Hello Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Second 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 Please note this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms.

Operator

Ashley Jing. Thank you. Please go ahead, ma'am.

Speaker 1

Good morning and good evening, everyone. Thank you for joining us today for Hello Group's Q2 2023 earnings conference call. The company's results were released earlier today and available on the company's IR website. On the call today are Mr. Tang Yan, CEO of the company Ms.

Speaker 1

Jiang Sichuan, COO of the company and Ms. Peng Hui, CFO of the company We will discuss the company's business operations and highlights as well as the financials and guidance. We will 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 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 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 could differ materially from those in the forward looking statements.

Speaker 1

Further information regarding this and other risks, Certainties 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, you can advance or otherwise, except as required under law. I'll now pass the call over to our CEO, Mr.

Speaker 1

Tom Yan. Hello, everyone. Thank you for joining our conference call. We delivered solid results in the 2nd quarter With strong financial performance and good progress on execution of Marriott's strategic priorities. Before we go into details, I would like to introduce our COO, Ms.

Speaker 1

Jiang Sichuan, who rejoined the company last year. She will be the one to review our quarterly performance today. With that, I'll turn the call over to He.

Speaker 2

Hello, everyone. It's my pleasure to join today's conference call. We celebrated Momo's 12th anniversary in early August. As a founding team member, It is a great pleasure to see how Momo over the past 10 plus years has grown from a single function app to a multi brand listed company with a presence in several countries and regions. It is a great honor to return to the Hello Group family and welcome to the next decade of the social era with old and new colleagues.

Speaker 2

Next, I will walk you through the details of the Q2. So I will start with a brief overview of our financial For the Q2 of 2023, Hello Group revenue was RMB 3,140,000,000, Up 1% year over year and 11% sequentially, exceeding our earlier guidance. In Q2, we delivered the 1st year on year growth since the beginning of the pandemic 3 years ago, Mainly due to the stabilization and recovery of Momo's cash cow business, adjusted operating income with RMB79 million, a substantial increase of 53% from Q2 last year and up 37% quarter over quarter with a margin of 22.6%, up 8 percentage points year over year and 4 percentage points quarter over quarter. The significant year on year improvement in profitability was mainly due to time time breakeven. The stable performance of Momo CashPal Business and our effective cost control initiatives, the sequential improvement Total revenues from the Momo app and standalone new apps was RMB2.82 billion, up 1% year over year and 12% sequentially, and adjusted operating income with RMB777 1,000,000, up 60% year over year and a significant increase of 34% quarter over quarter with a margin of 24%, up 3 percentage points year over year and 4 percentage points quarter over quarter.

Speaker 2

We are very pleased to see that Momo as our cash cow business has maintained stable and strong productivity after over a decade of operation. Total revenue from Tantan came in at RMB321 1,000,000, down 3% year over year, but up 4% quarter over quarter. Tantan delivered its 1st operating profit at the beginning of this year and managed to improve its Profitability in the 2nd quarter. Adjusted operating income for Tantan for the quarter was RMB31.89 million, representing a margin of 10% compared with adjusted Operating loss of RMB119 1,000,000 in Q2 last year and adjusted operating income of RMB14,48,000,000 in the previous quarter. Now I will discuss our progress against our strategic priorities in these Three business lines, Momo, Tantan and the new endeavors.

Speaker 2

Starting with the Momo app, which is at a very mature stage. Our goal for Momo this year is to keep the user at very low Scale is stable, continues to optimize cost structure and maintain the productivity of cash cow business. Since the beginning of the year, our team has made good progress in optimizing product operations, Introducing my new monetization features and improved cash unitization and staff efficiency. The better than expected financial performance and steady recovery Firstly, on the product and operational front, since the beginning of the year, our focus on product operation has been stabilized, the user base and improved monetization efficiency. A quarter of our efforts We're both around providing more timely social interactions and enriching content supply.

Speaker 2

On the channel front, we have strategically focused on assessing channel ROI as well as our user lifetime value or LTV, driven by the joint efforts of product and operations. The recovery trends of user and retention after the Chinese New Year continues in the second quarter. Momo's next day retention rate has returned to its pre pandemic level, which is the main reason for the continued ramp in user base. The number of mobile paying users increased by 100,000 to 7,900,000 from the previous quarter. The steady growth in paying users has proven that The core value of Momo as a social product remains strong, with our focus on user acquisition which lays a solid foundation for the cash cow business to maintain its productivity.

Speaker 2

As Tianyen mentioned last quarter, since Momo is a brand with a history of more than a decade, Our current strategic priority is to stabilize user scale, optimize cost and ensure its commercial productivity. To reflect such priority at the KPI level, Our focus has shifted from driving the growth of Momo user sales to pursuing profitable user growth. MAU, therefore, is no longer the most meaningful operational metric for investors. Therefore, we have decided to no longer disclose MAU data on a quarterly basis Unless there is a significant change in our user base, we believe that investors We should rather focus on the number of paying users when evaluating Momo's overall scale and operation Operating performance. Now let's go through the productivity of our Momo Cash Cow Business.

Speaker 2

In the Q2, Momo's live streaming revenue was RMB1.44 billion, up 3% year over year and 12% sequentially. The revenue growth was mainly due to significant increase in the number of top total users driven by new operational Events and gamified features and the increase in high paying user growth overall ARPU growth. In the Q2, the revenue sharing ratio of live streaming was lower than the previous quarter, mainly because in Q1, we offer a one off incentive To broadcast this to resume live shows after the Chinese New Year, as the supply side remains stable, we believe The current revenue sharing policy is effective enough to incentivize forecasted. There is no significant structure adjustment is needed. In the Q2, RAS revenue, Excluding Tantan, totaled RMB1.33 billion, up 1% year over year and 11% sequentially.

Speaker 2

WaaS revenue from the Momo app totaled RMB1.07 RMB 1,000,000,000 up 6% year over year and up 10% quarter over quarter. While revenue from the standalone app was RMB262 1,000,000, up 44% year over year and 60% sequentially. The main reason for the year on year decline in MomoWAS revenue is that The number of paying users had yet to recover to the level in the same periods of last year. Meanwhile, IPPU improved significantly from a year ago, partially offset the revenue pressure from the decline in paying users. The sequential improvement in normal RAS revenue was driven by the increase in both Adipu and paying user accounts.

Speaker 2

Since the beginning of the year, Our team has been integrating user products with commercial products to improve For example, we added access to the chat room experience In several features such as Nearby People and Post, this can not only improve Our user experience also increased the penetration of paying features and similar users' spending behavior. The expansion of new entry points combined with optimizing The recommendation algorithm drove studies sequential growth of audio and video based social entertainment experience, which enjoy higher ARPU. So let's review Tantan's performance. Our strategic goal for Tantan is to achieve overall breakeven for the year and develop product and monetization models that are suitable for the Asian dating culture. In order to pursue suitable or sustainable growth on the back of the positive business cycle, At the beginning of the year, we achieved the first half of our strategic goal, which is to breakeven.

Speaker 2

However, in terms of user growth, we still need to make further breakthrough on both user and commercial As mentioned last quarter, Tantan's user base gradually recovered after the Chinese New Year draft. However, entering spring with the recovery in user activity after the pandemic As well as the adjustment of user registration process, Tantan was attacked by large scale spamming activities, which became the main issue that play us in the Q2. In order to maintain a healthy And stable dating ecosystem, we launched a stringent anti spam campaign, which resulted in an 11% decrease in MAUs to 70,300,000 in June compared to March. As of the end of Q2, Tantan had 1,400,000 paying users, a net decrease of 200,000 from the previous quarter. The decrease was due to the decline in user base, whereas paying commercial remained stable sequentially.

Speaker 2

So now moving on to Tantan Financial. Total revenue from the 2nd quarter was RMB321 1,000,000, down 3% year over year, but up 4% sequentially. During the last 18 months or so, although Tantan's user base and number of paying users declined On a large scale due to the factors such as the pandemic, marketing spend reduction and NT spend initiatives. The platform has experienced a quite limited decrease in revenue Due to the team's efforts to improve ARPU, the second quarter in the second quarter, Live streaming revenue was RMB445 1,000,000, up 4% quarter over quarter. At the same time, we continue to optimize costs and expenses related to staff and infrastructure, resulting in a sequential growth of operating income to RMB 31,89,000.

Speaker 2

Now I would like to share our progress against strategic priority during the quarter. So since the beginning of the year, Our team has delivered good results with respect to our strategic priority of achieving breakeven. This is primarily due to our efforts in both marketing and monetization. So firstly, on the marketing front, in the Q2, channel competition Incentivized due to the impact of the e commerce shopping festival in June, Resulting in a quarter on quarter increase in unit acquisition costs, our team tried to limit the increase Thanks to our optimization of our channel strategy and the data feedback system. Our new ARPU increased significantly from the previous quarter.

Speaker 2

The channel ROI remained stable Despite the sequential increase in unit acquisition costs, On a year over year basis, in Q2 2023, unit user acquisition Costs decreased by almost 50% and new users up for increased by almost 60%. In the second half of the year, we will continue to focus on improving user acquisition efficiency. The plan is to continue to closely monitor channel ROI and adjust channel investments accordingly. In addition, we will further improve resource, unitization by carefully selecting the KOLs we work with and optimizing advertising materials. On the monetization front, Our commercial product team has delivered good results over the past years and optimizing the The existing paying experience and launching new paying features continuously driving ARPU growth.

Speaker 2

The BlackBull membership service launched at the end of last year and play a positive role in driving ARPU growth. In the Q2, our product team increased the exposure of the Blackhawk Privilege In the past year, Tantan's IPPU has continued to increase significantly As we provided more new paying features that can effectively improve matching efficiency and enhanced user dating experience. Moving forward, we will follow the path by adding new use Introducing exclusive privilege for female members, providing female users with high quality matches and non interference options. Meanwhile, we will optimize the metric algorithm, Matching algorithm for members based on user feedback and improved the post sales experience for members to drive renewal rate. Overall, in the first half of the year, our team has made good Progress in improving user acquisitions, efficiency and driving RPP growth.

Speaker 2

We are happy to see that the decrease in caustin and increase in ARPU Able Tantan to achieve breakeven. However, we have to admit that We haven't made any substantial breakthrough in terms of user growth or any significant innovation in commercial products. Such breakthrough on product innovations is the key for Tantan to drive A positive business cycle and achieved sustainable growth. During the Q2, The outbreak of spamming activities on Tantan created a serious negative impact on the ecosystem. So our product team has to focus its main efforts on the anti spam campaign.

Speaker 2

In quarter 2, we started testing some product experience to improve female users' Engagement and retention, however, based on our preliminary data Freebanc's product still needs further iterations. In the second half of the year, Our product operation team will continue to optimize the call rights and match mechanisms and explore Lastly, in terms of our new endeavors, The goal here is to enrich our product portfolio, push the boundaries beyond Momo and Tantan and deliver long term growth engine for the group. In the Q2, the total revenues 4 of the profit oriented standalone apps, including domestic and overseas social and games product was RMB264 million, up 33% year over year and 60% sequentially. Revenue of domestic products was back on a sequential growth track after the Chinese New Year's trough. Revenue growth in overseas social products temporarily slowed at the beginning of the year Due to the earthquake impact in Turkey and the evaluation of Egyptian currency, In the Q2, consumer sentiment in Turkey recovered.

Speaker 2

Our team shifts its market focus from Egypt to several affluent Middle Eastern Markets. With the combined efforts of product and channel teams, The number of paying users of overseas social products increased rapidly, which led to our Significant sequential increase in revenue. In addition, our team optimized the overall Revenue sharing ratio and revised costs and expense items are fine tuning operations. Thanks to operating leverage, the net margin improved sequentially. As a result, Net income grew much faster than revenue.

Speaker 2

As we dive deeper into the overseas market, we realize that the Middle East And emerging North Africa markets do have much room for growth. Therefore, in the second quarter, While we increased our investment in assisted products to dive rapid Revenues and profit growth. We also tested several new ROI oriented products in the MENA area. We'll try to replicate our success so far in our overseas expansion to grow our user base further With our expertise in attracting users through social attributes And monetizing through value added service, we are hopeful that these new products will contribute sizable Revenue and profit to the group in the foreseeable future. This concludes my remarks.

Speaker 2

Now I will pass the call over to Kathy for the financial review. Kathy, please.

Speaker 3

Thank you, Dick. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the Q2 2023 came in better than our previous expectation at RMB3.14 billion, up 1% year on year and 11% quarter over quarter.

Speaker 3

Non GAAP net income attributable to the company was RMB632.1 million, up 36% year on year and 34% from the previous quarter. The better than expected bottom line performance was attributable to the outperformance of the top line as well as our continuous cost control efforts, which led to improvement in both Momo and Tantan's Profitability. We are proud that after 3 years of pandemic, we emerged on the other side with a very healthy and solid while delivering decent profits to the shareholders. Now let me walk you through the details. Looking into the key revenue line items for the quarter.

Speaker 3

Firstly, on live broadcasting. Total revenue from live broadcasting business for the Q2 of 2023 was rmb1.59 billion, up 5% year over year and 11% quarter over quarter. Momoa app Live broadcasting revenue totaled RMB1.44 billion for the quarter, up 3% year over year and 12% quarter over quarter. The increase was driven by an increase in the number of high paying users, which in turn drove overall RPP growth. Compound's live broadcasting revenue amounted to RMB145.2 million, up 25% from Q2 last year and 4% from the previous quarter.

Speaker 3

Revenue from data guided service for the Q2 of 2023 was RMB1.50 billion, down 2% from Q2 last year, but up 10% sequentially. Revenue from VaaS on an ex Tantan basis was RMB1.33 billion in the Q2 of 2023, of 1% year on year and 11% sequentially. Momo app VAS revenue decreased from the year ago due due to a decrease of paying user count. However, the downward pressure was completely offset by the growth of standalone new applications, which led to a slight year over year increase in value added service revenue on an ex Tantan basis. The sequential growth was primarily attributable to the seasonal recovery of Momo app's value added service business as well as the continuous growth of the new applications.

Speaker 3

Comcast value added service revenue amounted to RMB170,200,000, down 21% from Q2 last year, but up 1 from the previous quarter. The year on year decrease was due to the decline in paying users. However, The downward pressure on value added service revenue was partially offset by the growth in RPPU driven by commercial product efforts. Now turning to costs and expenses. Non GAAP cost of revenue for the Q2 of 2023 was RMB1.82 billion compared to $1,790,000,000 for the same period last year.

Speaker 3

Non GAAP gross margin for the quarter was 42.1%, down slightly by 0.4% from the year ago period, but up 1.1% from the last quarter. The sequential increase was due to the discontinuation of 1 off incentives in Q1 provided to live streamers after the Chinese New Year to speed up supply side recovery. Non GAAP R and D expenses for the 2nd quarter was RMB200.8 million compared to RMB214.3 million for the same period last year for a 6% decrease year over year. The decrease was Due to the continuous optimization in personnel costs, non GAAP R and D expenses as a percentage of revenue was 6 0.4% compared with 6.9% due to last year. We ended the quarter with 14 70 total employees, of which 339 are from Tantan, compared to 18 25 total employees, of which 5 16 from Tantan a year ago.

Speaker 3

The R and D personnel as a percentage of total employee for the group was 63% compared with 61% Q2 last year. Non GAAP sales and marketing expenses for the 2nd quarter was rmb349.7 million or 11.1 percent of total revenue compared to RMB601 1,000,000 or 19.3 percent 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 Tantan's shift in marketing strategy to control cost and focus on channel ROI and to a lesser degree, more and more strategy to treat low efficiency channel marketing Non GAAP G and A expenses was rmb83.2 million for the Q2 of 2023 compared to RMB82.6 million for the same quarter last year. G and A expenses as Percentage of total revenue remained stable at 2.7% from the year ago period. Non GAAP operating income was RMB708.8 million, a significant increase of 53% from Q2 2022 and up 37% from the previous quarter.

Speaker 3

Non GAAP operating margin for the quarter was 22.6%, up 7.7 percentage points from the same period last year and 4.2 percentage points from the previous quarter. Non GAAP operating expenses as a percentage of total revenue was 20.2%, a decrease from 28.8% in Q2 2022 and down from 23.9% in Q1 this year. Non GAAP expenses in and to a lesser degree optimization in personnel and infrastructure costs. Now briefly on income tax expenses. Total income tax expense was RMB166.0 million for the quarter with an effective tax rate of 20%.

Speaker 3

In Q2, the company accrued withholding income tax of RMB48.1 million, which is 10% of undistributed profit generated by our royalty. Without withholding tax, our estimated non GAAP effective Tax rate was around 14% in the 2nd quarter. Now turning to balance sheet and cash flow items. As of June 30, 2023, Hello Group's cash, cash equivalents, short term deposits, long term deposits, short term investments and restricted cash totaled RMB11.27 billion compared to RMB17.40 billion as of December 31, 2022. In Q2, we paid an equivalent of RMB937 million cash dividends to our shareholders and in late June, we prepaid an equivalent of RMB2.26 Net cash provided by operating activities in the Q2 of 2023 was RMB828 1,000,000.

Speaker 3

Lastly, on business outlook. Before we give out the numbers, let me spend a few minutes talking about a few things that are expected to have impacts on our top line performance in the near term. For the Q2 of 2023, Revenues from Momo segment were on an ex Tantan basis totaled RMB2.82 billion, up 1.3 percent year over year. This was the first positive quarter for Momo on a YY basis since the beginning of COVID in early 2020. On the one hand, we are happy to see that the cash cow business showed remarkable resilience on the back of strong platform fundamentals.

Speaker 3

On the other hand, we remain cautious about the operating environment we are in. As you guys can probably feel, Macro rebound is not turning out as promising as we had hoped at the beginning of the year. Especially as we entered into Q3, We've got a clear sense that the spending sentiment is softening. In addition, starting mid Q3, We have also been making product adjustments to make sure that our ecosystem stays healthy. Some of the adjustments have negative impacts on the top line performance of Momo's mail added service in the short run.

Speaker 3

All of these factors are expected to In June, we made some product adjustments to comply with the new policy rolled out by MIIT in Q2, which poses a negative impact on the renewal rate of the membership service. This will likely cause Tantan's revenue to see to be more specific, we estimated the group's 3rd quarter revenues have come in the range from RMB2.9 billion to RMB3.0 billion, representing a decrease of 10.3% to 7.2% year on year or a decrease of 7.6% to 4.4% quarter over quarter. At segment level, for Q3 2023, On a sequential basis, we expect Momo revenue to decrease around mid single digit and Tantan revenue to decrease in teens. 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 the prepared portion of today's discussion.

Speaker 3

With that,

Speaker 2

Thank

Operator

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

Speaker 4

Thanks management for taking my question. My question is on Cohomomo. The first Part is about the user recovery trend as well as the outlook. And the second is regarding The macro, how is it going to impact live streaming and the VAS? And the third part is about our second half

Speaker 1

As I mentioned in my prepared remarks, The strategic priority for the Momo app this year is to keep the user base stable and increase the productivity of the cash cow business. The team's mandate is to devise and execute product and channel strategies with the idea to accomplish this goal. On the product front, we integrated user products with commercial products to continue to introduce New features that facilitate timely social interactions and improve relationship building. In addition, Users can further enhance their social experience by paying for value added services. On the back end, We continue to optimize the content recommendation algorithm, so we can create a better community atmosphere and deliver more value for female users and those who are seeking for emotional companionship.

Speaker 1

And the enhancement in product experience has played a positive role in improving user retention. And therefore, even with reduction in channel investment versus a year ago, The user base continued to grow steadily after the Chinese New Year 12. Although Momo's user growth and engagement level performed pretty well so far this year, we will remain our operational focus On keeping the number of paying users at a healthy and stable level rather than the excessive pursuit of MAUs, Because paying users are the fundamental basis for maintaining the high productivity of the cash cow business. In terms of consumer sentiment, Without that, the user social and consumption demand started to pick up after the Chinese New Year. Our better than expected User metrics and financial performance in the first half of the year are solid evidence of this.

Speaker 1

However, Since entering Q3, Momo's core revenue started to soften compared with the Q2. And there are two reasons for this. One is the weakening of consumer sentiment caused by the overall macro environment. And the other is that we took the initiative to further ensure a healthy ecosystem. And for the questions related to revenues, Cathy will take that.

Speaker 3

Now briefly on the revenue outlook For Momo, as you guys can see, we had a pretty good first half of the year due to the post COVID recovery as well as the fact that the team has been doing a good job on the product and operational side. However, as Sigg mentioned, moving as we move deeper into the year By monitoring the daily grossing and also from some of the anecdotal conversations with our VIPs, We can feel that the consumer sentiment is obviously weakening, possibly due to the macro not Turning out to be as promising as people had hoped earlier in the year. And the other factor that we have to Take into consideration is that we've been making some product adjustments on the value added service side to make sure that Momo's Social ecosystem stays healthy and such adjustments involve temporary suspension of some of the Products and services we previously offered on the Momo platform and such suspension is expected to have partial impact on Q3 A full impact from Q4 onwards because the adjustments and suspension took place toward late August time frame. And due to those two factors, 1 at the macro level and the other one on the product front, our previous view that I remember saying on our last earnings call that the second half of the year is likely to see continuous improvement from the first half.

Speaker 3

That view at this point of time obviously seemed a little bit too As you guys can see from our guidance, we are seeing Q3 to show a sequential decline by mid single digit. Q4 is, at this point of time, still a little bit far out to see, because a lot of it will depend on how macro eventually is But if the macro stays the way it is, I think it is possible that We can see a flattish quarter from in Q4 from Q3. As you guys know, Q4 is usually a very strong season due to the year end competition events, but The full quarter impact from the product adjustments that I just mentioned on the math side could eat in some of the incremental revenue from the year end competitions. Also, we think it's possible that the October long holiday this year could have a bigger negative impact Because more people could be traveling due to the reopen instead of hanging out online using the social entertainment services that we offer. So again, at this point of time, I do not really have enough visibility to be very Prescriptive about Q4, but if you ask our view at this point of time, We'd rather stay on the conservative side for the whole second half of the year.

Speaker 3

I hope that helps.

Operator

The next question comes from Rafael Chen with BOCI Research. Please go ahead.

Speaker 4

Thanks management for taking my question. My question is regarding our new apps. Firstly, could management share some latest updates, especially so too? Also, could we have some insight on whether if the company has other new apps or products to share? Lastly, do we have any revenue guidance of new apps in the second half of this year or 2024?

Speaker 4

Thank you.

Speaker 1

In terms of new endeavors, Our domestic apps, which launched relatively early, have now entered a rather mature stage in terms of our product and product format and user scale. For these apps, our team's current focus is on continuously exploring monetization opportunities Optimizing the cost structure and promoting the steady growth of our profit scale. And as for the overseas business With the greatest and most promising potential, as I mentioned earlier, although user and revenue growth temporarily slowed We resumed a satisfactory growth trend in Q2, thanks to the timely adjustment our team made in shifting marketing market focus. While digging deeper into mature markets and exploring opportunities For revenue expansions in new markets, we also optimized the revenue sharing policy in favor of our GP margin as we build on our brand power and industry influence. And that is why if you look at Social's profit growth rate And it went much faster than its revenue or gross rate level.

Speaker 1

We have recently set up an overseas business unit and has launched several new products overseas. Our goal here is to further develop existing products, while more effectively replicating Our successful overseas experience in new vertical markets will start making channel investments once user metrics reach a satisfactory level. In fact, we have started trial marketing in selective regions, Our focus this year will be on optimizing products from product form according to user feedback rather than engaging in large scale user acquisition and monetization. However, given that All of new products in the Middle East are our wire oriented app. So we have strict requirements for the financial return or financial performance of the product iteration and operations.

Speaker 1

Hopefully, these apps can make some real contribution to our top line next year. As for other new products, after Tang Yan returned to the management team, Our investment in research and development of new products and businesses has greatly increased. Although the current demand in the consumer Internet industry is very saturated, we believe that Each generation of young people will have different social needs and preferences. This is our challenge and also our greatest Opportunity. We have been working in this field for more than 12 years, and we have accumulated a lot of successful experiences and lessons learned.

Speaker 1

With our strong capital and talent pool, I'm confident that through self research and investment, We will continue to consolidate our leading position in the social field and explore new growth opportunities.

Speaker 3

Okay. Let me this is Cathy. Let me give Some give you some color on the size of the revenue from the new apps. To be clear, the revenues from the new applications is currently reported within the value added service line under Momo segment. For example, in the Q2 2023, data added service revenue on an ex TonTon basis was RMB1.3 billion, roughly 20% of which came from The new applications, as SoCal continues to gain momentum, this year that 20% new piece Within the Malo added service line could grow, I think around 50% on a year over year basis.

Speaker 3

Such top line the other thing worth noting is the top line growth that I just mentioned also comes with Margin improvement, so bottom line is growing even faster than top line. With regards to the outlook about next year, next year in I think in late August this year is still a little bit too far for me to see. Trend wise, I guess, social is going to continue to grow at a decent pace, driven mainly by new product launches and also some of the new regions that we're pushing into at this point of time. And the other growth driver potential growth driver for this new piece within battery life service is the new applications We launched this year as Sigg just mentioned. Hopefully, next year, some of these new endeavors is going to Start bearing fruit on the top line front.

Speaker 3

So that's my answer

Operator

The next question comes from Wei Qing Zhang with CICC. Please go ahead.

Speaker 1

Thanks management for taking my question. My question regards to Tantan. Firstly, could management share about your latest revenue trends? Secondly, do you have some initiatives on the pro tax amortization? Lastly, what's your outlook for Tantan's revenue and profitability in the second half of this year?

Speaker 1

Thank you. Tantan has made good progress in improving channel ROI and ARPU over the past year, achieving breakeven ahead of schedule at the beginning of the year. Our next goal is to drive significant growth in ARPU and retention in order to create a positive business cycle and deliver sustainable growth. However, it's not that easy to get as it requires us to make more substantial progress in Both user and commercial products, although we haven't yet found a breakthrough point for this, as the team has achieved a breakeven, We have enough patience and confidence to continue exploring products and making PanHang a more effective dating app for users And creating more value to shareholders. And for the financial questions, I will leave it to Taehyung.

Speaker 1

Okay.

Speaker 3

Before I talk about the financial outlook for Tantan, maybe just one quick point to add To what Sigg just said about users, I believe a big part of Tantan team's effort For the rest of the year, we'll be on cleaning up spammers and putting in a more comprehensive system to make sure We keep these ad actors off the platform. This is crucial for us to deliver the right kind of user experience for the dating platform. Other than that, the team is also going to be pushing harder on new product experiments.

Operator

By pushing

Speaker 3

harder, what I mean is, it's probably time to try out whatever that we believe is worth trying without worrying Too much about short term fluctuations in user accounts. With that in mind, it's hard for me at this point To put down a definitive number for Tantan's MAU for the coming couple of months, I think Q3 is going to be a period where the team allows bigger room for trial and error. So I think that's The reason why we would rather defer that question on user target to next quarter, by then we should have enough Visibility to give you guys a user target for the near term. So that's the question on the user front for Tantan. With respect to financial outlook for the back half for Tantan, I think for Q3 guidance, we are modeling in sequential decrease from High single digit to low teens, that's largely reflecting the macro impact on live streaming and to a lesser degree, The product adjustments as directed by MIIT, which I mentioned in my prepared remarks, And that's going to have a negative impact on the renewal rate of Tantan's membership service.

Speaker 3

On the other hand, The team is also working on new features to continue to drive the ARPU, which will be able to counter some of those negative factors. So overall, we do see some downward pressure in the second half of the year on top line, But how exactly Tantan's revenue may trend, especially as we enter into Q4, will depend on How good a job our team can deliver in driving the ARPU? It's your question about bottom line or no? About Tantan's bottom line. Okay.

Speaker 3

With regards to Tantan's bottom line, We're still seeing opportunities to continue to optimize on important line items such as personnel and marketing. Depending on the pace of such optimization, bottom line in the second half It should stay around breakeven level or slightly better than that.

Operator

I'll hand back to Ashley. Next question please, operator. The next question comes from JPMorgan Sun with JPMorgan. Please go ahead.

Speaker 4

Thanks management for taking the questions. My question is about profit margins. On the gross profit side, is there room for reducing the live streaming revenue share? On the OP side, is there potential for further narrowing the OPEX? Lastly, could you give us an idea of the

Speaker 3

Yes, I'm hearing several pieces of the question. Firstly, on Gross margin and overall payout structure, I think on the prior earnings calls, we've said Currently, we're seeing the supply side of the live streaming ecosystem at a Pretty stable state, meaning that, yes, there is still competition for the high quality performers. But overall, we think market is much more stable Compared to a year ago or 2 years ago, where some of the bigger platforms are were Very aggressive in competing with us for high quality performers. So with that in mind, I think Right now, the overall payout structure that we offer on Momo platform should stay Relatively stable, meaning that the payout ratio should also stay at a relatively stable level as well. I think the question, If I get it correctly, it's asking about whether there is room to maybe lower the payout ratio to the Although we do not see competition as intense as it was like 2 years ago, I do not think it's appropriate to lower the payout to agencies or broadcasters Either because it's true that from the press, sometimes we hear stories about Some broadcasters making a lot of money.

Speaker 3

There are such outliers like some of the top of the pyramid streamers making A huge sum of money, but these are not the average, these are the outliers. If you look at the average level of income that If you look at the margins, some of our even some of our top performer agencies, it's very low. So if you want them to work hard in the ecosystem, if You want them to earn enough money to care about improving the content. This is probably not the right time for us to Lower the payout ratio either. So that's my answer to the payout question.

Speaker 3

I think Right now, we would rather let the status quo continue. So that's gross margin. My answer to the gross margin, for this year, I think it would stay more or less the same as we saw In last year, maybe it could swing a little bit because of the change in revenue mix, More or less it would stay quite stable versus last year. For Operating margin, I think in Q2, for the for ex Tantanpart, operating margin On adjusted basis, go back to 20%, 24%, 25% on a non GAAP basis. I think as we move into the second half of the year with Some pressure on top line.

Speaker 3

It's possible that we could see non GAAP operating margin on an ex half time basis to dip A little bit from Q2's level, but as I said, we're also working very hard to continue to optimize The personnel cost as well as the marketing and we're still seeing pretty decent room for us to continue to improve on those optimization front. So I think In any case, we're going to exit 2023 with an adjusted operating margin safely above 20%. That's my view for the ex Tantan part. Tantan already talked about the overall bottom line outlook for Tantan, so I won't repeat here. I think the last question is perhaps on management's thinking about the expenditures needed for overseas expansion.

Speaker 3

All of these are ROI oriented sort of initiatives. This year, I think the focus will be on getting the product right, getting the user experience right and building up the infrastructures and back end needed Grow the business and when time is right, we're going to put in some Marketing dollars to build the initial user base. So overall, I would say the rest of the year Would be an investment period for these new applications. But all in all, I think we are talking about if you count Personnel and marketing dollars all in, we're talking about maybe RMB20 1,000,000 to RMB30 1,000,000 in for the rest of the year for these new applications and next year they should start to see we should start to see revenue coming in from these new applications. For SoQIYI, Like I said, it's already in a stage where it's generating Bottom line profit faster than it's generating revenues, so you don't have to worry about the growth of Xochitl creating a drag on the bottom line.

Speaker 3

And so that's my overall answer to your question about margins.

Speaker 1

So I think that's it for today. And thank you guys for

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Hello Group Q2 2023
00:00 / 00:00