HUYA Inc. (HUYA) Earnings Call Transcript

Good day and good evening, [indiscernible]. Welcome to HUYA 2nd quarter 2026 earnings webinar. I'm Zicheng Liu from the HUYA Investor Relations. At this time, all participants are in listen-only mode. Please be advised that today's webinar is being recorded. The company's financial and operational results were issued earlier today and are posted online. You can also view the earnings press release by visiting the IR website at ir.huya.com. A replay of the call will be available on the IR website soon. Participants of management on today's call will be Mr. Vincent Junhong Huang, our Acting CEO, Mr. Raymond Peng Lei, our CFO, and Ms. Margaret [Shi], Head of Capital Markets. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's latest annual report on Form 20-F, and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that HUYA's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. HUYA's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. With that, I'm pleased to turn the call over to Mr. Huang. Please go ahead.

Okay. Hello, everyone. I'm Vincent, and thank you for joining our earnings call today. Let me begin with a brief overview of our second quarter performance. We deliver another quarter of sustainable growth, with total net revenues increasing by 11% year-over-year to RMB 1.74 billion. Game-related services, advertising, and other revenues maintain strong momentum, growing by 54% year-over-year to RMB 638 million and contributing approximately 37% of total net revenues. Behind this growth is our long-term positioning along the game industry value chain, which is steadily translating into sustainable growth momentum. Over the past three years, we have steadily expanded our presence across the game industry value chain, evolving from game distribution to in-game item sales, advertising and marketing, and now game publishing. Throughout this journey, we have built differentiated user acquisition capabilities that have been increasingly recognized and validated by both our partners and the market. This give us the confidence to extend beyond our capacity as a publishing partner and take on the full game publisher role, which allow us to participate more deeply across the entire game life cycle. Our publishing model is built around content rather than paid traffic acquisition, leveraging our strengths in content creation, streamer network, and user communities. We foster high-quality UGC, expand our reach, and generate social buzz across platforms such as Douyin, [indiscernible], and WeChat Channels. This differentiated approach to publishing let us acquire users more efficiently while reducing our reliance on traditional paid traffic channels. Goose Goose Duck Mobile is our first success story published under this framework, maintaining an active user base and a vibrant content ecosystem. Since July, we have stepped up our efforts to improve the in-game voice environment, launching an AI-powered voice moderation system and a tiered matchmaking system under the Goose Goose Alliance program. These measures have laid a solid foundation for a healthy in-game environment and sustained user engagement. On July 20, we launched a collaboration with the classic IP Journey to the West, together with a new party game play mode that expands player interaction across multiple sim spaces. The update expanded the experience beyond the game's core social deduction game play into a broader range of immersive social experiences, resulting in enthusiastic reception by players. Supported by our ongoing efforts to improve the in-game environment and introduce compelling content updates, Goose Goose Duck Mobile returned to the number 1 position on the iOS free game chart in the Chinese mainland at the end of July. The performance of Goose Goose Duck Mobile has demonstrated the effectiveness of HUYA's content-driven marketing approach, while also helping us develop a repeatable publishing playbook and build valuable operational expertise for future titles. Next up in our pipeline are two titles we are publishing exclusively: The Legend of Swordsman: Reunion, the classic martial arts MMORPG, and Xiao Xiao Qi Yu, a 3D match-based casual mobile game. Our transition from co-publishing to exclusive publishing marks another step forward in the evolution of our publishing strategy. Officially licensed from Xishanju, The Legend of Swordsman: Reunion is the latest entry in the renowned Legend of Swordsman franchise, building on more than 2 decades of rich heritage. It was developed by the original core team behind the PC game [indiscernible], and offers a seamless cross-platform experience featuring synchronized account data and gameplay across mobile app, PC, and mini-program platforms. The game has completed its first round of testing and received encouraging user feedback. By combining our content marketing capabilities with the reach of our streamer network, we aim to bring this classic franchise to a broader audience while preserving the authentic gameplay that has made it a fan favorite for generations. Xiao Xiao Qi Yu is a 3D match-based casual mobile game featuring the official licensed [indiscernible] and represents an expansion into the match category for HUYA. The title is well-aligned with our content-driven publishing model, with strong potential to generate user-created content, social engagement, and organic traffic across live-streaming and short-form video platforms. On the self-developed game front, we were pleased to see our first self-developed title, [indiscernible], receive regulatory approval for publication in July. As a casual SLG centered on [indiscernible] collection, the game represents another important step in building an in-house game development capabilities. We are now actively preparing for its upcoming testing and look forward to sharing more updates as development progresses. On the advertising side, we continue to strengthen our content-driven integrated marketing solution for game developers during the quarter while broadening our advertiser base. Hearthstone has emerged as an important new customer this quarter. We partnered with leading streamers to deliver a series of tournaments and content collaborations for Hearthstone, highlighted by Da Men Global Invitational, the first global third-party platform tournament for Hearthstone Battlegrounds. It debuted in China and generated more than 200 million impressions across online platforms during tournament play, and received strong recognition from the client. On the in-game item sales front, revenues maintained triple-digit year-over-year growth with Peacekeeper Elite, PUBG Mobile, Genshin Impact, and Arena Breakout as key contributors. For Peacekeeper Elite, we continue to invest in the broader game ecosystem. In particular, our coverage and commentary around PEL tournaments generated strong audience interest and engagement, enhanced the appeal of our in-game item offerings, and contributed to continued growth in related sales. In our live-streaming business, the outdoor entertainment content category continued to perform well during the quarter, while our overall streamer ecosystem remains stable. We are also exploring ways to drive greater synergies between game streaming and our entertainment verticals to boost the revenue contribution from top streamers. Since the beginning of the second half of the year, we have also been proactively reviewing the economics of our live streamer partnership, aiming to improve the efficiency of our content investment and support a healthier, more sustainable live-streaming ecosystem. In terms of tournament content, we offer more than 100 licensed tournaments and approximately 20 self-produced tournaments on the HUYA platform during the quarter. Our self-produced events continued to grow in scale and build stronger proprietary event brands. For the CF Grand Master Cup, we officially partnered with CrossFire to stage an international invitational featuring 8 professional teams and 4 leading overseas teams. The tournament also featured a crossover with the film Kung Fu Hustle, further integrating e-sport and broader entertainment content. The Dota 2 Immortal Cup Season 2 generated widespread online buzz and more than 2.5 billion impressions across online platforms. In July, we launched [indiscernible] Streamer Championship and the Peacekeeper Elite Mengnan [Superstar] Cup. Together, these events expanded our presence across leading shooter titles, strengthened our portfolio of self-produced tournaments, and enhanced HUYA's appeal among core gamers. We also helped host the Valorant National Tournament, earning further recognition from game developers for our tournament hosting and product capabilities. On product and AI, we continue to apply AI technologies across our game content ecosystem to improve both our products and overall platform experience. For popular titles such as Delta Force, League of Legends, and Teamfight Tactics, we have launched a range of AI-powered game tools, including map navigation and combat assistance features. These tools have driven solid user engagement and retention. Users of this tool have also shown higher activity levels, longer viewing time, and greater monetization potential on the HUYA platform, reinforcing our view that AI-powered game tools will play an increasingly important role in reaching our live-streaming ecosystem and creating long-term value. In July, we released VAM version 1.0, our self-developed real-time multi-modal digital human model. VAM can rapidly generate AI-powered virtual hosts with natural speech, thinking capabilities, and expressive body movements, enabling highly realistic real-time interaction. We believe VAM has the potential to meaningfully improve the economics of live-streaming content. Unlike traditional live streaming, where content supply is inherently constrained by the number and availability of human streamers, VAM enables us to scale content production more efficiently. As development expands, deployment expands, we expect operating leverage to increase with our marginal content creation cost declining while content supply become more scalable. Looking back at the quarter, we continue to make steady progress in executing our long-term strategy across publishing, self-development, AI innovation, and game-related services. We have further strengthened our capabilities and expanded our role across the game industry value chain. Looking ahead, we remain focused on executing our content-driven strategy, deepening our partnership across the gaming ecosystem, and investing in the capabilities that will support our next phase of growth. We believe these efforts will further strengthen HUYA's competitive position and create sustainable long-term value for our shareholders. Thank you. With that, I will now turn the call over to our CFO, Raymond Lei. He will share more details on our results. Raymond, please go ahead.

Thank you, Vincent, and hello, everyone. I will start with an overview of our financial performance. In the second quarter, we delivered steady top-line growth while continuing to improve our revenue mix and operating performance. With a larger revenue contribution from our higher-margin game-related services, advertising, and other businesses, our gross margin expanded to 14.7%. Operating loss narrowed to RMB 7 million and the non-GAAP operating income improved both year-over-year and sequentially to RMB 16 million. Let's move on to more details of our Q2 financial results. Total net revenues were RMB 1.74 billion for Q2, up 11% from the same period last year. Live streaming revenues were RMB 1.1 billion for Q2, compared with RMB 1.15 billion for the same period last year, primarily reflecting the live streaming industry's current environment. Game-related services, advertising, and other revenues were RMB 638 million for Q2, up 54% from the same period last year. The increase was primarily driven by higher revenues from in-game item sales and advertising, as well as the contribution from the commercialization of Goose Goose Duck Mobile. Cost of revenues increased by 10% year-over-year to RMB 1.48 billion for Q2, generally in line with the increase in revenues, primarily due to increased revenue sharing fees and the cost of in-game virtual items. Within this, revenue sharing fees and the content cost rose by 3% year-over-year to RMB 1.21 billion. Gross profit was RMB 255 million for Q2, up 20% from the same period last year. Gross margin was 14.7% for Q2, improving from 13.5% for the same period last year. Excluding share-based compensation expenses, non-GAAP gross profit was RMB 257 million, and the non-GAAP gross margin was 14.8% for Q2. Research and development expenses decreased by 1% year-over-year to RMB 120 million for Q2. Sales and marketing expenses increased by 58% year-over-year to RMB 91 million for Q2, primarily due to continued marketing and promotional efforts related to Goose Goose Duck Mobile. General and administrative expenses decreased by 8% year-over-year to RMB 58 million for Q2, primarily due to decreased professional service fees. Other income was RMB 7.8 million for Q2, compared with RMB 7.6 million for the same period last year. Operating loss narrowed to RMB 7 million for Q2, compared with a loss of RMB 24 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets from business acquisition, non-GAAP operating income increased to RMB 16 million from RMB0.4 million in the same period last year. Interest income was RMB 26 million for Q2, down from RMB 59 million for the same period last year, primarily due to a decrease in the average deposit balance as a result of special cash dividends and lower interest rates. Net income attributable to HUYA Inc. was RMB 1.6 million for Q2, compared with a net loss attributable to HUYA Inc. of RMB 5.5 million for the same period last year. Excluding share-based compensation expenses and amortization of intangible assets from business acquisitions, net of income taxes, non-GAAP net income attributable to HUYA Inc. was RMB 36 million for Q2, compared with RMB 48 million for the same period last year. [indiscernible] and diluted net income per ADS were each RMB 0.01 for Q2. Non-GAAP basic and diluted net income per ADS was each RMB 0.16 for Q2. As of June 30, 2026, the company had cash and cash equivalents, short-term deposits, and long-term deposits of RMB 3.21 billion, compared with RMB 3.46 billion as of March 31, 2026. With that, I'd like to open the call to your questions.

Thanks, Raymond, and hello everyone. [Operator Instructions] [Operator Instructions] For the benefits of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Today's first question comes from Ritchie Sun from HSBC. Your line is open. Please go ahead.

Vincent, Raymond, Margaret [Foreign Language] Good evening management, thank you for the opportunity to ask a question. I would like to ask about the progress of Goose Goose Duck. Could you please share the operation update, monetization performance, and summer promotion progress for Goose Goose Duck? Thank you.

[Foreign Language]

In the second quarter, Goose Goose Duck Mobile continued to maintain a healthy and engaged player base with users aged between 18 to 25 remaining our core demographic. Long-term retention remained stable with limited user churn, reflecting continued engagement among our core users. We also continue to invest in building a healthy and a positive game environment. Last month, we launched an AI-powered voice moderation system to improve the quality of in-game voice chat and foster a more positive community environment. This has helped enhance both the gameplay and social experience for our players and further supports the long-term health of the game.

[Foreign Language]

[indiscernible] continues to demonstrate its strong commercial potential. Since our very first IP collaboration with Empresses in the Palace in April, we have continued to unlock new monetization opportunities. Subsequently, we had collaborations with Fox Spirit Matchmaker in June, Journey to the West and B.Duck in July, further boosted player engagement and helped the game return to the number 1 spot on iOS free game charts at end of July. We aim to have a robust pipeline of collaborations with new themed events planned on almost monthly basis. In August, for example, we plan to launch additional collaborations including JX3, further expanding our content offerings and creating new opportunities to drive player engagement and monetization.

[Foreign Language]

On the content front, it's encouraging to see UGC modes such as Goose Hunt, [Pool] and Mahjong continue to account for an increasing share of total player time. We also have a robust summer content lineup. In July, we launched a personal island home decorating system, giving players greater freedom to design and customize their own islands. From August through September, we plan to roll out a series of updates spanning core gameplay, social features, AI-powered matches, and tournament features, further enhancing the overall play experience.

[Foreign Language]

We're also working closely with R&D team to develop the WeChat mini game version. At this stage, we are focused on ensuring product stability and testing key operating metrics while taking advantage of WeChat's built-in social and sharing features to make it easier for players to invite friends and organize game sessions. With a solid user base established in the first half of the year, the WeChat mini game version gives us an opportunity to reach new audience across the WeChat ecosystem and drive the next phase of our user growth. Overall, we remain fully confident in the long-term health and stability of Goose Goose Duck Mobile ecosystem, as well as its user engagement and monetization potential.

Our next question comes from Maggie from CLSA. Please go ahead. Maggie, please unmute yourself.

[Foreign Language]

I will translate your question. Could management elaborate a bit more on HUYA's overall AI initiative? For example, the creator tools, content recommendation as well as any interactive features. How are these capabilities expected to drive user growth as well as monetization over the next few months and then over the midterm as well? Thank you.

[Foreign Language]

As mentioned last quarter, our AI initiatives remain focused on four areas: live streaming, game tools, IP-based companionship, and AI-assisted game development. In AI-powered live streaming, we launched VAM 1.0, our proprietary real-time multi-modal digital human model during this quarter. VAM is among the leading solutions in a real-time full duplex digital human space, and we believe it is helping digital humans to move beyond visual and display purposes towards more practical and real-time interactions. By reducing the time and cost constraints associated with human live streamers, VAM could help accelerate the industry's shift towards a hybrid content ecosystem powered by both humans and AI. Our proprietary model enables us to scale AI-powered content across a broader range of user cases with greater efficiency and a lower marginal cost, creating new opportunities to expand our content supply on our platform.

[Foreign Language]

We will continue to enhance our VAM model, focusing on improving the [avatar] consistency, facial expressions, and body movements, as well as the naturalness of real-time dialogue and speech, while further reducing latency and computing costs.

[Foreign Language]

AI game tools, the Delta Force map tool and Hextech ARAM assistant have delivered steady performance since their launches. Within 6 months, they have attracted more than 1 million users and maintained healthy retention. In the second quarter, we launched Teamfight Tactics assistant, marking our first expansion of AI assistant into auto chess genre. Given its strategic complexity and strong need for real-time decision making, Teamfight Tactics is a natural fit for real-time in-game AI assistance. This further demonstrate that our AI assistant capabilities can be applied across game genres. Based on user demand, we will gradually explore tools for additional strategy games.

[Foreign Language]

The value of our AI-powered game tools to the HUYA platform is becoming increasingly more evident. Take our Hextech ARAM assistant as an example. After adopting the tool, users more than doubled their monthly active days on HUYA platform, while also watching more frequently and for longer periods, resulting in higher overall user engagement and value.

[Foreign Language]

We also continuing to explore AI-enabled IP companionship and AI-assisted game development through multi-agent workflows. Later this year, we plan to begin pre-launch promotion for a physical multi-modal AI companion product. Our AI system game development efforts is also at a quite early testing stage with current applications focused on generating and testing casual and lightweight interactive content.

Our next questions comes from Nelson from Citi. Please go ahead.

[Foreign language]

So let me translate into English. Thanks management for taking my question. Following the success of Goose Goose Duck, how would HUYA position its game publishing business in future? Can management share the latest update on your product pipeline and publishing schedule going forward? Thank you.

[Foreign Language]