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Hello Group Inc. (MOMO) reported its fourth-quarter 2024 earnings, revealing a mixed performance with revenues exceeding expectations while earnings per share (EPS) fell short. The company posted an EPS of 1.3, missing the forecast of 1.56. Despite a revenue beat, with actual figures reaching 2.64 billion against a forecast of 2.6 billion, the stock reacted negatively, dropping 11.19% in pre-market trading to 6.59. According to InvestingPro analysis, the stock currently trades at an attractive P/E ratio of 7.77, suggesting potential undervaluation relative to peers.
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Key Takeaways
- Revenue exceeded forecasts, reaching 2.64 billion.
- EPS missed expectations, coming in at 1.3 versus a forecast of 1.56.
- Stock price fell by 11.19% in pre-market trading.
- Strong cash position, with cash and equivalents totaling 14.73 billion.
- Growth potential identified in overseas markets, particularly in the MENA region.
Company Performance
Hello Group’s overall performance in Q4 2024 was mixed. While the company achieved a revenue beat, the decline in EPS and non-GAAP net income compared to the previous year highlights ongoing challenges. The firm is navigating a tough macroeconomic environment and regulatory landscape, yet it continues to hold a strong position in the social entertainment space.
Financial Highlights
- Revenue: 2.64 billion (down 12% YoY)
- EPS: 1.3 (below forecast of 1.56)
- Non-GAAP Net Income: 230.5 million (down from 514.7 million in Q4 2023)
- Cash and Equivalents: 14.73 billion (up from 13.48 billion in 2023)
Earnings vs. Forecast
Despite exceeding revenue forecasts, Hello Group’s EPS fell short by 0.26. This miss is significant compared to previous quarters and suggests potential operational inefficiencies or increased costs impacting profitability.
Market Reaction
The stock price dropped 11.19% in pre-market trading, reflecting investor disappointment primarily due to the EPS miss. The decline is notable against the broader market trends, indicating a strong negative sentiment.
Outlook & Guidance
Looking forward, Hello Group projects Q1 2025 revenue between 2.4 billion and 2.5 billion. The company aims for a 12-13% non-GAAP operating margin and plans to expand its overseas revenue significantly. Cost optimization remains a focus, with expectations of a low-teens revenue decline in the core business. InvestingPro analysis indicates the company holds more cash than debt on its balance sheet, with an Altman Z-Score of 7.56 suggesting strong financial stability.
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Executive Commentary
CEO Sigg emphasized the company’s commitment to investing in growth areas, stating, "Our overseas business offers clear growth potential and trajectory." CFO Kathy noted the challenges ahead, mentioning, "We expect some seasonality in Q1 that should see a slight rebound in Q2."
Risks and Challenges
- Macroeconomic pressures affecting consumer spending.
- Regulatory changes impacting social platforms.
- Competition in the social entertainment industry.
- Pressure on top-tier paying users.
- Potential for increased costs impacting profitability.
Q&A
During the earnings call, analysts questioned the strategy behind reducing low-ROI paying users and the shift in marketing efforts. Executives detailed the new approach to user acquisition for the Tantan platform and emphasized the flexible capital allocation strategy to support growth initiatives.
Full transcript - Hello Group Inc (MOMO) Q4 2024:
Conference Operator: Ladies and gentlemen, thank you for standing by and welcome to Fourth Quarter and Fiscal Year twenty twenty four Hello Group Inc. Earnings Conference Call. Please note that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing.
Thank you. Please go ahead, ma’am.
Ashley Jing, Investor Relations, Hello Group: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for HELLO Group’s fourth quarter and fiscal twenty twenty four 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.
Dan Yan, CEO of the company Mr. Jiang Sichuan, CEO of the company and Mr. Peng Hui, CFO of the company. They will discuss the company’s business operations and highlights as well as the financials and guidance. They will all be available to answer your questions during the Q 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 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 over to our CEO, Mr. Tang Yan. Mr. Tang, please?
Hello, everyone. Thank you for joining our call. 2024 was a year fraught with challenges and opportunities. Our team maneuvered well through external uncertainties and delivered satisfactory financial and operational results. Momo cash cow business continues to be productive with an ecosystem that is healthier than last year.
Our overseas business maintained its robust growth momentum and made more meaningful contributions to the group’s financial spending. This empowers us to take bolder measures to propel growth and innovation in international markets in the future. I’ll now pass the call over to Sigg for more details. Sigg, please? Hello, everyone.
Sigg (Jiang Sichuan), CEO, Hello Group: Thank you for joining our call. I will now give an update on our business in Q4 and fiscal twenty twenty four, and I’ll outline our strategic goals for fiscal twenty twenty five. Starting with an overview of our financial performance. For Q4, total group revenue was RMB 2,640,000,000.00, down 12% year over year. Adjusted operating income was RMB280 million with a margin of 10.6%.
Our Q4 costs included RMB94 million in fuel production related expenses. Excluding such costs, adjusted operating income would have been RMB374 million with a margin of 14.2%. Revenue from the mobile app and standalone new app totaled RMB242 billion, down 11% year over year. The decrease is mainly due to the 18% year over year decline in the Momo app resulting from our proactive product adjustments and weak macro economy. Meanwhile, standalone new app revenue increased 37% from a year ago.
Thanks to the rapid growth of our overseas business, adjusted operating income from the mobile app and standalone new apps was RMB269 million with a margin of 11.1%. Excluding fuel related costs, adjusted operating income would have been RMB 363 million with a margin of 15%. As for Tantan, Q4 revenue totaled RMB213 million, down 22% year over year due to the decreased number of paying users. Adjusted operating income was RMB 11,370,000.00 compared to RMB 27,740,000.00 from a year ago. For fiscal twenty twenty four, total book revenue was RMB10.6 billion compared with RMB12 billion last year.
Adjusted operating income was RMB1.173 billion with a margin of 16.3%. Revenue from the Momo app and stand alone new apps totaled RMB 9,700,000,000.0, down 11% year over year. Mobile app revenue decreased 16%, mainly due to our proactive product adjustments and macro factors. Revenue from standalone new apps grew 40%, driven by our overseas expansion. Adjusted operating income from the mobile app and standalone new app was RMB 1,650,000,000.00 with a margin of 17.1%.
As per Tantan, total revenue for fiscal twenty twenty four was RMB900 million compared with RMB1.2 billion in the previous year. The adjusted operating income was RMB 75,940,000.00 compared with RMB 101,000,000 in the previous year. Now I will now give you an update on our execution, strategic priorities for each business line in 2024 as well as the challenges we are facing and how we plan to address them. First, on the Momo app, our goal is to maintain the productivity of this cash cow business with a healthy social ecosystem. Over the past year, our proactive product adjustments combined with macro softness put a lot of pressure on revenue.
However, quality of content and a strong ecosystem will lay a solid foundation for the stable productivity of our cash cow business next year. First, on the product and operational front. In 2024, our product team focused on improving the female user experience and optimizing real time social use cases to drive effective interactions. We introduced an AI assisted chat tool for male users in multiple voice and text based chat experiences, such as greetings and chow chow. The AI tool can generate greetings based on female users’ text and picture based profile information, as well as their historical posts, to improve the quality of ice booking conversations, thereby increasing the response rate from female users and improving the overall interactive experience.
In addition, we promoted several matching based real time voice chat features on the homepage that proved effective in driving deeper user interaction and paying conversion, thus further strengthening normal social attributes. On the user acquisition front, over the past two years, we have shifted from a focus on overall user growth to a more pragmatic profit focused ROI driven growth model, and we have made good progress in optimizing the efficiency of transitional fee channels and reducing user acquisition costs. The continued improvement in our eye has allowed us to reduce overall marketing spend while keeping traffic volatility stable. Given the significant cost optimization achieved over the last few years, the space to further reduce costs in transitional channels is limited. In 2024, we began to explore new ways to acquire traffic through KOLs.
By collaborating with short video influencers on platforms such as Douyin and Red Notes, we have increased brand exposure and gradually shifted our budget from high cost transitional channel to KLR channel, which helped reduce unit acquisition costs. In Q4, the Momo app had 5,700,000 paying users, a sequential decrease of 1,200,000. Due to our cost reduction and efficiency improvement strategy. We reduced acquisition of some extremely low paying users with a negative ROI, which benefits profitability. Now on the productivity of Momo, the cash cow business.
In Q4, Momo’s live streaming revenue was RMB1.19 billion, down 16% year over year. The year over year decline was wider than the previous three quarters, mainly due to the reduction in revenue oriented competition events, which resulted in a significant decrease in incremental revenue from year end competition events compared to previous years. In fiscal twenty twenty four, live streaming revenue totaled RMB 4,800,000,000.0, down 14% year over year. This decrease was mainly due to our proactive operational adjustments to maintain a healthy social ecosystem as well as spending softness among top paying users amidst the weak macro economy. To mitigate the revenue pressure from the decline in top paying users, we stepped up our effort to promote live streaming on the homepage to improve its channel penetration and paying conversion.
Meanwhile, we increased our product innovation efforts, targeting mid- and long tail users to stabilize the revenue scale of this group. In early stage of our operational adjustment, we found that the reduction in competition bonus resulted in insufficient profits for supply side partners and reduced their motivation to work hard on our platform. Therefore, in the year’s second half, we modestly adjusted the incentive policy for daily events, which resulted in a slight increase in revenue sharing ratio for 2024 compared to 2023. However, the decrease the increase in sales of live streaming, showroom, costume and PK pops, which do not require revenue sharing, plays a positive role in stabilizing the profit level of our cash cow business. Now moving on to our value added services.
In Q4, revenue from Wasp, excluding Tantan, totaled RMB1.2 billion, down 5% year over year. Wasp revenue from the Momo app was RMB800 million, down 15% year over year. Revenue from the spend on RMB400 million, up 24% year over year. For fiscal twenty twenty four, revenue from value added services excluding Tantang totaled RMB 4,177,000,000.000, down 6% year over year. VAS revenue from Danumo app was RMB 3,280,000,000.00, down 17% year over year.
Revenue from the standalone app was RMB 1,490,000,000.00, up 35% year over year. The incremental revenue from our new endeavors largely offset declines in revenue from our legacy business. The decline in Momo app launch revenue was mainly due to our full access product and operation adjustments in audio and video based launch experiences over the past year to mitigate regulatory risks, where we significantly reduced the monetization level of agency dominated and heavily monetized use cases. Like in livestream, we set up the promotions of the chat room experience on the homepage, introduced interactive gifting features for the mid- and long tail users, and launched new categories such as mini games and loved fortune talent to improve chat room penetration and paying conversion while driving organic revenue growth. Turning to Tantan, Tantan’s strategic growth for the year was to improve its core dating experience to build an efficient business model that drives profitable growth.
With four dating experiences suitable for agents and to drive organic user growth and retention through quality products. We initiated a product upgrade in 2024, focusing on user experience. To encourage more explanations on the product, our management decided not to constrain the teams with short term metrics during the pilot phase but allowed more fluctuation in user skeleton revenue. By the end of the year, product adjustments had played a positive growth in improving user experience. Still, user retention and organic user growth have not been significantly improved.
The user scale and revenue continue to show a gradual downward trend. Turning to Tantan’s user trends and financials. Although the continuous cost reduction and efficiency improvements over the past two years have brought Tantan to breakeven, There has been no breakthrough in user retention driven by product experience or organic user growth. Meanwhile, continuous reduction in channel investments has put significant pressure on the user base. The combination of multiple factors led to a 10% sequential decline in Tantan’s MAU to $10,800,000 in September.
As of the end of Q4, Tantan had 860,000 paying users, down to 80,000 sequentially due to the decline in MAU. Turning to Tantan financials. Q4 total revenue was RMB213 million, down 22% year over year, mainly due to the decreased number of paying users. For fiscal twenty twenty four, total revenue was RMB900 million, down 25% year over year. In terms of business lines, RAS revenue was RMB550 million, down 18% year over year due to the decline in number of paying users.
By dividing members’ paying features, optimizing the guidance narratives on paying experiences and stepping up promotion efforts for relatively high priced products such as SVIP, Black Gold and additional pay as you go privilege for members, we managed to drive a significant year over year growth in vast ARPU, resulting in vast revenue declining much smaller than the user numbers. Live streaming revenue was RMB313 million, down 38% year over year, mainly due to our strategic decision to deemphasize the live streaming, which has a low correlation with the dating experience. For fiscal twenty twenty four, Tantan’s adjusted operating income was RMB75.94 million compared with RMB101 million from Q4 twenty twenty three. Now moving on to our efforts on Tantan’s product and user acquisition. First, on user acquisition front like Momo, Tantan also implemented KOL collaborations and offline integrated campaigns in 2024.
This includes promotion events at bars, music festivals and other youth centered venues, combined with biotargeting online campaigns across new media channels. This approach effectively optimized user acquisition costs while expanding brand influence. On the product front, at the beginning of the year, we identified the major issues affecting the user experience through interviews and surveys. In the year second half, our product team made full attempts to address two core issues: uncertainty about the authenticity of user identity and lack of response to chats after matching. After a year of effort, our goal to improving Tantan’s core data experience has largely been achieved, but overall user retention has not improved significantly.
In 2025, we will implement more extensive cost reduction and efficiency improvement measures, maintaining a low cost, modest profit level while continuing to export dating products. As for our new endeavors, our goal is to enrich the brand portfolio further, push the business boundaries beyond Mango and Tantan and build a long term growth engine. In quarter four, the total revenue of the new app was RMB450 million, up 37% year over year. For fiscal twenty twenty four, the total revenue of the new app was RMB1.57 billion, up 40% year over year. The rapid expansion of overseas business, especially Sogou, was the key driver behind this sustained growth.
Compared with our domestic businesses, which face much macro and regulatory uncertainties, overseas businesses offer clear growth potential and trajectory. Our long standing expertise in social products and operational gives us confidence that shifting human and financial resources towards overseas business will yield better returns on investments for the group’s revenue and profits. Since the beginning of 2024, we have been committed to localizing our overseas business and improving the operational efficiency of core sport team collaboration. On the product front, we introduced virtual gift designs and interactive features that aligned with local user preferences in the chat rooms and began exploring the expansion from voice base to live stream. On the operational front, we refined our services for high paying users, driven growth in the number of top cohort users, which drive overall RPP growth.
We also improved our supply side collaboration strategy, significantly increasing the number of new agencies and broadcasters. On the user acquisition front, while maintaining a stable ROI, we mostly increased our marketing efforts to deepen our presence in existing market while expanding into new regions. The combined efforts of product operations and channels led to increased paying users and RPPU, which drove rapid revenue growth. Our rapid expansion in Turkish market and live streaming business offset the temporary consumption dips in MENA due to the political unrest at the year end. April showed sure to maintain strong growth momentum for its 2023 high base and continuously increase its revenue contribution to the group.
Over the past two years, building on the success of SORTIO, we have launched more brands and new products in the MENA region, Among them, YEAHOLAND, an audio based voice social game, and AMAR, a voice based social product, entered initial marketing and monetization phase in 2024 after finalizing product positioning and monetization models. By the end of the year, this two products have reached a certain revenue scale and maintained stable ROI even as we significantly increased marketing investments. The initial success of Yahya Lens and Ama validates our strategy assessment that MENA market can accommodate multiple brands and platforms and give us confidence that our overseas business will play an even more important role in our group’s revenues and profits in the future. In 2025, we will continue to increase our investments in the HoloLens and MR and strive for continuous improvement in ROI and profitability. If we are able to increase the revenue of these two apps and to ascertain scale and achieve profitability, we will replicate the successful experience and model in other social entertainment apps, building a more diverse product portfolio.
That concludes our business review for 2024. I will now briefly outline our priorities for 2025. Essentially, we will maintain the 2024 strategies for Momo, Tantan and our overseas businesses with adjustments based on our new developments and the market dynamics. First, for the Momo app, our goal is to maintain long term stable operation with a healthy social ecosystem to ensure the continued stable productivity of this test car business at Tantan. The strategic goal for this year is to reduce costs and improve efficiency while maintaining profitability with a focus on continuing to explore dating experiences suitable for agents and efficient business models.
Our new endeavors aim to enrich the brand portfolio further, expand the business beyond normal and Tantan and be a long term growth engine. We’ll further increase our overseas efforts and take even bolder steps to drive growth and innovation in international markets. Lastly, I’m pleased to announce that our Board has approved a special cash dividend in the amount of USD 0.3 per ADS for a total cash payment of approximately USD15 million or about 30% of the adjusted net income attributable to Hollywood Inc. In 2024. This is the second consecutive year that we have shared the fruits of our business with our shareholders through cash dividends, which is a strong testament to our commitment to creating long term value for our shareholders.
Now let me pass the call to Kathy for the financial review. Kathy, please.
Kathy (Peng Hui), CFO, Hello Group: Thanks, Sigg. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the fourth quarter twenty twenty four was RMB2.64 billion, down 12% year on year and 1% quarter over quarter.
Non GAAP net income attributable to the company was RMB230.5 30,500,000.0 compared to RMB 514,700,000.0 from the same period of 2023 and RMB 493,300,000.0 from Q3 twenty twenty four. Our Q4 costs included some film production related expenses. At year end, we also conducted a thorough impairment review on certain assets on our balance sheet, including capitalized film production costs and other long term investments and made provisions in accordance with the principle of prudence. Excluding these costs and expenses of RMB141 million, adjusted net income for Q4 twenty twenty four would have been RMB371.1 million. Looking into the key revenue items for Q4.
Firstly, on live broadcasting. Total revenue from live broadcasting business for the fourth quarter of twenty twenty four was RMB1.26 billion, down 17 year on year and 2% quarter over quarter. The year over year decrease was mainly due to a decline in the core Momo live streaming business and to a lesser extent, the decrease in Tantan.
Ashley Jing, Investor Relations, Hello Group: Momo live broadcasting revenue totaled RMB1.19
Kathy (Peng Hui), CFO, Hello Group: billion for the quarter, down 16% year over year and 3% quarter over quarter. Tantan’s live broadcasting revenue amounted to RMB75.7 million, down 24% year over year, but up 14% quarter over quarter. Revenue from the data added services for the fourth quarter of twenty twenty four was RMB 1,330,000,000.00, down 7% from Q4 last year and 2% sequentially. Revenue from data added service on an ex ton ton basis was RMB1.2 billion in the fourth quarter of twenty twenty four, down 5% from Q4 last year and 2% from the previous quarter. Momo app’s diarized service revenue decreased both on a year over year and quarter over quarter basis.
This was due to a weak standing sentiment as well as our proactive product adjustments. However, revenue from the standalone new apps continue to grow nicely, partially offsetting the revenue pressure from Momo Valley Added Services. Tantan’s value added services revenue amounted to RMB127.8 million, down 20% year over year and 7% sequentially. The decrease was due to other client paying users, which was in turn due to a reduction in channel investment. However, the continued improvement in R2 resulted in revenue declining much less than user count.
Now turning to cost and expenses. Non GAAP cost of revenue for the fourth quarter of twenty twenty four was RMB1.72 billion compared to RMB1.77 billion for the same period last year. Non GAAP gross margin for the quarter was 34.7, down 6.5 percentage points from the year ago period. Cost of revenue in Q4 included RMB94 million film production costs as well as impairment costs provided for earlier film productions. Excluding these costs, gross margin gross profit margin would have been 38.2%, down 2.9 percentage points from Q4 last year.
The year over year decrease was due to a number of factors. Number one, higher payout ratio, which in turn was due to two factors. One factor is that overseas business continued contributed a larger percentage of total revenue while having higher payout ratio, especially during the new region expansion and initial phases video service offering, and to a lesser degree, higher payout from more cash cow business to incentivize the supply side considering the downward revenue trend. Number two, deleverage where direct personnel and infrastructure costs takes up a higher percentage of revenue. Number three, payment channel costs represent a slightly higher percentage of total revenue as revenue mix shifts towards overseas business, where channel fees as a percentage of revenue are much higher than those for domestic business.
Non GAAP R and D expenses for the fourth quarter was RMB212.4 million compared to RMB218.1 million for the same period last year or 3% decrease year over year. The decrease was due to optimization in personnel costs. Non GAAP R and D expenses as a percentage of revenue was 8% compared with 7% from the year ago period. We ended the quarter with thirteen ninety total employees, of which two seventy six are from Tantan, compared to thirteen eighty two total employees, of which three zero one from Tantan a year ago. The R and D personnel as a percentage of total employee for the group was 61% compared with 63% Q4 last year.
Non GAAP sales and marketing expenses for the fourth quarter was RMB211.7 million or 12% of total revenue compared to RMB296.0 million or 10% of total revenue for the same period last year. The year over year increase was primarily attributable to the increase in channel investments for the overseas app, whereas marketing spend for Momo core business and Tantan was narrowed to varying degrees. Non GAAP G and A expenses was RMB117.6 million for the fourth quarter of twenty twenty four compared to RMB87.2 million for the same quarter last year, representing a 43% of total revenue, respectively. The year over year increase in G and A expenses was due to a combination of factors, including provision for some pending legal matters, self inspection on tax related matters and due diligence related costs in connection with potential investments. Non GAAP operating income was RMB279.9 million with a margin of 10.6% compared with RMB264.2 million with a margin of 22.1% from the same period last year.
Excluding some production related costs, as mentioned earlier, non GAAP operating income would have been RMB373.9 million with a margin of 14.2%. Non GAAP operating expenses as a percentage of total revenue was 24%, an increase from 20% for Q4 twenty twenty three. Non GAAP operating expenses on a year over year basis increased 7%. The increase in both absolute Lending amount and as a percentage of revenue for operating expenses was mainly due to an increase in G and A expenses and to a lesser degree, increase in sales and marketing expenses. Now briefly on income taxes.
Total income tax expense was RMB89.5 million for the quarter with an effective tax rate of 28%. In Q4, the company accrued withholding income tax of RMB19.5 million, which is 5% of undistributed profits generated by our Rovi. In Q4 twenty twenty four, as a result of our self inspection of tax related matters, we also paid some taxes that were due but unpaid in earlier years. Without such adjustments and the withholding tax, our estimated non GAAP effective tax rate in Q4 would have been around 17% in the fourth quarter. Now turning to balance sheet and cash flow items.
As of 12/31/2024, Whole Group’s cash, cash equivalents, short term deposits, long term deposits, short term investments and restricted cash totaled RMB14.73 billion compared to RMB13.48 billion as of 12/31/2023. Net cash provided by operating activities in the fourth quarter of twenty twenty four was RMB423.6 million. Lastly, on business outlook. We estimated our first quarter revenue to come in the range from RMB2.4 billion to RMB2.5 billion, representing a decrease of 6.3% to 2.4% year on year or a decrease of 9% to 5.2% quarter over quarter. At segment level, for Q1 twenty twenty five, on a year over year basis, we expect Momo segment revenue to decrease around mid to low single digits due to the continuous macro headwind offset by the rapid growth of overseas business.
On the Tantan side, we expect revenue to decrease around 20% due to value added service revenue contraction caused by a decline in user base and to a lesser degree, our operational adjustment to deemphasize less dating centric live streaming services. 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 for today’s discussion. With that, let me turn the call back to Ashley to start Q and A. Ashley, please.
Thank you.
Ashley Jing, Investor Relations, Hello Group: For those who speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Operator, we’re ready for questions please. Thank you.
Conference Operator: Thank Your first question comes from Zhu Qing Zhang with CICC.
Zhu Qing Zhang, Analyst, CICC: Thanks management for taking my question. My question about Qomomo. In the first quarter, number of paying users on Qomomo decreased by 1,200,000 quarter on quarter, which is significantly larger than the historical average. So what’s the main reason for this? What’s the impact on revenue and profit?
Can we see the number of paying users around this year? And secondly, how does management view the adjustments to live streaming and the vast products over the past year? Are there any further adjustments this year? Lastly, how to view the revenue and profit of the Comomo in 2025? Thank you.
Sigg (Jiang Sichuan), CEO, Hello Group: I will take this answer. So about the question of paying users. For the last few years, we pushed hard to get a lot of small ticket paying users because we thought we could keep improving our earnings. And we spent quite a bit on different channels to acquire them, but the cost could not be recouped. Now given the tough economic and our goal to be more focused on the profits, we have decided to cut back on trying to bring in these low return paying users in the fourth quarter.
Ashley Jing, Investor Relations, Hello Group: And that’s why we saw
Sigg (Jiang Sichuan), CEO, Hello Group: a big drop in long tail paying users, which is more than what we usually experience at the end of this year of the year end. So in the months ahead, we will keep reducing our efforts to acquire these low return smart ticket users. This means we expected number of paying users to drop more than usual, even though this will lower our overall count of paying users. But these users generally don’t engage much or spend, so stopping our efforts to bring them in won’t really of the platform. Instead, the shift should help us boost the profitability of our main business.
Regarding the product adjustments of MOMO, after a year of efforts, we think Momo’s content has greatly improved, so we won’t make any changes to reduce earnings right now. Instead, we’re going to focus on adding fun features and ways to engage users. At the same time, we will keep looking for ways to save costs to make sure our main business continue to pull in good profits even with our revenue growth downs a bit. Kathleen will share more about Momo’s financial plans for this year.
Kathy (Peng Hui), CFO, Hello Group: This is a very extensive question. So let me try to break it down into a few key components and take them one by one. First of all, on revenue outlook for the cash cow business, I’d like to crack it down by considering both internal factors and external factors. Internally, if we look at almost fundamentals, I would say that the foundation of our business remains very solid and resilient. First of all, Momo continues to be the go to social platform for users looking to discover new friends and expand their circles.
Our core user engagements such as number of meaningful connections and number of interactions remain pretty strong, which give us confidence in the platform’s resilience. On paying user metrics, which might have caused some concerns this quarter, I don’t think investors need to really worry about it either. And here is why. It’s true that extremely high spending users, which we sometimes call the whales, have faced pressure in recent years due to economic challenges. Many of them, especially business owners, saw their net worth shrinking during COVID and subsequent real estate meltdown, which impacted spending.
It’s also true that, as Sigg mentioned earlier, the long tail users, those spending around RMB10 per month or even less have been deprioritized in our user acquisition strategy due to the monetization potential and negative ROI. However, we’re happy to see that mid tier users, which we sometimes call dolphins in comparison with the whales, have been the backbone of our platform. This group of dolphins has remained remarkably stable throughout the past few years. Perhaps some former whales have also transitioned into this category. Looking ahead, we expect this group of Dolphin users to continue driving the business and providing a solid revenue base.
Now turning to external factors impacting revenue. First off, on regulatory environment, over the past few years, you probably know that policy changes have posted pretty serious challenges for Momo, the cash cow business. In response, we proactively adjusted our monetization strategies to reduce regulatory risk. However, since late twenty twenty four, the environment has stabilized a little bit, allowing us to focus on revenue recovery rather than risk management. So that’s the regulatory factor.
And on macro environment, I would say that consumer sentiment at this point remains a key variable on which there is not much we can do really, but to adapt. From what we’ve seen from how users performed so far into Q1, it looks like the very top of the pyramid users or the whales are going to continue to be very cautious in terms of spending. So live streaming may continue to see pressure, but better as a service should be doing relatively well. And as the year progresses, if consumer sentiment continues to recover and government policies further boost consumer confidence, especially the confidence from the business owners, we could see upside potential in user spending. But at this stage, it’s still too early to make a very strong call on the macro front.
So if you’re looking for a more quantitative outlook, here is what I can share at this point. As reflected in our guidance, we expect some seasonality in Q1 that should see a slight rebound in Q2. Where we land post the rebound really depends on macro. For now, I would put in a low teens revenue decline in the cash cow business for 2025 and see if the macro would help us perform better as we head deeper into the year. That’s for the cow.
That’s for the cash cow. And if you throw in overseas piece and the Tata piece into the pot and look at the group level rate, the Y o Y decrease will likely narrow pretty substantially to low single digit as the overseas is still gaining pretty strong traction at this point. Of course, in absolute dollar terms, this will still be a meaningful year over year decrease from 2024. So we are further optimizing headcount, as well as improving marketing efficiency to absorb part of the top line pressure and reallocate some of the resources to overseas business as well. As a result, while revenue will decline, profitability impact will be less severe due to cost optimization for the cash cow.
However, we may invest a big part of the cost savings, especially the marketing savings to grow our overseas business. So I would say that at the group level, the picture is a little bit more complicated. For the whole group, meaning combining the tau, Tantan and the fast expanding overseas business altogether, we are targeting a non GAAP operating margin range from 12% to 13%. However, you may want to take that range with an understanding that it is a very soft kind of guidance rather than a firm commitment because as you can understand, we are at the beginning of the year and there are still too many moving pieces that could move the bottom line margins one way or another. So this is what I can share at this point
Ashley Jing, Investor Relations, Hello Group: of time. Back to Ashley to take the next question. Operator, next question please.
Conference Operator: Your next question comes from Thomas Chong with Jefferies.
Thomas Chong, Analyst, Jefferies: My question is about our overseas application. Can management comment about the key market for Xochitl as well as its revenue and earnings? On the other hand, we also talked about the two new apps. Can management share the positioning of these two applications and how it is different from Sogou? So how big are these two apps in terms of revenue and spending?
In 2025, how should we think about the overall overseas revenue and earnings expectation as well as the growth potential in overseas market? Thank you.
Sigg (Jiang Sichuan), CEO, Hello Group: Regarding the question about Xochu and other apps, so in the past few years, Xochu has become the strongest growing product in our group, both in revenue and profits. In 2024, its revenue grew by 50% from 2023, nearing RMB1 billion and also surpassing Tantan’s earnings. So this growth is mainly due to improving localization strategies we started last year and focusing on three main areas. One is reaching to reaching the mature markets two, expanding into new regions and also adding features via live streaming. We have also strengthened our partnerships, which has helped boost revenue.
ShorTru is doing well in Turkey, Egypt and Gulf countries, showing very strong market demand. We also launched two new apps in the MENA regions at the end of twenty twenty three. The first one is Yahaland and all the Shoujo game apps and MR, similar to Shoujo but voice focused. Both products were ROI driven from the start and has shown promising potential in revenue and user acquisition. So in 2025, if ROI remains promising, we plan to increase marketing for both.
So the service of Souchou and our new product shows that the knowledge we gain in our home market works well upward, especially in MENA Vision, which can accommodate multiple social brands. So in 2025, we will invest more in exploring international markets since our overseas products are focused on profits. Increasing investments will heavily affect the group’s net profit. So Kathy will provide specific details on revenue and profit forecast.
Kathy (Peng Hui), CFO, Hello Group: Okay. Our overseas growth strategy for 2025 can be broken down into two buckets, the good old SoCeo and the other new initiatives. For SoCeo, as Siq mentioned earlier, we’re focusing on three main drivers this year. First one is better localization. Second one is geographic expansion into both countries, where our current penetration is not as deep.
And the third driver is new video services. If we make strong if we make good progress across all those three areas, we could reach the higher end of our growth target. If certain areas require more time, we might land in the mid to lower range of our target. In 2025, we are going to have a second growth driver for our overseas business, which are the two newer applications, Yajaland and Amar. Both applications are gaining pretty strong traction at this point and we’re significantly increasing our marketing efforts to accelerate revenue growth because the ROI is looking pretty promising.
Despite setting up the marketing dollars, ROI remains quite stable, which is a very positive sign. If we can maintain strong ROI as we continue to scale by the end of the year, the combined quarterly revenue run rate is new overseas apps could meaning these two smaller apps could reach where SoCeo is today. If you annualize that, that would mean the overseas revenue contribution for 2026 will become very meaningful. However, if marketing efficiency decline as we scale, we may pause marketing expansion to focus on product improvements and operational refinance before ramping up again. In that case, revenue growth for those two applications could come in a bit slower.
So looking at the full overseas portfolio, we expect revenue from it to grow from around RMB1 billion in 2024 to a range between could be between RMB1.7 billion to RMB2 billion in 2025. That’s a pretty impressive growth for this year already. Profitability is not a priority for overseas expansion this year as we are focused on scaling. That said, because we grow our overseas business with high level of focus on ROI as we continue to scale, bottom line for overseas business should improve over time. So that’s what I have to share at this point.
Ashley Jing, Investor Relations, Hello Group: Please, I’m ready for the next question. Thank you.
Conference Operator: Your next question comes from Leo Chiang with Deutsche Bank. Leo Chiang from Deutsche Bank. Your line is open.
Leo Chiang, Analyst, Deutsche Bank: Let me translate myself. Thank you management for taking my question. My question is regarding to Tantan. After one year of business adjustment, we see Tantan’s user and revenue scale is still in declining trend. Could management share the plan for Tantan this year in terms of product and operation?
How should we think of Tantan’s revenue and profit outlook in 2025? Thank you.
Kathy (Peng Hui), CFO, Hello Group: Okay. I’ll take the compound question. Maybe let me spend a little bit more time to discuss Tantan’s strategy for 2025 and explain why we’re taking this approach. Tantan has always had two main strategy strategic objectives. One is delivering good dating experience for users in China and the broader Asian market.
This remains our top priority because we obeyed all the up and downs in the past. We still see this as a significant underserved demand in China market. And we believe we, out of all of our peers, still have the best chance of being the best player in this market. And the second objective is building a sustainable, profitable business model. Given China’s highly competitive and costly user acquisition environment, there is only so much we can do to optimize on user acquisition costs.
So in order to build a profitable business model, referring to the second goal that I mentioned, we in the past thought that boosting monetization was a more feasible path. That’s why in the past we focused heavily on increasing ARPU to improve monetization. However, this approach often conflicted with user experience, forcing us into a pretty awkward balancing act, one that we’ve never executed successfully and sometimes even tumbled and struggle to get back on track. This year, we’re taking a different path. Instead of prioritizing ARPU growth, we’re shifting our focus to reducing user acquisition costs in a pretty dramatic way.
Now how do we get there? Typically, the more aggressively we acquire users, the higher the user acquisition costs would go, which means if we want to maintain current level of user scale, it’s difficult to further reduce unit acquisition cost. On the other hand, if we reduce our acquisition volume, unit cost would also decrease. This year, we will significantly call back on user acquisition spending all the way to the point where the ROI turns positive, which is to say that every new user we acquire, we aim to fully recover their acquisition costs, including the fixed costs, meaning the personnel and other related network expenses. By making this adjustment, even at our current ARPU levels, we can recover marketing spend and minimize acquisition losses, creating a healthier business cycle.
There is, of course, a trade off with this strategy. Since we’re cutting back on user acquisition costs pretty dramatically, we will likely see a faster decline in active users. However, many of these users were only being maintained at the expense of profitability. So we’re willing to let go of some scale in the short term. The upside is that this shift buys a sufficient time and space to refine user experience and retention strategies as well as experiment with new premium features that could drive sustainable monetization.
If we are successful in doing that, it’s going to lay the foundation for future growth where both user experience and revenue generation can scale together. So that’s the overall that actually marks a pretty big shift in strategies for Tantan in 2025. We will see how it plays out as the year progresses. When it comes to Tantan’s revenue outlook for 2025, there are two key factors shaping the quarterly trends. One is the product and operational adjustments impacting R2.
Last year, we made some product and operational changes aimed at improving the dating experience. These changes were tested on a smaller group of users last year, and now we are fully rolling out these adjustments across the platform in the first half of twenty twenty five. And because these changes will have a negative impact on ARPU, a full scale rollout certainly will weigh on revenue in the near term. And the second factor that we should consider is significant reduction in marketing spend, as I mentioned, in the overall strategy for Tantan in 2025. As I said, starting from Q2 twenty twenty five, we will pretty drastically cut marketing expenses to ensure the user acquisition achieves a full ROI recovery.
Right now, we are looking at reducing quarterly marketing spend from around RMB40 million to RMB50 million per quarter to approximately RMB20 million to RMB30 million per quarter. Naturally, this will result in a decline in active users and top line revenues. So given these moving pieces, it’s difficult to provide an exact revenue forecast at this point. That said, I would put a rough estimated range between 20% maybe 20% to 30% revenue decline year over year decline for 2025. In terms of profitability outlook, despite the top line decline, because our efforts are focused on achieving better ROI, profitability will actually see improvement for domestic Tantan.
Beyond optimizing marketing spend, we will also scale back personnel costs pretty significantly to align with our profitability goals. And we do expect Tantan to remain profitable for the coming couple of years, although at a lower level of platform scale. We may need to put in some investments to expand Tantan overseas, but it will be experimental and ROI driven as well. So that’s for Tantan’s financial outlook. Actually, maybe the last question, yes.
Ashley Jing, Investor Relations, Hello Group: Operator, let’s see if we have any more requests on the line. If we do, let’s take one last question before calling the night. Thank you.
Conference Operator: Thank you. Your next question comes from Jenny Huang with UBS.
Jenny Huang, Analyst, UBS: So thanks management for taking my question. My question is regarding our capital return. As management mentioned, this is the seventh consecutive year of issuing special dividend. So looking ahead, our plan is on a regulatory policy. Note that this year’s dividend payout is not more than previous years.
But on the other hand, we extended and upsized our sugar bag program. So does this indicate a strategic progress for sugar bags over dividends in terms of shareholder returns going forward? Thank you.
Kathy (Peng Hui), CFO, Hello Group: Okay. I’m hearing several questions here. On the question of whether we are thinking about making the dividend program a regular one, Simple answer is no. We don’t see a strong reason to make our special dividend plan a regular one and here’s why. First off, for long term investors who have been following us, it’s already well understood that management takes a disciplined approach to capital allocation.
When we have excess cash, we return it to shareholders in a thoughtful and value enhancing way. Because this expectation is already well established, we don’t see the need for a fixed dividend policy just to formalize it. Instead, we would rather keep some flexibility in how we allocate capital. If we see compelling opportunity investment opportunities, we would prefer to deploy capital toward growth either organically or through M and A rather than commit to a rigid dividend schedule. And the second point is perhaps related to it’s also related to your other question about how we decide between cash dividends versus share buyback.
Now even when it comes to returning capital to shareholders, we need the flexibility to decide between dividends versus share buybacks. Given that our stock is still trading pretty significantly below cash value, buybacks currently offers a better return for shareholders compared to a fixed dividend payout. So the conclusion is a rigid dividend policy would limit our ability to optimize capital allocation. Instead, we prefer to keep our options open and ensure every dollar is deployed in a way that creates the most value for our shareholders. So that’s my answer to the question.
And maybe with that, we’d like to wrap up today’s call.
Ashley Jing, Investor Relations, Hello Group: Okay. So thank you all for joining us. I will see you next quarter. Operator, we’re ready to close. Thank you.
Conference Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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