DouYu International Holdings Limited (NASDAQ: DOYU) reported Q3 EPS of $0.04, $0.16 worse than the analyst estimate of $0.20. Revenue for the quarter came in at $261 million.

Third Quarter 2019 Financial Results

• Total net revenues for the third quarter of 2019 increased by 81.3% to RMB1,858.5 million (US$261.0 million) from RMB1,024.8 million in the same period of 2018, primarily due to the increase in live streaming revenues.
  • Live streaming revenues increased by 83.0% to RMB1,662.4 million (US$233.4 million) in the third quarter of 2019 from RMB908.4 million in the same period of 2018, primarily driven by increases both in the number of paying users and ARPPU[3] as the Company implemented effective monetization strategies, upgraded product features, diversified its high-quality content offerings, and enhanced user experience.
  • Advertising and other revenues increased by 68.5% to RMB196.1 million (US$27.5 million) in the third quarter of 2019 from RMB116.4 million in the same period of 2018, as the Company was able to capitalize on the broadening of its brand awareness while increasing the number of integrated promotional activities during live streaming.
• Cost of revenues increased by 59.4% to RMB1,541.7 million (US$216.5 million) in the third quarter of 2019 from RMB967.3 million in the same period of 2018, primarily attributable to increased revenue sharing fees and content costs.
  • Revenue sharing fees and content costs increased by 66.0% to RMB1,308.8 million (US$183.8 million) in the third quarter of 2019 from RMB788.5 million in the same period of 2018, primarily due to: 1) increases in revenue sharing fees which were in line with increases in total net revenues, and 2) increases in content costs attributable to the Company's investments in eSports-related and self-produced content.
  • Bandwidth costs increased by 6.1% to RMB150.8 million (US$21.2 million) in the third quarter of 2019 from RMB142.2 million in the same period of 2018, primarily due to the increases in bandwidth usage caused by higher traffic and user engagement on the platform, offset by a lower unit purchase price and improved utilization efficiency as a result of technology upgrades.
• Gross profit increased by 450.5% to RMB316.8 million (US$44.5 million) in the third quarter of 2019 from RMB57.5 million in the same period of 2018. Gross margin increased to 17.0% in the third quarter of 2019 from 5.6% in the same period of 2018.
• Sales and marketing expenses increased by 18.6% to RMB173.2 million (US$24.3 million) in the third quarter of 2019 from RMB146.0 million in the same period of 2018. The increase was mainly attributable to share-based compensation expenses recognized following the Company's IPO as well as the increased efforts in promoting eSports content and brand awareness marketing activities.
• Research and development expenses increased by 47.2% to RMB119.9 million (US$16.8 million) in the third quarter of 2019 from RMB81.4 million in the same period of 2018, mainly due to share-based compensation expenses recognized following the Company's IPO as well as enhanced research and development efforts for various business segments.
• General and administrative expenses increased by 326.3% to RMB232.9 million (US$32.7 million) in the third quarter of 2019 from RMB54.6 million in the same period of 2018, mainly due to share-based compensation expenses recognized following the Company's IPO.
• Other operating income, net was RMB11.8 million (US$1.7 million) for the third quarter of 2019, compared with RMB16.4 million in the same period of 2018.
• Operating loss was RMB197.4million (US$27.7 million) in the third quarter of 2019, compared with RMB208.1 million in the same period of 2018.
• Adjusted operating income in the third quarter of 2019, which adds back share-based compensation expenses, was RMB30.8 million (US$4.3 million), compared with an adjusted operating loss of RMB203.7 million in the same period of 2018.
• Income tax expenses were nil for the third quarter of 2019 and 2018, due to the Company's cumulative net losses and the resulting tax loss carryforward.
• Net loss was RMB165.4 million (US$23.2 million) in the third quarter of 2019, compared with RMB220.5 million in the same period of 2018.
• Adjusted net income, which excludes share-based compensation expenses, share of loss (income) in equity method investments, and impairment loss of investments, was RMB72.2 million (US$10.1 million) in the third quarter of 2019, implying an adjusted net margin of 3.9%, compared with an adjusted net loss of RMB214.2 million in the same period of 2018.
• Basic and diluted net loss per ADS[4] were both RMB0.59 (US$0.08), and adjusted basic and diluted net income per ADS were both RMB0.26 (US$0.04) for the third quarter of 2019.

Third Quarter 2019 Highlights

• Average MAUs[2] reached 163.6 million in the third quarter of 2019, representing an increase of 14.7% from 142.7 million in the third quarter of 2018.
• Average mobile MAUs reached 52.1 million in the third quarter of 2019, representing an increase of 26.1% from 41.3 million in the third quarter of 2018.
• Quarterly average paying user count reached 7.0 million in the third quarter of 2019, representing an increase of 66.0% from 4.2 million in the third quarter of 2018.

Mr. Shaojie Chen, Chief Executive Officer of DouYu, commented, "Our business maintained a solid growth trajectory in the third quarter of 2019. Moreover, our user base, particularly our mobile MAUs, continued to expand as we took advantage of the continuous gamer and eSports population growth in China, summer holiday season, introduction of several new mobile phone models, and blockbuster game title launches. In addition, we made substantial improvements in both user engagement and monetization efficiency during the quarter by continuously enriching our content, enhancing user-streamer interactions, and upgrading our streamer management system. Such operational improvements in turn contributed to our total revenue growth."

Mr. Hao Cao, Vice President of DouYu, commented, "We are pleased to achieve continuous revenue growth for the third quarter of 2019. Our gross and adjusted net profit margin expanded due to our effective cost control efforts and improved operating leverage. We will strive to achieve revenue growth, further improve our operational efficiency, and explore additional monetization opportunities going forward."

Business Outlook

The Company expects its total net revenues to be in the range of RMB1,960 million to RMB2,030 million in the fourth quarter of 2019, representing year-over-year growth between 68.9% and 75.0%. This forecast reflects the Company's current and preliminary views on the market and operational conditions, which are subject to change.

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