DouYu International Holdings Stock

DouYu International Holdings Limited operates as a game-centric livestreaming platform in the People's Republic of China ('China' or 'PRC') and a pioneer in the eSports value chain.

The company operate its platform both on mobile apps and PC portals, through which users can enjoy immersive and interactive games and entertainment livestreaming, access to a wide array of video and graphic contents, and participate in community events and discussions.

The company's platform attracts a large number of highly loyal and engaged user base through both organic growth and traffic acquisition. As of December 31, 2022, the company had 471.8 million registered users on PC and mobile apps, respectively. The company's average mobile MAUs (the number of active mobile users in a given month) on the mobile platform was 57.4 million for the fourth quarter of 2022. The company's diverse content offerings and interactive product features allow it to retain user and promote their engagement level. The company's average next-month active mobile user retention rate was 68.5% over the preceding 12-month periods as of December 2022.

The company's platform brings together a deep pool of streamers and provides a sustainable streamer development system. The company entered into exclusive contracts with the top streamers to ensure a consistent supply of quality content. The company supplements the exclusive contract model with the talent agency model, which captures a large group of promising and rising streamers. With years of experience, the company has developed a well-designed system to discover, train and promote streamers who are already popular or have demonstrated the potential to become popular, and to help them grow and monetize their popularity.

The company's average mobile eSports MAUs were approximately 28.3 million in the fourth quarter of 2022. The company has been expanding its content offerings beyond eSports to cover more types of non-eSports games with an aim to satisfy its engaged users' evolving needs and further increase the size of its active user base.

The company employs a multi-channel monetization model. The vibrant and interactive game community created on the company's platform drives user satisfaction, which provides diversified opportunities for user spending. Leveraging a large number of viewers and a deep pool of streamers, the company's monetization channels primarily include livestreaming and advertisement. Livestreaming is the company's main monetization channel and mainly involves sales of a wide array of virtual gifts. The company's large and highly engaged user base attracts advertisers from a wide spectrum of industries, which has contributed to the company's advertising revenue. In addition, the company generates a small portion of revenue from game distribution, which involves revenue-sharing arrangements with game developers and publishers, and game-related services, which mainly involves sales of game-specific memberships to users.

Content on Platform

The company is dedicated to providing a wide range of game-centric integrated content ranging from livestreaming, video, voice, graphic contents to community features, with a primary focus on games, especially on eSports. The company has been expanding its content offerings beyond eSports to cover more types of non-eSports games to further grow its user base. The company's diverse content offering also covers other entertainment options, such as talent shows, music and outdoor activities to better serve a broad user base and cater to diverse interests.

Games

The company focuses on Games content, especially eSports content. A majority of the company's streamers were game streamers and game streaming also contributed significantly to the total viewing hours on its platform. The company's massive user base, deep pool of top streamers and strong brand awareness allow it to secure coveted game content, especially eSports content. Leveraging its business acumen and insight, as well as big data capabilities, the company in turn identify and promote top trending games.

The company's dynamic game streaming content is generated primarily from eSports. In addition to competitive eSports games, the company offers other games genres, such as role-playing games, simulation games and console-based games.

eSports

The company attracted a large number of eSports viewers. In addition to streaming major eSports events and tournaments, the company sponsors or cooperates with professional players and teams, and organize its proprietary eSports tournaments to further grow its eSports viewer base.

Coveted Access to Premium eSports Content

By providing access to its massive user base, the company has successfully fostered long-term partnerships with major game developers and leading eSports teams. As eSports content is primarily accessible online, game developers and publishers have been increasingly relying on livestreaming platforms to promote the awareness and popularity of newly published games. As a result, the company may be uniquely positioned to help connect downstream users with upstream game developers. Livestreaming platforms, such as the company's platform played a significant role in the commercial success of some of the major games. This mutually beneficial relationship has solidified the company's partnerships with participants on the eSports industry.

These partnerships give the company access to premium quality eSports content that attracts a large number of enthusiastic viewers to its platform. Leveraging the company's collaborative relationships with major game developers and publishers, the company streams official tournaments for some of the most popular eSports games.

The company differentiates itself from other platforms streaming eSports tournaments by creating its proprietary content involving popular streamers for better viewing experience. The company's proprietary content and features provided will further increase the popularity of eSports tournaments. On its official streaming channel, the company produces commentary programs before and after matches to provide informed match previews and post-match reviews by professional players. In addition, the company's platform has incorporated an on-demand playback function and developed a series of relevant video clips, graphics and community discussions, all tailored to satisfying viewer demand and improving the viewing experience.

eSports Team Professionals or Collaboration

The company sponsors, promotes and collaborates with professional eSports teams who either display its brand in eSports tournaments or produce exclusive content, including play-through, training, tutoring and commentating on eSports tournaments. The company sponsors various leading eSports teams internationally and domestically.

Under its collaborative framework, the company has the naming rights of certain teams it sponsors and their related products. The company has the right to commercialize the popularity of their team members, and it may have exclusive intellectual property rights to certain content generated by the members of the teams it sponsors. The company also has the right to arrange various activities and events for them and receive a portion or all of the revenues generated thereof. In return, the company pays a sponsorship fee and promote the sponsored teams on its platform. The company's sponsorship of eSports teams allows it to discover and recruit high-quality streamers more efficiently as professional players naturally have more competitive advantages in becoming top-performing game streamers.

Organization of eSports Tournaments

In addition to streaming eSports tournaments and events held by others, the company organizes its own eSports tournaments, whose participants are often its streamers and viewers, which add on to the interactive nature of its platform and enhance the user experience. For example, in some of these self-organized tournaments the company's top streamers lead teams formed by its viewers to compete with each other. The company livestreams these tournaments and promote them by partnership with certain media outlets. Through its organization and promotion, the company has propelled the popularity of a group of streamers who emerged from these competitions and have recruited many rising-star streamers. The company's self-organized eSports tournaments further expand its content offering and bring monetization opportunities of selling sponsorship rights to third-party sponsors.

Non-eSports Games

The company has been expanding its content offerings beyond eSports to cover more types of non-eSports games. The company endeavors to cover more game genres, deepen cooperation with more game developers and strengthen the operation management of each game by leveraging its integrated content. Since non-eSports gaming content is better-viewed in the graphic and video format, the company has upgraded its products to integrate livestreaming, video, graphics with community features, which enable it attracts more high-quality gamers and content producers to its platform.

Other Entertainment Content

To accommodate its users' diverse interests and retain its strong game-centric traffic, the company has expanded its content to include a wide spectrum of livestreaming entertainment options, such as talent shows, music, outdoor and travel. This helps promote the company's brand, attract a diverse user base, increase user monetization potential and drive user engagement and retention.

Video and Graphics

In addition to providing livestreaming content, the company offers video clips and graphics on its platform, which supplements its comprehensive content offerings to better serve users' evolving needs. The company's video and graphic contents are uploaded by live-streamers, content creators and users. Video clips include replays of selective livestreaming content and other engaging and diversified content. Graphics include game guides, tutorials, news and other types of content.

The company encourages its streamers and users to create and generate more videos and/or graphic content on its platform by introducing creative and user-friendly content production tools. The flexibility of video clips and graphic edits allow streamers and users to explore more content genres and therefore enhances user engagement.

Community

The company organizes and operates a wide array of game-specific communities on its platform, which offer high-quality game content that integrates livestreaming, video, graphics contents with community features, providing users with bespoke experience based on their game preferences. Normally, each community corresponds to one game. The community's content display preference is tailored to each game's characteristics and features, which is aimed to meet the diverse and evolving needs of the company's users, and to further foster user engagement and stickiness.

Users

The company has a large and engaging young user base with willingness to spend and share on social networks. As of December 31, 2022, the company had 471.8 million registered users on its PC and mobile apps, respectively.

The company's users are attracted to and retained by its rich game-centric content and influential streamers. The company's average mobile eSports MAUs were approximately 28.3 in the fourth quarter of 2022. The company's user base is also loyal and highly engaged. In 2022, the company's average next-month active mobile user retention rate was 68.5%. The company strives to cultivate the paying habits of its users. The company's quarterly average paying users were 5.6 million in the fourth quarter of 2022. The company has experienced in the past and may continue to experience some fluctuations in its paying users due to its adjustment of marketing activities in order to increase the stickiness of paying users as part of its stable operating strategies.

Given the lifestyle of younger generations, the company's users tend to be young individuals who enjoy eSports and other visual entertainment content through livestreaming, while socializing with others on a real-time basis. The company targets a young user base by establishing its brand in comprehensive gaming content and offering features popular among the younger generation on its platform.

Streamers

The company's streamers are the primary source of new content on its platform. A majority of the company's registered streamers and exclusive streamers were game streamers who are professional or recreational game players that enjoy playing games and sharing their skills and insights. The company's streamers also include self-made entertainers, such as singers who can utilize its platform to showcase their skills, talents and ideas. Being a new social phenomenon in China, streamers are similar to key opinion leaders or social icons who have gained popularity among the younger generation. As the population of streamer population grows and their needs to commercialize their popularity continue to rise, the company can serve as the medium to facilitate the monetization of this new social phenomenon.

The company entered into exclusive contracts with the top streamers. In addition, it entered into collaborative agreements with talent agencies which are associations of streamers that organize streaming activities for their member streamers and promote them. Talent agencies provide the company with a diversified pool of streamers.

Streamer Engagement

The company's platform engages streamers in three ways, such as exclusive contracts with streamers directly; contracts with streamer talent agencies to manage its streamers; and self-registration by streamers. Some streamers may belong to eSports clubs, which is also an important content producer on the company's platform. Similar to talent agencies, the company enters into contracts with the eSports clubs directly to engage their members.

Exclusive Contract Model

Under this model, the company enters into exclusive contracts with certain top individual streamers directly, or through tri-party contracts among it, certain top individual streamers and the talent agencies to which such streamers belong. The exclusive contract model is an important way to recruit and retain high-quality streamers. The company's strategic focus on exclusive contracts with top streamers offers it unique competitive advantages as compared to other game-centric livestreaming platforms.

The company's exclusive contracts have exclusivity clauses that require streamers to livestream on its platform only during the contract term. In addition to revenue sharing of a portion of virtual gift sales and advertisement sales, the company sets compensation terms based on the popularity of the content and the user traffic it generates. As such, the company's exclusive streamers are incentivized to produce engaging content that attracts more viewers and promotes spending on its platform.

The company has the right to commercialize the streamers and the content they produce as its intellectual property under the exclusive contract model. The company promotes and monetizes the popularity of its exclusive streamers through online and offline commercial activities. The typical contract term is three to five years and may be renewable upon mutual consent. After signing, the company is responsible for arranging commercial activities for them. Under this contract model, the company may establish certain performance-based target for the exclusive streamers. Utilizing its big data analytic capabilities, the company allocates the livestreaming hours for these streamers to match user activity levels to maximize its operational efficiency. The company may also provide guidance over the content streamed by exclusive streamers. The company has dedicated teams that focus on signing exclusive streamers broadcasting different genres of content to diversify its content offering.

Talent Agency Model

The company also enters into collaboration agreements with talent agencies to manage its streamers. Talent agencies are responsible for recruiting, training, managing and promoting their own member streamers, and are also responsible for organizing streaming activities on the company's platform. The company usually pays talent agencies a portion of the virtual gift sales, which are typically redistributed to their members.

Contracting with talent agencies is an important component of the company's operations. It contributes to the company's revenue and ability to discover and recruit diversified streamers in an efficient way. The company can access a diverse range of streamers by entering into collaboration contracts with their talent agencies. Under the talent agency model, the company provides guidance on content monitoring to the talent agencies, who in turn manage and promote their members. All talent agencies and their members must comply with the company's guidance and policies.

Self-Registration Model

A large number of streamers self-registered on the company's platform to share their enthusiasm in games. The self-registered streamers are usually attracted to the company's platform by virtue of its reputation and scale. They form a large talent pool providing steady supply of future popular streamers.

Streamer Discovery and Development

With the help of its comprehensive performance metric analytical system, the company identifies top streamers with potential, with whom it seeks to sign exclusive contracts. These metrics include the quality of a streamer's content, activity levels and user engagement. After identifying streamers with potential, the company puts them into different categories according to the demographics that they likely will appeal to and helps direct traffic from their target users. If these streamers perform well after a monitoring period, the company may sign exclusive contracts with them and help further promote them.

Leveraging its unique industry insights and proprietary big data analytics capabilities, the company establishes development plans for streamers which not only optimize the content they produce, but also help guide the streamers to focus on trendy topics and increasing the streamers' positive public exposure. The company promotes streamers' content on and outside of its platform, boost their popularity through traditional media channels and provide them with opportunities to attend online and offline activities where they can further increase public exposure, such as Yule Ceremony.

Streamer Retention

The company retains its top streamers by increasing the attractiveness of its platform. The company's streamers enjoy broad exposure to a large user base on its network. The company also invests in streamers' professional development by providing online and offline promotion activities to propel them to greater stardom.

The company takes steps to mitigate the risk of losing its streamers to other platforms. For every streaming genre or section, the company has several top streamers that are in friendly competition with each other to avoid a monopoly by one streamer. This also helps to attract viewers who may be viewing at different times of the day. The company also tries to discover and cultivates emerging streamers to continuously replenish its streamer base. The company's streamers are also subject to certain non-compete clauses during or after the contract period.

Monetization Opportunities

The company generates revenue through sales of virtual gifts during livestreaming, advertisement services and others.

Livestreaming

The company derives a substantial portion of its revenues from livestreaming, mainly from the sale of virtual gifts. Users are able to purchase virtual gifts on the company's platform using its virtual currency and send them to streamers as a gesture of appreciation or support. Users can purchase the virtual currency on the company's site via various online third-party payment platforms. In addition to purchasing these virtual currencies on the company's site, users can purchase virtual currencies from its online store at third-party websites, such as Tmall.com.

When a streamer receives a virtual gift, that virtual gift is displayed in user profile. The company shares with its streamers revenue from virtual gift sales. The company also offers other subscription-based privileges to incentivize user spending, such as its premium monthly subscription service, a prepaid package that encourages user spending.

The company provides an innovative and diverse selection of virtual gifting to convert its active users (users who visited the company's platform through a PC or mobile app including its associated mini programs at least once in a given period) to paying users and constantly release new virtual goods related to events and trendy topics to increase sales. In addition, the company organizes streamer popularity contests to promote spending by viewers to show support of the streamers they follow.

Advertisement and Others

The company generates revenues from advertisement and other services, including brand advertisements, game advertisements and to a lesser extent, game distribution and other game-related services.

Advertisement

The company's value proposition to advertisers is driven by its strong brand recognition and massive and engaged user base. The company offers a full suite of precise and effective advertisement products and marketing strategies, attracting a large number of advertisers. The company distributes advertisements ways, such as integrated promotion activities during livestreaming, where advertising partners integrate their service or products with livestreaming programs through active promotion by its streamers; traditional display advertisements in various areas of its platform; and online and offline events-related advertisements. As integrated promotion activities and online and offline events-related advertisements cause fewer interruptions to the company's users while offering greater potential due to less time and space restrictions than traditional display advertisements, they are an important part in the company's advertisement revenue. The company expects such advertising format to contribute an increasing portion of advertisement revenues.

The company's streamers must sign advertisement contracts with it and are entitled to a portion of the fees. The company's traditional display advertisements include, but are not limited to, full screen advertisements, slides, banners, links, videos, logos and buttons. The company offers advertisement placements on its home page or prior to streaming. Such placements may stay on the top or bottom of the streaming interface or appear as pop-ups.

For integrated promotion activities during livestreaming, the company usually cooperates with third-party advertising agencies to identify advertisers to place orders with it. For traditional display advertisements, the company usually works with advertisers directly. The company's advertising agency partners include members of the American Association of Advertising Agencies, or the 4As, and other leading Chinese advertising agencies. The company has been building connections with its advertisers and plan to sign more contracts with them directly going forward.

The company's brand and game advertising contracts are usually in the form of collaborative frameworks for a given period of time. Brand advertising contracts require third-party agencies to generate sales exceeding certain thresholds and the third-party advertising agencies are generally billed upon each advertisement and are required to pay promptly. For game advertisements, the company provides links to the advertisers' games on its platform and is entitled to fees, such as incentive fees for effective registration solicited through its platform, and it also utilizes soft-product placements or ask its hosts to produce play-throughs of the games it promotes.

Others

The company generates a small portion of its revenues from other services, including game distribution and other game-related services. With many of the company's audience being gamers, its platform is a prime gateway for distributing games from developers and publishers to their target customers. Based on revenue-sharing contracts with developers and publishers of mobile and web-based games, the company usually receives fees based on transaction volume its platform relating to the games it distributes. These revenue-sharing arrangements are usually in the form of collaborative frameworks for a period of time, which may be renewed in good faith upon expiration.

To explore new monetarization channels, the company recently initiated game-related services, such as game-specific membership services based on users' evolving needs for in-game items.

Platform

The company's platform offers unique features to its users, such as content recommendation and search, data analytic tools and room control. With its diverse content offering and advanced technological features, the company's platform creates an interactive, engaging and fun community.

Livestreaming Process and Platform Interface

The company operates its platform on mobile apps, websites and the PC application, through which users can enjoy immersive and interactive games and entertainment livestreaming.

Streaming Process

Livestreaming is conducted in the form of real-time streaming units, also known as rooms or channels, on the company's website, mobile apps. To broaden its user base, the company allows users to watch livestreaming on its platform without registration, either through its website or mobile apps.

Access Streaming Platform

Viewer Access

The company developed mobile streaming apps, as well as a web-based streaming portal and its supplemental applications, to provide comprehensive viewing experiences for its viewers. Viewers can access the company's platform via its mobile app Douyu Livestreaming, including its associated mini programs, its web portal at www.douyu.com or PC application Douyu PC Client Portal. The company's mobile streaming app and web portals offer substantially similar functions and features, with its mobile streaming app providing simplified and easy to use functions tailored for mobile users.

Streamer Access

In addition to accessing the company's PC portal and mobile applications, streamers can easily livestream through the streaming applications it specifically developed for them, including the company's PC application Douyu Streaming Assistant and the mobile app Douyu Game-centric Streaming Assistant. With its mobile app, the company's streamers can stream anywhere and anytime. Streaming outdoor activities, which has become popular among younger users, is made more convenient with its mobile app.

Content Monitoring System

The company's livestreaming platform contains real-time content, which it monitors to maintain a healthy ecosystem and ensure compliance with PRC laws and regulations. The company has developed a comprehensive system to monitor content on its platform and filter inappropriate and illegal content and content that may infringe on the intellectual property rights of third parties.

The company developed the following mechanisms to monitor the content on its platform:

AI-backed Automatic Detection Process: The company utilizes an automatic system to monitor its platform and the data generated in its system for sensitive key words or questionable materials on a real-time basis. The text identification system screens text content based on preset key words and an anti-spam system; the picture identification system screens picture content based on optical character recognition and illegal content detection; and the audio identification system screens audio content by converting it into text content and analyzing for illegal content. The company has also developed an in-house proprietary monitoring system that takes screenshots of its livestreaming channels every 10 seconds based on its 'smart' image detection technology. The company's system has machine learning capability and will update its database automatically.

Manual Review: All of the automatic detection results that are escalated are reviewed by the company's content monitoring staff manually. The company has a dedicated content monitoring team who also proactively check its rooms on a 24/7 basis for inappropriate or illegal content.

Self-regulation System by Streamers, Room Managers: The company requires streamers and room managers to monitor the content in their rooms and ensure that their rooms' content complies with its terms of service. The company provides streamers and room managers with administrative accounts, which give them special privileges, such as forcibly removing or banning viewers from the room. Streamers and room managers are incentivized to ensure the compliance of their room with its terms of service pursuant to its policies.

Report by Users: The company's users are encouraged to report any noncompliance of its terms of service via the 'report' button on its website and mobile apps. The company reviews users' reports on a 24/7 basis and strive to resolve each report within 90 seconds. Reporting users are entitled to awards in the form of its virtual currency, should their reports be considered valid.

The company deals with violations of varying severity in accordance with its strict policies and applicable regulations. The company's actions may include warnings, cutting off or temporary suspension of the room and/or account for minor violations, with follow-up reviews to ensure effective enforcement and rectification. For serious violations, the relevant account is deleted permanently and all virtual currency and items are forfeited, and the room may be permanently closed. The company's streamers agree to indemnify it for all damages arising from third-party claims against it caused by the infringing content produced by them.

Teenager Mode

The company also places great emphasis on the protection of minors. When the company's users sign in its platform, a pop-up window will automatically be opened and its users can elect to be identified as a teenager. Once identified as a teenager, the company's users will sign into its teenager mode, where it would filter out and display contents that are suitable for minors. The users of teenager mode are not allowed to purchase virtual gifts or currencies, send virtual gifts, send bullet chats, or host livestreaming on the company's platform. In addition, the users of teenager mode are prohibited from accessing the company's platform from 10 p.m. to 6 a.m. every day. In teenager mode, if the total time spent in a single day exceeds 40 minutes for a user, the user will be required to enter the guardianship password to continue using the company's platform.

Relationship with Tencent

On December 20, 2017, the company and Tencent Holdings Limited (Tencent), through its respective PRC affiliated entities, entered into a strategic cooperation agreement, which became effective on January 31, 2018 and was subsequently replaced by the amended and restated strategic cooperation framework memorandum (the Amended and Restated SCFM) dated April 1, 2019. Pursuant to the Amended and Restated SCFM, the parties agreed to pursue strategic cooperation in various areas of game livestreaming, advertisement and game distribution. The company plans to promote content related to games owned by or licensed to Tencent at certain prominent places of its platform. The specific location, content, and operations of the cooperation between Tencent and the company are subject to further negotiation pursuant to market principles. The Amended and Restated SCFM has a term of three years, which may be renewed if certain conditions are met. The company also uses content delivery network (CDN), peer-to-peer (P2P) streaming technologies, online payment and website technology support services provided by Tencent and engage in other related party transactions with Tencent.

Branding and Marketing

Leveraging the company's diverse and quality content offerings, optimal user experience and deep pool of talented streamers, the company has built significant goodwill and brand awareness among viewers and streamers. The company's market position benefits significantly from its large and engaged user base and word-of-mouth effect.

In addition to word-of-mouth marketing, the company leverages its position in the eSports industry, and promotes its brand awareness by sponsoring leading eSports teams and organizing proprietary eSports tournaments.

The company hosts many online and offline activities to enhance its brand recognition and positive publicity. For example, Yule Ceremony, which was an award event for popular streamers and has since become a symbolic game pop culture event in China.

Intellectual Property

The company regards its proprietary domain names, copyrights, trademarks, trade secrets and other intellectual property as critical to its operations. The company relies on a combination of patents, copyrights, trademarks and trade secret laws to protect its intellectual property. As of December 31, 2022, the company had registered 514 trademarks in China, including the logo for douyu.com; 61 domain names, including douyutv.com, douyu.tv and douyu.com; 1,860 patents in China, three patents in the United States; and 43 software copyrights in China, relating to all of the company's online communities and other products.

As of December 31, 2022, the company had 79 pending trademark applications in China and other jurisdictions, including but not limited to the United States, Japan, European Union, Singapore, Malaysia, Thailand, Indonesia and Turkey. As of December 31, 2022, the company had submitted 1,021 pending patent applications independently or jointly with third parties in China. Substantially all of the company's intellectual property is owned by Wuhan Douyu, and certain trademarks, copyrights and domain names are owned by Wuhan Ouyue (Wuhan Ouyue Online TV Co., Ltd.) for the purpose of maintaining and renewing their operating licenses as required by relevant PRC government authorities. Douyu Yule (Wuhan Douyu Culture Network Technology Co., Ltd.) obtained certain patents and copyrights in 2022.

Research and Development Expenses

In 2022, the company's research and development expenses were RMB383.1 million (U.S.$55.5 million).

History

DouYu International Holdings Limited was founded in 2014. The company was incorporated under the laws of the Cayman Islands in 2018.