Livestream Gamer DouYu Edges Ahead in Cost-cutting Battle

China’s gaming platforms, once locked in a fierce battle for dominance in a booming market, are now competing in the cost-cutting stakes as tighter regulation puts a dampener on the livestreaming industry.

Two gaming giants feeling the heat are long-time rivals DouYu International Holdings Ltd. (DOYU.US) and Huya Inc. (HUYA.US). Both are backed by internet titan Tencent (700.HK) and together the two platforms control more than 70% of China’s livestream gaming market.

The companies are now in the fight of their life, with business nosediving after the Chinese government tightened its oversight of the online gaming industry, introducing strict curbs on spending by young players.  Neither platform escaped the wave of layoffs that swept the livestream gaming industry early this year. The word on the street is that both shed up to 30% of their staff. After dismal first-quarter earnings, both livestreaming platforms decided they needed to get to work on cutting costs.

We warned readers of the gloomy prospects for the companies in the second quarter in a previous article, but there might be a glimmer of light for investors as all the cost-controlling efforts start to show up in the firms’ earnings statements.

It’s definitely game on in the fight to restore financial stability. The rivals’ second-quarter results  merit a closer look to assess how their cost-control strategies are playing out.

Overall, DouYu’s total revenues fell by around 22% in the second quarter while Huya’s revenues tumbled 23%, with both livestreaming and advertising sales tumbling.

DouYu’s streaming revenue fell by nearly 19% from the year-earlier quarter to 1.77 billion yuan ($258 million), accounting for more than 96% of its total revenue. Huya’s streaming revenue dropped by just over 20% to 2.05 billion yuan, more than 90% of total revenue.

Huya attributed the fall to lower average spending by its paying users, whose gaming activity has been dampened by the economic and regulatory environment. Advertising revenues also fell sharply, by 59% at DouYu and 42% at Huya, which the companies blamed on challenging economic conditions in China that are curbing demand for advertising services.

DouYu slashes costs by a quarter

Obviously, the gaming business is slowing down after a stellar expansion, with the superstar companies that used to compete in investing for high-quality returns now vying for the cost-cutting crown.

DouYu has nudged ahead, cutting its operational costs by nearly 25% to 1.52 billion yuan to turn back the recent tide of red ink. It ended six consecutive seasons of non-GAAP adjusted net losses in the second quarter to log an adjusted net profit of 23.50 million yuan. Before adjustment, the company made a net loss of 38.80 million yuan, substantially better than the first-quarter loss of 86.90 million yuan, and the company is determined to land definitively back in the black soon.