Earnings call: Hello Group reports a decline in total revenues and in Q1

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Earnings call: Hello Group reports a decline in total revenues and in Q1
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Hello Group Incorporated (NASDAQ: MOMO) announced its first quarter 2024 financial results, revealing a mixed performance with a decline in total group revenue and adjusted operating income. The company's earnings call highlighted a year-over-year revenue drop to RMB2.56 billion and a sequential decrease of 17%.

Hello Group's focus remains on enhancing its Momo (NASDAQ: MOMO ) app, refining the Tantan dating experience, and expanding new ventures, despite the challenges faced in the Middle East region and a general revenue dip.

Key Takeaways

  • Total group revenue fell by 9% year-over-year to RMB2.56 billion.
  • Adjusted operating income slightly dropped by 0.5% year-over-year to RMB515 million.
  • Revenue from the Momo app and new standalone apps was down 8% year-over-year.
  • Tantan's total revenue decreased by 22% year-over-year, mainly due to fewer paying users.
  • Revenue from new apps showed a 51% year-over-year increase, driven by overseas market growth.
  • Non-GAAP operating income and margin experienced a year-over-year increase but a sequential decrease.
  • Hello Group's cash and equivalents rose to RMB15.12 billion as of March 31, 2024.

Company Outlook

  • Hello Group expects a year-on-year revenue decrease of 15.5% to 12.4% but anticipates a quarter-on-quarter increase of 3.5% to 7.4%.
  • Momo app revenue is projected to rise by mid-single digits, while Tantan revenue may decrease by mid-single digits.
  • The company intends to leverage Momo's core value proposition for future VAS and develop immersive audio and video features.
  • Despite a temporary slowdown during Ramadan, the company predicts impressive profit growth in the overseas segment.

Bearish Highlights

  • Tantan's live streaming revenue plummeted by 37% year-over-year due to a strategic de-emphasis on this service.
  • Non-GAAP operating income and margin decreased sequentially.
  • The Middle East business faced temporary challenges during Ramadan, impacting revenue growth.

Bullish Highlights

  • New apps revenue surged by 51% year-over-year, indicating strong growth in international markets.
  • Tantan's adjusted operating income nearly doubled year-over-year due to efficient channel management and cost optimization.
  • The overseas business maintained rapid year-on-year growth despite short-term obstacles.

Misses

  • Tantan experienced a significant decline in both VAS and live streaming revenues year-over-year and quarter-over-quarter.
  • The company did not provide specific quantitative outlooks for user trends, revenue, or profit for Tantan.

Q&A Highlights

  • Hello Group plans to strike a balance between profit growth and future investment.
  • An upgraded version of Tantan is in development, with a focus on enhancing user experience and engagement.
  • The company is set to moderately increase marketing spend in the second quarter to stabilize the user base and improve brand awareness.

In summary, Hello Group's first quarter of 2024 reflected a strategic shift towards enhancing user experience and expanding into new markets, despite the decline in revenue and adjusted operating income. The company's efforts in product innovation and market optimization are expected to pave the way for future growth, even as it navigates through current challenges and uncertainties.

InvestingPro Insights

Hello Group Incorporated (MOMO) has shown resilience in its strategic shift, as evidenced by the first quarter 2024 financial results. Here are some insights based on the latest real-time data and InvestingPro Tips that may shed further light on the company's financial health and market position:

InvestingPro Data indicates that MOMO holds a market capitalization of $1.02 billion, which provides a sense of the company's size and market value. With a P/E Ratio (Adjusted) of 3.4 for the last twelve months as of Q4 2023, the company is trading at a low earnings multiple, suggesting that it may be undervalued relative to its earnings. Additionally, the PEG Ratio of 0.11 for the same period indicates that the company's earnings growth rate is substantial in comparison to its P/E ratio, potentially pointing to a favorable investment opportunity.

Two particular InvestingPro Tips highlight the company's financial prudence and potential for return to shareholders: First, Hello Group has been aggressively buying back shares, which often signals confidence from management in the company's prospects and can lead to increased shareholder value. Second, the company holds more cash than debt on its balance sheet, which is a strong indicator of financial stability and flexibility.

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Full transcript - Momo Inc (MOMO) Q1 2024:

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2024 Hello Group Incorporated Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Please note, this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

Ashley Jing: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 2024 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today are Mr. Tang Yan, CEO of the company; Ms. Zhang Sichuan, COO of the company; and Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights as well as the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please.

Sichuan Zhang: Hello, everyone. Thank you for joining our call. Since the beginning of the year, we have made steady progress in implementing our strategic priorities across all business lines. I will now walk you through the details. I will start with a brief overview of our financial performance. For the first quarter of 2024, total group revenue was RMB2.56 billion, down 9% year-over-year and 17% sequentially, slightly exceeding the high end of our revenue guidance. Adjusted operating income was RMB515 million, a slight decrease of 0.5% year-over-year and down 22% sequentially. Profit margin was 20.1%, up 1.8 percentage point year-over-year, but down 2 percentage point sequentially. The year-over-year margin improvement, despite lower revenue, was primarily due to our continued efforts to improve cost efficiency across our business lines, offsetting the revenue decline impact. Specifically, we drove continued efficiency improvement in personnel and cash utilization by reducing inefficient channel investments and optimizing stock allocation. As a result, costs declined more than revenue, and the cost optimization initiatives drove margin improvement. The sequential decline in margin was primarily due to negative operating leverage, resulting from the seasonal decline in revenue. Total revenue from the Momo app and standalone new app was RMB2.32 billion, down 8% year-over-year, mainly due to the declines in revenue from the Momo app, resulting from spending softness amidst the weak market economy and our proactive product and operational adjustments to maintain a healthy community ecosystem. Standalone new apps, especially overseas, continued to grow rapidly year-over-year. Adjusted operating income was RMB487 million, down 3% year-over-year, with a margin of 21%, up 1 percentage points from a year ago. For Tantan, total revenues decreased 22% year-over-year to RMB241 million, mainly due to the reduced number of paying users. Our commercial product team continues to optimize the paying experience to improve ARPPU, which partially mitigated the revenue pressure. Tantan's adjusted operating income was RMB28 million, up 92% year-over-year, with a margin of 11.6%, up 6.9 percentage points from a year ago. Now, I'll walk you through the progress we have made against our strategic priorities for Momo, Tantan and new endeavors since the beginning of the year. As I highlighted on the Q4 2023 earnings call in March, the main goal for the Momo app this year is to maintain the productivity of this cash cow business with a healthy ecosystem. The Tantan's goal is to continue to improve the core dating experience and build an efficient business model that drives profitable growth. As for our new endeavors, our plan is to enrich the brand portfolio further, push the business boundaries beyond Momo and Tantan, and build long-term growth engine. I will now walk you through the details of our execution. First, on the product and operational front of the Momo app. Since the beginning of the year, our product team has been focused on continuously enriching use cases and gamified features, as well as shortening Momo's social [contributes] (ph). To help users improve their interactive experience, we acquired AI technology to assist with chatting and image generation features. For example, [AI Greeting] (ph) provides chatting assistance service for users who want to make new friends from the [nearby people list] (ph). In another word, AI can suggest ice-breaking topics to users by analyzing the image and text information on the potential candidate's profile page. Data from the test group shows that this feature plays a positive role in increasing the [Greeting's] (ph) response rate. Another example is AI Magic Mirror or AI Morphing, an image generation tool that allows users to synthesize photos with other users or landmarks, increasing users' social capital to provide new ways to interact. In addition, last year, we piloted the Finding Partners or [indiscernible] program for our online to offline interest group in several major cities, which was well received by young users. The number of times outdoor activity groups represented by City Walk grew quite strongly in the first quarter. Product innovation and our ability to keep pace with the time and technology has enabled Momo, a mature social brand with a 30-year history, to play an essential role in helping users to discover new relationship and build meaningful interaction. This has laid a solid foundation for our Momo app to maintain user and revenue scale over the long term. On the channel front, about a year ago, we shifted our focus from general user growth to ROI-oriented profitable user growth. This model is more pragmatic and better suited to Momo's current stage of development as well as the overall economic environment. Our adjusted budget allocation for various channels according to the traffic at the beginning of the year, optimized potential channels, cut spending in channels and ads with poor ROI and explored new ways to bring incremental traffic, while further reducing user acquisition costs through collaboration with KOL. We also focused on improving paying conversion, acquiring more high-paying users and improving our ability to better accommodate this group of people with more suitable features on our mobile app. In the first, the Momo app has 7.1 million paying users, a decrease of 300,000 from the previous quarter, mainly due to two reasons. First, our product and operational adjustment to reduce competition events resulted in a decline in paying users. Second, in order to improve profitability and pursue profitable growth, our channel team reduced investments in acquiring low-paying users with negative channel ROI, resulted in a decrease in long-term paying users. Now, let's talk about the productivity of our Momo cash cow business. In the first quarter, Momo's live streaming revenue was RMB1.15 billion, down 11% year-over-year and 90% sequentially. The year-over-year decrease was mainly due to our strategy and proactively reduced revenue-oriented large-scale competition events in order to maintain a good social ecosystem and [manage in healthy] (ph) monetization approaches adopted by broadcasters and agencies to obtain competition event-related bonuses. Spending softness amidst the weak macro economy was another reason for the year-over-year decrease in revenue. The sequential revenue decrease was due to the Chinese New Year seasonality. On the product operation side, we fully leveraged Momo's social contribute to achieve the transition from revenue-oriented competition events to user-oriented content-focused operational activities. We managed to drive non-event-related, in other words, organic revenue growth by strengthening support for high-quality content and adding new gamified features. Cost savings from reduction in operational activities during Chinese New Year resulted in a slight sequential decrease in the revenue sharing ratio. Revenue from value-added services, excluding Tantan, totaled RMB1.15 billion for the first quarter, down 4% year-over-year and 9% sequentially. VAS revenue from the Momo app was RMB806 million, down 17% year-over-year and 14% sequentially. Revenue from the standalone app was RMB343 million, up 52% year-over-year and 6% sequentially. The year-over-year decline in VAS revenue from the Momo app was mainly due to our proactive product and operational adjustments to mitigate the regulatory risk as well as the spending softness amidst the weak macroeconomy. The sequential decline was due to Chinese New Year seasonality. On the product front, the user scale of the audio and video based VAS experience gradually recovered after the Chinese New Year, thanks to our efforts to drive the penetration rate. Our team made a smooth transition from competition event driven to non-event-focused operations by enriching interaction features and upgrading core gamified play. The steady increase in organic revenues partially offset the reduction in competition events. The group's revenue for the quarter was slightly better than expected, mainly due to the smooth transition of the Momo app VAS business, which has strong social contributes. The overall revenue sharing ratio decreased slightly compared to the previous quarter due to the seasonal cost savings. Now moving to the Tantan. First, regarding user trends and financial performance. As the cold wave at the beginning of the year and Chinese New Year holiday reduced Tantan's user demand, our team reduced channel investments and our user base fell to a low point. In March, with the gradual easing of external unfavorable factors and the improvement in user experience brought about by continuously ecosystem improvement and recommendation strategy optimization, our user base and retention started to recover gradually. Tantan's MAU was 13.7 million in March, flat sequentially. As of the end of the first quarter, Tantan had 1.1 million paying users, down 100,000 sequentially, primarily due to the redesign of the auto-renewal page as required by the regulators. Our commercial product team has improved user propensity to pay by optimizing [guidance] (ph) on the paying experience and highlighting differentiated member experience, thereby mitigating the negative impact on paying users from the renewal page redesign. Turning to Tantan's financials. Total revenue for the first quarter was RMB241 million, down 22% year-over-year and 11% sequentially. The year-over-year decrease was mainly due to reduced number of paying users. The increase in the revenue contribution of relatively high-end Black Gold and SVIP membership products drove overall ARPPU growth, partially mitigated the revenue pressure caused by reduction in paying users. The sequential revenue decline was mainly due to the change in auto-renewal policy as well as seasonality, which put pressure on paying users and ARPPU. In terms of business lines, VAS revenue was RMB145 million, down 14% year-over-year and 10% sequentially, while live streaming revenue was RMB87.7 million, down 37% year-over-year and 12% sequentially. The significant year-over-year decrease was mainly due to the ongoing operational strategy to de-emphasize live streaming. Tantan's adjusted operating income for the first quarter was RMB28 million, nearly doubling year-over-year despite lower revenue and slightly up 4% sequentially. Profit growth was mainly driven by continued improvement in channel efficiency and personnel cost optimization. Now, I would like to walk you through the details of Tantan's progress on channel and product front. First, on channel front, over the past two years, our user acquisition team has continuously cut in-efficient channel and marketing approaches and further reduced marketing investments in negative ROI, laying a solid foundation for Tantan to achieve profitable despite revenue pressure. In the first quarter, thanks to the effective control of spamming activities and continuous improvement in ARPU over the past year, new user ROI meaningfully improved over the previous year. While our channel strategy optimization has yielded promising results over the past two years, the space for continuous optimization of user acquisition cost is relatively limited. Meanwhile, a major problem facing Tantan user growth model is relying too much on user acquisition through paid channels and too little on adding users organically through brand recognition. As a result, although the overall user acquisition cost has continued to decline over the past year or so, the reduction in overall average cost of new users was quite limited due to the continuous decline in number of new organic users. To explore new growth models and, more importantly, to increase the portion of new users acquired outside paid channels, our user acquisition team plans to ramp up spending on KOL advertising, which is both ROI-focused and brand-oriented. Preliminary data in March shows that the popularity of new user acquired through offline branding activities was higher than the overall average. We believe that improving brand image will contribute to sustainable and stable organic user growth over the long term, thereby effectively reducing the overall user acquisition cost in the long run and helping to achieve a positive business cycle. We are now moving to Tantan's progress on product and operational side. To achieve our strategic goal of improving the core dating experience and building an efficient business model, our user product team focused on two things in the first quarter. First, we continued our anti-spam campaign with the updated strategy to enhance anti-spam capabilities to improve user experience. Second, we are working on an upgraded version to improve the dating experience. Our new version focuses on guiding users to enrich their personalities by adding more information to their profile page, thereby increasing their reach and matching performance and improving the efficiency of matching and [in-depth] (ph) interaction thereafter. Meanwhile, in terms of UI design, we have slightly de-emphasized the swipe mode and encouraged users to scroll down and check out the details of each candidate. We started testing the new version at the end of April. We are currently iterating and emphasizing the version based on our user feedback and gradually expanding the texting scale. In terms of monetization, we're adding short-term VAS membership packages to lower the threshold for new paying users. In addition, we have built a paying model in core swipe and match mechanisms specifically for users without qualified photos to improve long-term retention and paying conversion of this group of users. We firmly believe that our efforts to continue to focus on product innovation and improving paying experience to drive ARPU growth is the only effective way for Tantan to achieve its strategic growth of profitable growth in the long term. Lastly, in terms of new endeavors, in the first quarter, the total revenue of the new apps, included social and gaming products, was RMB344 million, up 51% year-over-year and 5% sequentially. The year-over-year increase was mainly driven by the rapid growth in our overseas business. On a sequential basis, consumer sentiment in Arabic-speaking regions experienced a seasonal decline due to the impact of Ramadan. At the beginning of the year, our user acquisition team increased investments in overseas channels and enhanced collaboration with local KOLs, resulting in a significant year-over-year and sequential increase in numbers of users and paying users. Launching new gifting features and rapid growth in Turkish-speaking markets led to a slight sequential increase in overseas revenue during the offseason, contributing, in portion, incremental revenue for the standalone new apps. At present, we are accelerating the localization process of our overseas business. On the product side, we are introducing more interactive gamified features in-line with local user preferences and stepping up the testing of live streaming. On the operational side, we are improving customer experience and product experience specifically for high-paying users. At the same time, we are strengthening collaboration with local agencies and broadcasters to improve content quality. Undoubtedly, making rapid progress in multiple regions in the Middle East means we will face more uncertainty and challenges due to the geo diversification. For example, the sharp depreciation of Egyptian pounds in March caused significant foreign exchange losses. In addition, as we gradually beef up our local operational team and start entering new markets, we could put more pressure on the profit of our overseas business in the short term. However, these upfront investments have laid a necessary foundation for future revenue and profit growth. This concludes my remarks. Now, let me pass the call to Cathy for the financial review. Cathy, please?

Hui Peng: Thank you, Sic. Hello, everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the first quarter 2024 was RMB2.56 billion, down 9% year-on-year and 15% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB59.9 million compared to RMB471.9 million for the same period of 2023. In the first quarter, we accrued a withholding income tax of RMB448.6 million associated with our historical undistributed earnings generated by our WFOE. I will elaborate a bit later on such accounting treatment. This tax expense item is on accrual basis, meaning that it did not result in an actual cash outflow in that amount during the current quarter. In addition, it was one-off in nature and did not reflect the fundamental performance of the current quarter, nor is it indicative of future profit prospects. Excluding this special item, non-GAAP net income for the quarter would have been RMB508.5 million, up 8% from the same period -- from the same quarter last year, but slightly down 1% sequentially. I'm glad to see that net income attributed -- net income continue to grow on a year-over-year basis despite lower revenue. This was mainly attributable to our effective cost optimization and efficiency improvement initiatives. Now, let me walk you through the details. Looking into the key revenue items for the quarter. Firstly, on live broadcasting, total revenue from live broadcasting business for the first quarter of 2024 was RMB1.24 billion, down 13% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to three factors. Number one, our proactive product and operational adjustments to deemphasize revenue-oriented competition events for the sake of maintaining a healthy ecosystem. Number two, soft consumer sentiment amid the weak macro economy. Number three, content strategically pivoting away from the less dating-centric live streaming service. The sequential decrease was due to CNY negative seasonality. Momo app live broadcasting revenue totaled RMB1.15 billion for the quarter, down 11% year-over-year and 19% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB87.7 million, down 37% year-over-year and 12% quarter-on-quarter. Revenue from value-added services for the first quarter of 2024 was RMB1.29 billion, down 5% from Q1 last year and 9% sequentially. Revenue from value-added service on an ex Tantan basis was RMB1.15 billion in the first quarter of 2024, down 4% from Q1 last year and 9% from the previous quarter. Mobile app VAS revenue decreased both on a quarter-over-quarter and quarter-over-quarter basis. This was due to our proactive product adjustments to manage regulatory risk as well as a weak spending sentiment coupled with negative seasonality. On the other hand, revenue from the standalone new apps continue to grow steadily, partially offsetting the revenue pressure from Momo value-added service. Tantan's value-added service revenue amounted to RMB145.1 million, down 14% year-over-year and 10% sequentially. The YoY decrease was due to a decline in paying users, which was in turn due to a reduction in channel investment, the anti-spam campaign and the adjustments to subscription renewal policy. The sequential decrease was due to the CNY seasonality, which had a negative impact on both paying users and ARPU. Now turning to costs and expenses. Non-GAAP cost of revenue for the first quarter of 2024 was RMB1.50 billion compared to RMB1.66 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.4%, up 0.4 percentage points from the year-ago period and 0.3 percentage points from last quarter. The increase was due to an improvement in Tantan's margin that resulted from a shift in its revenue mix. Non-GAAP R&D expenses for the first quarter was RMB183.4 million compared to RMB214.4 million for the same period last year or a 14% decrease year-over-year. The decrease was due to the continuous optimization in personnel and infrastructure costs. Non-GAAP R&D expenses as a percentage of revenue was 7% compared with 8% from the year-ago period. We ended the quarter with 1,375 employees, of which 294 are from Tantan, compared to 1,533 total employees, of which 374 from Tantan a year ago. The R&D personnel as a percentage of total employee for the group was 62% compared with 63% Q1 last year. Non-GAAP sales and marketing expenses for the first quarter was RMB287.3 million or 11% of total revenue compared to RMB372.0 million or 13% of total revenue for the same period last year. The significant year-over-year decrease both in terms of absolute renminbi amount and as a percentage of revenue was primarily attributable to two reasons. One, in Q1 last year, we hosted an offline year-end gala for Momo live streaming. Number two, our strategy to train inefficient channel marketing spend and focus on channel ROI. It's worth calling out that the offline annual gala for Momo live streaming is scheduled to happen in June 2024. Therefore, we expect the marketing costs in the second quarter of this year to see a spike due to that event. Non-GAAP G&A expenses was RMB93.5 million for the first quarter of 2024 compared to RMB88.4 million for the same quarter last year, representing a 4% and 3% of total revenue respectively. Non-GAAP operating income was RMB515.0 million, a slight decrease of 0.6% from Q1 2023, down 22% from the previous quarter. Non-GAAP operating margin for the quarter was 20.1%, up 1.7 percentage points from the same period last year, but down 2.0 percentage points from the previous quarter. Non-GAAP OpEx as a percentage of total revenue was 22%, a decrease from 24% from Q1 2023, but up from 20% in Q4 last year. Non-GAAP operating expenses on a year-on-year basis decreased 16%. The decrease in both absolute renminbi amount and as a percentage of revenue for OpEx was mainly due to a reduction in sales and marketing expenses and to a lesser degree optimization in personnel costs. Non-GAAP operating expenses decreased 6% sequentially. This was attributable to a decrease in year-end bonus as well as double pay. Now briefly on income tax expenses. Total income tax expense was RMB557.6 million for the quarter. In Q1, the company repatriated RMB2.0 million from our WFOE in China to our offshore entity in order to replenish our U.S. dollar funding. As such repatriation already partly involved our historical undistributed earnings for prior years and since we might continue to distribute the WFOE's retained earnings to fund overseas business operation, shareholder return and potential investments Based on the principle of conservatism, in Q1, we accrued withholding tax of RMB448.6 million, which is 5% of the historical undistributed earnings of our WFOE. As said at the beginning of my remarks, this tax expense item is on accrual basis, meaning that it did not result in an actual cash outflow in that amount during the quarter. In addition, it was one off in nature and did not reflect the fundamental performance of the current quarter nor is it indicative of future profit prospects. Without withholding tax, our estimated non-GAAP effective tax rate was around 15% in the first quarter. Now, turning to balance sheet and cash flow items. As of March 31, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled RMB15.12 billion compared to RMB13.48 billion as of December 31, 2023. Net cash provided by operating activities in the first quarter of 2024 was RMB400.2 million. Lastly, on business outlook. We estimated our first quarter revenue to come in the range from RMB2.65 billion to RMB2.75 billion, representing a decrease of 15.5% to 12.4% year-on-year or an increase of 3.5% to 7.4% quarter-on-quarter. At segment level, for Q1 2024 on a sequential basis, we expect Momo revenue to increase around mid-single digit. On the Tantan side, we expect revenue to decrease mid-single digits. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please?

Ashley Jing: Thank you. Just a quick reminder before we take any questions. For those who can speak Chinese, please ask your questions in Chinese first and followed by translation by yourself. And operator, please, we're ready for questions. Thank you.

Operator: Thank you. [Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Please go ahead.

Xueqing Zhang: [Foreign Language] Thank you management for taking my question. My question is about Momo. Considering adjustment to macro environment, regulation and [other risks] (ph), what's your strategy for VAS in the future? Also, you mentioned in the prepared remarks, Momo reduced the competition events. Does it improve the revenue-sharing ratio of live streaming and VAS? And lastly, how to view the revenue and profit of the core Momo in 2024? Thank you.

Yan Tang: [Foreign Language] [Interpreted] Okay. Given the uncertainties in the macro environment in the end of last year, our team proactively reduced the revenue-oriented competition events in the live streaming and audio and video based VAS experiences in order to protect user experience and limit the unhealthy monetization approaches adopted by broadcasters and agencies to obtain more revenue from competition events. The year-over-year revenue changes in the past two quarters reflected the impact of this operational adjustments on the Momo app revenue. And since the beginning of the year, our team has introduced a new interactive gamified features and fostered the supply of high-quality content and leveraged Momo's strong social attribute to drive organic revenue growth, partially offsetting the decrease in competition events related revenue. I'm very pleased with the team's ability to flexibly respond to changes in the external environment and make a smooth transition from competition events driven to non-event-focused operations. This year, we plan to further pursue this strategy of fully leveraging Momo's core value proposition and develop more immersive interactive unified features in the audio and video based experiences and explore incremental revenue opportunities. [Foreign Language] [Interpreted] In terms of revenue sharing, our basic revenue sharing policy has remained stable over the past few years. Due to the reduction in competition events in the past six months, we have saved some bonus costs. However, the decrease in revenue caused by these operational adjustments has resulted in lower income for broadcasters and lower profits for agencies. As a result, we believe that it makes strategic sense to use a portion of the saved bonuses to increase the revenue sharing for non-event operations and to enhance agency engagement and motivation through moderate profit concession. And consequently, our overall revenue sharing ratio will remain basically stable compared to the previous period. And as for our revenue and profit guidance, I'll leave it to Cathy.

Hui Peng: Okay. Before talking about the revenue outlook, I would like to remind the analysts and investors that the Momo segment revenue actually includes both the revenues from the core Momo application and the revenues from the new applications, including Social, Hertz and Duidui, et cetera. That's something you may want to bear in mind when taking our comments into your modeling. Now, on the core Momo application, as in the past few quarters, future revenue trajectory will continue to hinge upon the development on two major fronts. One is macro and the other one is regulatory environment. For macro, which in turn dictates the consumer sentiment, we're seeing some positive policy changes at the top. However, how effectively and quickly those policy changes will get filtered down into the consumer behavior in general and more specifically into user spending on our platform, that, at this point, it's -- I think it's still too early to tell. We'll see as the year progresses. So that's for macro. On the regulatory front, as investors can see, we have always been very disciplined and prudent in terms of managing risks and making sure our ecosystem is healthy and safe in the regulatory regard. In Q1, we undertook very important adjustments to the operational policy, as described by Sic and Tang in their remarks. The impact on the ecosystem is positive and the financial impact so far are pretty in-line with our earlier expectations, as communicated in last quarter's call. So, that's the core business. The overseas piece will, obviously, continue to grow pretty robustly and thus help mitigate the decrease from the core. Overall, if you look at our Q2 guidance at midpoint, I think we are seeing 13% decrease on a year-over-year basis in Momo segment. That YoY decrease is higher than what we saw in Q1, mainly because Q2 2023, if you remember, that was the best quarter of that year, forming a higher base for YoY comparison. As we head into the second half, the YoY comparison should get a little bit easier. But overall, because the biggest impact factor, which is the operational adjustments, that adjustment was fully in the system by Q1. And the other two elements, the macro and regulatory risk currently seem to be pretty stable. So, if you put all these together, I would say, first half is a pretty good basis for us to think about the back half. With regards to profit, while we continue to try to optimize the cost structure for the core Momo business, we're also going to put a very significant portion of the savings from the core into building the new applications. And thus, we won't have as much room to cut on operating expenses in 2024 as in the past couple of years. This means, we're probably going to get some negative leverage from the decrease on top-line. Overall, for Momo segment, we'll try to hit a range between -- hit a range in the high teens for the adjusted operating margin, but we won't pin ourselves down to that range. I guess that's several points to address the question on top-line and bottom-line outlook. Back to Ashley for next question.

Ashley Jing: Operator, next question, please?

Operator: Thank you. Your next question comes from Raphael Chen with BOCI Research. Please go ahead.

Raphael Chen: [Foreign Language] I will translate myself. Thank you for taking my question. I want to follow-up on overseas business. Could management share the basic strategy? Any updates on operational metrics or the localization progress? And lastly, could we have any quantitative outlook regarding the total revenue and the profit of our overseas business this year? Thank you.

Yan Tang: [Foreign Language] [Interpreted] I think Sic has covered this topic quite comprehensive in her prepared remarks earlier. At the beginning of the year, our business in the Middle East temporarily slowed down sequentially due to the restrictions on entertainment activities during Ramadan. But year-over-year, it remained a rapid growth momentum. This was mainly because we have attached a great strategic importance to the overseas business in recent years and we have provided strong support to our overseas teams in terms of talent and capital allocation over the past years. On the last earnings call, I outlined three directions for overseas business growth localization, new features and new regions. [Foreign Language] [Interpreted] In terms of localization, we have set up an office in the Middle East and this enables us to connect with and select local high-quality partners in a more efficient manner, therefore reducing communication and management costs. And in terms of products, we have engaged with high-paying users from different language and cultural backgrounds, and optimized the product design and adjusted our practice based on user feedback and thereby improving user experience and boosting overall consumer sentiment. In addition to upgrading the existing voice-based gamified play, we also ramped up testing of live streaming by increasing its penetration. In terms of new market expansion, we have begun to gradually increase investment in richer countries in the Gulf region and we expect our products and operations in the Middle East to improve significantly this year compared to last year and laying a solid foundation for continued growth in this region. As for financial related matters, I will leave it to Cathy.

Hui Peng: Okay. For revenue outlook for the overseas piece, in Q1, Soulchill grew I think over 60% year-over-year. Moving deeper into the year, the YoY growth may slow down a little bit due to the higher comp last year. If we can move faster in implementing our product and operational strategies, the slowdown could be mitigated to a large extent. If some of the growth initiatives takes time to bear fruit, then the slowdown could be more evident. We'll get more clarity as we head into the second half. Profit wise, there is still going to be pretty impressive YoY growth. But as we are still seeing many growth opportunities in the region, we'll try to strike a balance between profit growth and investment in the future -- investment for the future. Back to Ashley.

Ashley Jing: Operator, in the interest of time, let's take our one last question. Thank you.

Operator: Thank you. Your last question is from Henry Sun with JPMorgan (NYSE: JPM ). Please go ahead. Henry Sun, your line is now live. Please proceed with your question.

Henry Sun: [Foreign Language]

Ashley Jing: Hello, Henry. Yes, we can hear you.

Henry Sun: [Foreign Language] [Interpreted] I'll translate myself. Thanks, management, for taking my question. I have a few questions about Tantan. Management mentioned in the prepared remarks an improvement in Tantan's acquisition efficiency. Does that mean we should expect an increase in marketing spend moving forward? And how much are we planning to invest in a brand marketing initiative? Does the change in strategy suggest that user numbers have bottomed out? And lastly, could management share your perspective on the user trends as well as the revenue and profit outlook this year? Thanks.

Yan Tang: [Foreign Language] [Interpreted] Our continuous cost reduction and efficiency improvement strategies over the past two years have effectively brought Tantan to stable profitability. However, the continued reduction in channel investment has also put significant pressure on Tantan's user base. And we see that Tantan's users and revenue have not stabilized and given the new user ARPU has improved significantly over the past year leading to an improvement in new user ROI, we plan to moderately increase our channel investment in the second quarter while maintaining the current ROI in order to stabilize the user base. In addition, we haven't invested in Tantan's brand marketing since 2019, which is one of the key reasons for the continuous decline in organic new users in the recent years. Therefore, based on our successful test in March, we plan to adopt more offline marketing strategies to raise brand awareness, improve brand image and user trust to drive download conversions and organic user growth. [Foreign Language] [Interpreted] In terms of monetization, and Sic just mentioned that we are working on an upgraded version of Tantan. The new UI design will guide users to enrich their personal information and encourage users to spend more time learning about a candidate before deciding to swipe left or right. We had much debate internally about this design change because it involves changing a long-standing user behavior based on which many of our premium features are built. Thus such change in UI will likely to have a negative impact on monetization. However, we eventually concluded that this is the right course of action for long-term improvement in user experience and was a sacrifice in short-term monetization. Of course, our commercial product team will continue to optimize paying experience to improve new user ARPU to partially offset the negative impact of regulatory changes on membership renewal policy and product upgrade. And as for the financial part, I will leave that to Cathy, please.

Hui Peng: Sure. I think there are several questions here. On the marketing spend, although the ARPU of Tantan has significantly improved during the past year, we have not reached the tipping point where the return on investment is high enough to drive a positive business cycle yet. That means, if we pull the marketing spend too high, we could flip back to loss. So, the plan for the coming couple of quarters is to moderately increase the marketing spend. By moderately, I mean, ballpark probably between RMB10 million to RMB20 million incrementally per quarter. And most of that incremental spending will go into KOL marketing. At the same time, we will carefully monitor the ROI to make sure we get good return for the marketing investment. The goal for the Tantan team this year -- here I'm answering the question about the user plan. The goal for Tantan team this year is to keep the user base stable through effective marketing campaigns as well as product innovations to deliver better dating experiences. Whether we will be able to reach that target will depend on how efficient our product and marketing teams are. Revenue wise, we are likely still going to see a downtick as live streaming continue to shrink, but there is quite limited impact on profit because gross margin for live streaming is very, very low for Tantan's live broadcasting business. However, as we are investing part of the profit back to brand marketing, the bottom-line will -- the bottom-line this year will likely decrease from last year's level. So, hopefully, that addresses your question. Ashley? I'll pass to Ashley for closing.

Ashley Jing: Thank you. And actually that's it for today. And thank you for participating, and we'll see you guys next quarter. Thank you, operator. We're ready to close.

Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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