Hello Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 8, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Third Quarter 2023 Hello Group, Inc. Earnings Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. Please note this conference is being recorded today.

Operator

I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good morning

Speaker 2

and good evening, everyone. Thank you for joining us today for Hello Group's Q3 2023 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.

Speaker 2

Jiang Sichuan, CEO of the company I'm Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights as well as the financials and guidance. We will all be available to answer your questions during the Q and 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 provision of the Private Securities Litigation Reform Act of 1995.

Speaker 2

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 statements as a result of new information, future events or otherwise, except as required under law.

Speaker 2

I'll now pass the call over to our CEO, Ms. Jiangsukran. Ms. Jiang, please?

Speaker 3

Hello, everyone. Thank you for joining our call. We are pleased to report strong financial results for the Q3 and study progress on various strategic priority across all business lines. I will now walk you through the details of our work for the quarter end. Together with Chang Yan and Kathy, take questions in the Q and A session that follows.

Speaker 3

I will start with a brief overview of our financial performance. Total group revenue was RMB3.04 billion, down 6% year over year and 3% sequentially, exceeding our previous guidance. The main reasons for the decline in revenue were the consumption, softly caused by the softer economy and product adjustments we made to maintain a healthy community ecosystem. Adjusted operating income was RMB681 million, up 30% year over year, but down 4% sequentially. Profit margin was 22.4 percent, up 3.7 percentage point year over year and down slightly 0.2 percentage point quarter over quarter.

Speaker 3

Compared to the same period last year, adjusted operating profit increased significantly despite lower revenue. This improvement was driven by our effective cost optimization and efficiency improvement initiatives, which turned Tantan profitable compared to a year ago as well as Our phone nomo app and standalone new app was RMB2.74 billion, down 5% year over year and 3% sequentially. Adjusted operating income was RMB675 1,000,000, up 4% year over year and down slightly 1% quarter over quarter with a margin of 24.6%, up 2.2 percentage points year over year and 0.4 percentage points quarter over quarter. Profit margin improved despite the decline in revenue, primarily due to our team's solid ability to control costs and Total revenue from Tantan came in at RMB295 1,000,000, down 40% year over year and 8% sequentially, mainly due to our Reduction in channel investment combined with our anti spend initiatives, resulting in a drop in our user base. Thanks to improvements in staff and channel marketing efficiency, Tantan achieved an adjusted operating income of RMB 27,600,000 in the 3rd quarter with a margin of 9%.

Speaker 3

Adjusted operating Inc. Operating loss in Q3 last year was RMB38.3 million and adjusted operating income in the previous quarter was RMB31.9 million. Now I will discuss the progress we make against our strategic priorities and future development plans for Momo, Shantan and the new endeavors. Starting with the mature Momo app. Our goal for Momo is to keep the user and revenue scale stable, continue to optimize cost structure and maintain the productivity of the CashCall business.

Speaker 3

To achieve this goal, our team has focused on 2 aspects: Product operation and cost and expenses. 1st, we mitigated revenue pressure from the external environment by continuously optimizing product operation and introducing new monetization features. 2nd, we maintain broadly stable profit margin by improving cash Unitization and staff efficiency. The group's better than expected financial performance in Q3 was mainly due to the better than expected financial performance of the Momo app. Now, I will walk you through the details.

Speaker 3

Firstly, on the product and operational front, Our focus on product operations this year has been stabilizing user base and improved monetization efficiency, While focusing on providing timely social experience and enriching content Our product team further integrated user products and consumer products to improve the overall monetization efficiency of the platform. On the channel side, the continuous improvement And user acquisition efficiency provides an effective way to maintain the stable of the user base under the strategy of cost optimization and efficiency improvement. Thanks to lower unit acquisition costs, we acquired 40% more new users on a slightly lower channel investment year over year. In Q3, the number of active users declined slightly quarter over quarter due to the start of school year and VAS product adjustments, But the extent of the decline was less than a year ago. On a year over year basis, The total user scale was still slightly lower, but the gap has narrowed significantly compared to the first half of the year.

Speaker 3

In quarter 3, the number of Momo paying users decreased by 100,000 to 7.8 1,000,000 from the previous quarter, mainly due to the policy adjustment in WaaS membership, which results in a decline in the number of Wasp paying users. Now let's go through the productivity In the Q3, Momo's live streaming revenue was of RMB1.41 billion, down 7% year over year and 2% sequentially. The pressure On revenue, mainly came from a software consumer sentiment. Considering the current Macroeconomic environment. Our team decided to reduce revenue oriented competition events.

Speaker 3

Meanwhile, on the product front, we have launched new interactive gamified features that enable us to keep the number of All paying users are relatively stable. The launch of interactive KamiFi features has not only improved the paying user experience in of middle and long term cohort users, which plays a positive role in stabilizing live streaming user engagement, but has also In the Q1, the revenue sharing ratio of live streaming decreased slightly quarter over quarter, mainly due to the reduction in event related bonuses. User oriented Operational efforts led to a slight decrease in the proportion of revenue contributed by talent agencies, But indication of the supply side remains stable. In the Q3, RAS revenue, excluding Tantan, totaled RMB1.3 billion, down 3% year over year and 2% sequentially. Gross revenue from the Momo app totaled RMB1 1,000,000,000, down 12% year over year and 6% quarter over quarter.

Speaker 3

Revenue from the standalone app was RMB295 1,000,000. The year over year growth is centered to 51%, and revenue was up 30% sequentially. The decrease in normal VAS revenue was mainly due to our proactive product adjustments to improve the overall ecosystem and the impact of macroeconomy on consumer sentiment. As I mentioned earlier about our user product, in order to improve the monetization efficiency of the Momo app. We have embedded assets to paying experience in, for example, nearby people and some other non paying features.

Speaker 3

The income in DAU and the paying ratio of Audio and video based VAS experience, particularly mitigated the pressure The overall gross revenue sharing ratio decreased slightly quarter over quarter, primarily due to the discontinuation of lower gross margin features following Our ecosystem adjustments. This shift in the product mix contribute positively to the improvement in VAS gross margin. Now let's review Tantan's performance. Our strategic goal for Tantan is to achieve overall breakeven from the year end developed product and monetization models that are suitable for the Asian dating culture in order to pursue sustainable growth on the back of a positive business cycle. Over the past year, Tantan has made solid progress in reducing low efficiency channel marketing spend to retrieve breakeven.

Speaker 3

It delivered 1st operating profit at the beginning of this year and maintained profitability in Q3 despite lower revenue. However, we still have a long way to go in achieving our strategic goal of sustainable growth on the back of positive business cycle. The underlying reason is that we have yet to make breakthrough We are developing products and monetization models that's suitable for the Asian dating culture. The ongoing anti spend campaign started this spring, coupled with the seasonal impact of the new school year put notable pressure on Tantan's user base in September. MAU decreased 9% sequentially to 15,700,000.

Speaker 3

As of the end of Q3, Tantan has 1,400,000 paying users. Despite a decrease in overall user base, The paying user count remained stable significantly, primarily due to our commercial product team's effort to improve user paying experience and higher stickiness of the group compared to non paying users. Total revenue for the Q3 was RMB295 million, down 40% year over year and 8% sequentially. The year over year decrease was solely contribute to a reduction in the number of paying users caused by declines of overall user base. Thanks to improvement in both products and The sequential decrease in Revenue was mainly due to significant impact of softer macroeconomy on the streaming live streaming business.

Speaker 3

Additionally, the policy adjustments on automatic renewal by the Ministry of Industry and Information Technology had some impact on VAS membership Subscription revenue. However, Tantan's gross margin was up by nearly 4 percentage point year over year and 1 percentage point quarter over quarter, driven by the greater revenue contribution of WaaS Business, which carries a higher growth margin. As I mentioned at the beginning, the decline in users And revenue of Tantan has mainly attributed to our initiatives in cost optimization and efficiency improvement. In terms of improving staff efficiency, we have continued to reduce features and operational activities that cannot provide high quality user experience and incremental revenue and We align human resource accordingly. In terms of improving marketing efficiency, we have continued to Although this approach has resulted in a reduction in the number of users and revenue, the cost optimization strategy has Great benefit to our bottom line as the market spend that we cut were ROI negative.

Speaker 3

This is why despite lower Revenue Tantan still achieved adjusted operating income of RMB 27 point RMB58 1,000,000 in the Q3. So now I would like to walk you through the Details of Tantan's progress on the channel and product lines. Firstly, On the marketing front, the unit acquisition cost of App Store increased sequentially in the Q3 due to the Our team timely adjusted the proportion of investment across different channels In order to acquire more users, while controlling the increase in unit acquisition costs to low single digits and crucially, On the product and operational front, the biggest achievement in the Q3 is that we managed To maintain spending activity to a low level significantly and therefore, the community effort returned to normal. Our product team emphasized guidance of View person authentication on the Swipe and Match homepage. The increase In view, person authentication rates positively contribute to the improvement of the Community ecosystem.

Speaker 3

In terms of commercial products, on top of the basic Monthly membership service, we launched a variety of pay as you go privilege that aims to increase exposure and improve matching efficiency. As a result, Our VAS app fee group continued to grow on both on a year over year and a sequential basis, largely That's the impact of user decline on VAS revenue. However, due to the lack of break Our user retention unfortunately have not yet been Execution for the rest of this year has been focusing on further reduction of reducing costs and channel investments. Rollocating exceeds access human resources to new endeavors and driving ARPU growth through new product features on the basis of operational efficiency Improvement until ROI turns positive. Lastly, in terms of new endeavors, Our goal is to enrich our product portfolio, push the boundary beyond Momo and Tantan, to develop long term growth engine.

Speaker 3

In the Q1, total revenue of the new apps Included social and games products was RMB302 1,000,000, up 49% year over year and 50% sequentially. Among them, YYSM revenue Our domestic and overseas social products was RMB295,000,000, up 51% year over year and 30% sequentially. For domestic apps, Given their relatively mature stage, the operational focus on our team is to control costs and expenses, while pushing harder on monetization, so that profit can grow in line with revenue. Now in terms of our overseas business, thanks to our border market space, revenue in the Q1 continued to The introduction of new features together with our paying user focused Acquisition strategy plays a pivotal role in driving revenue growth. In Turkey, which canceled a substantial portion of overseas markets revenue.

Speaker 3

Significant Currency fluctuation during the quarter impacted revenue and exerting pressure on gross margin. To protect profits, our team reduced channel investments in a timely manner, resulting in continued Sequential growth of operating income. At the moment, we have mitigated some of the problems affected the profitability level of overseas business and is expected that it will deliver better So this concludes my remarks. Now I will pass the call over to Kathy for the financial review. Kathy, please.

Speaker 1

Thank you, Sik. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the Q3 2023 came in better than our previous Non GAAP net income attributable to the company was RMB605.9 million, up 13% year on year, but down 4% from the previous quarter.

Speaker 1

Net income significantly outperformed our expectation mainly due to 2 factors. Number 1, better than expected top line performance Number 2, our continuous cost control efforts resulted in better than expected profitability for both Momo and Tantan. Net income continued to grow on a year over year basis despite lower revenue, thanks to our effective cost optimization and efficiency improvement Which enabled us to maintain the stability of Momo Cash Cow Business, turn Tantan profitable as well as support the development of new endeavors. Now let me walk you through the details. Looking into the key revenue line items for the quarter.

Speaker 1

Firstly, on live broadcasting. Total revenue for live broadcasting business for the Q3 of 2023 was rmb1.53 billion, down 8% year over year and 4% quarter over quarter. The decrease was mainly due to a soft consumer sentiment in the current macro environment And to a lesser degree Tantan pivoting away from the live streaming service, which we deem is not the priority for Tantan at this point for the dating business. Momo app live broadcasting revenue totaled of Casting revenue amounted to RMB120.0 million, down 14% from Q3 last year and 17% from the previous quarter. Revenue from value added service for the Q3 of 2023 was RMB1.47 billion, down 5% from Q3 last year and 2% sequentially.

Speaker 1

Revenue from value added service on an ex Tantan basis was RMB1.30 billion in the Q3 of 2023, down 3% year on year and 2% sequentially. The decrease in Momo app's value added service was due to our previous proactive product adjustments as well as the impact of macro economy on consumer sentiment. However, the downward pressure on mobile value added service revenue was largely offset by the growth of standalone new apps. Tantan's value added service revenue amounted to RMB168.4 million, down 16% from Q3 last year and 1% from the previous quarter. The decrease was due to the decline in paying users, which was in turn an outcome of us scaling back from the low efficiency marketing spend.

Speaker 1

However, the downward pressure was partially offset by the growth in ARPPU driven by commercial product efforts. Now turning to costs and expenses. Non GAAP cost of revenue for the Q3 of 2023 was RMB1.77 billion compared to RMB1.8 $8,000,000,000 for the same period last year. Non GAAP gross margin for the quarter was 41.8%. Gross margin remained relatively stable compared to the same period last year and the previous quarter.

Speaker 1

Non GAAP R and D expenses for the Q3 was RMB186.7 million compared to RMB23.4 million for the same period last year or a 16% decrease Y o Y. The decrease was due to the continuous optimization in personnel costs. Non GAAP R and D expenses as a percentage of revenue was 6 1% compared with 6.9% Q3 last year. We ended the quarter with 1410 total employees, of which 314 are from Tantan compared to 1750 total employees, of which 479 from Tantan a year ago. The R and D personnel as a percentage of total employee for the group was 64% compared with 62% Q3 last year.

Speaker 1

Non GAAP social and marketing expenses for the 3rd quarter was RMB368.1 million or 12 0.1% of total revenue compared to RMB458.6 million were 14.2% of the 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 Tantan's shift in marketing strategy to control costs and focus on channel ROI and to a lesser degree, 1 more strategy to trim low efficiency channel marketing spend. Non GAAP G and A expenses were RMB76.5 million for the Q3 2023 compared to RMB82.6 RMB6 1,000,000 for the same quarter last year. G and A expenses as a percentage of total revenue remained largely stable at around 2 point up 13% from Q3 2022, but down 4% from the previous quarter. Non GAAP operating margin for the quarter was 22.4%, up 3.7 percentage points from the same period last year, but slightly down 0.2 percentage points from the previous quarter.

Speaker 1

Non GAAP operating expenses as a percentage of total revenue was 20.7%, a decrease from 23.6 percent in Q3 2022, but slightly up from 20.2% in Q2 this year. Non GAAP expenses in absolute R and D amount decreased 17% year over year. This was due to reduction in sales and marketing expenses Total income tax expenses was RMB158.1 million for the quarter with an effective tax rate of 21%. In Q3, the company accrued withholding income tax of rmb47.9 million, which is 10% of undistributed profit generated by are worthy. Without recording tax, our estimated non GAAP effective tax rate was around 15% in the 3rd quarter.

Speaker 1

Now turning to balance sheet and cash flow items. As of September 30, 2023, Hello Group's cash, cash equivalents, Short term deposits, long term deposits, short term investments and restricted cash totaled RMB13.64 billion compared to RMB13.40 billion as of December 31, 2022. Net cash provided by operating activities in Lastly, on business outlook. We estimate the group's 4th quarter revenue to come in the range from RMB2.9 billion to RMB3.0 billion, representing a decrease of 7.9% to 6.6% year on year or a decrease of 4.7% to 1.4% quarter over quarter. At segment level, for Q3 2023, on a sequential basis, we expect Momo revenue to decrease mid to low single digit.

Speaker 1

The decrease was primarily due to the pressure on value added service from the product adjustment we made in mid Q3, which will have a full quarter impact in Q4 and to a lesser degree the macro impact on the overall spending sentiment. Considering the external environment, we've decided to call back on the incentives to the agency driven year end competition events. Therefore, revenue contribution from year end competition events will be quite limited. On the Tantan side, We expect revenue to decrease in low teens, primarily due to us pivoting away from live streaming business in Tantan and to a lesser extent, The product adjustments were made to comply with the new policy rolled out by MIIT, which will have some negative impact on membership renewal Revenue. 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.

Speaker 1

That concluded the prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q and A. Ashley, please?

Speaker 2

Just a quick reminder before we start taking the questions For those who can speak Chinese, please ask your questions in Chinese first and followed by English translation by yourself. Thank you. And we're ready for questions, operator.

Operator

Thank you. The first question today comes from Leo Sheng with Deutsche Bank. Please go ahead.

Speaker 4

I'll translate myself. So hi, management. Thanks for taking my question And congratulations on the strong results. My question is on Tantan's side. Can management share the outlook of Tantan's user scale and financial outlook in China before.

Speaker 4

Thank you.

Speaker 2

Let me translate first. So as Sig mentioned earlier, Tantan's biggest progress this year was to achieve a breakeven at the operational level and our effective cost optimization and efficiency improvement initiatives. This is the result of the joint efforts of several teams that delivered, Among others, product driven ARPU growth and continuous improvement in channel ROI and staff allocation efficiency. On the product front, on top of the basic pay monthly membership subscription service, we launched a variety of as you go privileges such as accelerated matching, which is called jia2 pei Lu in Chinese. So this kind of special Privileges increased exposure and improved the matching efficiency, thereby driving vast ARPU growth.

Speaker 2

So on the channel front, our team controlled unit acquisition cost well, at the same time has been trying to testing Paying features oriented marketing materials with a limited budget to explore new ways to improve ARPU and channel ROI. Due to the outbreak of the spamming activities this year, our product team had to devote a large part of the efforts to anti spam and maintaining a healthy ecosystem. In this case, we have reallocated excess R and D staff to support the development and operation of new endeavors to improve the overall staff utilization efficiency. Although the community ecosystem currently has returned to normal, the decline in ARPU due to a weak live streaming revenue has led to a temporary reduction in the overall channel ROI. Therefore, we cut investment in channels with negative ROI.

Speaker 2

The reduction in marketing expenses put some pressure on the recovery of the user scale. But we believe that Compared with the approach of pursuing user growth regardless of costs, being able to improve user retention and vast revenue on top of our breakeven is a healthier and more sustainable business model. Therefore, our product and channel strategies in 2024 will carry on with this current approach. In terms of revenue related question, I'll leave it to Cassie.

Speaker 1

Okay. I've been very optimistic about Tantan and I continue to be so despite all the arduous journey that Tantan has been through since 2019. The reason for my optimism is quite simple. Chinese users have Genuine demand for dating applications to help them discover romantic relationships, which They can bring to their real life and that demand is currently underserved. Although Tantan is not doing as good a job as we expected to, it's still undoubtedly the biggest and most effective and also the most relentless player in serving that demand in China market today.

Speaker 1

As long as that is still the case, we believe the revenue and profit potential remains there for us to cultivate. That's why I remain very optimistic about Tantan's long term potential in revenue and profit. It's I think it's just a matter of continuing to stick to that goal and finding the right formula for the Asian user in the dating space. As far as next year is concerned, There are several things I can share at this point. First of all, we are going to refocus on the dating aspect of the applications, meaning that We are going to continue to peel it away from some of the peripheral features such as the live streaming showroom business.

Speaker 1

Live streaming currently bring in a little bit less than 1,000,000 yuan per day in terms of grossing, daily grossing. So as we continue to downsize that service, I think top line could be pressured. However, As live streaming bears a 20 something percent gross margin and consumes a lot of operational human resources, Downsizing live streaming would have minimal or even positive impact on the bottom line. However, the fact that Tantan has built a pretty sizable customer base for live streaming show business shows that its users Tantan's users actually have sufficient spending power to support a much higher ARPU. The biggest priority for next year for the team is to build the right product and services to unleash that ARPU potential.

Speaker 1

And unlike live streaming, the new product and services that we're going to build should contribute positively to the dating aspect of the application of the Tantan platform. If we are successful in doing so, that could push our eye from negative to positive And the positive growth cycle will start to form on Tantan. Currently, we are working on several new features in the pipeline to Be launched next year, we'll see whether any of them works as the year progresses. Meanwhile, of course, we are going to continue to optimize the key cost items such as personnel and marketing. One thing we know for sure is that cost efficiency will continue to improve.

Speaker 1

So although we cannot pin down a revenue target Now for next year, we are very optimistic that profitability is going to continue to see improvement in 2024. So these are the things that I could share for Tantan's financial outlook next year. I'm handing back

Operator

The next question comes from Zhang Xueqing from CICC. Please go ahead.

Speaker 5

Thanks management for taking my question. Congratulations on the strong quarter. My question is about our new apps. Could the management share more latest updates on the new apps? And do we have any revenue and profit guidance of new apps in 2024.

Speaker 5

Thank you.

Speaker 2

Let me translate first. Starting from 2019, our incubator launched several revenue and profit oriented standalone apps targeting Vertical Social Segments and Overseas Markets. And these apps have begun to gradually contribute to the group financials. In 2022, for example, under the revenue pressure brought by the pandemic, we pushed a little bit harder on the monetization efforts for this new standalone app in order to keep the group level's vast revenue stable. And as a result, Revenue from these new endeavors in 2022 increased around 1.5 times compared with the previous year.

Speaker 2

The incremental revenue not only offset the decline in VAS revenue from Momo and Tantan, but also drove a slight increase in our group's VAS revenue despite several unfavorable external factors. Our team did a good job in controlling expenses, while driving users and revenue growth. So we could enjoy operating leverage and achieve sustained profitability for the 3 small apps last year. And our goal for the new endeavors this year has been to continue to grow our revenue and profit. And on the product front, we launched new paying features to increase our paying ratio and ARPU.

Speaker 2

And in the 1st 9 months of the year, the contribution of this new endeavors to the group's top line increased to high single digits from mid single digits last year. And we expect this contribution to be in the double digits next year. Our team adjusted various expenses based on revenue growth and channel ROI to ensure the profit will grow together with revenue. Since new endeavors collectively achieved a breakeven at the beginning of last year, the profits have continued to improve steadily. In the overseas business, which is growing revenue and profit faster and has greater growth potential, We plan to replicate this replicate in this app some gamified features that have proven to be beneficial to user And on the channel front, we will continue to focus on high quality users with paying potential in the affluent markets and improve the retention of high paying users through monetization innovation.

Speaker 2

We will slightly lower the revenue sharing ratio We improved gross margin based on a stable supply. Profit from the new endeavors is expected to grow much faster than revenue this year. Currently, there are some new apps that are being tested and have not yet generated meaningful revenues. We expect them to further support revenue growth once this product formats are stabilized. And for the specific revenue and profit guidance, I will leave it to Cassie.

Speaker 1

Sure. That was already a pretty thorough description of our strategy to the new apps and the Achievement we've made under those strategies. For financial outlook, as you understand, it's A little bit too early to talk about the numbers now in December, but there are a couple of things We see happening next year, which I can share to help you understand how the new apps are going to contribute to the P and L in 2024. First of all, Sochil, which is the social app that we run-in the Middle East and North Africa area It is going to that app is going to continue to grow pretty rapidly next year. The driver will come from 3 directions.

Speaker 1

1 is The continuous penetration into the existing markets by beefing up local operations and providing better customer service and so on. Compared with our peers, we believe we still have potential in driving further user end ARPU growth in those markets. The 2nd direction of growth is that as Siq and Tong Yan mentioned just now, We are now mainly providing the peer to peer social entertainment on SoQIYI, and we expect to launch new feature and services such as live streaming. That obviously can help us increase the share and ARPU as well. And thirdly, We are also looking at some other markets that we might be able to penetrate in.

Speaker 1

But as competition is already pretty intensive Elsewhere in the GCC region in the Gulf countries, this third strategy will be more of an uphill battle, but we'll see how it plays out. Overall, for Xochio and also the other 2 smaller apps in China should continue to grow quite rapidly next year. This year, these 3 apps grew 50 something percent year over year and are on track to bring in somewhere between KRW 1,100,000,000 to KRW 1,200,000,000 in top line and more than KRW 100,000,000 at bottom line. Next year, the top line could slow down a little bit. The growth could slow down a little bit, but profit growth should be quite impressive as the

Speaker 2

In the interest of time, let's just take one last question. Operator, we're ready. Thank you.

Operator

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Speaker 6

Thanks management for taking my questions. My first question is about Quamomo. Can management comments about the 2024 product strategies as well as the revenue outlook? And my second question is about shareholders' return. Can management comments about the thoughts on share repurchase And dividends, thank you.

Speaker 2

Okay. Let me translate first. Our goal for the mature mobile app for now and for the next few years is to keep the users and revenue scale stable We continue to optimize the cost structure and maintain the productivity of this cash cow business. Therefore, our execution plans for our products, User products, commercial products and channel efforts are all focused on this strategic goal. And for example, This year, our user product team added a navigation bar for Flash Chat on the homepage to direct users to Matching based real time voice or text chatting experiences such as YuYin, Nai and Qiaochao.

Speaker 2

And our commercial product teams embedded paying features such as a live streaming or chat room into these experiences. This design not only highlights the timely social value of the Momo app, but also increases the penetration rate of paying features and the monetization potential of the platform. Our user acquisition team has fine tuned its focus on paying users and has strengthened cooperation with commercial product team to better accommodate users from the channels. And the resulting ARPU growth has supported the continued improvement in channel ROI, enabling us to maintain a stable user scale and solid social fundamentals with continuously a decreasing marketing budget, which plays a positive role in improving Momo's overall profit. In 2024, we'll continue to execute this strategy for the Momo product and channels.

Speaker 2

In terms of financials, I'll leave it to Cathy.

Speaker 1

Okay. After this earnings call, Our job will move forward to putting together the financial plan for next year. Before that plan comes together, it's hard for me to talk about the outlook in a very quantitative way. However, same as in the past, as we approach the end of the year, there are several trends that we can talk about to help you think about How the different line items move heading into next year. As many of the investors know, Momo is a brand that has been around for more than 12 years.

Speaker 1

In terms of monetization, being 12 years old has both advantages and Disadvantages. The biggest disadvantage here obviously is that it's already pretty mature in terms of user penetration and Also deeply monetized in terms of ARPU that will make the business more cyclical to the macro and the regulatory environment. So next year, we continue to see macro and regulation as 2 biggest factors that are going to move the Momo business either up or down. Macro wise, I guess everybody has his or her own estimation. So I don't think I know better than investors do in this space.

Speaker 1

Regulatory front, as you can see, we've been very prudent and conservative in making sure we stay compliant. That's why in the past few quarters, if you look at our performance, we have clearly been more stable than most of our peers in the social entertainment space. I guess that will continue to be the case next year. That said, in view of the overall environment that we face today, What we need to do is to focus more on profitable user and revenue growth instead of pursuing top line growth at all costs. During the past few quarters, we've been scaling back from some of the user and revenue endeavors that Generate limited or sometimes even negative margins.

Speaker 1

For example, you can see in this year's Year end competition event, we further cut the incentive for agency driven promotional events. These competitions are not particularly helpful in building The social ecosystem and thus post regulatory risks in today's environment. In addition, although the agency driven events would create a spike in revenue, But they usually hurt margins and sometimes even bring negative profits. So in this Q4, What you're going to see is that the incremental revenue coming from year end competition is going to significantly shrink down. However, As the actual promotional costs and spending also substantially went down, the profit impact is actually quite limited.

Speaker 1

That's why although we are guiding as you can see in our guidance, we are guiding Q4 to show a mid to high single Digit percentage year over year revenue decline for core Momo. Bottom line for the quarter could See a high single digit year over year improvement. Such an overall trend of focusing on bottom line will continue to be the case next year. Now I'm going to I wanted to spend a few minutes talking about the good thing about being a 12 years old application. Over those 12 years Momo has built up a strong brand loyalty as the go to place If you want to be around people, discover some new friends and have fun and meaningful interactions with People you do not owe to us and that brand loyalty allowed Momo to be able to navigate safely through the 3 years of pandemic and emerge on the other side with solid fundamentals and remarkable resilience.

Speaker 1

Looking into next year, I think Momo is going to Continue to benefit from the stable and from that stable and loyal user base. What that means as far as P and L is concerned is that we're going to be able to maintain the scale of users and revenue and at the same time continue to optimize on personnel and user acquisition costs. So that leads to that naturally leads to the question on profitability of the cash cow business. Looking out to next year, we expect gross margin to continue to be stable as is the case for as is the case throughout this year. With respect to operating expenses, for the reason that I just mentioned, we have a good opportunity to further Cut the OpEx down with continuous efforts to improve cost efficiency.

Speaker 1

So if you put these different things Together in a nutshell, I'm pretty optimistic that we'll be doing a decent job in Maintaining the productivity of the CashCall business. There's a question on

Speaker 6

Cash used,

Speaker 1

okay. I guess it's really a question of how does The company utilizes cash and allocate its capital resources. I've said before that there are Three priorities for the company in terms of capital allocation. Number 1 is, of course, to reinvest back into the business for organic growth. And the second priority is, if there are good We would go for those Strategic opportunities and we prefer to use cash rather than

Speaker 2

through a stock deal.

Speaker 1

And the 3rd priority is if we have excess cash as we as has been the In the past, we would return the excess cash to the shareholders in the form of either cash dividends or share repurchase. We have an ongoing repurchase plan of CAD200 1,000,000. Under that plan, I think so far we've brought back we fought back Slightly under US90 $1,000,000 worth of shares. So under that plan, we still have US110 $1,000,000 to go. We will continue to take advantage of the undervalued share price and make good use of our excess cash to enhance shareholder value.

Speaker 1

In terms of dividend, we have distributed special dividend 5 years in a row, starting from the year, I think 2019. This way has proven our sincerity in sharing the fruit of our work with shareholders. Unless we have an opportunity to either reinvest our cash to drive organic business growth or through strategic investments. I think we're going to continue to return cash to shareholders in the form of cash dividends. I guess that's the end of this conference call.

Speaker 1

I'm handing back to Ashley for closing remarks. Thank you all for your time and

Speaker 2

I think that's it for the quarter. We will see you next year. Thank you. Bye.

Operator

Thank you for participating in today's conference. You may now disconnect.

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Earnings Conference Call
Hello Group Q3 2023
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