Recently, the launch of the Chinese 3A masterpiece 'Black Myth: Wukong' has caused a huge sensation at home and abroad.
As of September 12th Beijing time, according to the latest data from VG Insights, the sales of 'Black Myth: Wukong' on the Steam platform has reached 18.9 million copies, with total revenue surpassing $0.905 billion (approximately 6.448 billion yuan). As the volume surged, the traffic quickly moved toward the game live streaming platform.
According to data from Niko Partners, on the first day of its release (August 20th), 'Black Myth: Wukong' became the most popular game on platforms such as Huya, Douyu, and Bilibili, with a total audience of 29 million on those three platforms.
Although the phenomenal success of 'Black Myth: Wukong' has brought new growth to the game live streaming platform, it is important to note that the game has undergone nearly 7 years of development, from the release of the final trailer, leaked plot videos, launch of performance testing tools, to its current release. The gaming industry in our country still faces the current situation of decreasing chances of blockbuster games and the end of the user dividend period. As the industry enters an era of competition among existing games, how should game live streaming platforms make moves to achieve more stable development?
Douyu, as a representative platform in the game live streaming industry, is a good observation sample. The recent financial report it released also provides us with a new window of observation, showing how a game live streaming platform explores new opportunities for growth through active transformation.
1. Steady growth in innovative business and advertising revenue, further optimization of financial conditions
Overall, Douyu's Q2 2024 report can be summarized as 'steady'. Although the revenue for this quarter remained relatively stable, the profitability significantly improved, and the transformation achieved further progress.
The financial report shows that in the second quarter, Douyu achieved total revenue of 1.032 billion yuan (RMB), with a gross profit of 84.2 million yuan, corresponding to a gross margin of approximately 8.2%. During the same period, Douyu recorded a net loss of 49.2 million yuan, and a adjusted net loss of 45.5 million yuan, a significant reduction in losses compared to the previous quarter.
In addition, as of June 30, 2024, DouYu's cash reserves (including cash and cash equivalents, restricted cash, short-term and long-term bank deposits) exceeded 6.5 billion yuan.
Obviously, in this quarter, DouYu has maintained its consistent and steady operating style, and its profitability has improved. At the same time, thanks to the abundant cash reserves, DouYu has demonstrated stronger adaptability and flexibility in the face of future potential market risks.
The significant improvement in profitability indicates that DouYu's series of cost reduction and efficiency improvement measures are still achieving significant results.
In terms of costs, the financial report shows that in the second quarter of 2024, DouYu's operating costs were about 0.948 billion yuan, a sharp decrease of 21.1% year-on-year. Among them, revenue and content costs were 0.803 billion yuan, a decrease of 18.1% year-on-year; loan costs were 79.6 million yuan, a decrease of 33% year-on-year.
In addition, in terms of expenses, in the second quarter of 2024, DouYu's sales and marketing expenses were 77 million yuan, a decrease of 11.5% year-on-year; research and development expenses were 50.1 million yuan, a decrease of 29.4% year-on-year. The substantial reduction in these expenditures has significantly lightened the overall operational burden for DouYu, with evident effects.
Furthermore, by continuing to promote commercialization transformation and exploring new revenue models, DouYu has further enhanced its income quality and strengthened its profitability. The temporary management committee of DouYu stated, "In the second quarter of 2024, we have leveraged our platform's deep anchor resources, high-quality content, and other advantages to deepen cooperation with game developers, enriching the platform's content ecology and enhancing the company's diversified commercial capabilities."
With the end of the user dividend period in China's game industry, the industry has entered an era of stock competition. The competition among game live streaming platforms has evolved beyond a single dimension and has become a competition at the ecological level. A practitioner in the live streaming industry summarized that game live streaming has gone through three stages: the first stage was when anchors and platforms profited from investors, the second stage was when anchors profited from platforms, and the third stage was when anchors and platforms profited from game developers.
It is clear that DouYu has already entered the third stage of the game live streaming industry, which is reflected in its performance. In the second quarter, DouYu achieved innovative business, advertising, and other revenue of 0.242 billion yuan, a significant increase of 80.7% year-on-year.
Further review the trend of the proportion of innovative business, advertising, and other income to total revenue in the past quarters, it can be seen that douyu's quarterly revenue in this business is showing an overall upward trend. It is worth noting that in this quarter, the non-live streaming business of douyu has achieved continuous year-on-year growth for six consecutive quarters.
Source of data: Company financial report
Some analysts believe that after the proportion of non-live streaming business revenue reaches 20%, the scale effect of its new business has been formed. The continuous growth of new business in the future is expected to provide douyu with a continuous source of new momentum for business model transformation and long-term growth.
It can be seen that douyu has released favorable signs of 'regaining' profitability, undoubtedly bringing hope to the market and giving investors a certain level of confidence.
In order to reward shareholders, douyu announced a share buyback plan worth 20 million US dollars in December last year. In addition, in early July this year, it announced a total of 0.3 billion US dollars in special cash dividends.
The company's ability to implement such policies itself reflects confidence in future stable development. With money in the company's account and a clear profit trend in the future, the second quarter of this year is likely to become a performance bottom for douyu's comprehensive transformation. The drive from the new business will further optimize its revenue structure and achieve further profit release.
II. Continuously improving content ecology, the effect of diversifying commercial transformation layout can be expected
In short, Douyu's current content forms the foundation, while innovative businesses, advertising, and other aspects represent its future. From a business model perspective, Douyu will primarily continue to focus on live streaming and advertising. As Douyu's content ecosystem continues to improve and user experience becomes more optimized, Douyu will gradually reduce its reliance on individual anchors, better handle industry challenges, and increase its commercial value.
After continuous investment, exploration, and strategic deployment, Douyu's development blueprint is becoming increasingly clear, with the following two main routes currently in focus.
First, maintain the existing content. This is clearly related to Douyu's long-term investment in the content field, centered around gaming events. Through recent strategic adjustments and continuous progress, Douyu has formed a content ecosystem consisting of gaming as the core, integrating game live streaming, short videos, and community features. The long-term focus of the content ecosystem's development is on cultivating new anchors, continuously enhancing the event operation system through the introduction of top events and self-production, and consistently releasing content and gameplay with unique Douyu attributes.
In the second quarter of 2024, Douyu will fully unleash its reserve of licensed event resources, combined with its deep pool of anchor resources, to continuously provide high-quality content experiences. Data shows that this quarter, Douyu has broadcast nearly 30 official large-scale events, including the LPL Spring and MSI Mid-Season Invitational, KPL Spring, PEL Spring, and more. In terms of self-produced events, Douyu has launched over 50 platform esports events this quarter, covering official cooperative events, anchor IP events, and maintaining a high level in terms of event quantity and diversity.
Image Source: Official WeChat Account
In addition to self-produced events, PGC content is also a key focus of Douyu's self-produced content direction. Data shows that this quarter, Dota 2 used the popularity and influence of anchors to launch 'Guizhou GoGoGoal,' showcasing local cultural charm while enhancing user interactive experiences. Furthermore, this quarter, the platform created the third season of 'Brave Game' and other live variety shows.
In terms of anchor cultivation, Douyu is increasing content supply on its platform by incentivizing top anchors to increase content density and encouraging mid-to-long-tail anchors to broadcast more frequently, while also attracting new anchor talent with the launch of a summer anchor recruitment plan. As a result, Douyu's influence in gaming and esports content and its talent pool continue to expand.
Second, expanding incremental. Based on diversifying content, deepening cooperation with game developers is clearly something that Douyu is focusing on.
At the beginning of 2024, Douyu carried out an organizational restructuring, reorganizing the company's important content ecosystem business unit into three major business units: anchors, events, and developers, promoting the transformation of business and models. The developer business is a major focus for Douyu, starting from game props sales, game advertising, and distribution services, to promote revenue diversification on the platform.
On one hand, Douyu utilizes mature community and commercial tools to enrich the variety of game props, increase platform equity and marketing frequency, thereby increasing business revenue. Especially in game sections like "Moonlight Blade" and "Peace Elite", by optimizing the payment experience and increasing promotion frequency, it significantly enhances user consumption levels and business revenue.
On the other hand, Douyu focuses on the launch of new games such as "Zero Zone", "Ming Chao", "Sword Net 3 Unlimited", "DNF Mobile", etc., launching various live broadcast incentives and special operation activities, effectively driving initial product popularity. At the same time, Douyu has collaborated with games like "Wild Fight" for online and offline brand linkage. By promoting content through anchor recruitment incentives, Fish Bar rewards club activities, and community content collection, it promotes player acquisition and retention.
Image Source: Official WeChat Account
It is not difficult to imagine that as Douyu deepens its flexible operational strategy to further cooperate with game developers and continues to try more diverse cooperative promotion methods in conjunction with game version updates, new props launches, summer holidays, and festivals, it can gain more recognition from game developers while further consolidating and enhancing Douyu's commercial capabilities.
III. Conclusion
In fact, innovative businesses, advertising, and other new businesses typically require a period of accumulation before they can achieve rapid growth. Therefore, the growth potential of Douyu has not been fully realized yet. Fortunately, there is already a good start now.
Looking ahead, there is still great potential in the Chinese gaming market. According to the '2024 1-6 China Gaming Industry Report', the Chinese gaming industry maintained steady growth under pressure in the first half of 2024, with actual sales revenue of 147.267 billion yuan, a year-on-year increase of 2.08%, and a user base of 0.674 billion, a year-on-year increase of 0.88%, reaching a new high. Against this backdrop, game developers often invest a large amount of resources in marketing and promotion to ensure that their games stand out, providing Douyu with new opportunities to increase its advertising and diversified business revenue.
As these businesses continue to expand and account for a rapidly increasing proportion of the business, Douyu's future growth momentum has gradually taken shape. From the perspective of capital market valuation, Douyu's P/S ratio is currently only 0.37 times, and the current valuation level to a certain extent reflects a deviation in the market's understanding of its business model. Compared to its industry peers, which are also US-listed companies, with a P/S ratio of over 6 times, Douyu's value is clearly undervalued, and its future performance still has potential.