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Editor/Midnight

This is Douyu's first large-scale dividend distribution since its listing five years ago, with a planned dividend of US$300 million.

On July 3, Douyu announced that the company's board of directors approved a special cash dividend of US$9.76 per common share, or US$9.76 per American Depositary Share (ADS).

Based on Douyu's current total share capital of approximately 31.64 million shares, Douyu expects to pay a total cash dividend of approximately US$300 million, which will be paid to common shareholders and American depositary receipt holders around August 30 this year.

In response, Douyu said that in view of the company's ample cash balance, the board of directors decided to pay dividends to return value to shareholders.

The next day, Douyu’s stock price soared 42.49% to close at US$17.94 per share, with a market value of US$568 million.

Generally speaking, companies that distribute large dividends mostly do so after achieving sustained growth in performance and making certain profits, but Douyu’s situation is different.

It is currently paying large dividends, perhaps to strengthen the confidence of its shareholders and the capital market.

Since CEO Chen Shaojie was arrested late last year, Douyu has been in a continuous adjustment internally, and the company's management has been transferred to an interim management committee.

Since its listing in 2019, Douyu has not been a company that has been generous in paying dividends. From the perspective of corporate funds, Douyu has money in its account, but its performance is not good.

After Douyu's unexpected dividend distribution, the outside world became more curious about Douyu:Douyu is at a critical juncture of business transformation. After the major shareholder cashes out, how much "remaining grain" does Douyu have? And how will it turn the situation around and achieve better development?

1. What does Douyu want by distributing huge dividends?

Before discussing dividends, let’s take a look at Douyu’s cash flow.

As of the end of the first quarter of this year, Douyu held cash and cash equivalents, restricted cash, short-term and long-term bank assets totaling approximately US$937 million. After Douyu's one-time dividend of US$300 million, it still had more than US$600 million in cash on hand, which is not a large amount.

Douyu also needs to repurchase $20 million of shares. As of March 31, 2024, Douyu has repurchased a total of $2.7 million of ADS (American Depositary Shares) under the plan and plans to continue repurchasing in the second quarter.

In addition, Douyu has released signals of strategic adjustments. Whether it is adjusting the business model or seeking new growth points, it will require a lot of costs.

It needs to find a way to make more money as quickly as possible to support future business expenses.

The reason why Douyu is willing to take risks and distribute dividends is closely related to its current development status.As a listed company, Douyu needs to boost investor confidence, increase market activity, and especially stabilize its stock price.

On July 17, 2019, Douyu was listed on the Nasdaq with an issue price of $11.5. At the end of last year, Douyu's stock price fell to a low of $0.739 per share, and it was almost at risk of delisting.

In addition, Douyu’s more important goal is actually to meet the needs of major shareholders to deliver cash dividends.

Regarding the dividend, Douyu's interim management committee said, "Although we continue to face a challenging macroeconomic and operating environment, we remain committed to protecting the interests of shareholders. Based on the company's current cash position, the board of directors has approved a special cash dividend of approximately US$300 million as part of our continued return of value to shareholders."

Tencent is the direct beneficiary of this dividend. Currently, Tencent holds approximately 38.2% of Douyu's shares through its Entities affiliated with Tencent, making it the company's largest shareholder. Tencent is expected to receive a cash dividend of more than US$110 million in this dividend, which is a huge gain.

Image source: Tencent official website

Another major shareholder of Douyu is Douyu’s founder and CEO Chen Shaojie. As of March 31, 2024, Chen Shaojie held 5.4419 million shares of Douyu, accounting for 17.2% of the shares, and is expected to receive cash dividends of more than US$50 million.

Overall, the top two shareholders, Tencent and Chen Shaojie, hold a total of 55% of the shares, and their total dividends reached approximately US$165 million.

Paying this dividend puts Douyu under considerable pressure and it will need to invest more cash in strategic transformation in the coming year. Whether it can achieve a breakthrough remains unknown.

2. After appeasing the old shareholders, you must also restore investors’ confidence as soon as possible

Douyu is no longer the Douyu of the past.

In 2019, when Douyu rang the bell for its listing on the Nasdaq in the United States, the future was still bright: key performance indicators continued to rise year by year, and the industry pie was getting bigger and bigger; players such as Bilibili and Kuaishou became new variables in the industry, but the number of daily active users could not compete with them.

According to the financial report, from 2021 to 2023, Douyu's mobile MAU will be 62.4 million, 57.4 million, and 51.7 million, respectively; the average number of paying users will be 7.3 million, 5.6 million, and 3.7 million, respectively. In the first quarter of 2024, the mobile MAU will drop to 45.3 million, and the number of paying users will drop to 3.4 million.

In order to win back users, Douyu has also launched a series of measures, including increasing cross-platform content cooperation and content sharing to provide users with better content to meet their diverse needs. At the same time, it has deepened cooperation with game manufacturers and promoted the sale of game props to meet the needs of deep gaming users.

Whether or not these strategies can really attract users is crucial, because it concerns Douyu’s future revenue and profit prospects.

According to the financial report, Douyu's revenue scale from 2020 to 2023 was 9.6 billion yuan, 9.1 billion yuan, 7.1 billion yuan and 5.53 billion yuan respectively; in terms of net profit, Douyu has been losing money continuously since 2021. After a brief turnaround in 2023, it fell into loss again in 2024.

In the first quarter of 2024, Douyu achieved revenue of US$144 million, a year-on-year decrease of 29.9%; during the same period, it recorded a net loss of US$12 million, turning from profit to loss year-on-year.

All this has caused the capital market to become pessimistic about Douyu. After appeasing its major shareholders, Douyu needs to undergo a cross-cyclical transformation if it wants to regain investors' confidence - it needs to transform into a commercial company as soon as possible and use the development of new businesses to alleviate the overall decline in performance.

At the beginning of 2024, Douyu adjusted its organizational structure and reorganized the company's important content ecology division into three major divisions: anchors, events, and manufacturers, hoping to promote the transformation of its business and model.

In terms of specific business, Douyu is promoting the diversification of the platform's revenue by starting from the sale of game props, game advertising and distribution services.

Although most of the new businesses that Douyu is targeting revolve around the gaming industry, it will still take Douyu longer to accumulate experience in new areas if it wants to cope with industry competition.

For example, in terms of game props, Douyu cooperates with game manufacturers to launch limited skins, props and other activities, and develops platform membership business based on game props.

At present, Douyu has reached cooperation with more than 10 popular games such as Peace Elite, DNF, Honor of Kings, LOL Mobile Games, etc. As a cooperation channel for game manufacturers' commercial activities, Douyu promotes game props through platform anchors, content creation and operation activities.

However, the sale of game props is not uncommon, and some short video platforms have also launched live broadcast support plans for the sale of game props.

The challenge of this business lies in that Douyu needs to strengthen cooperation with high-quality game manufacturers and launch more differentiated operational activities, which will test Douyu's basic strengths such as user scale, anchor ecology, and platform atmosphere.

In the process of exploring the commercialization path, Douyu also needs to face up to performance issues such as revenue and losses, and change the trend of declining user and anchor scale.

In essence, this is a traffic ecology extension problem that content platforms must face. How to obtain fresh traffic and revitalize existing traffic through new gameplay requires further consideration by Douyu.

It is still on the road of transformation, trying to build a marketing system covering the entire life cycle of games through in-depth cooperation with game manufacturers to promote user payment. At the same time, it hopes to increase investment in high-quality content, strengthen cooperation with manufacturers, implement refined operations, and explore business diversification.

Douyu was founded in 2014 and celebrates its 10th anniversary this year. In the future game market, platforms that only have a single live broadcast model will not be able to withstand multiple risks and are doomed to be eliminated.

Douyu needs to regain its fighting power and reverse the current situation through more drastic reforms and stronger measures in order to save itself and change the capital market's view of itself.