Good morning and good evening, ladies and gentlemen. Thank you. And welcome to DouYu International Holdings Limited Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after managements prepared remarks. [Operator Instructions]. Please note the conference call is being recorded. I will now turn the call over to the first speaker today, Miss. Mao Mao, IR Senior Director of DouYu. Please go ahead, Ma'am.

Thank you. Hello, everyone. Welcome to our third quarter 2019 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 third quarter of 2019 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 provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve unknown and known risks, uncertainties and other factors not under the Company's control, which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or expectations implied by these forward-looking statements.All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors and details of the Company's filings with the SEC. The Company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call.Now I will read the prepared remarks on behalf of Mr. Chen. Overall, we sustained solid growth momentum in both our financial and operating results in the first quarter of 2019. During this quarter, our total revenues increased by 81.3% year-over-year through RMB1.86 billion while gross profit increased by 450.5% year-over-year to RMB316.8 million, implying a gross margin of 17.0%.Likewise, adjusted net income grew to RMB72.2 million representing an adjusted net margin of 3.9%. At the same time, our user base continues to spend with quarterly total MAUs increasing by 14.7% year-over-year to 163.6 million. On average mobile MAUs increased by 26.1% to 52.1 million.In addition, quarterly paying users increased by 66% year-over-year to 7 million. The robust growth in mobile MAUs was attributable to three key factors. First, several awards championships tournaments including the international 2019 costs users traffic to flourish in both DouYu and other limited segments during the quarter.These high profile events also successfully re-engage a significant portion of previously inactive users. Second, the overlap of the summer holiday periods during the quarter was conducive to a higher-viewing frequency on mobile devices.Third, several new phone model launches during the quarter significantly enhance our users viewing experiences on mobile devices. In addition, our PC MAUs ramped up to a 111.5 million, maintaining a steady growth rate of 10% year-over-year.The launch of games with [Indiscernible] potential including World of Warcraft Classic and Teamfight Tactics also expanded users number of viewing choices on both mobile and PC platform, which further boosted both mobile and PC viewership in turn.Beyond user growth, we maintained high level of user engagement and -- while keeping our average daily viewing time steady in the quarter. Looking forward, with more and more gamers and equal players being converted into viewers of game live streaming and the coming launches of highly anticipated game titles, we are confident in our ability to sustain a long-term MAU growth.During the quarter, we continued to cultivate the vibrancy of our game-centric live streaming content ecosystem, while expanding our content coverage across all segments of the platform, notably, our game live-streaming segment accounted for more than 80% of total viewership in the quarter.Meanwhile, non-gaming content exacerbates supplementing our game live streaming segment content, bolstering our appeal to a broader array of billing processes and accelerating our penetration into various users segments.On the eSports front, we continue to explore both upstream and downstream segments of the eSports value chain. During the quarter, we still have organized and live streamed over 50 countries as well as broadcasted over 70 large-scale events eSports events such as CS:GO major championships and International 2019. These events are quite in fashion with the eSports community and helped us to attract tremendous amount of game users.In addition, to broadcasting eSport events, we also signed several exclusive streaming partnership with highly potential eSport teams by continuing to lay a solid foundation for the cultivation of top-tier game streaming and the distribution of premium game-centric live-streaming content.Going forward, we will continue to explore different areas of the eSport value chain for investment and further enhance our premium content to attract more eSport users onto our platform.In line with our duration of premium eSport content, we also continued to refine our dual [ph] track system of exclusive contracts and talent agency model to maximize the effectiveness of our senior management networks.For example, to increase collaboration with talent agency, we were able to improve the operating as the monetization efficiencies of mid-tier and long tier cities [ph]. By leveraging our close ties to this group of customers, we were able to develop premium content, amplify viewership and increase users thinking. We also continued to develop a substantial amount of resources to the discovery and contemplation of mid-tier teams. Through our work with deep pool of promising talent, we were able to diversify our live-streaming content acquisition, generate a constant fee of quality content and accelerate the monetization potential of this streamers headwind.Going forward, we will continue to deepen our cooperation with leading game developers and distributors such as Tencent. Such collaboration will enable us to enrich our game-centric content offering, sees the first-mover advantage for our Medicaid gaME launches and facilitate a constant flow of premium eSport content.For the more, we will also optimize our operating capability in each segment while refining our internal streamer management system, both of which will further boost our user conversion and accelerate our market penetration.In addition to content diversification, we also ramped up our monetization capability in the third quarter of 2019. Notably, our quarterly paying users increased by 66% year-over-year to 7 million implying a payout ratio of 4.2% compared to 3.0% in the prior-year period. Meanwhile, the ARPU increased by 10.4% year-over-year to RMB237 million in the third quarter.For our game live streaming segment, we continued to promote our band system and more marketing through a series of innovative products and interactive features to enhance users streamer interaction and emulate users willingness to pay.For example, in August, we launched the Supercenter club as an extension of our existing band system. Supercenter lab was both effective and well received by users, increasing users engagement with the platform and paying ratio within the game live streaming segment.In our interactive [ph] gaming segment we continue to refine our premium membership system and increased our monetization efficiency by deepening our collaboration with talent agencies in the quarter.Going forward, we will continue to develop new ways of enhancing user streamer interaction and accelerating users consumption habits. As we move into the fourth quarter, we are increasing the frequency of major online user event from a quarterly to a weekly basis. The combination of such weekly events like the [Indiscernible] club with several annual metric events like the [Indiscernible] enabled us to track user data and paying habits, cultivate user engagement and adjust our operational strategies based on user behaviour analysis in real time, thus significantly reducing systematic risk, underlying all of our operational plans and our ability to develop and implement technology on a frontier of progress.For example, during the quarter, as we continue to supercharge our AI and big data analytical capabilities, we have a long significant advantage to both streamers and highlight these, empowering both parties with more comprehensive data driven insights and boosted operating efficiency.Leveraging our strength in data analytics and modelling, we were able to target users within every phase of the game live streaming live platform, provide users with personalized documentation and sharpen the effectiveness of our precision marketing. Notably, the 5G network technologies are accelerating the development of the game live streaming business optimizing user experience and enabling the creation of innovative business models such as cloud gaming.In light of these industry trends, we foresee immense growth potential within the game live streaming industry and are proactively laying the groundwork for upcoming transformation. Going forward, we will continue to build out and refine our technology infrastructure to capitalize on these promising market opportunity.As we expand overseas, we are actively exploring the monetization potential of select countries such as Vietnam, where we have already secured a foothold in the markets. Additionally, in Japan, we have also launched products and continue to maintain a healthy pace of progress.In summary, we are pleased that we made progress in the third quarter augmenting our user base, forging our content ecosystem and investigating innovative masses of monetization. Going into the fourth quarter, we will continue to fill up our user base, stimulate deeper user interaction, create more premium content and implement additional highlights and features to meet a broader array of user demand.At the same time, we will remain steadfast in our dedication to improving our financial results, and generating long term shareholder value.With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao to go through the details of our financial performance in the third quarter.

Thank you, Mao Mao. Hello everyone. During the third quarter, we increased our total net revenues by 81.3% year-over-year to RMB1.86 billion and achieved solid growth in both our live streaming revenues and advertising and other revenues.Our gross market expanded to 17% from 5.6% in the prior-year period. We also improved our adjusted net income to a gain of RMB72.2 million from a loss of RMB214.2 million in the third quarter of 2018. Now please allow me to provide you with some more details regarding our key financial metrics.Our total net revenues grew by 81.3% to RMB1.86 billion [ph], including RMB1.66 billion in live streaming revenues and [Indiscernible] in advertising and other revenues. Live streaming revenues increased 83.0% year-over-year RMB1.66 billion as the monetization strategy has proved to be efficient, enhancing housing user-streamer interactions and stimulating user's willingness to pay. We also collaborated more closely with talent agencies to increase our monetization efficiency for mid-tier and long-tail steamers.Advertising and other revenues also reported robust growth as our brand awareness broadened and promotional amount from advertisers increased significantly. Notably the increase in revenue from this segment mainly came from integrated advertisements as we work carefully to maintain our superior user experience.Cost of revenues increased by 59.4% to RMB1.54 billion. More specifically revenue sharing fees and content costs increased by 66% to RMB1.31 billion. This increase was primarily driven by two factors; first, increased revenue share of fees, which were in line with increases in total revenues. And second, increased investments in eSport related content rights and eSports tips [ph].Expansion of self-organized tournaments and in-house content production. The rising content costs is in line with our belief that premier content is one of the key drivers for organic user acquisition, existing user retention and user engagement level improvement. These increases were partially balanced out by the declining trajectory of signing bonuses used to superior top streamers with exclusively signed contract, despite upgrades number of top streamers existing on a platform during the third quarter of 2019.Bandwidth costs increased by 6.1% to RMB150.8 million primarily due to higher traffic and user engagement on the platform, which was partially offset by a lower unit purchase price and improved utilization efficiency in bandwidth usage during the quarter.Gross profit increased by 450.5% to RMB316.8 million and gross margin expanded to 17% from 5.6% in the prior-year period, mainly due to better operating leverage as a result of the company's continuous improvements in monetization finer-based utilization efficiency and economies of scale.Now let's turn into our operating expenses. Sales and marketing expenses increased by 18.6% to RMB173.2 million in the third quarter of 2019. This trend was mainly due to the share-based compensation expenses recognized immediately following the company's IPO as well an increase in promotional and marketing expenses incurred to promote eSports related content, while further strengthening both our leadership in eSports market and brand awareness.R&D expenses increased by 47.2% to RMB119.9 million, primarily driven by share-based compensation expenses and in-house research and development efforts for various business segments.G&A expenses increased by 326.3% to RMB232.9 million which was also mainly due to share-based compensation expenses. Share-based compensation expenses allocated in operating expenses accounted to RMB228.2 million in the third quarter of 2019 as compared to RMB4.4 million in third quarter of 2018 and RMB27.4 million in the second quarter of 2019.This sharp increase during this quarter was due to the successful completion of our IPO in July of this year, which was a significant non-cash charge. Other operating income net was RMB11.8 million in the third quarter of 2019 compared with RMB16.4 million in the prior year period. Adjusted operating income which excluded share-based compensation expenses ramped up to RMB30.8 million compared to an adjusted operating loss of RMB203.7 million in the prior-year periodAdjusted net income, which excluded share-based compensation expenses, share of loss or income in equity method investments, and impairment loss of investment improved to a gain of RMB72.2 million from a loss of RMB214.2 million in the prior-year period. Such an increase was mainly due to our enhanced monetization capabilities and improved operational efficiencies.Basic and diluted net loss per ADS were both RMB0.59, adjusted basic and diluted net income per ADS were RMB0.26 for the third quarter of 2019. Looking ahead, we expect our total net revenues for the fourth quarter of 2019 to be in the range of RMB1,960 million to RMB2,030 million. This forecast reflects our current and preliminary views on the market and operational conditions which are subject to change.This concludes our prepared remarks for today. Operator, we are now ready to take questions.

We will now begin the question-and-answer session.[Operator Instructions] The first question comes from Hillman Chan of Citigroup. Please go ahead.

Thank you management for taking my question. Can management share more on your view on how the game live streaming industry has been evolving since the quarter?And how we are thinking about the competition from Asia and the other strong [Indiscernible] platforms as far as the competitive landscape in the future please? And my second question is on Tencent. Given the investments in the three platforms, quite so both you and who we are. Are we seeing any preferential treatment in terms of the resources allocation from them? And then if Tencent were to exercise their rights in the coming year to consolidate who you are, how should we think about the chance of merging between Huya and DouYu [ph]? Thank you very much

I will translate for Mr. Chen. The industry competition landscape so far has not changed materially since the first quarter of this year. And to date, we believe that potential entrants into the game live streaming market has not posed any direct compete to our business. Instead, commercial presence has brought in a massive user traffic to the game live streaming industry which we believe has both promoted the industry and also the growth ceiling. So such an injection of users has benefited the development of the entire industry impact of growing number of non-gaming live streaming users are becoming the game live streaming users.So it should also be noted that as a content platform though you have the most premium games live streaming content, meaning that a higher industry feeling will also significantly benefit still nice growth.[Foreign Language] In terms of the user demographic we believe that our users are different from Quizsho or other short-form video platforms, because as one of the leading platform in the game-live-streaming industry today, we are generating most of our user traffic high-quality posting, and the majority are coming from heavy game players. So this group has high-quality consisting of users who are highly attracted to our platform. And in addition from user experience perspective, the short-form videos only present the highlights of an eSports phones for us and other again game-live-streaming platform, we are providing users with complete viewing experience for the tournaments.So these are quite different two-type of viewing choices. So we believe that although Quizsho and others short-video platforms might take up a small portion of user time given the various differences just mentioned between Quizsho and us, we don't regard Quizsho as a direct compete.[Foreign Language] In general we believe that the live-streaming industry is large enough to accommodate multiple companies and its current penetration is still low. So we can work together to enlarge the size of the market.[Foreign Language] Regarding your second question on resource allocation by Tencent between the three invested companies, we as the leading platform in the game-live-streaming phase have continuously cultivate each link of the industry value chain and assisted our strategic partner and shareholder Tencent in distribution and promotion of this game. And we also worked to attract game users onto our platform. So for Tencent the primary goal of working with a live-streaming platform is to promote new games and extend the lifecycle of old games. According to third-party plus mobile data, though you have clearly established a leading advantage in terms of user traffic. So we believe that our platform is more competitive than others in terms of cooperating with Tencent.[Foreign Language] Roughly, we believe that by leveraging our large group of users especially those high-quality hardcore players that are highly attracted and attached to our platform, we can collaborate with Tencent very closely for a win-win partnerships. But ultimately whether we will see a consolidation to take place is up to Tencent intention. Okay. Operator please?

Thank you. The next question comes from Alex Poon of Morgan Stanley. Please go ahead.

[Foreign Language] I'll translate my question. My first question is, since late August you have removed certain lucky draw features. And can you let us know the reason why you took it off and also the revenue impacts in Q3 and also since you have restated these features how is the revenue run rates at present? Is it better than before you remove these features already. And from here onwards how is the regulatory landscape look like for these features? Thank you.

[Foreign Language] Regarding the reason of the temporary removal of our great features, in August we have always prioritized the long-term and sustainable growth of DouYu. So in order to contribute to a positive Internet environment, our management team made the decision to carry out an investment of certain interactive features in mid-August 2019 prior to China's anniversary celebration. And as a result of our internal assessment we adjusted certain functions of interactive products region.[Foreign Language] Regarding the revenue impact our interactive features including [Indiscernible] were designed to enhance the interaction between the streamers and users. So consequently the removal of certain feature has somehow affected user's engagement activities with streamers for certain period of time in third quarter. After revision and improvement we initially reactivate part of the features in late third quarter and we activated the rest in fourth quarter. So after resuming the access to our interactive features user's engagement for these interactive features are gradually recovering and we have also factor in all of these in our fourth quarter guidance for 2019.[Foreign Language] Regarding future adjustments, we will pay close attention to the relevant laws and regulations issued by the local authorities while maintaining active communications with government departments. Thank you.

The next question comes from Daniel Chen of JPMorgan. Please go ahead.

[Foreign Language] I will translate myself. My question is related to MAU. So in the third quarter we actually see that the year-over-year growth and a sequential growth of the MAU actually decelerate from the second quarter. So what's -- how should we look at the whole game live streaming industries, MAU grows in the fourth quarter and 2020. Are we seeing the deceleration to continue and will DouYu's use strategic focus changes from user expansion through the profitability improvement? Thank you.

[Foreign Language] We believe that the recent slowdown of the MAU growth in the game live-streaming industry was mainly due to a lack of megahit games such as [Indiscernible] in 2016 and PUBG in 2017. So it highly depends on content offerings especially new to content. So with the reopening of the game licensing with more approval, as well as the continued investments and development of new games by game developers such as Tencent, we are quite optimistic about user growth for the fourth quarter of 2019 and the full-year of 2020. So we also believe that the game live-streaming industry has a very high growth feeling and is large enough to accommodate all players. And currently the industry penetration rate is still low, which implies an abundant amount of future growth opportunities in the market.And on the other hand, as we further enhance our leading position in the industry, we increasingly enjoyed advantage of our industry leadership. And according to third-party data from mobile as of the end of September we have significantly outperformed other game live-streaming platform in the industry in terms of MAU. And in the future user growth will continue to be our strategic focus, by further strengthening our cooperation with game developers and distributors such as Tencent, we will prepare high-quality sports content, post large-scale sport events and diversify the content in our ecosystem to gain further use attraction and increase our users segments. Thank you.

The next question comes from Li Zhang of Bank of America. Please go ahead

[Foreign Language] My first questions about the top post we noticed that some of the top post to other platform after the contract there. So wondering how should we look at the concentration risk off the top post [ph] and anything close to what contract makes there in the coming quarters that you can share with us?Secondly, on the content what you said, any color on the breakdown especially [Indiscernible] owners relate to the top streamer, any change as far as [Indiscernible] owners in the third quarter? And how should we look at the trend in the coming years? Thank you.

[Foreign Language] So some individual top streamers asked for a significantly higher amount of signing bonus as one of conditions for their contract renewal, which we believe was a legacy of approaching streamers of our other platforms through high signing bonus. And after we comprehensively evaluate the respective -- for these streamers including their revenue viewership contribution, as well as the related costs including their signing bonus, we decided not to renew contracts with some of these streamers given that they are not meeting our internal targets. While for others we are still in negotiation stage.So the historical data shows that terminating contracts with these streamers actually has very minimal impact on our revenue and user traffic. In addition, we are having three to five years contracts with most of our top streamers, so, only very few top streamers out of top 100 will have their contracts with Top Five within one year while they are few not renewing yet with us. Regarding the breakdown of content costs to start with streamer signing bonus was affected by the industry-wide adoption of the streamers behavior guidance -- guidelines by Tencent since the beginning of this year and continue to decline on a sequential basis within the range which were in line with management's long-term expectation. So we expect this trend to continue going forward.And regarding the content wise -- broadcasting wise, so with the release of the new games and the continued promotion of old games, we affect the frequency of the eSports tournament to increase in the future. And furthermore competition we're acquiring these broadcasting rights has yet to pick up. So as a result we believe that broadcasting rights and other content related costs including self-organized autonomous fees are expected to rise in the future. Thank you.

The next question comes from Alex Liu of China Renaissance. Please go ahead.

[Foreign Language] I'll translate myself. How should we think about the sequential decline of bandwidth cost in the third quarter considering the high seasonality in third quarter and the fact that our competitor is actually having a higher bandwidth costs. And should we consider with regard the bandwidth cost gap between DouYu as any kind of representation of the traffic difference between these two platforms? Thank you.

[Foreign Language] Regarding the sequential decreases of bandwidth cost in the third quarter let me give you some data points for reference. So the bandwidth usage at peak periods in October this year increased by 70% as compared to January. However, due to our deployments of proprietary P2P and CDN technologies, as well as active bandwidth usage management, the chargeable bandwidth usage during the same period only increased by 18%. And regarding the reason of why we're having sequential decrease in bandwidth costs is mainly due to three reasons.Number one, we are increasing our bargaining power in negotiation with the bandwidth service providers, which leads to unit price decreases between the second quarter and third quarter this year we saw unit price decrease twice. And secondly the improved bandwidth usage efficiency as we actively manage our bandwidth usage during peak periods such as tournaments as well as consolidate some bandwidth consumption from unpopular long-haul periods.And lastly, we reduced IT outsourcing expenses by developing proprietary CDN and P2P technology. So lastly, the reason why we have lower bandwidth cost than our competitors are that although we don't really understand what our competitors doing. For us, we have more sophisticated proprietary technologies of CDN and P2P. And we are also deploying these technologies on a very large scale. And certainly, we are very accurate and efficient in terms of managing the bandwidth usage efficiency which ultimately results in a significant cost savings. And lastly based on our precise bandwidth usage scorecard, we actively managed bandwidth usage throughout the platform and make full use of the resources by multiple suppliers that are working with us in order to minimize the average bandwidth unit costs. Thank you.

And the final question today of this evening will come from Thomas Chong of Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my question. My question is about first, the revenue sharing ratio with our broadcasters, is there any trend that we are seeing that they'll increase in the future. And my second question is about the content strategy in particular about the game and the long game content costs, as well as the revenue growth in the future. And my final question is about the competition in overseas markets, as well as our thoughts on game distribution other than advertising? Thank you.

[Foreign Language] Okay. I’ll translate for the first question first. Regarding the revenue sharing ratio between us platform and streamers we have been fairly stable to keep it at a 50-50 split in the past few quarters, and we don't foresee a significant change going forward.And regarding second question on our investment on content, we believe that most of our content investments are focused on gains category while where we include both broadcasting rights procurement and also eSports team sponsorship. And for non-gaming factors including talent show and other segments, we are mainly sharing revenue with our streamers rather than are compensated in the other way.[Foreign Language] Regarding the future growth, expectations for our content costs, we believe that the signing bonus for the streamers will be on a sequential decline trend for the next few years, until we reach a reasonable level. While for content right, the broadcasting right, we believe that we will expect sort of level of increase in the future.[Foreign Language] Regarding your last question on overseas investment, we believe that the current user growth of normalized, our overseas platform in areas like Indonesia, Vietnam, India, Taiwan and Latin America and other regions are on track. And however, the game live streaming market in these countries are still at very early stage of development and users in these locations have not yet formed a mature paying habit, so we are still currently focusing on user base growth and are exploring some additional opportunityIn the third quarter, we also invested in the Japanese markets and utilized how Japanese plant is local resources and our products for the Japanese market or -- we wouldn't have already launched in the third quarter this year.[Foreign Language] We have been experimenting on different business models that combined gaming and live streaming. For example, in past we invented the [Indiscernible] and also we had some trials in the mini game etcetera. So we are also proactively laying the groundwork for cloud gaming and we're also working on new categories of advertising. For some of these attempts, we are still in the early stage. And we will update investors on our progress in the products and the matrix at the appropriate time. And at current stage, we are not considering distributing anything.

Did that conclude your response to the question?

Yes, please.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you for joining our call today. We look forward to speaking with everyone next quarter. If you have any questions please contact the IR team of DouYu. Thank you.

The conference has now concluded. Thank you for attending today's presentation.