During the downturn in the industry, the results of "practicing internal skills diligently" have become apparent, and the fundamentals of DouYu International Holdings Ltd. Sponsored ADR (DOYU.US) have improved.

On September 12th, Douyu released its unaudited financial report for the second quarter of 2024. The data shows that the company's revenue for the reporting period was 1.032 billion yuan, with a gross profit of 842 million yuan and a gross profit 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 indicates that Douyu has strong business resilience when facing macroeconomic and industry fluctuations, but also represents that Douyu has achieved further improvement in operational efficiency after deepening its commercial transformation, driving the growth of the company's intrinsic value. Analyzing Douyu's financial report in depth can provide a clearer understanding of the true value of Douyu, which has been "practicing internal strength" during the industry downturn, and the key information reflected in the financial report that Douyu's fundamentals may have bottomed out is worth investors' attention. Diversified revenue was the keyword for Q2, and Douyu's commercial transformation continued to accelerate The analysis of an enterprise's operation cannot be viewed in isolation from its internal operational conditions, but must be placed in the broader context of industry development and macroeconomic environment in order to arrive at a more comprehensive and accurate answer. In the context of the game live streaming industry, the development of this industry has faced multiple operational challenges in the past two years. On one hand, the peak of the internet industry's traffic dividend has passed, and the entry of short video platforms has led to ongoing industry competition intensification. On the other hand, the sustained economic downturn has led to a decrease in disposable income for users, resulting in an overall decline in purchasing power and a corresponding reduction in entertainment consumption. Under the dual pressure of industry development and macroeconomic conditions, although Douyu is a leading live streaming platform in China, it has inevitably been affected. However, in the second quarter of 2024, Douyu handed in an operational answer sheet indicating that the company's fundamentals may have bottomed out. Looking at the revenue structure, during the reporting period, Douyu's innovative business, advertising, and other business revenue reached 242 million yuan, which was 1.8 times higher than the same period last year. Its revenue contribution accounted for 23.4%, a significant increase from 9.6% in the same period of 2023. The growth in innovative business was mainly due to the increase in game membership revenue based on the sale of game props. By continuing to use mature community and commercial tools, Douyu effectively increased business revenue by enriching the variety of game props, increasing platform equity, and marketing frequency. In the Tianya Mingyue Dao division, Douyu updated its product forms, optimized the payment experience, and users could directly order through the prop store. In the second quarter, the average prop consumption level was higher than other channels. In the Peace Elite division, Douyu increased the promotion frequency of game membership services based on the rare props provided by game manufacturers and external promotions, effectively increasing business revenue. As a new growth curve incubated by Douyu outside of live streaming revenue, the significant increase in the proportion of revenue from innovative business, advertising, and other business means that Douyu's commercial transformation has achieved a critical breakthrough. With the company's continued cultivation in this business, innovative business, advertising, and other business will become the core driver of Douyu's revenue growth. Secondly, in terms of profitability, while revenue remained flat compared to the previous quarter, Douyu's adjusted net loss for the reporting period achieved a significantly narrower margin to 45.5 million yuan. The clearer signal of the bottom in profitability compared to revenue indicates the continuous improvement in Douyu's operational efficiency. This improvement in operational efficiency is mainly attributed to two factors: first, Douyu gradually refined a more efficient management system under multiple operational challenges; second, Douyu achieved an improvement in operating efficiency through fine-tuning the content ecosystem. Specifically, during the reporting period, Douyu continued to improve operational efficiency around anchor resources, stimulating the content density of top anchors and increasing the broadcasting frequency of medium and long-tail anchors to enrich the content supply on the platform. Building on this foundation, high-quality anchor resources were further integrated with platform advantages in different divisions, leading to a series of divisional operational activities and platform ecosystem building. For example, targeting the return of the Blizzard National Service, Douyu's Blizzard game division, centered on top anchors, integrated division resources to create a star anchor 12-hour relay livestream, where top anchors like Huang Xudong gathered offline, followed by a popular anchor group competition event, covering multiple game products under Blizzard, significantly increasing the activity of the division. By deepening the advantages of each division, Douyu's user fine-tuning operations have been enhanced, which further promotes the continuous improvement in operational 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 a clear signal of stabilization. During the reporting period, Douyu's quarterly average MAU on mobile reached 44.1 million, with a total of 3.4 million paying users in the quarter, remaining stable compared to the first quarter of 2024, indicating that the number of paying users in the quarter has stabilized relatively. During the industry downturn, "practicing internal strength," Douyu continues to build a distinctive platform event ecosystem. Based on the analysis of Douyu's financial report, it is not difficult to see that whether from the performance side of revenue, profitability level, or the user data side of the business, it all reveals signals of Douyu's fundamentals rebounding. The reason why it could achieve a "soft landing" in business operations under the dual impact of industry development and macroeconomics is due to Douyu's solid promotion of the development strategy of "a diversified content ecosystem platform with games as the core," continuously consolidating the company's core competitiveness. Compared to short video platforms like Douyin and Kuaishou, Douyu's vertical advantages lie in its deep vertical and specialization in the gaming industry. Douyu not only has high-quality anchors and content ecosystems but also provides superior and diversified services to game users through real-time interaction, fine operations and technological innovation, extensive cooperation and resource integration to create a user base of high-quality users with high monetization potential. Understanding the key to building its own core competitiveness, Douyu fully leverages its strong anchor resources, quality content, and other advantages to deepen cooperation with game manufacturers, continuously creating a platform ecosystem with distinctive features through "official events + self-made events + cross-platform cooperation." In terms of official events, during the reporting period, several professional esports events spring tournaments were launched, and Douyu fully released its reserve of copyright events, combined with the platform's abundant anchor resources and other advantages, to continuously provide a high-quality content experience. This quarter, Douyu introduced a star anchor 12-hour relay livestream centered on top anchors in the Blizzard game division, integrating division resources and hosting a popular anchor group competition event, covering a variety of Blizzard game products and greatly enhancing division activity. By deepening divisional advantages, Douyu's user fine-tuning operations have been further upgraded, pushing the continuous improvement in operational efficiency. Through the analysis of Douyu's financial report, investors can gain a clearer understanding of the company's value and future prospects. The multiple strategies implemented by Douyu have positioned the company well in the face of industry challenges and economic headwinds, indicating a strong potential for growth and sustainability in the long term. Broadcast nearly 30 official major esports events, including League of Legends LPL Spring Split and MSI Mid-Season Invitational, Honor of Kings KPL Spring Split, Peace Elite PEL Spring Split, CSGO BLAST, and other official major esports events. Exclusively broadcasted the fighting game tournament EVO, providing high-quality optional event content for different gaming audiences.Based on official events, Douyu continues the event content operation strategy of the first quarter, continuing to provide professional and interesting dual commentary, one-stop viewing services at the platform event center, etc., to improve the quality of event derivative content and viewing experience. In terms of self-made events, Douyu has launched a total of more than 50 platform esports events this quarter, including Thunder Honor Cup, Douyu Super Dream Cup, Douyu Heroes Cup S5, Douyu Autumn Mountain Cup S1, Kawah Cup S4, covering games such as "King of Glory," "DOTA2," "Teamfight Tactics," "Peacekeeper Elite," "Fearless Agreement," and many more competitive games. Among them, the Douyu Super Dream Cup has upgraded the production standards of online events in the past seasons of DOTA2, forming diverse teams composed of platform anchors, Asian Games champions, current professional players, and retired players. The event broadcast has added a TeamVideo segment to showcase real-time communication between team members, providing viewers with a deeper event experience. The team and event theme songs created by Douyu anchors and community members have resonated with the player community, further enhancing the event's influence and engagement. In terms of cross-platform content sharing cooperation, Douyu has created exciting cooperative events in games like "King of Glory," "DOTA2," and "Fearless Agreement." The Thunder Honor Cup, as the largest cross-platform self-organized event during the King of Glory official break, features top resources from both platforms, with 4 contracted professional teams from Douyu competing alongside 12 top KPL teams, engaging in top-tier matches. With innovative elements like Swiss rounds, KOF format, professional team exhibition matches, anchor battles, etc., the event added more entertainment value to the professional competition, showcasing the unique charm of platform self-organized events. Thanks to Douyu's multi-dimensional layout of creating a distinctive platform event ecosystem, Douyu has accumulated a group of high-quality, deep users, maintaining stability in core user data, proving the effectiveness of its development strategy. This also laid a solid foundation for Douyu's diversified commercial expansion. In addition to focusing on business development, Douyu strives to reward shareholders' trust and support. Apart from announcing a $20 million share repurchase plan in December 2023, the company also announced a special cash dividend of $3 billion in early July this year, further increasing its shareholder returns. From a valuation perspective, Douyu's current value is still significantly undervalued by the market. As of September 12th closing, Douyu's PB valuation was only 0.26 times, far below its net assets. Based on the company's bottoming out fundamentals and clear expectations for future growth, Douyu is expected to see valuation recovery in the medium to long term.