mobile. And probably there is a chance for them to be potentially launching in Q3 this year. So it’s probably another ways. But consider us as the industry-leading platform, especially quite excelled at promoting new games, we’re the record keeping one platform to promote and operate new games and attract users to platform and also to the games. So, we have confidence that the launch of those new games will — with the launch of those new games, we can continue our industry-leading position. And even though it’s being launched a little late, but we’re actually starting the preparation period as early as last year in terms of recruiting new broadcasters and construct the game — designating game-related acquisitions. So we are — we really look forward to the launching of those new games this year.
That’s for your first question.
Catherine Xiaozheng Liu — Chief Financial Officer
Thank you, Vincent. And for your question for the government regulatory changes, as you have been probably reading news and since, I think, the beginning of 2020, there have been a lot of the government attentions on the industry, and Huya has been closely monitoring and following the regulatory guidelines. And currently, we are still waiting for the details of the potential new guidelines to come out. And we will definitely follow the government’s new guidelines and rules when it comes out. And so, for the moment, we believe that the government guidelines would be better regulate the industry and potentially for the long-term healthy growth of the industry. So, we believe that even if there might be some short-term changes to follow the rules, the long-term impact should really be minimal. But, of course, we will wait for the details of the new guidelines and update investors at that time.
Hope this answers your questions.
Operator
All right. Thank you all for your questions. I would now like to turn the call back to the Company for closing remarks.
Dana Cheng — Investor Relations Officer
Thank you all for joining our conference call today. If you have further questions, feel free to contact ir@huya.com, and we look forward to speaking with you in the next quarter. Thank you.
Operator
[Operator Closing Remarks]