On September 12, Douyu released its unaudited financial report for the second quarter of 2024. The data shows that the company's revenue during the reporting period was 1.032 billion yuan, with a gross profit of 84.2 million yuan and a gross margin of 8.2%. The adjusted net loss was 45.5 million yuan, a significant decrease compared to the previous period.

The significant narrowing of the loss has two important implications. It not only means that Douyu has strong business resilience in the face of macroeconomic and industry fluctuations, but also represents the further improvement of operational efficiency and the growth of the company's intrinsic value after the continuous deepening of commercial transformation.

A deep analysis of Douyu's financial report can provide a clearer understanding of the true value of Douyu, which has been "strengthening internal capabilities" during the industry downturn. Investors should pay close attention to the key information reflected in the financial report, which suggests that the fundamentals of Douyu may have bottomed out.

Diversified income is the keyword for Q2, and Douyu's commercial transformation continues to accelerate.

The analysis of a company's operating situation cannot be viewed in isolation from its internal operations, but must be considered in the broader context of industry development and macroeconomic conditions in order to arrive at a more comprehensive and accurate answer.

In the game live streaming industry, the development of the industry has faced multiple operational challenges in the past two years. On one hand, the internet industry's traffic dividend has peaked, and the entry of short video platforms has led to continued intensification of industry competition. On the other hand, the sustained economic downturn has resulted in a decrease in disposable income for users and a overall reduction in purchasing power, which in turn has reduced the corresponding spending on entertainment consumption.

Under the dual pressure of industry development and macroeconomic conditions, although douyu is a leading domestic live streaming platform, it is inevitable that it has been affected. However, in the second quarter of 2024, douyu has presented an operating report that the company's fundamental situation may have bottomed out.

From the perspective of revenue structure, during the reporting period, douyu's innovative business, advertising, and other business revenue reached 0.242 billion yuan, which is 1.8 times higher than the same period last year. Its revenue contribution ratio is 23.4%, a significant increase compared to 9.6% in the same period of 2023. The growth of the innovative business is mainly attributed to the growth of game membership revenue based on the sale of game props. By continuing to use mature community and commercialization tools, douyu has effectively enhanced its business revenue by enriching game prop categories, increasing platform equity and marketing frequency, and so on. In the Tianya Mingyuedao section, douyu has updated its product form, optimized the payment experience, and users can place orders directly through the prop mall. The average prop consumption level in the second quarter is higher than other channels. In the Peace Elite section, douyu has increased the promotion frequency of game membership services through rare props provided by game developers and promotions inside and outside the platform, which has also effectively increased business revenue.

As a new growth curve for douyu outside of live streaming revenue, the significant increase in the proportion of innovative business, advertising, and other business revenue indicates that douyu's commercial transformation has reached a critical breakthrough. With the continuous deepening of the company's business in this area, innovative business, advertising, and other business will also become the core driving force for douyu's revenue growth.

Secondly, in terms of profitability, under the condition of flat quarterly revenue, douyu's adjusted net loss for the reporting period has significantly narrowed to 45.5 million yuan, indicating a more obvious signal of bottoming out on the profit side compared to the revenue side. This is due to the continuous improvement of douyu's operating efficiency. The improvement in operating efficiency is mainly due to two factors: firstly, douyu has gradually forged a more efficient management system under multiple operational challenges; secondly, through fine-grained operations that drive content ecology, douyu has achieved an improvement in operating efficiency.

Specifically, during the reporting period, douyu continues to improve its operating efficiency by focusing on anchor resources and increasing the content density of top anchors and the frequency of broadcasting of medium and long-tail anchors, enriching the content supply of the platform. On this basis, different sections further integrate high-quality anchor resources with platform advantages and carry out a series of section operation activities and platform ecosystem construction. For example, in response to the return of Blizzard's national server, douyu's Blizzard Games section, with top anchors as the core, integrated section resources and created a 12-hour relay live broadcast by star anchors. Top anchors such as Huang Xudong gathered offline to attract attention, and subsequently held a Dota 2 anchor team-building tournament, covering multiple game products under Blizzard, greatly improving section activity. By deepening section advantages, douyu's fine-grained user operations have been upgraded again, thereby promoting the continuous improvement of operating efficiency.

At the user level, under multiple operational challenges, douyu's user data has shown a certain degree of decline in the past two years, but this trend has now shown clear signals of stabilization. During the reporting period, douyu's average MAU (monthly active users) on the mobile side was 44.1 million, and the total quarterly paid users was 3.4 million, which is stable compared to the first quarter of 2024. This means that the number of quarterly paid users has been relatively stable.

During the industry downturn, douyu has been "practicing internal skills" and continues to build a unique platform event ecology.

Based on the analysis of douyu's financial report, whether it is from the performance side of revenue and profitability, or from the business side of user data, it all reveals the signal of douyu's fundamental recovery. The reason why it is able to achieve a "soft landing" in business operations under the dual impact of industry development and macroeconomic conditions is due to douyu's solid promotion of the development strategy of "a diversified content ecosystem with games as the core", which has continuously consolidated the company's core competitiveness.

Compared with short video platforms such as Douyin and Kuaishou, Douyu's advantage as a vertical platform lies in its deep vertical and professional focus on the gaming industry. Douyu not only has high-quality anchors and content ecosystem but also provides gaming users with higher quality and more diverse services through real-time interaction, refined operation and technical innovation, extensive cooperation, and resource integration, thereby cultivating a group of high-quality and deeply engaged users with high monetization potential.

Realizing the key to building its core competitiveness, Douyu fully leverages its rich anchor resources and high-quality content to deepen cooperation with game developers, continuously shaping Douyu's distinctive platform event ecosystem through the continuous development of "official events + in-house events + cross-platform cooperation".

In terms of official events, during the reporting period, multiple professional esports events were successively held in the spring season, where Douyu fully utilized its reserved rights to the events, combined with its rich anchor resources and other advantages to continuously provide high-quality content experiences. This quarter, Douyu broadcasted nearly 30 large-scale official events including League of Legends LPL Spring Split and MSI Mid-Season Invitational, King of Glory KPL Spring Season, Peace Elite PEL Spring Season, CSGO BLAST, and exclusively live-streamed the EVO fighting game tournament, offering a variety of high-quality optional event content for different gaming audiences.

Building on official events, Douyu continued its event content operation strategy in this quarter, offering both professional and entertaining dual-commentary, one-stop platform event center viewing services, aiming to enhance the quality of event-related content and viewing experience.

In terms of in-house events, this quarter Douyu launched over 50 platform esports events, including Thunder Glory Cup, Douyu Super Dream Cup, Douyu Heroes Cup S5, Douyu Autumn Mountain Cup S1, Kwai Cup S4, covering a variety of competitive games like King of Glory, DOTA2, Auto Chess, Peace Elite, and Valorant.

Among them, the Douyu Super Dream Cup elevated the production quality of previous DOTA2 zone online events, assembling a diverse lineup of teams consisting of platform anchors, Asian Games champions, current professional players, and retired players. The event broadcast introduced the TeamVideo segment, showcasing real-time communication among team members, providing viewers with a more immersive event experience. The team and event theme songs, created by Douyu anchors and filled in by community fans, resonated with player sentiments, further enhancing the event's influence and engagement.

Regarding cross-platform content collaboration, Douyu created appealing partnership events in various zones such as King of Glory, DOTA2, and Valorant. Thunder Glory Cup, as the largest official cross-platform self-organized event during the holiday season of King of Glory, benefited from resources from both platforms. Four signed professional teams from Douyu participated, involving a total of 12 top KPL teams in exciting matches. Innovation in the event included Swiss rounds, KOF formats, professional team exhibition matches, anchor battles, and more, adding additional entertainment elements to the professional events, fully showcasing the unique charm of the platform's self-organized events.

Thanks to Douyu's multi-dimensional layout to create a distinctive platform event ecosystem, Douyu has been able to retain and accumulate a group of high-quality deeply engaged users even amidst competition with short video platforms. The stabilization of core user data also proves the effectiveness of Douyu's development strategy, laying a solid foundation for the diversified commercial expansion of Douyu.

While focusing on developing its business, Douyu strives to give back to its shareholders' trust and support. In addition to announcing a $20 million share buyback plan in December 2023, the company also announced a total of $0.3 billion special cash dividend in early July this year, further enhancing its commitment to rewarding shareholders.

From a valuation perspective, Douyu's current value is still severely undervalued by the market. As of the close on September 12th, Douyu's PB valuation is only 0.26 times, far below its net assets. Based on the company's bottoming out in terms of fundamentals and a clear expectation of future growth, Douyu is expected to see valuation recovery in the medium to long term.