Earnings Call Transcript - HUYA Q2 2025

Hanyu Liu, Investor Relations

Good day, and good evening, and thank you for standing by. Welcome to Huya's Second Quarter 2025 Earnings Webinar. I'm Hanyu Liu from the Huya Investor Relations. Please be advised that today's webinar is being recorded. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website soon. Participants of management on today's call will be Mr. Vincent Junhong Huang, our Acting Co-CEO and Senior Vice President; and Mr. Raymond Peng Lei, our Acting Co-CEO and CFO; and Marguerite Xie, Head of Capital Markets. 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 safe harbor provisions of the U.S. 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 this and other risks and uncertainties is included in the company's latest annual report on Form 20-F and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Huya's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Huya's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. With that, I'm pleased to turn the call over to our Co-CEO and SVP, Mr. Huang. Please go ahead.

Vincent Junhong Huang, Co-CEO and Senior Vice President

Hello, everyone. Thank you for joining our earnings conference today. It has been exactly two years since I first spoke with you on our August 2023 earnings call. Over this time, Huya has undergone a lot of transformation uncovering new opportunities, executing on a clear strategy, and deepening our strategic alignment with Tencent and the broader gaming industry. Today, I'm pleased to share the progress we have made and the opportunities ahead. By leveraging our cross-platform strategy, we have achieved an average of 162 million monthly active users across Huya's platforms and extended our reach even further through the distribution of our content and services on third-party content platforms such as WeChat channels, Douyin, and Kuaishou. Over the past year, we have strengthened collaborations with these platforms, enabling cross-platform streaming and co-creating professional content. This not only expanded the reach of our high-quality content but also built the foundation for new monetization opportunities in game distribution, in-game item sales, and potentially game publishing. One of the industry trends we are seeing is the rising importance of content-driven marketing in publishing and long-term operation of game titles. This trend plays directly to Huya's core strength: our top-tier game live streaming capabilities, a robust and influential esports ecosystem, and deep expertise in producing high-impact short-form videos optimized for each social platform. By combining our rich professional production capabilities and community influence, we are able to help game publishers engage players more deeply, extend the life cycle of their titles, and drive player spending. As a result, our game-related services, advertising, and other revenues have grown significantly from RMB 122 million in Q2 2023 to RMB 414 million this quarter. This segment now contributes over one-fourth of our total net revenues and from a gross billing perspective accounts for over 40% of Huya's total transaction value. We see this segment as a key growth engine going forward with substantial room for further expansion as we deepen our partnership with game developers and broaden our service offering. This quarter, we further increased our portfolio of jointly distributed games in the domestic market to over 300 titles. Tencent's games such as Honor of Kings, Peacekeeper Elite, and League of Legends Mobile all performed strongly. Games from other partners such as Archero 2 and Xiangong Zhanji also stood out this quarter. Progressing from our existing joint distribution of games, sales of in-game accessories and cosmetics items are naturally the next step for us. In the second quarter, gross billings from this category increased by 90% year-over-year, reflecting strong demand from our highly engaged user base. Given our ability to integrate sales seamlessly into live streams, esports events, and other content, often featuring influential streamers, we believe this business line has significant potential to scale further and become an increasingly important part of Huya's revenue mix in the years ahead. Our community of game streamers remains one of Huya's most strategic and valuable assets. We nurtured their growth not only within Huya's ecosystem but also across all leading content platforms, enabling them to broaden their reach and deepen audience engagement. Among the top 300 game live streamers nationwide, Huya continued to command the largest representation in the industry, a testament to our unmatched ability to attract, develop, and retain top-tier talent. With a user base composed of highly engaged hardcore gamers, Huya offers the perfect environment for emerging talent to gain visibility and build a loyal following quickly. Combined with the comprehensive professional support we provide, we continue to successfully introduce some of the most sought-after personalities for new releases. For example, one of the hottest games that is trending this summer is Tencent's Delta Force, and the biggest live streamer of that game right now in terms of live channel average concurrent users and total short video views is on Huya. We help him build his fame on Huya from the ground up. As we go to the destination for esports live streaming in China, we continue to invest in esports content, driving deeper user engagement and strengthening our market leadership. In the second quarter, we live streamed over 100 licensed esports tournaments, covering premier domestic leagues such as the League of Legends Pro League, Kings Pro League, and Cross Fire Pro League as well as major international events, including the LoL Mid-Season Invitational and the CS2 Austin major. Currently, we are also bringing global competition to our audience through coverage of the Esports World Cup in Saudi Arabia. Alongside licensed events, we produced over 40 in-house produced tournaments, including the LoL Legend Cup Season 3, DOTA2 Immortal Cup, and Honor of Kings Saudi Cup Gold Tournament as well as entertainment shows like Clear the Billiard Table Goals. The Immortal Cup final sold out in just 7 minutes, while our Huya HYPER Esports Carnival branding esports music and culture tourism deepened fan loyalty and expanded our audience reach. In July, in partnership with Tencent, we launched the inaugural Delta Force Diamond Champions Summer Season, featuring 24 leading domestic teams. The event showcased Huya's production and technology leadership. From 4K ultra-high definition and 120 FPS streaming to multiscreen viewing and in-team voice chat, we delivered a truly premium and interactive experience for fans. Leveraging our content integration strengths, we have begun entering the game publishing arena. In Q2, we piloted a content-led launch strategy for Goddess of Victory: Nikke using live streaming showcases, esports promotion, and creator videos. The campaign delivered strong results, and we are actively pursuing additional publishing partnerships. Our overseas initiatives are also gaining momentum. We have now reached tens of millions of monthly active users internationally through our mobile application service platform, live streaming, and others. Through these products, we are able to build up our gamer communities and local marketing capabilities and accumulate a sizable user base of hardcore gamers, particularly in genres like FPS and mobile. These efforts will position us to capture opportunities in the growing overseas game-related services market. Before I pass the call on to Raymond, I would like to update you on our AI strategy. AI is becoming embedded in every aspect of our operations. From AI plus live streaming to AI plus IP and AI plus services using our proprietary gaming datasets, deep user insights, and years of content, we have built intelligent gaming analytic models and large language models for specific service needs. Some initiatives enhance user experience such as our AI agent, Hu Xiao Ai, which delivers real-time engaging commentary during esports streams, boosting viewer interaction during events like the LoL Legend Cup Season 3. We are also developing AI-powered virtual live streamers using high-fidelity avatar and expression technologies to add new dimensions to our content. Others create new consumption opportunities, for example, our AI sparring partners for esports players provide real-time tactical alerts, response to players' emotions, and offers personal encouragement. This technology also powers the industry's first AI game companion robot, the Huya AI Superbot, launched with Invictus Gaming IG team at ChinaJoy, which generated significant market buzz. In short, with our dedicated efforts over the past two years, we have demonstrated to the market that we are more than just a live streaming platform, but a game-related entertainment and service provider capable of adding value to the entire gaming ecosystem. We will continue to deepen our engagement in the gaming industry, strengthen collaborations with industry partners, expand our business boundaries, and innovate our service offerings. We will also focus on overseas expansion and AI initiatives, paving the way for Huya's long-term sustainable growth. With that, I will now turn the call over to our acting Co-CEO and CFO, Raymond Lei. He will share more details on our results. Raymond, please go ahead.

Lei Peng, Co-CEO and CFO

Thank you, Vincent, and hello, everyone. I'll start with an overview of our financial performance. Our total net revenues for the second quarter reached approximately RMB 1.57 billion, increasing both year-over-year and quarter-over-quarter for two consecutive quarters. Of this, live streaming revenues stabilized with a slight sequential increase to RMB 1.15 billion and game-related services, advertising and other revenues grew to RMB 414 million, accounting for 26.4% of total net revenues. The number of domestic paying users in the second quarter remained flat compared with the first quarter, standing at 4.4 million, excluding those who made in-game purchases through our game distribution business but didn't pay via our platform or related services as well as overseas paying users. Thanks to optimized content costs, particularly those related to esports tournaments, we improved our gross margin sequentially to 13.5% for the quarter, and this discipline also contributed to reaching breakeven non-GAAP operating profit, a significant milestone in our path to improve profitability. We also achieved a non-GAAP net income of RMB 48 million, marking our sixth consecutive profitable quarter. Let's move on to more details of our Q2 financial results. Our total net revenues were RMB 1.57 billion for Q2 compared with RMB 1.54 billion for the same period last year. Live streaming revenues were RMB 1.15 billion for Q2 compared with RMB 1.23 billion for the same period last year, primarily due to the continued impact of the macroeconomic and industry environment. Game-related services, advertising, and other revenues were RMB 414 million for Q2 compared with RMB 309 million for the same period last year. The increase was primarily due to higher revenue from game-related services and advertising, which were mainly attributable to our deepened cooperation with Tencent and other game companies. Cost of revenues increased by 2.1% to RMB 1.35 billion for Q2, primarily due to increased revenue sharing fees and content costs, partially offset by decreased bandwidth and server custody fees. Revenue sharing fees and content costs, a key component of cost of revenue, increased by 2.6% to RMB 1.2 billion for Q2, primarily due to increased broadcaster-related costs, partially offset by lower costs related to licensed esports content. Gross profit was RMB 212 million for Q2 compared with RMB 215 million for the same period last year. Gross margin was 13.5% for Q2 compared with 13.9% for the same period of last year, primarily attributable to increased revenue sharing fees and content costs as a percentage of total net revenues. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 216 million and non-GAAP gross margin was 13.8% for Q2. Research and development expenses decreased by 5% year-over-year to RMB 122 million for Q2, primarily due to decreased personnel-related expenses and share-based compensation expenses. Sales and marketing expenses decreased by 6% year-over-year to RMB 58 million for Q2, primarily due to decreased channel promotion fees. General and administrative expenses remained flat year-over-year at RMB 64 million for Q2. Other income was RMB 8 million for Q2 compared with RMB 13 million for the same period last year, primarily due to a notable settlement income from disputes in the second quarter of 2024 and lower government subsidies. As a result, operating loss was RMB 24 million for Q2 compared with a loss of RMB 26 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets from business acquisitions, non-GAAP operating income reached breakeven for Q2 compared with non-GAAP operating loss of RMB 3 million for the same period last year. Interest income was RMB 59 million for Q2 compared with RMB 103 million for the same period last year, primarily due to a lower time deposit balance, which was primarily attributable to the special cash dividends paid. Net loss attributable to Huya Inc. was RMB 5 million for Q2 compared with net income attributable to Huya Inc. of RMB 30 million for the same period last year. Excluding share-based compensation expenses, impairment loss of investments, and amortization of intangible assets from business acquisition net of income taxes, non-GAAP net income attributable to Huya Inc. was RMB 48 million for Q2 compared with RMB 97 million for the same period last year. Non-GAAP net margin was 3% for Q2. Diluted net loss per ADS was approximately RMB 0.02 for Q2. Non-GAAP diluted net income per ADS was RMB 0.21 for Q2. As of June 30, 2025, the company had cash and cash equivalents, short-term deposits, and long-term deposits of RMB 3.77 billion compared with RMB 6.25 billion as of March 31, 2025. Finally, let me provide an update on our shareholder returns. Through our up to USD 100 million share repurchase program, we had repurchased 22.8 million Huya shares with a total aggregate consideration of USD 75.4 million as of the end of June 2025. Additionally, we distributed a total of about USD 340 million in special cash dividends during the second quarter. Going forward, we will continue to focus on performance, advancing our expansion initiatives, and deepening our industry alignment to create long-term value for our shareholders. With that, I'd like to open the call to your questions.

Hanyu Liu, Investor Relations

Today's first question comes from Ritchie Sun from HSBC.

Ritchie Sun, Analyst

I would like to ask about the game-related services business. Can you provide updates on its development and how we should view the second half?

Vincent Junhong Huang, Co-CEO and Senior Vice President

Marguerite, let me translate that for you. We continue to broaden and strengthen our partnerships with game companies, increasing our portfolio of jointly distributed games in the domestic market to over 300 titles. Given our game streamer ecosystem and their connections with users, it is natural for us to take the next step and extend game services to include the sale of in-game accessories and cosmetics through these streamers. We are in the early stages of this effort, and we have seen a 90% year-over-year increase this quarter. As we expand and diversify our in-game accessories stock-keeping units, improve the related transaction infrastructure, and enhance users' understanding of our value proposition, we believe that sales from game accessories are likely to become one of our new growth drivers. Additionally, we have strengthened our collaborations with various platforms and products. This strategy has allowed us to widen the reach of our high-quality content and services. Building on our strong content integration capabilities, we are strategically entering the game publishing sector. In the second quarter, we launched a comprehensive online content publishing strategy with the release of Goddess of Victory: Nikke. With well-known live streamers demonstrating gameplay, promoting through esports events, and creating videos with content creators, this campaign saw impressive results. Encouraged by this initial success, we are actively seeking more collaboration opportunities within the game sector.

Hanyu Liu, Investor Relations

And our next question comes from Yiwen Zhang from China Renaissance.

Yiwen Zhang, Analyst

We have noticed that the company has hosted its first e-sports event for Delta Force. Can you discuss the feedback so far and how many participants were involved?

Vincent Junhong Huang, Co-CEO and Senior Vice President

In July, in collaboration with Tencent, we launched the first Delta Force Diamond Champions Summer Season. The event featured 24 leading domestic teams and highlighted Huya's production and technology capabilities, including 4K ultra-high definition and 120 frames per second streaming, as well as multiscreen viewing and in-team voice chat. This created a truly premium and interactive experience for fans. During the finals, viewers watching Huya Live's exclusive DDC stream had the opportunity to win in-game items specially prepared for the event, including highly sought-after bundles, enhancing the overall fun and immersive experience.

Hanyu Liu, Investor Relations

And our next question comes from Yanyan Xiao from CICC.

Yanyan Xiao, Analyst

My question is about overseas business. Can you provide us with a detailed update on the progress of overseas operation?

Vincent Junhong Huang, Co-CEO and Senior Vice President

Overseas initiatives are gaining momentum. We are now reaching tens of millions of monthly active users internationally through our mobile application service platform, live streaming, and other services. Through these products, we are able to build our gamer communities, improve our local marketing capabilities, and accumulate a significant user base of hardcore gamers, especially in genres like FPS and mobile. These efforts will position us to seize opportunities in a growing overseas game-related service market. We have updated our definition of monthly active users this quarter to better reflect the progress made during this transformational period, particularly in international markets. Our observations over the past few years have convinced us that the potential for growth and monetization within the international user base is substantial.

Hanyu Liu, Investor Relations

We will then take a question from Nelson Cheung from Citibank.

Fuk Lung Cheung, Analyst

Congrats on the solid progress of business transformation during the quarter. My question is about the company's future plans for AI development, particularly regarding live streaming experiences, esports tournaments, Hu Xiao Ai, and the AI desktop robot launched this year, as well as future positioning in AI gaming.

Vincent Junhong Huang, Co-CEO and Senior Vice President

As mentioned previously, by utilizing our unique gaming datasets and deep user insights, we have developed advanced gaming analytic models and large language models tailored for specific services. AI is increasingly integrated into all areas of our operations, enhancing aspects such as live streaming, intellectual property, and services. Some initiatives aim to improve user experience, like our AI agent, Hu Xiao Ai, which provides real-time engaging commentary during esports streams, increasing viewer interactions. Others create new consumption opportunities, exemplified by Huya AI Superbot. In partnership with the renowned esports team IG, we unveiled these innovative robots that not only replicate players' appearances and voices but also facilitate key experiences like virtual sparring and emotional support. Utilizing our proprietary visual recognition technology and strategic analysis, the robot is designed to understand the game, connect with users, and recognize their emotions. Leveraging our expertise in gaming and esports, the robot serves as both a sparring partner and coach. Additionally, employing our proprietary models, the robot can interpret mood through tone and respond accordingly. It also features a memory graph that enables it to remember users' favorite heroes, preferred play styles, and favorite moves.

Hanyu Liu, Investor Relations

Now we will take our last question today from Maggie Ye from CLSA.

Yifan Ye, Analyst

My question is about the live stream business, which represented 74% of total revenue this quarter and appears to have stabilized from the previous quarter. What is your perspective on the overall trend for the live stream business and the total revenue trend for 2025, as well as the margin trend?

Lei Peng, Co-CEO and CFO

Our live streaming revenue continued to stabilize with a slight increase to RMB 1.15 billion quarter-over-quarter. We are seeing overall revenue returning to a growth path, driven by strong growth from gaming-related services, advertising, and other sectors. This segment grew 34.1% year-over-year to RMB 414 million this quarter. Based on current observations, we expect live streaming revenues to remain generally stable as the industry and user behavior continue to normalize. Conversely, we anticipate that game-related services, advertising, and other revenues will be the primary growth drivers for the company as we enhance our partnerships with various game companies. Overall, we expect our total net revenues to grow in the second half of the year and for the full year. Regarding profitability, in Q2 we optimized our content costs, including those related to esports events, and benefited from increased total net revenues, resulting in an improved gross margin of 13.5%. Notably, we reached non-GAAP operating profit breakeven this quarter and recorded a non-GAAP net profit of approximately RMB 48 million, marking our sixth consecutive profitable quarter. We will continue to focus on improving our operating profitability and expect significant improvement in our non-GAAP operating profit for the full year 2025 compared to 2024 under normal conditions. Additionally, please note that our interest income in the second half of the year is expected to be much lower than in the first half due to a decreased cash balance from the substantial shareholder return measures we implemented last year and fluctuations in market interest rates. Please keep this in mind when modeling our net income for the remainder of the year. Thank you very much.

Hanyu Liu, Investor Relations

Thank you once again for joining us today. If you have further questions, please feel free to contact Huya Investor Relations through the contact information provided on our website or Piacente Financial Communications. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you.