What happened
Shares of DouYu International Holdings (DOYU -3.75%) were up 16% as of 11:21 a.m. ET on Monday after the company reported better-than-expected earnings results for the second quarter.
The Chinese livestreaming platform provider posted a sequential increase in average mobile monthly active users and quarterly average paying users. DouYu has struggled over the past year as regulatory authorities in China intensified their scrutiny of the tech sector's influence on young people. After the post-earnings pop, the stock is still way off its highs, down 45% year to date.
So what
Revenue declined 21% year over year after management made changes to certain interactive features in response to a tighter regulatory environment. This continues the trend in the previous quarter, when revenue also fell by double-digit percentages year over year.
DouYu's stock has also been under pressure due to the threat of being delisted on U.S. exchanges. In March, the Securities and Exchange Commission released its first list of companies that are formally subject to being delisted if they don't comply with U.S. auditing rules. This has been a dark cloud hanging over many top Chinese stocks this year.
Now what
Investors were pleased to see DouYu's cost-control measures improve profitability. Gross margin was 16.9%, up from 13.1% in the year-ago quarter. This contributed to a narrower loss on the bottom line and could be a source of further margin improvement in the near term.
Management will continue to focus on investing in content, while also driving better operating efficiency. However, with the regulatory uncertainties still weighing on the stock, a sustained recovery in DouYu's share price likely won't come until the threat of delistment goes away.
