Hello Group Inc._Earnings Call_2022-06-07_English

Hello Group Inc.
NasdaqGS:MOMO
FQ1 2022 Earnings Call Transcripts
Tuesday, June 07, 2022 12:00 PM GMT
S&P Global Market Intelligence Estimates
-FQ1 2022- -FQ2 2022- -FY 2022- -FY 2023-
CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS
EPS Normalized 1.62 1.94 19.75 1.78 8.73 NA
Revenue (mm) 3125.22 3148.08 0.73 3301.76 13499.12 NA

Currency: CNY
Consensus as of Jun-07-2022 4:35 PM GMT
- EPS NORMALIZED -
CONSENSUS ACTUAL SURPRISE
FQ2 2021 2.10 2.54 20.95 %
FQ3 2021 2.01 2.70 34.33 %
FQ4 2021 1.73 1.38 (20.23 %)
FQ1 2022 1.62 1.94 19.75 %
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Contents
Table of Contents
Call Participants .................................................................................. 3

Presentation .................................................................................. 4
Question and Answer .................................................................................. 13
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HELLO GROUP INC. FQ1 2022 EARNINGS CALL JUN 07, 2022
Call Participants
EXECUTIVES
Ashley Jing
Head of Investor Relations
Li Wang
CEO & Director
Xiaosong Zhang
Chief Financial Officer
ANALYSTS
Henry Wibowo
JPMorgan Chase & Co, Research
Division
Leo Chiang
Deutsche Bank AG, Research Division
Thomas Chong
Jefferies LLC, Research Division
Copyright © 2022 S&P Global Market Intelligence, a division of S&P Global Inc. All Rights reserved.
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Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to Hello Group Inc.'s First Quarter 2022 Earnings
Conference Call. [Operator Instructions] Please note that this conference is being recorded today.
I'd 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 2022 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. Wang Li, CEO of the company; and Mr. Jonathan Zhang, CFO of the company. They will discuss
the company's business operations and highlights as well as the financials and guidance. They will both 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 and 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.
I will now pass the call to Mr. Wang. I'll translate for him. Mr. Wang, please.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Good day, everyone. Thank you for joining our conference call today. Q1 was a very challenging quarter for
numerous companies in China, and the same applies to us. However, I'm pleased that our team was able to focus on
our product and operational initiatives to cope with headwinds from the resurgence of COVID-19 and related challenges,
getting 2022 off to a good start. In my remarks today, I will begin by reviewing the key operational and business results for
the first quarter followed by an update on the progress that we've made pertaining to the company's strategic priorities.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] I will start with a brief overview of our financial performance.
For the first quarter of 2022, total revenue at the group level was CNY 3.15 billion, down 9% year-over-year and 14%
quarter-over-quarter. Adjusted operating income for the quarter was CNY 461 million with a profit margin of 15%.
On an ex-Tantan basis, total revenue was CNY 2.8 billion, down 4% from Q1 last year and 14% from last quarter. The
year-over-year decrease was mainly due to the negative impact of the macro headwind and the COVID on live streaming
business.
VAS revenue growth partially offset the decline in live streaming. Among them, the new bucket of stand-alone apps was a
real outperformance this quarter and this incremental revenue contribution exceeded that of the Momo app value-added
services, making it a new growth engine for the VAS business line. Adjusted operating income on an ex-Tantan basis was
CNY 619 million with a 22% margin.
Tantan's total revenue for the quarter came in at CNY 349 million, down 39% year-over-year and 20% quarter-over-
quarter. The year-over-year decrease was due to the demonetization process to improve user experience and retention
in the second half of 2021 as well as COVID negative impact on user dating sentiment and intention to pay for VAS.
Adjusted net loss from Tantan was CNY 159 million for the quarter compared with CNY 42.04 million a year ago.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Now I will walk you through the progress we made with our strategic priorities during the first quarter.
At the beginning of the year, I set strategic goals for Momo, Tantan and the new endeavors. For the Momo app, our first
goal for the year 2022 is to maintain a stable user growth with a limited marketing budget and seek growth on top of that.
The second goal for Momo is to ensure the cash cow business remains stable.
With respect to Tantan, the strategic goal set at the beginning of the year was to deliver solid user growth by improving
marketing efficiency and core dating experience. However, as we entered into Q2, the COVID situation continued to
accelerate, which resulted in a significant decline in users' dating sentiment and propensity to pay for VAS. Our team has
temporarily decided to scale back channel investment for ROI considerations. We'll explain this decision in more detail
later.
For that reason, we have shifted our focus for the next few months from user growth to continuously improve marketing
efficiency and enhance core dating experience in order to improve user retention. At the same time, we have lowered
Tantan's marketing budget to reduce net loss amidst the escalation period of the COVID lockdown.
For new products and businesses, we aim to continue to enrich our product portfolio and push the boundaries beyond
Momo and Tantan.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Firstly, regarding Momo's user growth and key metrics. Momo had 110.9 million monthly actives for the first
quarter of 2022, down 3% from the previous quarter. The sequential decrease was due to Chinese New Year seasonality,
compounded by continuous escalation of pandemic containment measures in various regions across China. However,
the magnitude of the decrease was lower than the 6% seen in Q1 2020 at the beginning of the initial COVID-19 outbreak.
Negative seasonality and the COVID resurgence led to a significant decrease in organic user growth. We therefore
stepped up our channel marketing efforts to counter this trend.
In terms of the channel strategy, our team optimized the data models and ad materials and took advantage of favorable
marketing windows in Chinese New Year, which significantly improved overall user acquisition efficiency. This, in turn,
resulted in an increase in traffic acquired from channels on the back of a slight decrease in total marketing expenses from
the previous quarter.
On the product side, we upgraded the design of the core nearby features, which improves the efficiency of relationship
discovery for male users. At the same time, we continued to refine the mini verse experience launched last year to
enhance a sense of companionship and content consumption to meet the needs of female users to express their feelings.
The number of paying users for the quarter was 8.6 million. The 300,000 sequential decrease was mainly due to the
decrease in MAUs. Paying conversion remained stable, thanks to the success of our product and operational efforts.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Now I'll discuss progress we made regarding our priority of ensuring the cash cow business remains stable.
Despite the negative impact of multiple external factors such as macro headwind and the escalation of COVID, on an ex-
Tantan basis, revenue was CNY 2.8 billion, down 3.6% from Q1 last year. Value-added service revenue represented 85%
of the size of live streaming, up 21 percentage points quarter-over-quarter.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Momo's live streaming revenue totaled CNY 1.48 billion for the first quarter, down 13% year-over-year. The
decrease was mainly due to 2 factors: first, consumption softness due to macro headwinds; second, the negative impact
of tax compliance scrutiny on the engagement of talent agencies.
In order to overcome these external challenges, we deemphasized the revenue in favor of improving profitability during
the first quarter. Instead of hosting one large quarterly tournament, we focused on small-scale promotional events and
optimized our live streaming ecosystem by allocating more resources to meet level performance and quality newcomers.
The scale back in competition events led to a decrease in bonus-related revenue sharing costs.
Momo's gross profit margin in Q1 rebounded from the previous quarter and the agency revenue contribution mix
shift from -- shifted from top agencies to medium-sized ones. Operational indicators reflecting the health of live
streaming ecosystem improved from the previous quarter. The number of sections and online time committed by the top
broadcasters remained stable. However, revenue recovery was slow after Chinese New Year due to unfavorable macro
conditions.
We believe the macroeconomy and regulatory environment will remain quite challenging throughout the second quarter.
We plan to continue our conservative operational strategy with minimum budget on event-related bonuses, stabilizing
gross profit margin and driving spending from mid cohort users to ensure steady improvement in our ecosystem so that
revenue can recover as soon as the consumer sentiment comes back.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] With regards to VAS, revenue from value-added services, excluding Tantan, totaled RMB 1.26 billion for the
first quarter, up 11% year-over-year. VAS revenue from the main Momo app totaled CNY 1.12 billion, up 4% year-over-
year. Revenue from the new bucket of stand-alone apps maintained rapid growth momentum, totaling CNY 135 million, up
140% year-over-year, while the net loss continued to narrow. I will provide an update of our new endeavors in detail later.
But for now, I'll focus on Momo app VAS business.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] In Q1, consumption softness in connection with macro headwinds had a negative impact on some of our
users and the resurgence of COVID in various regions of China led to escalation of containment measures, leading to a
significant slowdown in year-over-year growth in Momo VAS revenue. However, compared with live streaming, VAS is
more resilient to economic cycles and difficult external conditions.
In the first quarter, the team focused on product innovation for long-tail and mid cohort users. Taking audio and video-
based experiences as an example, we introduced the [ last confession wall ] feature in the chat room, where users can
display specific gifts they send out on the wall for other users in the chat room to comment and give blessings. This kind of
design address the long-tail and mid cohort users' desire for attention seeking fairly well.
Continuous product and operational innovations allowed revenue to remain stable on a sequential basis despite pressure
from the pandemic, Chinese New Year seasonality and challenging macro conditions. In addition, our overall revenue
structure suited middle cohort and long-tail users and small ticket VAS features.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] With respect to Tantan, I will start with users trend on overall financials. Since the end of last year, COVID
prevention and control measures in many regions of China continued to intensify, which suppressed the use of social
sentiment and put pressure on user growth. Tantan had 25.6 million monthly actives for the first quarter, down 5% from
December last year. The decrease was greater than that of Momo.
This was mainly because the core value proposition of Tantan is helping users discover new relationships, connecting
them for romantic purposes and connecting -- and converting the relationship to off-line dating opportunities. Tantan's
users have a higher propensity to meet in real life than Momo's users. Therefore, compared with Momo, which has
relatively diversified social use cases, Tantan took a bigger hit during the pandemic as people were often restricted from
participating in outdoor activities.
Steady optimization of the product and marketing approach led to improvement in the overall retention ratio. Users in
regions that were free of pandemic grow sequentially. However, due to the severe epidemic situation in many regions of
the country, especially large and densely populated cities, and continuous escalation of prevention and control measures,
both organic user growth and retention of new users significantly deteriorated, leading to a considerable decline in the
active user base in most of the severely affected areas.
In light of the decline in the retention of new users and the decrease in ROI, we lowered our channel investment and
strategically focused on improving retention through product improvement to ultimately drive user growth. The number of
paying users for the quarter was 2.4 million, down 100,000 sequentially. This was mainly due to the decrease in MAU.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Now I briefly review Tantan's financial performance. Total revenue for the first quarter was CNY 349 million,
down 39% year-over-year, 20% quarter-over-quarter. And year-over-year decrease was mainly due to our demonetization
strategy to improve user experience and retention after the change of management in the second half of last year. For this
reason, we will discuss Tantan's revenue on a sequential basis.
VAS revenue for the first quarter was CNY 224 million, down 29% year-over-year and 5% quarter-over-quarter. The
sequential decrease was mainly attributable to 2 factors. First, the decline in paying user as a result of decreased MAUs
while ARPPU remained relatively stable. Second, the financial impact from demonetization efforts was not completely
absorbed. This was reflected in the lack of deferred revenue for the membership business.
Live streaming revenue for the first quarter was CNY 125 million, down 38% quarter-over-quarter, mainly due to 2 factors:
First, Q1 seasonality for the live streaming business in general; second, the demonetization process of live streaming last
year continued into this quarter. Our current product strategy is to gradually transform live streaming into a multiplayer
video party mode, which fits better with an open social networking atmosphere.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Now let's move to the development Tantan made on the strategic priorities of improving marketing efficiency
and core dating experience.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] In terms of improving marketing efficiency, in Q1, we mainly focused on reducing unit acquisition costs
as well as optimizing and innovating ad content. Our team customized ad material for different user groups and made
particular efforts to target users from core channels more effectively. These new user acquisition initiatives enabled us to
more accurately reach Tantan's target users, thereby improving retention.
As organic user growth in the first quarter slowed significantly amidst the pandemic, we strategically increased the number
of users acquired from channels. I'm pleased to see that the total number of users acquired from channels increased,
while overall channel marketing expenses steadily decreased from last quarter.
In addition, we managed to keep the proportion of female users and the age of new users within a favorable range. This
demonstrates preliminary yet solid progress the team has made in improving user acquisition efficiency. While this was
encouraging, the market environment for user growth became more challenging than Q4 last year, mainly due to the
pandemic and continuous escalation of containment measures. We believe MAU may continue to face challenges in Q2
due to the further spread of COVID and escalated control measures.
Considering the significant decline in new user retention and the lower paying conversion ratio during the pandemic,
which resulted in low ROI, we have adopted a conservative marketing approach in Q2, lowering channel investment
and reducing the net loss for Tantan. We will keep this practice until the pandemic improves and user social sentiment
gradually reappears.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Although user appreciation was challenged by the pandemic, the team continued to push forward on product
improvement against our original plan. In Q1, we tried to improve the retention of female users and those with qualified
photos on 2 fronts.
The first is to enrich user profile information as well as other content that can review user's personalities in a more
comprehensive way. For example, we encouraged users to upload photos truly depicting the personality and lifestyles and
provide more detailed interests such as books and dramas that they've recently consumed. This gives other users more
information to base their swipe decisions on.
The second is to expand the way people connect and interact with one another. For example, we launched a greeting
function on post to help users break the ice based on content. This provides more passive social opportunities for female
users who are more reserved when it comes to dating.
In addition, we created an exclusive swiping experience for those who fail to provide qualified photos. Our algorithm
is designed to prioritize users who have initiated right swipes to improve probability of matching among users without
qualified photos.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] This concludes Tantan's domestic business update. Now I'll briefly discuss Tantan's overseas development.
Tantan's strategy in the overseas market is simple and clear: to pursue profitable growth. Our approach to achieve that
goal has 2 important components. One is that we need to improve our ARPU by introducing audio and video services.
And on the back of that, non-subscription-based revenue models in developing countries.
The other component is lowering marketing costs in areas that are not currently making any sense from an ROI
perspective. As I mentioned in the previous quarters, after the management transition, we made a foray back into the
Indonesian market. One of our biggest progress made since then was that we successfully improved the ARPU and ROI
in that market by leveraging live streaming and the non-membership value-added service monetization model.
With an increase in ARPU and improvement in ROI, we stepped up channel investment to drive users and revenue
growth. At the same time, we scaled back marketing efforts in some of the loss-making regions. As the number of
overseas users and the scale of live streaming business grows, we have enough leverage to lower the payout ratio of the
non-subscription business.
As a result of all of the improved ARPPU, lowered marketing costs and optimized payout structure, Tantan's overseas
business turned profitable in Q1 on an ex-payroll basis. Tantan will continue to execute such a strategy for the rest of the
year in overseas markets.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Lastly, I'll review the progress we made with our new endeavors. In 2018, we launched a brand portfolio
strategy through the acquisition of Tantan. This marked our first step in meeting the social needs of different target groups
more effectively through different apps.
Starting from 2019, our incubator continued to launch new apps, enabling us to reach a broader group of users and cater
to the different social preferences through a multi-brand and multi-platform approach. This strategy helped us quickly
and effectively penetrate niche areas within the social space, explore opportunities in overseas markets and solidify our
industry-leading position.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Revenue from the new bucket in the first quarter was CNY 160 million, up 184% year-over-year and 43%
quarter-over-quarter. Revenue from the new bucket includes ROI-oriented social apps, Hertz, Duidui and Soulchill,
revenues of which were recorded in the VAS line as well as [ Fairy Town ], a simulation game focusing on the western
markets, revenue of which was recorded in the game line.
For Hertz and Duidui, the 2 social apps targeting domestic markets, we continued to focus on cost reduction and
efficiency improvement as we did in the second half of 2021, optimizing costs and expenses while moderately ramping up
the monetization level. Driven by an increase in ARPPU, revenue rapidly increased quarter-over-quarter, and both apps
achieved full quarter of profitability and made incremental contribution to the group's bottom line in Q1.
In particular, for Duidui, a video matchmaking app targeting lower tier markets, our team leveraged the rich product and
operational experience accumulated in our other products and achieved breakeven in less than 2 years after its launch in
2020. On top of that, the app has also shown the potential to sustain top line growth and profit expansion. Our strategy for
domestic market new endeavors this year is to simultaneously pursue steady growth and ensure profitability.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Among overseas ROI-oriented products, we ramped up efforts to drive revenue growth of Soulchill, a social
app targeting the MENA area. As a result, in Q1, both paying user count and revenue showed rapid growth from the
previous quarter. We adopted the same strategy to lower the payout ratio as users and revenues continued to scale. As a
result, net loss significantly narrowed compared with the previous quarter.
Our plan for Soulchill this year is to achieve profitable growth in its core market in the MENA region and, at the same time,
to develop a product mode suitable for the Southeast Asian and South American markets. This will lay the groundwork for
Soulchill's long-term user and revenue growth.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] In addition to ROI-oriented products, we launched a DAU-oriented product [indiscernible] after the Chinese
New Year. [indiscernible] based social app, which mainly targets Gen Z and Gen Alpha users who prefer to share content
with a few intimate friends. Users can document their daily lives in photo and video format and these content will be
automatically pushed to the cellphone homepages of their predefined intimate friends on [indiscernible].
A product like [indiscernible], which supports more convenient real-time sharing of authentic life moments with their close
friends is highly complementary to the Momo app in terms of feature and [ intended ] users. As it accurately fulfills unique
and untapped demands from Gen Z and Gen Alpha users, [indiscernible] delivered rapid growth in organic users and
retention after its launch. We immediately stepped up our product iteration and marketing efforts.
At the moment, [indiscernible] has already reached a pretty sizeable user scale and is still showing strong growth
momentum. We believe this is an app that will open the doors to many future opportunities.
It also marks the first milestone for the company in the area of new app development and a large deal base with a brand-
new category of user demand. This is a new front that we will continue to explore. In the second quarter, we have a plan
to further escalate -- accelerate the product iteration and step up the marketing efforts around it to drive bigger growth.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Lastly, I'm pleased to announce that today our Board approved a $200 million share repurchase plan during
a 24-month period. This program will allow the company to significantly enhance shareholders' value, capitalizing on the
undervalued share price that obviously is failing to reflect the fundamentals of the company. This share buyback plan
demonstrates our long-term commitment to maximizing shareholders' value as well as management's confidence in the
future of the business.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] This is what I'd like to cover today. Now I'll pass the call over to Mr. Jonathan Zhang for the financial review.
Jon, please?
Xiaosong Zhang
Thanks. 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 of 2022 was CNY 3.15 billion, down 9% year-on-year or 14% quarter-over-quarter. Non-
GAAP net income attributable to the company was RMB 398.5 million compared to RMB 633.7 million from the same
period last year.
As Wang Li has covered the revenue analysis in a great level of details, in the interest of time, I will skip it and dive directly
into the cost and expenses items for the quarter.
Our non-GAAP cost of revenue for the first quarter 2022 was CNY 1.82 billion compared to CNY 1.92 billion for the same
period last year. Non-GAAP cost of revenue as a percentage of total revenue was 58%, an increase from 55% from Q1
2021.
Non-GAAP gross profit margin for the quarter was down by 2.5 percentage points from a year ago. The decrease was
mainly attributed to higher payout to the content providers. On a sequential basis, non-GAAP gross profit margin was up
1.8 percentage points compared to Q4 last year. The sequential increase was due to 2 factors: number one, less revenue
streaming event-related costs. Number two, a positive change in revenue mix towards VAS, which bears higher gross
margin than live streaming, contributed more to the top line.
Non-GAAP R&D expenses for the first quarter was CNY 229.2 million compared to CNY 244.1 million for the same
period last year, representing 7.3% and 7% of total revenue, respectively. The decrease was the result of optimization in
personnel costs. On a sequential basis, non-GAAP R&D expenses decreased by 18% from CNY 479.7 million in Q4 last
year due to the year-end bonus expenses during Q4 last year. We ended the quarter with 1,936 total employees, of which
563 from Tantan. R&D personnel as a percentage of total employees for the group was 61% compared to 57% Q1 last
year.
Non-GAAP sales and marketing expenses for the first quarter was CNY 578 million or 18.4% of total revenue compared
to CNY 579.8 million or 16.7% of total revenue for the same period last year. On a sequential basis, non-GAAP selling
marketing expenses decreased by 11% from CNY 648.6 million in Q4 last year. The decrease was attributable to
the following factors: number one, lower marketing spend for new apps as a result of our focus on cost reduction
and efficiency improvement; number two, lower user acquisition investment on Tantan as we adopted a conservative
marketing approach during the pandemic resurgence; number three, in Q4 last year, core Momo had a quarterly specific
branding expense item.
Non-GAAP G&A expenses was CNY 85.9 million for the first quarter 2022 compared to CNY 94.2 million for the same
quarter last year, representing 2.7% of total net revenue, same in both periods. Same as in the R&D line, the decrease
was mainly a result from optimization in personnel costs.
Non-GAAP operating income was CNY 460.6 million, a decrease of 30% from Q1 2021, representing 14.6% non-GAAP
operating margin for the quarter, down 4.4% from the same period last year.
Non-GAAP OpEx as a percentage of total revenue was 28.4%, an increase from 26.5% from Q1 last year. The increase
was mainly due to the negative operating leverage resulted from decrease in revenue. Going forward, we expect to
continue to exercise cost discipline for the rest of the year in order to improve cost efficiencies in a difficult macro
environment.
Now briefly on income tax expenses. The total income tax expense was CNY 150.8 million for the quarter compared to
CNY 100.3 million (sic) [ CNY 91.4 million ] for the same period last year. Effective tax rate for the quarter was 27.4%. In
Q1, the company accrued withholding income tax of CNY 44 million, which is 10% of undistributed profit generated by
our WFOE. Without the withholding income tax, our estimated non-GAAP effective tax rate was around 19% in the first
quarter.
Now turning to balance sheet and cash flow items. As of March 31, 2022, Hello Group's cash, cash equivalents, short-
term deposits, long-term deposits and restricted cash totaled CNY 15.6 billion compared to CNY 15.71 billion as of
December 31, 2021.
Excluding the CNY 140 million cash payment to Chinese tax authorities to repatriate CNY 1.4 billion from our WFOE
in China for our offshore entity, net cash provided by operating activities in the first quarter 2022 was CNY 183 million
compared to RMB 502 million in the first quarter 2021.
In addition, during the first quarter of 2022, we paid a greater portion of revenue share to the content providers accrued
in the previous quarter. We made such payments during the same period in previous years. It caused the operating cash
flow from operating activities to decrease to a greater extent on a year-over-year basis than the non-GAAP net income of
the company in Q1 '22.
Lastly, on business outlook, we estimated our second quarter revenue to come in the range from CNY 3.05 billion to
CNY 3.15 billion, representing a decrease of 16.9% to 14.2% year-on-year or a decrease of 3.1% to an increase of 0.1%
quarter-over-quarter.
For Q2 2022, on a sequential basis, we expect the total revenue from core Momo to decline slightly due to negative
impact on live streaming business from new regulation and live streaming ruled out in May, continued macro headwind
and intensified COVID control measures. We expect the VAS growth to partially offset the decline in live streaming.
The total revenue from Tantan expected to decrease in mid-single digits due to the increased level of pressure from
COVID control on Tantan's user and membership business. We expect Tantan's user and revenue to come back to the
growth track after the large-scale lockdown is lifted and the dating sentiment improves.
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 the Q&A.
Ashley, please.
Ashley Jing
Just a quick reminder before we take the questions. For those who can speak Chinese, please ask your questions in
Chinese first, followed by English translation by yourself. Operator, we're ready for questions, please.
Question and Answer

Operator
[Operator Instructions] Our first question comes from the line of Daniel Chen from JPMorgan.
Henry Wibowo
JPMorgan Chase & Co, Research Division
[Foreign Language] I'll translate for myself. This is Henry speaking on behalf of Daniel Chen. I have two questions. The
first one is about regulation. Can management share more color on the regulation impacts on your financials and the
overall China live streaming industry?
The second question is about Tantan user trend. Can management comment about the Tantan user trend this year?
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] With regarding -- with regard to regulations, the opinions on regulating keeping in live streaming and
strengthening the protection of minors published in May, we should finalize the requirements on ranking systems as well
as the peak day competition during evening peak hours by stimulating positive high-spending behavior among users with
relatively clear implementation guidelines and detailed rules. That's blessing for the live streaming industry because it
helps to level the playing field and ensure that the industry as a whole develops in a healthy and sustainable manner.
In the month since the opinion was issued, our team [Technical Difficulty] operational adjustments. In the coming weeks,
we will follow up with and fine-tune our product plan in line with regulatory requirements. The new product plan officially
took effect in early June, so its impact on revenues will mainly be reflected in the second half of the year.
Our assessment of the revenue impact may not be accurate at the moment because we only have a few days of adjusted
operating income from the late May that can be used as for reference. However, according to our estimated -- our
estimates are based on such limited data, the impact of the new product plan on the full year of live streaming revenue
should be less than 10%, which is within a reasonably manageable range.
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] So Tantan's user growth depends on both internal and external factors. As for external factors, as previously
mentioned, the new wave of COVID-19 started at the end of last year, spread further since during Q2. Consequently,
related control measures continued to intensify, whereby the speed, the scope and extent of the escalation exceeded our
expectations back in March.
Our data in April showed that the new user growth retention and paying conversion were largely affected in major
pandemic regions where prevention and control measures were severe. This is very much consistent with the trend that
we saw in early 2020. Considering the decrease in retention and paying conversion which resulted in low ROI, we have
decided to reduce Tantan's marketing budget in Q2. We will maintain this practice until the pandemic situation improves.
Currently, the pandemic in Beijing and Shanghai has been initially brought under control, but the containment measures
are still relatively strict and it will take time for users' social sentiment to recover. However, we remain optimistic about the
outlook in the second half. And hopefully, we'll see some substantial improvement by then.
Regarding internal factors, user growth is driven by both user acquisition and product offers. We have been making
steady progress on those 2 fronts since the beginning of the year. And that's why from a geographical perspective, MAU
declined significantly in regions where severe pandemic and a high level of control measures whereas users showed an
upward trend in areas that was not affected by the pandemic. We plan to expand continuous efforts in improving retention
and lay a solid foundation for steady user growth in the post-pandemic era.
I think that answers your question.

Operator
Our next question comes from Thomas Chong from Jefferies.
Thomas Chong
Jefferies LLC, Research Division
[Foreign Language] My question is really about the overall macro and the consumption environment in China. How should
we think about the impact to live streaming and VAS as well as our thoughts for the full year revenue and the earnings
assumptions.
Xiaosong Zhang
This is Jonathan. Let me try to address your question. First of all, in terms of revenues, let me begin with the live
streaming business. In contrast to regulation, the macro uncertainties and spending softness has brought more severe
challenges to the live streaming business. And this situation has become clearer in Q2 than in Q1. Our Q2 guidance
implies that Momo app live streaming business will see a year-on-year decline of high 20 percentage points.
Since the visibility of the macro environment in the second half is quite low at this moment, to be conservative, I suggest
investors to use Q2 as a baseline to think about or to predict the situation in the second half of the year. Strategically, we
take active measures to enhance user experience and ensure stability of the supply side content ecosystem in the context
of a year-over-year decline in revenue. Based on the situation in Q1, we are quite confident that -- in this regard. In that
way, our live streaming business can recover as soon as the macro environment improves.
With respect to the VAS business, although VAS has its discretionary consumption is also being affected by the macro
environment and the pandemic, it is more resilient to economic cycles compared with live streaming. In addition, with the
rapid growth of new apps, we expect the VAS revenue, on ex-Tantan basis, can still achieve double-digit growth target set
at the beginning of the year.
Tantan has been more severely affected by pandemic-related lockdowns in the first half of the year than we expected
at the beginning of the year. Hope that with the demonetization process in the second half of 2021, the year-on-year
decrease in VAS revenue in the first half of the year will be relatively big, at somewhere between high 20% to 30% range.
Once the pandemic subsides, the revenue will resume its growth track as dating sentiment comes back and user numbers
start to uptick. However, we have to wait for the situation to improve before making specific estimates. Tantan's live
streaming business is no longer our strategic focus. We will transform it into something that fits better with its social
atmosphere.
Lastly, I'd like to place emphasis on one crucial point in terms of revenue structure. With the continuous sequential growth
of VAS business, at the group level, VAS revenue will reach or even exceed the scale of live streaming in the second half
of the year. This is a stable and more resilient revenue structure which will make future development of the whole group
more balanced. It is also a safer revenue structure for our shareholders.
With respect to the gross margin, the biggest factor causing the margin fluctuation is our live streaming revenue sharing
ratio. The revenue sharing ratio in Q1 was 2 percentage points lower than that in Q4 last year as we didn't host large-
scale competition events which led to a decrease in bonus-related revenue sharing cost.
On a year-over-year basis, the revenue sharing ratio was up 2% as a result of smaller scale events we hosted helped
agencies to navigate through the challenging environment. As we continue to invest in this kind of events throughout the
year, the overall impact of the revenue sharing ratio of live streaming on gross margin will be around 2% for the whole
year.
However, due to the continuous increase in revenue contribution from VAS, which bears a relatively higher margin from
the gross profit on the bill, the shift in revenue mix is conducive to improve in gross margin. Therefore, for 2022, at the
group level, the gross profit margin decline should be between 1% to 2%.
On the cost and expenses side, we have been optimizing Momo's costs and expenses. The marketing expenses for
Momo app will remain stable compared with last year. However, given the development of new apps, especially for
[indiscernible], which is currently showing strong growth momentum with outstanding performance in various indicators,
including unit acquisition costs, user retention and engagement, we will step up our marketing efforts in the coming
quarters and its MAU will continue to deliver rapid growth.
Although the marketing expenses of new apps have increased, thanks to cost optimization of Momo app, we expect that
our operating margin, on ex-Tantan basis, will still be around high teens percent to 20%. For Tantan, we expect its net
loss to be between CNY 500 million to CNY 600 million.
Ashley Jing
Okay. Maybe in the interest of time, let's just take one last question. Operator, next one, please.
Operator
Our last question comes from Leo Chiang from Deutsche Bank.
Leo Chiang
Deutsche Bank AG, Research Division
[Foreign Language] My question is about the new ads in Tantan overseas. As these 2 new business gradually become
our new growth drivers, can management show with us the longer term potential of these 2 initiatives and the difference of
user spending behaviors between the new initiatives and our elder business?
Li Wang
CEO & Director
[Foreign Language]
Ashley Jing
[Interpreted] Thank you for your questions. We have different methodologies and expectations when managing ROI-
oriented and DAU-oriented apps.
For ROI-oriented apps, which include Hertz, Duidui, Soulchill and [ Fairy Town ], strategically, these apps focus on
profitable growth and scaling back from nonprofitable users and revenue growth. We plan to achieve this goal by
improving ARPU, reducing user acquisition cost and the revenue sharing ratio.
Total revenues from the bucket of new apps was slightly over CNY 300 million last year. And this year, revenue is
expected to be somewhere between CNY 700 million to CNY 800 million, while the net loss continues to narrow and the
profitable trend as a whole is starting to emerge.
For DAU-oriented apps, [indiscernible], our main goal this year is to deliver rapid product and user growth with no revenue
planned for now.
And for Tantan overseas business, our main goal is to improve our ARPPU in developing regions by leveraging our non-
subscription monetization model while reducing user appreciation costs in order to pursue profitable growth. Our first pilot
was Indonesia market. And so over the past 6 months period of time, user scale in Indonesian market grew 27% and the
ARPPU doubled with revenue growth 2.5x.
So basically, in order to ensure profit and avoid multi-front operations with limited resources, we started to reduce
investment in loss-making markets with low ROI, such as Japan and South Korea. And although revenue from these
markets declined accordingly, but revenue from the overseas market as a whole will still grow. And at the same time,
profitability has also improved substantially. Our strategy is to initially replicate the Indonesia model in Asia and then focus
our resources to develop appearance in other regions.
I think this is going to be the end of the conference. So thank you guys for participating, and we will see you next quarter.
Back to you, operator.
Operator
Thank you. So with that, we conclude our conference for today. Thank you for participating. You may now disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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Hello Group Inc.

CONSENSUS ACTUAL SURPRISE CONSENSUS CONSENSUS CONSENSUS

EPS Normalized 1.62 1.94 19.75 1.78 8.73 NA

Revenue (mm) 3125.22 3148.08 0.73 3301.76 13499.12 NA

CONSENSUS ACTUAL SURPRISE

FQ2 2021 2.10 2.54 20.95 %

FQ3 2021 2.01 2.70 34.33 %

FQ4 2021 1.73 1.38 (20.23 %)

FQ1 2022 1.62 1.94 19.75 %

Call Participants .................................................................................. 3

Question and Answer

I think that answers your question.

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