Form S-1 · DouYu International Holdings Ltd

DouYu

Priced July 18, 2019 · $11.50 a share · Original on SEC EDGAR · PDF

Prospectus Summary


PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors" and information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" before deciding whether to buy our ADSs. This prospectus contains information derived from various public sources and certain information from an industry report dated January 16, 2019, as supplemented, that was commissioned by us and prepared by iResearch Consulting Group, or iResearch, a third-party industry research firm, to provide information regarding our industry and market position in China. We refer to this report as the iResearch Report. Such information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the "Risk Factors" section. These and other factors could cause results to differ materially from those expressed in these publications and reports.

Our Mission

We make the world a fun place through games and other interactive entertainment.

    Overview

We are the largest game-centric live streaming platform in China and a pioneer in the eSports value chain. We operate our platform both on PC and mobile apps, through which users can enjoy immersive and interactive games and entertainment live streaming. According to iResearch, among China's game-centric live streaming platforms, we ranked:

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    first by the size of our user base as measured by average total MAUs on both mobile and PC platforms during the fourth quarter of 2017 and 2018;
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    first by the level of user engagement as measured by average total daily time spent by active users on our platform during the fourth quarter of 2017 and 2018; and
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    first by the number of top 100 game streamers with whom we contracted in December 2017 and December 2018.

The passion for games and interactions among gamers and game enthusiasts extend beyond just playing. Against the backdrop of eSports' booming popularity, China has a massive and growing gamer community that is seeking interactive and engaging entertainment through game live streaming. According to iResearch, China is the world's largest game-centric live streaming market, with approximately 4.9 times the MAUs of the U.S. market in 2018. Revenues from China's game-centric live streaming market is expected to grow at a CAGR of 24.7% from 2018 to 2023, which is nearly twice the expected growth rate of the non-game-centric live streaming market. Game-centric live streaming revenue accounted for 13.8%, 24.1% and 28.0% of total live streaming revenue in 2016, 2017 and 2018 in China. In 2018, live streaming annual ARPPU in China was RMB574, which takes into account both the game-centric and non-game centric live streaming platforms, while game-centric live streaming annual ARPPU in China was RMB365. The difference between live streaming annual ARPPU and game-centric live streaming annual ARPPU indicates significant growth potential for game-centric live streaming ARPPU. The average total MAUs of game-centric live streaming platforms in China are expected to increase from 255 million in 2018 to 400 million by 2023. As the leading game-centric live streaming platform in China, we are well positioned to capture a significant share of this large and growing user base.

Our platform attracts a large number of highly loyal and engaged users. As of December 31, 2016, 2017 and 2018, we had 98.7 million, 182.1 million and 253.6 million registered users, respectively. With 111.4 million average MAUs on our PC platform and 42.1 million average MAUs on our mobile platform, we had 153.5 million average total MAUs during the fourth quarter of 2018, representing year-over-year growth of 14.3% from 134.3 million average total MAUs during the same period of 2017. We consider our PC platform an important component of our business as it attracts PC users who are more devoted eSports enthusiasts and is a natural gateway to eSports games, which enables users to simultaneously play games and watch game live streaming. According to iResearch, we were the most searched game-centric live streaming platform in China based on average of Baidu's search index and ranked as the top free and top grossing game-centric live streaming app in Apple's App Store in 2018. Our large user base is primarily acquired through organic growth, with over 92% of our new mobile users in the fourth quarter of 2018 installed our apps without third-party marketing. Our diverse product offerings and continuously enriched content allow us to effectively retain users, evidenced by our 75.2% and 74.9% average next-month active user retention rates over the past twelve months as of December 2017 and December 2018, respectively. Our average next-three-month registered user retention rate was 68.9% and 68.6% for the same periods. Our large and loyal user base is also highly engaged, as evidenced by the average total daily time spent by active users of 17.2 million and 24.2 million hours in the fourth quarter of 2017 and 2018, respectively. The average daily time spent by each active user was 40 minutes and 54 minutes for the same periods. Our active users spent over 1.6 billion and 2.2 billion hours on our platforms and generated more than 2.0 billion and 2.1 billion bullet chats in the fourth quarter of 2017 and 2018, respectively.

Our platform brings together a deep pool of top streamers and provides a sustainable streamer development system. As of December 31, 2017 and 2018, our platform had 3.9 million and 6.0 million registered streamers, including more than 2,000 and 5,200 top streamers each of whom entered into an exclusive contract with us directly as of each date, respectively. These top exclusive streamers streamed an average of 3.8 and 4.2 hours per show in the fourth quarter of 2017 and 2018, respectively, and all of our streamers generated a total of 16.6 million and 29.8 million streaming hours during the same periods. Approximately 430 and 592 of our streamers had more than one million viewers during the fourth quarter of 2017 and 2018, respectively. Approximately 384,800 of our streamers are managed through talent agencies as of December 31, 2018. Our exclusive contract model with top streamers helps ensure a consistent supply of quality content, which is effectively supplemented by the talent agency model that captures a large group of promising and rising streamers. With years of experience, we have 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.

As one of the first game-centric live streaming platforms to make the foray into eSports, we are strategically positioned to benefit from the proliferation of the eSports industry in China. The eSports industry generates highly attractive content and helps to transform our platform into an engaged and vibrant community. Through our investments in and collaborations with a variety of participants across the value chain, we have gained coveted access to premium eSports content attracting millions of viewers to our platform and enabling us to organize our own tournaments and produce exclusive eSports content only available on our platform which further attracts viewers and improves their stickiness. According to iResearch, we had the largest eSports viewer base as measured by average total MAUs that viewed eSports live streaming during the fourth quarter of 2017 and 2018. Our average total eSports MAUs were approximately 80.9 million and 95.8 million in the fourth quarter of 2017 and 2018, respectively.

We have built powerful technology infrastructure to ensure a stable and optimized live streaming experience for our users. The optimized user experience attracts a large number of users on our platform and enables us to collect and analyze vast amounts of behavioral data leveraging our big data analytics capabilities. Investing in the user experience generates significant benefits for our platform. For example, since the implementation of our customized content recommendation system in early 2016, our user click-through rate for content recommendations on our home page increased from 18% in June 2016 to 43% in December 2018. Through comprehensive and refined content categorization, customized recommendations and development of new products and features, we enhance user experience to attract new users and increase user loyalty.

We employ a multi-channel monetization model. We believe the vibrant and interactive game community created on our platform drives user satisfaction, which provides diversified opportunities for user spending. Leveraging a large number of viewers and a deep pool of streamers, our monetization channels mainly consists of live streaming, advertisement and others. These channels effectively supplement each other and unleash future monetization potential. Live streaming is our main monetization channel and generated 77.7%, 80.7% and 86.1% of our total net revenue in 2016, 2017 and 2018, respectively. Our live streaming revenue is primarily derived from the sales of a wide array of virtual gifts. Our massive and highly engaged user base attracts advertisers from a wide spectrum of industries and allows us to distribute games for game developers and publishers, which has led to rapid growth in our advertising and game distribution revenue since 2016.

We have grown rapidly since our inception. Our revenue increased from RMB786.9 million in 2016 to RMB1,885.7 million in 2017, and reached RMB3,654.4 million (US$531.5 million) in 2018. We had net loss of RMB782.9 million, RMB612.9 million and RMB876.3 million (US$127.4 million) during those same periods.

Our Strengths

We are at the forefront of the game-centric live streaming industry in China. We believe that the following competitive strengths contribute to our success and differentiate us from our competitors.

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    Leading game-centric live streaming platform
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    Large and highly engaged user base
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    Deep pool of top streamers empowered by a comprehensive streamer development system
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    Strategically positioned in eSports to secure coveted access to premium content
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    Technology- and big data-enabled user experience and value proposition
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    Multiple monetization channels with significant potential
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    Visionary and experienced management team with strong shareholder support

Our Strategies

To fulfill our mission of making the world a fun place through games and other interactive entertainment, we plan to pursue the following strategies to grow our business.

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    Further strengthen our position in the eSports industry
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    Continue to attract more viewers and streamers while investing in technologies
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    Increase monetization capabilities
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    Selective overseas expansion

Our Challenges

We face risks and uncertainties in realizing our business objectives and executing our strategies, including those relating to:

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    our ability to retain our existing users, keep them engaged or further grow our user base;
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    our ability to attract, cultivate and retain top streamers;
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    our ability to offer attractive content, in particular popular game content;
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    our ability to maintain our market position in the eSports industry;
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    Our ability to realize the benefits we expect from our strategic cooperation with Tencent;
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    Our ability to align interests with certain existing shareholders who have substantial influence over our company;
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    our ability to manage our growth and control our periodic spending to maintain such growth;
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    our ability to reach profitability depending on our ability to grow in a cost-effective way;
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    our ability to implement our growth or monetization strategies;
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    our ability to prevent misconduct by our platform users and misuse of our platform;
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    our ability to evaluate our business and growth prospects in a relatively new market;
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    our ability to compete with other established streaming platforms and other entertainment mediums;
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    our ability to continue to grow or maintain our paying ratio; and
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    our ability to obtain and maintain the licenses and approvals required under the complex regulatory environment for Internet-based businesses in China.

Recent Developments

We continue to broaden our user base leveraging our rich and dynamic content offerings, especially eSports content, a deep pool of top streamers and engaging social features. Our average total MAUs were approximately 159.2 million in the first quarter of 2019, representing an increase of 25.7% from 126.7 million average total MAUs in the first quarter of 2018. The average MAUs on our PC platform increased by 21.0% from 91.0 million in the first quarter of 2018 to 110.1 million in the first quarter of 2019, while the average MAUs on our mobile platform increased by 37.5% from 35.7 million in the first quarter of 2018 to 49.1 million in the first quarter of 2019.

Our large user base is also highly engaged, and spent around 2.3 billion hours on our platforms in the first quarter of 2019, as compared to approximately 1.6 billion hours in the first quarter of 2018, which implies an average total daily time spent by active users of 26.0 million hours in the first quarter of 2019, an increase of 50.3% from 17.3 million hours in the first quarter of 2018.

As we continued our efforts in cultivating users' paying habits, our number of paying users grew by 66.7% from 3.6 million in the first quarter of 2018 to 6.0 million in the first quarter of 2019.

Our results for the three months ended March 31, 2019 may not be indicative of our results for the full year ending December 31, 2019 or for future periods. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" included elsewhere in this prospectus for information regarding trends and other factors that may affect our results of operations.

Corporate History and Structure

Corporate History

    Establishments of Our PRC Subsidiaries and Consolidated Entities

We commenced operations and launched our live streaming platform in 2014 with the establishment of Guangzhou Douyu. Wuhan Douyu was established in May 2015. In February 2016, Guangzhou Douyu and Wuhan Douyu entered into an asset and business transfer agreement, pursuant to which Guangzhou Douyu transferred all of its business operations and assets to Wuhan Douyu (the "2016 Wuhan Douyu Restructuring").

In February 2016, Wuhan Douyu, Wuhan Ouyue, the successor of Zhejiang Ouyue which was acquired by Mr. Shaojie Chen in November 2015, and Mr. Chen entered into a series of contractual arrangements, by which Wuhan Douyu may exert control over Wuhan Ouyue and consolidate Wuhan Ouyue's financial statements. In May 2018, such contractual arrangements were terminated and replaced by contractual arrangements between Douyu Yule, Wuhan Ouyue and Mr. Chen. For details please refer to "—Corporate Restructuring Transactions."

In June 2016, each of Yuxing Tianxia, Yuyin Raoliang and Wuhan Yuwan was incorporated in the PRC by Wuhan Douyu. In November 2016, each of Douyu Education and Yu Leyou was incorporated in the PRC by Wuhan Douyu. These entities focus on entering into business contracts with streamers.

    Corporate Restructuring Transactions

We underwent a series of restructuring transactions in contemplation of this offering ("Restructuring Transactions"), which primarily included:

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    In January 2018, DouYu International Holdings Limited was incorporated under the laws of the Cayman Islands as our proposed listing entity. In connection with its incorporation, it issued ordinary and preferred shares to certain of the then existing shareholders of Wuhan Douyu based on their equity interests held in Wuhan Douyu. For details of the issuances of shares by DouYu International Holdings Limited to its shareholders prior to this offering, please refer to "Description of Share Capital—History of Securities Issuances."
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    In January 2018, DouYu Network Inc. was established in the British Virgin Islands and Douyu Hongkong Limited was incorporated in Hong Kong, both of which are acting as the offshore intermediary holding companies to facilitate our initial public offering in the United States.
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    In May 2018, Douyu Yule, our indirect wholly-owned PRC subsidiary, entered into a series of contractual arrangements with each of Wuhan Douyu and Wuhan Ouyue, as well as their respective shareholders. As a result of these contractual arrangements, we obtained effective control, and became the primary beneficiary of, each of Wuhan Douyu and Wuhan Ouyue, or our VIEs.

We are a holding company and does not directly own any substantive business operations in the PRC. We currently focus our business operations within the PRC through Douyu Yule and our VIEs, Wuhan Douyu and Wuhan Ouyue. See "Risk Factors—Risks Related to Our Corporate Structure." Wuhan Douyu, Wuhan Ouyue and their respective subsidiaries hold our ICP License, the License for Online Transmission of Audio/Video Programs and the Internet Culture Operation License and other licenses and permits that are necessary for our business operations in the PRC.

Corporate Structure

The following diagram illustrates our corporate structure, including our significant subsidiaries and variable interest entities, immediately upon the completion of this offering, assuming no exercise of the over-allotment option granted to the underwriters.

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Notes:

(1)
The sole shareholder of Wuhan Ouyue is Mr. Shaojie Chen, our founder, CEO and director.
(2)
The shareholders of Wuhan Douyu and their relationship with our company are as follows: (i) Mr. Chen (35.15%), our founder, CEO and director; (ii) Linzhi Lichuang (18.98%), an affiliate of Nectarine, one of our shareholders; (iii) Mr. Dongqing Cai (13.18%), the beneficial owner of Aodong Investments Limited, one of our shareholders; (iv) Beijing Fengye (13.16%), 99.99% of its interests is owned by Wuhan Ouyue; (v) Beijing Phoenix (8.08%), an affiliate of Phoenix Fuju Limited, one of our shareholders; (vi) Mr. Wenming Zhang (3.92%), our co-founder, co-CEO and director, and (vii) certain other third-party investors.

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