DouYu International Holdings Limited (DOYU) CEO Shaojie Chen on Q3 2020 Results - Earnings Call Transcript
DouYu International Holdings Limited (NASDAQ:DOYU) Q3 2020 Earnings Conference Call November 11, 2020 6:00 AM ET
Company Participants
Mao Mao - Vice President of Capital Markets
Shaojie Chen - Chairman & Chief Executive Officer
Hao Cao - Vice President, Branding
Conference Call Participants
Daniel Chen - JPMorgan
Alex Liu - China Renaissance
Lei Zhang - Bank of America
Thomas Chong - Jefferies
Operator
Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note, today's event is being recorded.
I would now turn the call over to the first speaker today, Ms. Mao Mao, Vice President of Capital Markets of DouYu. Please go ahead ma'am.
Mao Mao
Thank you, operator. Hello everyone. Welcome to our third quarter 2020 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer; Ms. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Branding. You can refer to our third quarter of 2020 financial results on our IR website at ir.douyu.com. You can also check a replay of this call, when it becomes available in a few hours on our IR website.
Before we start, please note, that this call may contain forward-looking statements made pursuant to Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call.
Now, I will speak on behalf of our Chairman and CEO, Mr. Shaojie Chen.
Overall, our financial and operational results maintained their stable growth rates in the third quarter of 2020 with our total net revenues increasing by 37.0% year-over-year to RMB2.65 billion. We also achieved the seventh consecutive quarter of positive non-GAAP net income. At the same time, our average mobile MAU count maintained it's robust growth trajectory, increasing by 14.4% year-over-year to 59.6 million; while our quarterly paying users also grew by 12.7% year-over-year to 7.9 million during the quarter.
Despite the lingering effects of COVID-19 and further macro uncertainties throughout the country, users continue to flock our eSport-centric game live streaming for it's vibrancy and [indiscernible]. Our total average MAUs reached 194 million during the third quarter of 2020, which was attributable to five factors.
First, by strengthening our collaboration with Tencent gaming team, we added more users, especially the users on the PC platform. Also a broadcast of largescale eSports tournament, such as the LPL Chinese-Chinese summer tournament helped expand our user base while engaging those previously inactive users at the same time. In addition, new gaming launches attracted a wave of brand new users to our platform during the third quarter. Besides, the summer holiday boosted students viewership, and contributed to the positive in many [ph] impacts. Overall, our continuous refinements of platform operations has enabled us to see opportunities emerging from eSports events and tournaments, and help us to achieve steady growth in all of our operating metrics.
For our content ecosystem, we continue to enhance our game centric eSports platform, increase the content breadth and depth in every segment of our platform, develop a variety of innovative content formats, and expand our coverage up and down the eSports industry value chain. During the quarter, we achieved superior results in investing high quality eSports team. For example, our sponsored League of Legends teams, such as TS, LGD and JBG, all advanced to the LPL 2020 summer playoff series, not playing CS won the LPL 2020 Summer Championship. Moreover, our newly signed PUBG Team, BOC, emerged as a dark horse team of 2020, and won the runners-up played in it's inaugural participation in this year's PCL summer tournament.
Meanwhile, we further deepened our collaboration with Tencent and other games developers and publishers, and successfully broadcasted more than 50 largescale official eSports tournament during the quarter. For example, we obtained the exclusive broadcasting rights for Omega League, which was one of the largest professional championships for DouYu [ph] in world, thus further augmenting our platforms brand influence. In addition, we self-produced more than 50 high-quality eSports tournament during the period. Most notably, we organized the tenth consecutive production of our proprietary eSports event, Golden Grand Tournament, which has grown into one of the largest public [ph] tournaments in China. As we continue to innovate our business model, we improved our user experience significantly by launching the beta version 2.0 of cloud games, which has a brand new UI design, as well as optimized server functionality and compatibility. Going forward, we plan to explore further into cloud games.
Also, as we almost completed the design and development of the mobile application for pre-recorded gaming videos, we were able to rotate pre-recorded gaming broadcast with live streaming content, provide a more diverse supply of content to our platform, expand our coverage of various user scenarios, and stimulate our user engagement. On the streamers ground, we continue to improve our efficiency in managing and monetizing the mid-tier and long-tail streamers during the period. We are glad to see that it has become a norm for our partners, Huya Agencies [ph] to proactively uncover and grow new streamers. Also, revenue contribution from our mid-tier and long tail streamers has been increasingly -- has been increasing continuously. In addition, by recruiting the new non-game streamers to our platform, we have been able to cover a broader array of user demographics.
Looking ahead, we should continue to execute our game content centric growth strategy, engage more gaming users through diverse content, after user addition opportunities going out of new game title launches, satisfy a wider range of new user viewing demands through segmentation of non-game content, to actively explore new business models and invest in those areas, along with our long-term strategy. In terms of monetization, as we continue to refine and optimize our interactive product functionality, we were able to grow our quarterly paying users by 12.7% year-over-year to 7.9 million, and our paying ratio to 4.1% during the quarter. Meanwhile our ARPU also increased by 25.2% year-over-year to RMB297. In addition to solidifying our existing users paying habits, we wrote out additional innovative initiatives to add more paying users and lay a solid foundation for our sustainable growth in both, paying users and overall revenue.
Looking ahead, we will continue to explore new product functionalities and revenue models, enhanced our platforms overall operational efficiencies, and advanced monetization capabilities for every platform segments, or even every live streaming room [ph]. At the same time, we will bolster our management in the design and production of large scale events to promote monetization consistency.
On the research and development front, we continue to invest in our technology development capabilities during the quarter with our support for the display function of the more efficient video compression technology at JVC [ph]. Our users can enjoy videos of the same viewing quality with only half of the previously required bandwidth; that's leading to a smoother viewing experience, especially for our mobile users. As we continue to implement the display functionality of H265 [ph] across our platform, we focus -- we foresee more room to optimize our bandwidth costs. In addition, we rolled out the real-time playback function at a large scale on our platform. By leveraging AI technologies to accurately tap key gaming moments, such as kills and team blasts [ph]; we enabled our users to replace precisely the moment of their choice but significantly improving their viewing experience.
On the globalization ground, we continue to increasing our investment and explorations in the Japanese market. As we made further improvements to the product functionalities, and content varieties of our Japanese live streaming platform, Mujan [ph]; it was able to maintain it's steady growth trajectory.
In summary, during the quarter, we sustained our continued growth and exploration in our user base expansion and the content ecosystem development. Looking ahead, we plan to further buildout our game content centric platform, deploy resources, both up and downstream the eSports industry value chain, both through our operational performance, ramp up our R&D efforts, and optimize our user experience. Furthermore, we remain committed to upgrading our platform monetization capabilities, improving our operating efficiencies, and enhancing our financial performance over the long run.
On October 12, 2020, we entered into a merger agreement with Huya. We look forward to working together with Huya by providing our users with high-quality content and services and creating long-term values for our shareholders in the future.
With that, I will now turn the call to our Vice President of Finance, Mr. Hao Cao to go through the details of our financial performance in the third quarter.
Hao Cao
Thank you, Mao Mao. Hello, everyone. During the third quarter of 2020, in response to a lot of expected sales performance of certain major planned events, we took decisive action and shifting pressure [ph] in the second half of the year to the development of content and acquisition of broadcasting rights for eSports game. In addition, we also maintained our focus on new and innovative ways to further optimize user-streamer interactions on platform. As a result, our total revenues in the third quarter of 2020 increased by 37% to RMB2.55 billion from RMB1.86 billion, in the same period of 2019.
With live streaming revenues in the same period increasing by 41.3% year-over-year. Meanwhile, we also improved our net income in the third quarter of 2020 to RMB59.6 million from a net loss of R&D RMB165.4 million in the same period of 2019. While adjusted net income in the third quarter of 2020 increased by 36.8% to RMB98.7 million from RMB72.2 million in the same period of 2019.
Now, please allow me to provide you with some more details regarding our key financial metrics. Total net revenues in the third quarter of 2020 increased by 37% year-over-year to RMB 2.55 billion with RMB 2.35 billion in live streaming revenues, and RMB 197.8 million in advertising and other revenues. Live streaming revenues in the third quarter of 2020 increased by 41.3% to RMB2.35 billion from RMB 1.66 billion in the same period of 2019. This increase was primarily attributable to the improved paying habit of existing users, as well as our successful attraction of new paying users resulting from our continued requirements of [indiscernible]. As a result, paying users in the third quarter of 2020 increased by 12.7% to 7.9 million from 7 million in the same period of last year.
In addition, the improvements made interactive features also helped to raise up user payment frequency from our platform and drive the growth on a year-over-year basis. Advertising and other revenues in the third quarter of 2020 increased to RMB197.8 million from RMB196.1 million in the same period of 2019, which was mainly driven by ongoing growth of our brand recognition, and the corresponding increase in demand for streamers, integrated advertising and promotion solutions.
Cost of revenues in the third quarter of 2020 increased by 41.2% to RMB2.18 billion from RMB1.54 billion in the same period of 2019. More specifically, revenue sharing fees and the content costs in the third quarter of 2020 increased by 48.9% to RMB1.95 billion from RMB 1.31 billion in the same period of 2019. The increase in revenue sharing fees and the content cost can be generally be explained by the following progress.
First; during the quarter, our revenue sharing fees increased, which was mainly due to the increases in live streaming revenues in the same period, and increased incentives given to streamers during certain major fan event. Second, our content costs increased, which was mainly driven by three factors; first, we continue to engage with quality streamers abroad to expand our footprint in overseas markets, especially in Japan. Second, we continue to focus on original platforms eSports-related content. And three, we purchased additional live streaming rights for eSports games in the second half of 2020, which was purposefully delayed in the first half of 2020 as a result of outbreaks of COVID-19. Bandwidth costs in the third quarter of 2020 increased by 12.1% to RMB169.1 million from RMB150.6 million in the same period of 2019. The increases to bandwidth costs were mainly driven by increases in both, mobile user growth and total user engagement, partially offset by efficiency improvements resulting from technical upgrades.
Gross profit in the third quarter of 2020 increased by 16.6% to RMB369.4 million from RMB316.8 million in the same period of 2019. Gross margin in the third quarter of 2020 was 14.5% compared to 15% in the same period of 2019. Now turning to our operating expenses; sales and marketing expenses in the third quarter of 2020 decreased by 7.5% to RMB160.3 million from RMB173.2 million in the same period of 2019, mainly due to the decrease in share-based compensation expenses recognized in third quarter of 2019 following up [indiscernible]. Research and development expenses in the third quarter of 2020 decreased by 8.6% to RMB109.6 million from RMB119.9 million in the same period of 2019. This increase -- this decrease was primarily due to the decreased in share-based compensation expenses recognized in the third quarter of 2019 prior IPO [ph] which was partially offset by increased expenditures for the research and development of new products, as well as the increased headcount of overseas research and development personnel during third quarter of 2020.
General and administrative expenses in the third quarter of 2020 decreased by 39.6% to RMB94.2 million from RMB232.9 million in the same period of 2019, mainly as a result of the reduced share-based compensation expenses recognized in the third quarter of 2019 following on IPO which was partially offset by increase in professional service fees. The amount of share-based compensation expenses allocated operating expenses in third quarter of 2020 was RMB33.2 million compared to RMB228.2 million in the third quarter of 2019 and RMB33.9 million in the second quarter of 2020.
Operating income net in the third quarter of 2020 was RMB32.5 million compared to RMB11.8 million in the same period of 2019. Adjusted operating income in the third quarter of 2020 which excludes share-based compensation expenses increased by 130.7% to RMB71.2 million from RMB30.8 million in the same period of 2019. Net income in the third quarter of 2020 was RMB39.6 million, compared to a net loss of RMB165.4 million in the same period of 2019. Adjusted net income in the third quarter of 2020 which excludes share-based compensation expenses, share of loss in equity method investments, and impairment loss of investments improved to RMB98.7 million from RMB72.2 million in the same period of 2019, implying an adjusted net margin of 3.9%.
For the third quarter of 2020, basic and diluted net income per ADS were RMB0.27 and RMB0.26 respectively. While adjusted basic and diluted net income per ADS were RMB0.39 and RMB0.39 respectively. As a result of uncertainties surrounding the current [indiscernible] which we believe could potentially affect our views on both, operational conditions, as well as the market; we will not provide guidance for the fourth quarter of 2020. As we advance throughout the remainder of 2020 and beyond, we remain committed to improving our monetization capabilities and operating efficiencies. At the same time, we also plan to continue upgrading our user experience that was fine of platform offerings, and building the gross, of course, national initiatives to capture additional market share in selected overseas markets.
This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Question-and-Answer Session
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Daniel Chen with JPMorgan. Please go ahead.
Q - Daniel Chen
[Foreign Language]
I have a housekeeping question on the merger deal with Huya. So how do Huya arrive at the [indiscernible] exchange for 7.38 years of Huya? And what are the major process in the future for the merger deal? And which we're seeing -- we see from a financial release that will happen in the first half of 2021? Thank you.
Shaojie Chen
[Foreign Language]
I will translate the response to English. Regarding the question, on both -- Huya and DouYu have established their own special committee composed of independent directors, and with assistance of financial advisors and legal counsels. Both special committees conducted due diligence on their respective company's accounting tax, business operations, legal, and other relevant matters; and carefully evaluated the financial forecasts and valuations, and engaged in the negotiation of merger agreement on behalf of their respective companies. So on this basis, both company's independent financial advisors have provided the special committee with their opinions on the share exchange ratio, and based on their special committee recommendation, both Huya and our Board of Directors approved the merger agreement.
[Foreign Language]
Regarding the key next step, you know, a few hours ago Huya [ph] has filed a Form-F4 with SEC and is currently waiting for it's review and approval, which is a form for informing issuers in relation to M&A transaction. It serves as a registration statement for Huya's newly issued stocks, which also includes a proxy statements for DouYu to solicit votes from its own shareholders at the upcoming shareholder meeting. So Form-F4 also contain other crucial information related to the merger. And in the meantime, we have submitted a Form-30E3 [ph] to the SEC for it's approval, which is an application form for investing and privatization. After getting SEC approval on F4, we will hold an extraordinary general meeting to vote on this merger, and once the number of votes for the merger exceeds 2/3 of those votes presented at the meeting, the merger will be considered approved by our shareholders.
And regarding the timetable, we don't have a definitive timetable yet but all parties are working towards the finish or close the transaction. Thank you.
Operator
Thank you. Our next question today comes from Alex Liu with China Renaissance. Please go ahead.
Alex Liu
[Foreign Language]
So first question regarding the proposed merge; could you share with us where are we going to see the synergies on both, revenue and cost side going forward? And the second question is that, I noticed our bandwidth cost goes up slightly, sequentially this quarter, and what are the main reasons? And how should we think about this item in the longer term? Thank you.
Shaojie Chen
[Foreign Language]
I'll translate for Mr. Chen. So due to the fact that the merger has yet to close, we have not reached a conclusion on the potential synergies effects we could achieve from the merger, and neither have we quantified these synergies. But from a higher level, we believe there are a number of areas that we should explore for the synergies. First of all, on users and revenues; we believe the content of mobile and PC games from respective platforms are complimentary to each other, and the merger should result in more comprehensive content coverage to further improve the depth and breadth of the consolidated content ecosystem to further boost user traffic and user engagement.
And secondly, from cost perspective, we think the merger will create a better economy of scale on the content costs, for example, streamers finding bonus. And certainly, we think there could be further synergies to be achieved from other operating expenses, such as GMA R&D, and IT infrastructure expenses. And in the future, we believe that both platforms plus certainly will be able to leverage the reflective leading advantage on gaming content and strengthen our joint corporation, and to develop more innovative user interactions, content formats and amortization methods.
[Foreign Language]
Regarding your question on the reason we are seeing a decreasing trend on bandwidth cost -- sorry, the increasing trend on the bandwidth cost on a quarter-over-quarter basis; in the first quarter the bandwidth costs increased slightly due to the fact that we have seen increased user traffic and higher user engagement, as well as more intensive tournament during the period. But this increase was partially offset by our video recording technology, which helped us to achieve more efficient bandwidth usage in the quarter. And we expect the bandwidth cost in the fourth quarter of 2020 to increase slightly on a sequential basis due to more equal tournament's during that period.
Operator
Thank you. Our next question comes from Lei Zhang with Bank of America Securities Please go ahead.
Lei Zhang
[Foreign Language]
Thanks management for taking the questions. My first question is for the competitive landscape. Could you share with us your update reel on the competitive dynamics in recent quarters? And do you see any change in game streaming industry after our merger with Huya? Secondly, we noticed that some of our workshops video peers also doing like a shop or we do and ecommerce streaming. So can you share with us some updates on your game video and the ecommerce life journey is made up? And another housekeeping question on the OpEx; what are the main reason of increase of forecasting in fourth quarter? And how should we do the old traction in next one or two quarters? Thank you.
Shaojie Chen
[Foreign Language]
Okay. I will translate the response to the first question. Regarding the competitive landscape, we have not seen different trends this last quarter we see. As a leading theme might bring [indiscernible], we continue to build our game centric content ecosystem and energize our eSports community, and for other user segments such as developing short-form in videos. In short -form video tech enter the game by streaming phase. Overall, we've seen both user traffic and customer adaptation to increase accordingly, which has also helped to raise the feeling of the entire game, mainstream market and further accelerated the development of the industry. And from the competition perspective, we believe in the short run the industry competition will mainly revolve around the requirements of marketing efforts, the diversification of high quality content and the innovation of migration [ph] value.
In the long run, we expect the competition to focus on more rapid product upgrades and innovation of content forms, such as video and in the payment context, and the establishment of social communities that always held them to help such as eSports community, and the further integration of the result of both up and down the industry value chain. And we have been focusing on building a game centric content platform since inception, and we have clear advantage in terms of professional content creation and constant communication with the same user base formation, and the buildup of agencies, as well as population of the professional eSports content ecosystem. Now, we have created a stronger content barrier and as a result, we have cleared the advantage in attracting and maintaining more core game users. So looking forward with the league with raised ceiling of the entire industry, we were at more advantage of the above mentioned content and value chains to further expand our user coverage and web traffic.
And lastly, after the merger, we -- in fact, more invest in commercial cooperation between the two platforms, as well as with Tencent, which we believe will further enhance the positioning of the component.
[Foreign Language]
Regarding the cross-item question on the short videos, and ecommerce business; so we believe that the pre-recorded videos including short videos as a content carrier is more suitable for playback; it's also more inconvenient for the users to share and forward on the social platform, which in turn will help us to obtain more users and increase the user traffic. As of the third quarter, we had essentially completed the design and development of our applications for pre-recorded gaming videos; through this application, we are able to provide our users with an organic combination of rotating the pre-recorded gaming broadcast and the live streaming content, offering a more diverse supply of content to our platform, expanding the coverage of various user channels and ultimately stimulating our user engagement.
And speaking of our ecommerce business, we positioned it as supplement component to our live streaming business. And considering the unique user profile on all platforms, which many consists of young male users; we believe that games and sports related products are more suitable for our ecommerce live streaming. And in the short run, our main goal will be to utilize our ecommerce live streaming business model to further diversify our content and increase the streamline income.
Operator
Thank you. For the next question today...
Shaojie Chen
Before we pick up next one.
[Foreign Language]
Regarding the change on the operating expenses, first of all, sales and marketing expense excluding SVC, meaning includes the staff salaries and other related expense, channel promotion cost, sponsorship fees for our eSports team, as well as expenses for the online and offline events. In the third quarter this year, the sales marketing spend excluding SVC increased on sequential basis, mainly due to our increased marketing efforts for the eSports tournament resulting from the increase in eSports tournament frequency now as compared to the prior quarter. It was also due to our increased investment into those eSports teams which was known for marketing. We are quite positive about the long-term development of the eSports industry, and we will continue to invest in eSports related events and eSports team sponsorships going forward.
Meanwhile, we will also consistently upgrade our product features to improve our user conversion, and we will also enhance our content. In the future, we expect the absolute value of our sales and marketing expense to increase while as a percentage of total revenue to continue to improve. Speaking on G&A for the third quarter of 2020, and GMA excluding a fee increase on a sequential basis, mainly due to higher professional service fees resulting from the merger. And going forward, we believe the G&A expense will grow at a slow and steady rate with higher operating leverage. We expect the G&A expense as a percentage of the revenue to further decrease.
And lastly, on the R&D cost; in the third quarter R&D excluding SVC increased quarter-over-quarter, mainly because the increase in expenditures for the research and the development of new products to maintain the leading position of our technology and products in the industry, as well as the increased headcount for the overseas R&D personnel. And the sub salaries were accounted for more than 80% of our total R&D expense. So going forward, and although we will continue to invest in our R&D development as of now to maintain our industry leadership, we think our overall R&D expense will flow steady and with rapid revenue growth we expect our R&D cost as a percentage of revenue to further increase.
Thank you. Next one, please.
Operator
Thank you. Our next question comes from [indiscernible]. Please go ahead.
Unidentified Analyst
[Foreign Language]
Thank you management for taking my questions, I have two questions. The first question is related to the recent LOL Grand Finals of the competition. So from our perspective, has the -- has the eSport events being bringing a lot of traffic and users to our platforms? And the second question is related to our cloud gaming. Can management share some color in terms of how our cloud gaming has been developing? Thank you.
Shaojie Chen
[Foreign Language]
Regarding S10, we all know that the League of Legends World Championship as the grandest official event for LOL, it has always been attracting great number of users, especially this year, given many -- last year off-live events have been delayed or canceled due to COVID-19, making a S10 one of the rarely remaining global eSports events of the year. Besides being held in Shanghai, also helps it to attract a large audience domestically and attention over the internet. The LOL has always been a premium content segment for DouYu. We have many well-known streamers and a multiple layer of streamer and content supply system. We also find many famous LOL eSports teams at home and abroad, including LGD, JDG, TS and the Champion Team, CWG [ph]; and these adventures helps DLL segment to reach historical high in many operating metrics during the championship; making DouYu the first choice for audience and attract high-quality user traffic on DouYu.
[Foreign Language]
Regarding the cloud gaming; we believe that the cloud gaming industry chain rated infrastructure construction is still underway. And as a pioneer in the industry, we continue to explore in cloud gaming the color. For example, we launched the beta version 2.0 of cloud gaming this quarter, the updated version has a brand new UI design and supports over 200 games to-date. We also optimized the server functionality and compatibility, reduced the queuing time and delay which helps to further upgrade our users overall gaming. As an addition, we also explored the application for other cloud gaming -- cloud live streaming user scenario with gaming developers and publishers. In the future, we intend creating new business models by helping users experience games directly or compete with other players from direct -- different live streaming rooms. Thank you.
Operator
Thank you. Our next question today comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
[Foreign Language]
Thanks management for taking my questions. My question is about our content strategy in the next couple of years, as well as the growth driver in Q3 revenue, as well as one of the key factors in driving the revenue growth in future? Thank you.
Shaojie Chen
[Foreign Language]
On the content strategy, before we positioned ourselves as a game-centric commerce platform; and the live streaming is just one way to display our content. So in the future, we believe it's still our first priority to meet user needs, and we will keep raising new traffic through content enrichment. And secondly, streaming will continue to be our key content platform [ph]. Apart from our advantage in the existing gaming content, we also pay close attention to the new blockbuster games for other vertical games to the bowl [ph] for live streaming, and create eSports related content, events and programs. For example, in the third quarter we noticed a number of new game titles delivered strong with the trends on our platform. Meanwhile, we continue to recruit new streamers for different gaming titles, to maintain a steady supply of high quality content and attract more users to our platform.
And at the same time, we will continue to enrich our mundane content in areas like food, live talent show, outdoor and ACG [ph] which will help us to better meet our users [indiscernible].
[Foreign Language]
On the revenue growth trend in the third quarter, our revenues around Tencent events continue to grow steadily. Although the event at the end of the quarter did not meet our internal expectations, we continue to optimize and improve our interactive product function while cultivating [ph] the paying habits of users and actively acquiring new users. And as a result, our live streaming revenue in the third quarter continue to grow on both, year-over-year and quarter-over-quarter basis. Meanwhile, our paying users increased by 4.5% quarter-over-quarter to 7.9 million from 7.6 million in the previous quarter. And secondly, our assignments and operations across different segments helped to improve each segment with monetization efficiency.
We also continue to diversify our content to improve the monetization efficiency and revenue contribution from our non-gaming segment. And we also further improved the monetization efficiency and our mid-tier payments through a deeper collaboration with other agencies, as well as tailors and high efficient products. And on the advertising revenue, the quarter-over-quarter increase was mainly attributable to increase in streamers, promotion ads, at the same time the launch of new gaming titles such as [indiscernible] helped us further increase the game advertising revenue. And in fact, the brand advertising revenue to increase in the fourth quarter as a result of increasing branding activity through that period including those that will take place during the [indiscernible]. Thank you.
Operator
Ladies and gentlemen, this concludes the question question-and-answer session. I'd like to turn the conference back over to the management team for the final remarks.
Shaojie Chen
Thank you, all, for joining us today. If you have any further questions, please feel free to contact us through our IR site. Thank you, and have a good day.
Operator
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
