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Edited Transcript of HUYA.N earnings conference call or presentation 14-Aug-19 12:00am GMT

Q2 2019 HUYA Inc Earnings Call

Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of HUYA Inc earnings conference call or presentation Wednesday, August 14, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dachuan Sha

HUYA Inc. - CFO

* Hanyu Liu

HUYA Inc. - IR

* Rongjie Dong

HUYA Inc. - CEO & Director

* Dana Cheng

HUYA Inc. - IR

* Xueling Li

HUYA Inc. - Chairman of the Board

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Conference Call Participants

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* Chun Man Poon

Morgan Stanley, Research Division - Equity Analyst

* Hillman Chan

Citigroup Inc, Research Division - Research Analyst

* Lei Zhang

BofA Merrill Lynch, Research Division - Associate

* Thomas Chong

Jefferies LLC, Research Division - Equity Analyst

* Zhi Yi Chen

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, ladies and gentlemen. Thank you for standing by for the Second Quarter 2019 Earnings Conference Call for HUYA Inc. (Operator Instructions) Today's conference call is being recorded. I will now turn the call over to Ms. Hanyu Liu, Company Investor Relations. Please go ahead.

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Hanyu Liu, HUYA Inc. - IR [2]

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Hello, everyone, and welcome to the Second Quarter 2019 Earnings Conference Call of HUYA Inc. 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 in a few hours.

Participants on today's call will be Mr. David Li, Chairman of Huya; Mr. Rongjie Dong, Chief Executive Officer; and Mr. Henry Sha, Chief Financial Officer. 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 prospectus 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.

I will now turn the call over to our Chairman, Mr. David Li. Please go ahead.

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Xueling Li, HUYA Inc. - Chairman of the Board [3]

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Thank you. Hello, everyone. Thank you to join Huya's 2019 Second Quarter Earnings Conference Call.

With a track record of top line growth and 7 quarters' continued profitability. Huya is now well recognized as a #1 game live streaming platform in China. I'm impressed by Huya's second quarter as another quarter with outstanding financial and operating performance. Pursuing great opportunities in the e-sport market in China and in global, Huya's 2 billion revenue milestone and its fast growing MAUs in the second quarter have once again reflected the successful execution of the company's strategies.

I have been engaged in the live streaming industry for years. And I am confident that Huya will remain a leader in the scale across revenue, profitability and the mobile MAUs. I'm also confident about its margin expansion in the long term. With its overseas strategy served as a future growth engine, I believe that Huya's differentiation strategy will create long-term value for shareholders.

Now I would like to pass the call over to our CEO, Rongjie to go through the second quarter's results in more details.

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Rongjie Dong, HUYA Inc. - CEO & Director [4]

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Thank you, David. Hello, everyone. Thank you for joining us today.

We are very pleased to report strong operational and the financial performance for the second quarter of 2019. Regardless of negative seasonality, the second quarter is a standout with accelerating MAU expansion, significant revenue beat and the better-than-expected profitability, which demonstrated the healthiness of our growth.

To illustrate: revenue in quarter 2 grew 93.6% year-over-year, surpassing the RMB 2 billion mark for the first time. The surge in revenue exceeded the high end of our guidance range by more than 12%. The MAUs in domestic market also grew faster than our expectation, reaching 143.9 million with 57.3% growth year-over-year.

Counting in MAUs of our overseas business unit, NIMO TV, I'm encouraged to announce that we have already achieved the user growth target set previously for fiscal year 2019 by reaching approximately 160 million global MAU on the corporate level.

The better-than-expected growth further showcased both the effectiveness and the efficiency of our strategies, including e-sports market penetration, content diversification and technology improvement. These strategies increasingly boost the participation and the engagement of both users and the broadcasters on our domestic platform.

Mobile MAUs remain a robust driver behind our strong quarter 2 performance and grew to 56 million, up 31% year-over-year and 4% quarter-over-quarter, still contributing more than 80% of live streaming revenues. By engaging with a vast number of Tier 1 broadcasters from mobile game sector, especially in Honor of Kings and Peace Keeper Elite, Huya has established our dominant position over the major competitors in Chinese mobile game broadcasting since first half of 2019. It is also worth noticing that nonmobile MAUs, which include both PC and the Web active users, achieved an 80% year-over-year increase and 26% sequential increase, attributable to our cooperation with several leading gaming studios, especially to the pop-up streaming feature built in Cross Fire and the QQ Speed in this period. The growth of nonmobile MAUs has shown the improved PC and web user experiences and the traction gained by e-sports tournaments broadcasted on our platform in quarter 2.

In this quarter, our paying user number grew 46.7% year-over-year to 4.9 million, but experienced certain degree of sequential volatility due to 3 factors. First, seasonal variations in user activities and user growth traditionally exist between quarter 1 and quarter 2. Compared with quarter 2, quarter 1 usually celebrates spikes in user numbers due to Spring Festival campaigns and school holidays. If we exclude quarter 1 2019 and examine the growth trend between quarter 4 2018 and quarter 2 2019, we can find that the paying user base maintains its growth vitality. Secondly, while our platform acquired a large number of new users in quarter 2, this incoming traffic had not yet been fully monetized. Thirdly, in Q2 we were making product upgrade to concentrate more resources to support the new commercialization initiatives which can drive longer-term sustainable growth. We have achieved noteworthy progress in product strategy to monetize the new traffic gained from the prior periods, as we have been seeing reaccelerated growth of the paying user base in Q3 so far.

E-sports is at the core of our content ecosystem and the vibrant community base of game enthusiasts, gaining viewer popularity at a fast pace. In the second quarter, we maintained robust vertical relationships across gaming companies and broadcasted 95 e-sports tournaments covering in-season major events such as MSI, LPL, LCK and KPL with over 620 million viewership compared with 460 million viewership in the year ago period. In the meantime, we continued expanding horizontal relationships across e-sports professional teams, developing high-quality content derived from the current lineup of e-sports events to meet viewers' increasing demand for content upgrades. For example, in June, we established a partnership with Team Liquid, which is a leading worldwide professional e-sports organization.

Our efforts in self-organized tournaments also paid off with promising results, generating viewership of over 72 million in the second quarter, which is even greater than the total viewership of 51 million in the first half of last year. In particular, our self-branded tournament, Huya Mobile Game Arena, or HMA, has hit record high viewership in the quarter. Covering 9 popular mobile games, including HoK, CFM, Battle of Balls and the QQ speed mobile. HMA has become one of the most comprehensive mobile game tournaments in China and has gained a lot of traction among game lovers.

To strengthen our leadership in China, we are making efforts to broaden content offerings in addition to game and e-sports genres. Such progress aims to tap into crossover interest and appeal to not only the hardcore gamers but also casual gamers. In this spirit, we continued to see solid growth in MAUs and user time spent in both outdoor activities and anime content genres during the quarter, with total viewing hours of each genre achieving around 100% year-over-year growth. Such growths were driven by the integration of professional-user-generated content, or PUGC, into our content library, featuring Huya's partnerships with over 2,000 platinum talent agencies, a key competitive differentiator which illustrates our well-established content eco-system.

At the same time, our self-produced nongame professional-generated content shows, or PGC shows, are progressing well through the efforts of content diversification. For instance, the Huya-backed PGC show, Anime Voice Acting Contest, achieved the 2 million live viewership in its first episode and created a social buzz across the domestic social network. Another PGC talk show, The Roast of Streamers, which invites top game broadcasters to join, has amplified the crossover effect by attracting game viewers to watch nongame content. In the second quarter, partially benefiting from the crossover effect of PGC, the average daily time spent on our mobile app continued to be around 100 minutes and the one-month retention rate of mobile users remained above 70% while maintaining a fast-growing active user base.

With our popular and rich content helping improve the brand recognition of the platform, our advertising business saw increased demand from advertisers in the second quarter. In this month, we launched Huya's first advertising distribution platform to support the fast growing number of advertisers and their customized needs. The new advertising platform is a performance-based system that optimizes the advertising distribution process with precise targeting.

As another crucial competitive differentiator, our international expansion roadmap is well on track. Nimo TV, our overseas game live streaming platform, achieved approximately 15 million average MAUs in Q2. Nimo TV also had its grand market launch event in Brazil in partnership with top local broadcasters, addressing the growing demand of massive gamers in the region. Leveraging off our first-mover advantage in the overseas market and the operation know-how in the game live streaming space, we remain optimistic about our globalization strategy and believe that we can deliver long-term growth and sustainable returns.

On the technology initiatives front, following the 5G solution cooperation with China Telecom announced last quarter, we further established a partnership with China Unicom to become one of its first 5G commercialization partners, jointly exploring opportunities for 5G and MEC application in the live broadcasting space. Moreover, using 5G tech and working with China Mobile, Huya recently made a VR streaming debut at a sport event in Chengdu. Also, more global AI talents have joined our tech team to enhance our competence to explore AI technologies in the field of deep learning, speech recognition and computer graphics.

In considering the recent dynamics in competitive landscape, Huya is well positioned to continue its leading role in China's game live streaming industry. Implementation of our mobile strategy, new technology integration, and efforts to diversify content are our growth initiatives firmly in the domestic market.

As we recently upgraded our corporate logo, overseas expansion has become another key growth driver to enlarge our total addressable market in global e-sport industry. We were delivering solid operation performance when investing into Latin America and the Southeast Asia markets in the first half of this year.

Looking forward, the third quarter will be another strong season as before. With our strength in commercialization and execution, we are confident to reaccelerate paying user growth to achieve more than 5.2 million in the third quarter and carry the traffic growth momentum in both MAU and mobile MAU up to the next level. Our long-term strategy will become the key differentiation within next 2 years and create long-term value to our shareholders.

With that, I will now turn the call over to our CFO, Henry, to share the financial details.

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Dachuan Sha, HUYA Inc. - CFO [5]

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Thank you, Mr. Dong. Thanks, everyone, for joining us on our second quarter 2019 earnings call. It's my pleasure to walk you through our financial results in the second quarter and the revenue guidance for the next one. We are excited to report that our Q2 quarterly revenue surpassed RMB 2 billion, well above both on our guidance and the street consensus. Notably, we also achieved better-than-expected profitability. We are ready to carry the record-setting momentum in revenue into the second half of the year.

To breakdown revenues and drivers behind our growth. Live streaming revenues sustained solid growth as evidenced by increases of 23.8% quarter-over-quarter and 93.7% year-over-year.

On the other hand, with our enhanced brand strength, advertising and other revenues continued to grow rapidly by 91.3% year-over-year as game companies ramped up online marketing spend and nongame branding advertisers increased spending during mid-year sales. In Q2, gaming advertisers contributed more than 60% to our advertising revenue.

Despite the increased content spending in both domestic and overseas markets, in order to strengthen our competitive edge, we maintained our gross margin at 16.9% on a non-GAAP basis in the second quarter of 2019 compared with 16.3% in a year ago period, alongside continuous bandwidth cost optimization. Also, in spite of higher spending in user acquisition from overseas markets, we still achieved the non-GAAP operating margin of 5.8% in the second quarter compared with 5.5% in the year-ago period, as increased sales and marketing expenses were partially offset by R&D and G&A efficiency improvements. I'm glad that both gross margin and operating margin are better than management's expectation due to continuous operating leverage and execution efficiencies in domestic market.

To further tap into the long-term potential of e-sports in China and in global, Huya will continue ramping up content acquisition efforts, further penetrating the e-sports value chain, prudently investing in our globalization strategy and staying tech savvy, especially with regard to AI algorithms as we believe it will tremendously improve the efficiency of matching users with contents. We will also enhance our sales and marketing efforts in the near term to be well prepared for the upcoming summer holidays and further increase brand awareness.

Now let me briefly go over the financial results for the second quarter. Total revenues for the second quarter of 2019 increased by 93.6% to RMB 2,010.5 million from RMB 1,038.3 million in the same period of 2018.

Live streaming revenues increased by 93.7% to RMB 1,921.5 million in the second quarter of 2019, from RMB 991.8 million in the same period of 2018, primarily due to the increase in both the number of paying users on our platform and average spending per paying users. The increase in the number of paying users was primarily driven by our mobile strategy, diversification of content offerings and continued efforts in converting active users into paying users. The increase in spending per paying user was primarily driven by the enhancement of content attractiveness, the improvement in user experience and upgrade of product features.

Advertising and other revenues increased by 91.3% to RMB 89 million in the second quarter of 2019 from RMB 46.5 million in the same period of 2018. The growth was mostly driven by increased demand from gaming advertisers and a further recognition of Huya's brand name in China's online advertising market.

Cost of revenues increased by 92.1% to RMB 1,674.8 million in the second quarter of 2019 from RMB 872 million in the same period of 2018, primarily attributable to the increase in revenue-sharing fees and the content costs, bandwidth costs as well as the increase in headcount of personnel involved in the operations of company's platforms.

Revenue-sharing fees and content costs increased by 105% to RMB 1,355.6 million in the second quarter of 2019 from RMB 661.2 million in the same period of 2018, primarily due to the increase in virtual item revenue-sharing fees, which grew at a similar pace with the company's live streaming revenue and continued spending in e-sports content and content creators in both domestic and overseas markets.

Bandwidth costs increased by 21.5% to RMB 195.7 million in the second of quarter of 2019 from RMB 161 million in the same period of 2018, primarily due to the increase in bandwidth usage as a result of the increased user base on Huya's platforms and enhanced revenue live streaming video quality improved, partially offset by improved efficiency in bandwidth utilization through continued deployment of new technologies in content distribution.

Gross profit increased by 101.8% to RMB 335.7 million in the second quarter of 2019 from RMB 166.4 million in the same period of 2018. By excluding share-based compensation expenses, non-GAAP gross margin increased to 16.9% in the second quarter of 2019 from 16.3% in the same period of 2018, primarily due to technology innovation on bandwidth utilization, our enhanced monetization efforts and the continued leverage on economies of scale.

Research and development expenses increased by 75.8% to RMB 105.4 million for the second quarter of 2019 from RMB 60 million for the second quarter of 2018, mainly attributable to an increased headcount of R&D personnel and share-based compensation expenses related to the share awards granted since the second half of 2018.

Sales and marketing expenses increased by 186.9% to RMB 119.6 million for the second of quarter of 2019 from RMB 41.7 million for the second quarter of 2018. The increase was primarily attributable to the increased marketing expenses associated with our products and a brand name in both domestic and overseas market, including promotion activities for e-sports events and cooperation with various marketing channels.

General and administrative expenses decreased by 16% to RMB 74.3 million for the second quarter of 2019 from RMB 88.5 million for the second quarter of 2018, mainly due to lower share-based compensation expenses recognized in relation to the share awards vesting schedule, partially offset by the increase in headcount of management personnel.

Operating income was RMB 67.7 million for the second quarter of 2019 compared with an operating loss of RMB 17.3 million in the same period of 2018.

Non-GAAP operating income, which excludes share-based compensation expenses, increased by 104.7% to RMB 116.3 million for the second quarter of 2019 from RMB 56.8 million in the same period of 2018.

Non-GAAP operating margin was 5.8% in the second of quarter of 2019 compared with 5.9% in the first quarter of 2019 and 5.5% in the second quarter of 2018.

Income tax expenses were RMB 21.6 million for the second quarter of 2019 compared with income tax benefits of RMB 6.1 million in the same period of 2018.

Net income attributable to HUYA Inc. was RMB 121.8 million for the second quarter of 2019 compared with a net loss attributable to Huya of RMB 2,125.4 million in the same period of 2018. The loss in the second quarter 2018 was mainly due to a fair value loss of RMB 2,273.4 million on derivative liabilities of preferred shares that existed before our initial public offering, resulting from the increase in Huya's enterprise value as indicated by the price of its IPO.

GAAP net margin reached 6.1% in the second quarter of 2019 compared with 3.9% in the first quarter of 2019 and a negative margin from the same period last year.

Non-GAAP net income attributable to HUYA Inc. in the second quarter of 2019, which excludes share-based compensation expenses and other one-off adjustments, increased by 61.7% to RMB 170.4 million from RMB 105.4 million in the same period of 2018.

Non-GAAP net margin was 8.5% in the second quarter of 2019 compared with 8% in the first quarter of 2019, and 10.1% from the same period last year.

Diluted net income per ADS was RMB 0.52 for the second quarter of 2019 compared with diluted net loss per ADS of RMB 13.7 for the same period of 2018. Each ADS represents one Class A ordinary share.

Non-GAAP diluted net income per ADS was RMB 0.73 for the second quarter of 2019 compared with RMB 0.37 for the same period of 2018.

Now turning to our balance sheet and cash flows. As of June 30, 2019, the company had a cash, cash equivalents, short-term deposits and short-term investments of RMB 9,112.9 million. We completed a follow-on offering in April and raised approximately USD 313.8 million in the net proceeds to fuel the mid- to long-term expansion in the global game live streaming space.

Net cash provided by operating activities was RMB 569.9 million for the second quarter of 2019 compared with RMB 105.6 million in the same period of 2018. The increase was mainly attributable to the improved profitability, reduced cash settlement period by directly settling with the payment service providers for streaming business, and the increase in accrued revenue sharing fees and content costs to be paid to content creators. We believe healthy operating cash flow is quite a significant for a tech company's sustainability in the fast-growing stage like us.

Now business outlook. For the third quarter of 2019, Huya currently expects total net revenues to be in the range of RMB 2,120 million to RMB 2,200 million, representing a year-over-year growth between 66.1% and 72.3%. This forecast reflects our current and preliminary views on the market and the operational conditions, which are subject to change.

This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from Hillman Chan from Citigroup.

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Hillman Chan, Citigroup Inc, Research Division - Research Analyst [2]

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(foreign language) Congrats on a solid quarter results and guidance. I have 2 questions. First one is on the competition from Kuaishou and ByteDance and how it would impact the game live streaming industry going forward? And my second question is on Tencent expense on Kuaishou, Huya and Douyu. And how we should think about Tencent's strategy in 1 or 2 years, regarding the game live streaming industry?

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Rongjie Dong, HUYA Inc. - CEO & Director [3]

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(foreign language)

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Dana Cheng, HUYA Inc. - IR [4]

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[Interpreted] First, I would like to talk about our comparison with ByteDance. And to my knowledge, Tencent have actually taken some actions against the ByteDance use of their game titles in terms of a licensing and copyrights. So we don't think ByteDance will create much of an influence over Huya's live streaming. And also, we think the user base of Huya isn't really much overlapped with what it's offered in ByteDance. Since they're kind of a pan-entertainment short-video platform. Regarding the competition -- potential competition with Kuaishou, I confirm from a macro perspective, we remain optimistic and welcoming that Kuaishou is entering into the game live streaming industry. And with this massive DAU currently, I think the move is going to lift up the top ceiling for the industry in terms of the user base by introducing the mass audiences into this specific sector. And with Kuaishou's entering into this industry, we think by the end of this year, the user base, the market size in terms of user base will likely to double by end of this year for game live streaming industry. And probably you have known that user acquisition cost for short-video platforms like Kuaishou, it's a lot lower already. Then inviting -- then the user isn't going to get through inviting top tier broadcasters. So with Kuaishou's entrance and that supposed -- it should be an enlarged user base, probably our user acquisition cost basically to be more efficient as well. And also, we have already seen that over the past few quarters, Kuaishou has already made money through the live streaming in the showroom business. And we don't really think game live streaming will create incremental revenue for them. So I hope that answers your question. Thank you.

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Rongjie Dong, HUYA Inc. - CEO & Director [5]

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(foreign language)

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Dana Cheng, HUYA Inc. - IR [6]

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[Interpreted] For the Tencent's position in the competitive landscape of Huya and Douyu, we think from the perspective of Huya, what we can do is just to help Tencent regarding how to help maintain their position in the game industry as a whole.

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Dachuan Sha, HUYA Inc. - CFO [7]

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Yes. This is Henry. I'm here to compensate one question. So actually, I think in considering the market dynamics and industry competitive landscape, I believe we are in the duopoly of the market, and also seeing a very fast growth stage. So I think it's too early to comment on this question. Thank you, Hillman. I think that's all I'll answer to your questions.

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Operator [8]

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Your next question is from Thomas Chong from Jefferies.

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Thomas Chong, Jefferies LLC, Research Division - Equity Analyst [9]

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(foreign language) I have 2 questions. The first question is about our overseas strategies and the investment that we will undertake? And the second question is about content, given we are strengthening our game and nongame contents, how should we expect the content investment going forward?

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Rongjie Dong, HUYA Inc. - CEO & Director [10]

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(foreign language)

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Dana Cheng, HUYA Inc. - IR [11]

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[Interpreted] All right. Regarding the overseas strategy, currently the growth of MAU and other operating metrics is actually on track with management overall expectations. And we hope that we can achieve the monetization for our overseas business unit in the second half of this year to maintain a healthy ecosystem throughout the company. And also we hope that at some point in time next year, we will reach the breakeven point. And for -- regarding how we're going to run the overseas business, we are actually keeping close eye on the leading streaming platforms, in the States and Europe and the -- regarding these two reasons, we're actually -- we're waiting the right time to enter into these regions when we're ready. And for your question about the content investments, there are actually two dimensions to answer this question. The first one is the e-sports. We have been actively investing into the e-sports related business, will it be business including e-sports professional league club and MCN. And secondly, in addition to the e-sports that we're currently investing into, we are also eyeing on investment opportunity in ACG as well, probably anime comics in the form of either video or audio. So that's it.

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Dachuan Sha, HUYA Inc. - CFO [12]

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Thomas, this is the Henry. I think our overseas expansion is on track. So as we just mentioned, the total MAU for the NIMO TV has already been reached 15 million in the second of quarter. And we haven't changed our target for the whole year.

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Operator [13]

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Your next question is from Wendy Chen from Goldman Sachs.

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Zhi Yi Chen, Goldman Sachs Group Inc., Research Division - Research Analyst [14]

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(foreign language) Congratulations on the results. I have 2 questions. First is on the paying-user side. So we see that in this quarter, there are a slight decline in absolute number of paying user Q-on-Q as well as in the paying ratio side. So I'm just wondering first the question behind it. And secondly, if there's any different contribution from mobile and the PC in terms of paying user. And my second question is for CEO on the full year guidance for the MAU. So previously we've been discussing that this year full year MAU can reach 140 to 150, including international MAU. So far, we have already achieved 144 million MAUs so far much faster than we expected. So just wondering do we have seen any new target for the year in terms of revenue growth.

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Dachuan Sha, HUYA Inc. - CFO [15]

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Wendy, this is Henry. Let me answer your questions. So for the first question, I think we just mentioned that previously -- let me reconfirm. So first, we believe that the second quarter should be relatively the low season. So there is a seasonality factor because in Q1 there was quite a lot of like seasonal promotions and the Spring Festival activities. So the user number was growing very fast. But if you compare the number in Q2 with that of Q4 '18, I think we still achieved the growth in terms of the paying user numbers. And secondly, as you can see our second quarter MAU grows very fast rapidly. With -- the company still need time to monetize the new traffic introduced to our platform in the second quarter. And as you can see, so the user time spent with us is quite a constant in the second quarter. Still around like 100 minutes per mobile user per day, so which means our core business still got very healthy. So -- and now, which is very encouraging that in Q3, we have been seeing that number has been reaccelerated, which has already surpassing 5.2 million -- we're looking at to achieve the 5.2 million in the paying user numbers in Q3. I think that's the answers to your questions about the paying user numbers.

So about the MAU target for the year. Yes, I think we need to update our -- our annual target for MAU growth from like 150 million, including both domestic and global overseas market, to 170 million total MAU, including both order platforms in our company in both domestic and overseas market.

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Operator [16]

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Your next question is from Alex Poon from Morgan Stanley.

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Chun Man Poon, Morgan Stanley, Research Division - Equity Analyst [17]

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(foreign language) I'll translate my questions. My first question is regarding domestic business, the nongaming segments. Can you give us some color of the top customer spending trend since beginning of the year on a year-over-year or sequential basis from January until today? And in terms of content, how do you operate the content being differentiated from YY and Momo, for example, and also on a top customer user acquisition point of view, are they growing organically? Or they are held by talent agencies, also? Regarding my second question is overseas and cash flow situation. Cash flow is very strong this year. It's annualized number is tracking more than RMB 2 billion -- almost RMB 3 billion a year, what's the plan on spending the cash? And following up on this is overseas investments, how do you compare the strategy with YY's BIGO. You mentioned the short video acquisition -- user acquisition is much cheaper would you consider a similar approach?

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Rongjie Dong, HUYA Inc. - CEO & Director [18]

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(foreign language)

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Dana Cheng, HUYA Inc. - IR [19]

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[Interpreted] All right. I'll answer your question regarding the nongaming content. As we have discussed earlier, we have actually produced several PGC shows and it's been gaining traction in the past quarters. Like the ACG voice-over talent shows, Anime Voice Acting Contest, and the talk show The Roast of Streamers. They have actually been creating crossover effects in gaming and nongaming together. And it's actually gaining traction among the user base as well. So that's number one. And the second point is that the PGC shows that we have been actively conducting is improving much onto the platform's reputation which also further get the traction from the advertisers. As you might have also known that the nongaming PGC shows is creating more positions for the advertisers to increase their spending with us. And my last point is that the nongaming user is actually taking 50% of the overall user base. And we have already seen that the MAU growth of the nongaming content is actually catching up with the MAU growth of gaming content. And also along the nongaming content diversification, we have already seen that outdoor activities and anime content is gaining traction as well with the time spent on year-over-year basis is actually doubling in this quarter.

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Dachuan Sha, HUYA Inc. - CFO [20]

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Alex, this is Henry. I'll help to address the rest of the question here. So about the payments from the -- I mean the payment trend that's actually from the top payers. Since the beginning of this year to now, I think that doesn't change a lot. Actually, I think that mid-tier to end, I mean the mid-tier, the core users, the payments, I think it's increasing. But the top payers are spending, I think, relatively constant and slightly above our expectations that will keep growth but not very fast. I think to your question about our operating cash flow, I think, yes, there are several reasons that why our operating cash flow increased rapidly in this quarter and also in Q1. First, because I think we have an increase in our deferred revenue. And secondly, I think it's also a -- we accrued some like the revenue sharing fees and the content cost to be paid in this quarter. And third is that we changed the -- I mean the settlement methods with our third-party payments solution providers. So I think that we should also speed up our payment and collection from our customers. But I think that's the reason why our cash flow got increase. And I think this will give us some like a room space or flexibility for our business to grow further, which we will think about and to leverage that advantages on cash flows to further grow our business in those, like domestic and overseas. About the strategy -- the difference between us and the Bigo in overseas market, I think first, Bigo is very focusing on pan-entertainment streaming or in overseas market. And the NIMO TV, Huya's overseas business is very focused on the e-sports and game live broadcasting in the emerging markets and in the rest of the world. And we don't have that -- until now, we don't have the plan for the short-video business in the overseas market. I think that's all for -- I think that's all the answers for your questions.

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Operator [21]

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Your next question is from Lei Zhang from Bank of America Merrill Lynch.

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Lei Zhang, BofA Merrill Lynch, Research Division - Associate [22]

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(foreign language) Congrats on the strong results. My first question is regarding ARPU. Can you give us more color on the driver of the strong ARPU growth in the second quarter and gaming and nongaming content which grow faster in ARPU? And how should we look at ARPU trend in the following quarters of this year? My second question regarding the PC MAU, which grew faster than mobile in second quarter, can you provide more color on this? And how should we look at those web users? And with your new guidance -- new user guidance, how many users from mobile and other from PC?

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Dachuan Sha, HUYA Inc. - CFO [23]

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Lei, this is Henry. I'm happy to address your questions. With the first question about the ARPU -- thank you for your questions. So actually, I think we -- in this quarter, we are now providing more like incentive policy for our guilds and talent agency companies to provide them with more incentive to work with us and to make more money with us. So I think the growth on ARPU are from like the gaming and nongaming sectors, I think it should be similar, should be similar in the second quarter. So I think the policy we published to all the guilds and talent agencies should be the main driver for the ARPU growth in the second quarter. About your question about MAU, so I think in our platform, so when you are watching maybe from H5 or maybe you open -- you watch our content from a browser on a mobile phone. It's all counted into the PC -- I mean the nonmobile MAUs. So in this quarter, 2 main drivers. First, I think the tournaments broadcasted within the blue-ray resolution, the quality of the streaming content is quite high, which is the one of the attractiveness. Second, we enhanced our partnership with some of the major game studios in China, especially for like QQ Racing for the Cross Fire, we have the cooperation with them called the pop-up features. So when you are playing that games, there's a pop-up about our Huya's streaming content from that in-game play. So which is becoming another like a channel for us to broadcast, to distribute our contents to the gamers who are playing that games. So I think that's another driver why, as you can see -- I mean, this all comes into the PC MAU. So why? You've seen from like our earnings release that the PC MAU growing fast. So for the target for -- about the MAU for this year, I think was still working very hard to achieve that -- to grow that mobile MAU growth more rapidly than from PC. So I think we're still thinking about trying to achieve more than half of the users come from like mobile for this year, also in the long run. I think -- thank you, Lei. I think that answers all of your questions.

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Operator [24]

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As there are no further questions, now I'd like to turn the call back over to the company for closing remarks.

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Hanyu Liu, HUYA Inc. - IR [25]

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Thank you once again for joining us today. If you have further questions, please feel free to contact Huya's Investor Relations through the contact information provided on our website or TPG Investor Relations. Thank you.

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Dachuan Sha, HUYA Inc. - CFO [26]

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Okay. Thank you very much.

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Operator [27]

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This concludes this conference call. You may now disconnect your line. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]