Ladies and gentlemen, thank you for standing by and welcome to First Quarter 2018 Momo Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded today. I would now like to hand the conference over to your first speaker today Ms. Cathy Peng. Thank you. Please go ahead, ma’am.

Thank you, operator. Hello everyone and thank for joining us today for Momo’s first quarter 2018 earnings conference call. The company’s results were released earlier today and are available on the company’s IR website. On the call today from Momo are Mr. Tang Yan, Co-Founder, Chairman and Chief Executive Officer; Mr. Wang Li, President and Chief Operating Officer; and Mr. Jonathan Zhang, Chief Financial Officer. Mr. Tang and Mr. Wang will discuss Momo’s business operations and company highlights followed by Mr. Jon who will go through the financials and guidance. They will all be available to answer your questions during the Q&A that follows. Before we begin, I would like to remind you that the call may contain forward-looking statements made under the Safe Harbor provisions 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 the 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 these and other risks, uncertainties, and factors is included in the company’s filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to Mr. Tang. I will translate for him. Mr. Tang, please.

Good morning and good evening everyone. Thanks for joining our conference call today. Q1 was a good quarter and a great start to the year 2018. Back in March, we outlined the three priorities for us this year: user-based expansion, top line growth and a healthy profitability level. I am glad to say that we have achieved outstanding results on all those three fronts. Now, my team and I will review the details with you. Firstly, from a high level, total revenue reached $435.1 million for the quarter, up 64% year-on-year and 13% quarter-over-quarter. The strong top line performance reflected the organic growth momentum we have been seeing from the live streaming business, which is in turn driven by the continuous strengthening of our content ecosystem. Adjusted operating income for the quarter was $159.9 million, up 59% from the same period last year and representing a 36.7% operating margin. What we achieved financially in Q1 reflected the strong operating leverage of our business model leaving ample room for us to make significant investment for our future while maintaining a healthy level of profitability. Now, a deeper dive into the quarter. Firstly, our community continued to expand, total MAUs on Momo platform reached $103.3 million for the quarter, up 21% year-over-year and representing a 4.2 million net addition from the previous quarter. We are proud to say that despite the negative seasonality in Q1, per user time spent per day still showed a slight uptick from Q4’s levels and grew meaningfully by 16% on a year-over-year basis. We believe the growth of the community in both size and engagement is mainly attributable to continuous expansion of the social used cases on the platform. At our last earnings conference call, I mentioned that for the coming two quarters, we will focus on…

Thanks. Now, let me take you through the key things that we have done as well as the future directions for our major business lines. First of all, on live streaming, although we did see some negative impact from the Lunar year holiday, particularly in the month of February, the robust organic growth momentum gave us a good January and March, so we ended up delivering an extremely strong Q1 growing 75% year-over-year and 13% sequentially to $371.5 million. That strong growth trends came from the fundamental improvement of the content ecosystem driven by our collaborations with the talent agencies. In Q1, we further optimized the agency incentive program that was rolled out in last Q4. The new plan focused on two key areas: number one is to encourage the agencies to bring in more quality new broadcasters. Number two is to strengthen our control over the performing talents that we view as important to our platform. We believe that our strong social attributes and unique community atmosphere gives Momo streaming service strong competitive advantages in terms of the development of new performance as well as users’ stickiness. As we open up doors to the agencies, we are happy to see that more and more MCMs are realizing such competitive advantage of our platform and view Momo as a promising opportunity for them to build their business and grow their revenues. Because of their contribution, we saw a substantial increase in the number of mid to high growth in broadcasters in Q1 from Q4 last year. Those high performing talents and the competition among them are the underlying driving force for better quality content, which in turn drives the increase in the number of core users for the talent show business. Our goal is to perpetuate that cycle in order…

Thanks, Tang Yan and Cathy. Hello, everyone. Thank you for joining our conference call today. We started the year off with a great quarter. Our user base continued to expand, while both top line and bottom line showed robust growth. Total net revenue for the first quarter reached $435.1 million, up 64% year-over-year exceeding the high-end of our revenue guidance by 8%. Despite the negative seasonality from Chinese New Year, we still achieved a 13% sequential growth in revenue due to the strong organic growth momentum from live streaming business. Rapid top line growth cooked with operating leverage enabled us to deliver a 36.7% non-GAAP operating margin. Non-GAAP income attributable to Momo was $142.3 million, up 57% from the same quarter last year. Looking into the key revenue items, in the first quarter 2018, the revenue from live video services reached $371.5 million, up 75% year-over-year. In Q1, we continued our initiative to incentivize the talent agencies, which significantly boosted the improvements of our content ecosystem. At the same time, our operational efforts focused on introduction of new gamifications into showrooms during the non-event days allowing the organic growth momentum of live streaming business to overcome the negative impact from Lunar year holiday, grew at an impressive 13% on a quarter-over-quarter basis. As a result, the number of live streaming paying users for the quarter was 4.4 million, a 7% increase from the same period last year. The quarterly ARPPU was RMB563 before excluding VAT compared with RMB385 from a year ago. Moving on to the VAS and mobile game business, revenue from VAS, which includes membership subscriptions and virtual gifting services together, was $37 million, up 62% from the same period last year. The year-over-year increase was largely driven by the fast growing virtual gifting business and increase in…

Right. Before the Q&A, just as always a quick reminder, for the Chinese speakers, please ask the questions in Chinese first, followed by English translation by yourself and also please limit the number of questions to two at maximum per person to give other people opportunities to ask questions. Operator, we are ready for questions. Please take in the analyst.

Thank you, Cathy. [Operator Instructions] We have the first question from the line of Thomas Chong from Credit Suisse. Please ask your question.

Thanks management for taking my questions. I have two questions. The first question is about the live game and other short video have been rising very rapidly recently. What’s our take about the impact to Momo if there is any? And my second question is excluding Tantan, how should we think about the trend in terms of MAU and paying users in 2018? Thank you.

Let me translate first. So it has indeed been rising at an incredible pace during the past 15 months. However, we really haven’t seen any negative impact on our operating data. If you look at the operating metrics during the past few months on our top line, they have been showing some very positive trends, including the user growth, per user time spent, retention, number of interactions and obviously the revenue has been growing very robustly as well. I think the reason why we haven’t seen any negative impact from [indiscernible] was mainly because we have very different positioning in the sense that the core type of user demands that we are trying to serve are very different and that leads to huge difference in the way we design our products and the way the users are using our products. So although on the phase of it, there could seem to be some overlap in some of those use cases, there won’t be direct competition between exactly the same kind of product offerings. For example, what a user is primarily looking for on Momo is to find someone new to interact with. So, even if you are talking about constant consumption in use cases such as live video and short video, these type of functionality needs to be deeply integrated with other social features such as user profile page, news feeds, interest groups and instant messaging in order to serve the users demand to build new connections and to find other people to interact with. However, if you look at the situation for a lot of those live streaming and short video pure-plays, the core user demand that they are trying to serve is constant consumption itself. The way they design their products is therefore not centered around, helping people…

Yes. Hi, Cathy. I had a question on the paying users, ex-Tantan, how is the trend in 2018? Thank you.

So, the second question is on paying users?

Yes.

On Tantan?

On Tantan yes.

Tantan officially rolled out its membership subscription business in January 2018 and since then it’s number of subscribers have been growing at a very impressive pace, much faster than the pace that we saw when Momo and other similar companies first rolled out these type of services. We believe that speaks to the very strong demand coming from Tantan users to improve their changes of matching through purchasing of value-added services. And we do think that Tantan at this stage is at a very early stage in terms of monetization. And if you look at the roadmap of other similar companies, they have actually achieved acceleration in the number of subscriber growth and monetization growth. Up to this point, Tantan has done none of these yet and therefore even within the membership subscription area, we do think that Tantan still has a lot of potential to further grow its number of subscribers and monetization. In addition, as Tantan continues to grow its user base and reach its social features, we do think that Tantan will have lot of opportunities to monetize beyond the membership subscription business as well in the area of diversifying into other business lines obviously Momo has a lot of expertise and resources that Tantan can leverage down the road and therefore we have high level of confidence in the future growth trends about Tantan paying user as well. Operator, next?

Thank you. The next question comes from the line of Alex Poon from Morgan Stanley. Please ask your question.

My first question is about Tantan, which is very successful in U.S., the Tinder version and I want to ask about future strategy and potential of this business in the next 2 to 3 years, you mentioned about revenue is above $4 million to $5 million in June if I analyze, it’s about $50 million to $60 million a year. How should we expect the revenue and margin in the next 2 to 3 years also some MAU and paying ratio forecast? And my second question is about investments, your balance sheet is very strong, operating cash flow is very strong, can you share with us what would be your future focus of the investments whether it’s R&D or M&A etcetera? Thank you very much.

So maybe your second question first, I think the focus for the management team at this point is still to drive the organic growth in user base and business. But of course, in the general area of social and entertainment space, there are targeted companies that can help us expand along the industry value chain or help us to diversify our product lines or brand portfolios. Of course, we are going to consider to go through M&A opportunities to pursue higher and more efficient kind of development in growth. Let me translate first. With regard to the second question about Tantan, monetization plan in the future actually addressed a big part of it in the earlier question about Tantan’s subscriber and paying user growth. I think I am going to talk about two points here. Number one is since Tantan started to officially rollout its subscription business in January 2018, it has been growing at a very rapid pace. However at this point, I don’t think monetization is the most important thing that draws the attention and focus of us as the management of the combined company. Instead, the number one priority for us is still user growth from content and the current user growth trajectory of Tantan since the beginning of 2018 is actually very, very positive. So that’s the most important focus of us on Tantan. I think we will pass on to CFO Jonathan to address the financial questions.

Hi, Alex, this is Jonathan. Just one color to add is as can be seen from our guidance of around $4.5 million revenue added into our guidance. That only reflects the revenues generated on the existing subscription business. However, Tantan does have a plan to rollout new rounds of monetization efforts of getting into the second half of this year. So we do expect the revenue to ramp from the current level in a meaningful way when those initiatives get launched.

Thank you. The next question comes from the line of Alex Yao from JPMorgan. Please ask your question. Sorry, the line for Alex Yao has dropped. We will move to the next question by Tian Hou from TH Capital. Please ask your question.

So, I want to follow-up with the first analyst question regarding the short videos and Tik Tok and Kwai short videos developing really rapidly. And certainly because the content difference and user difference and two different things, Momo and the short videos satisfy different needs. However and who knows what’s going to happen. So, I cannot believe that management has not preparing yourself for the future or potential pressure from a short video or at least in the short video maybe one of the direction that Momo can also get into to increase another source of content providing. So, I really want to ask Mr. Tang, what have you done and how you are going to – how are you doing in this area to prepare yourself for the future either on both fronts, defend yourself from competition and getting into a new area of the business?

Right. So, on the face of it, the two objects might seem the same, but if you peel off the very outer layer, inside they are actually very different things. The way we position our short video service is that we are hoping that our users can, through creation and consumption of short video content, build out very effective connections and interactions. That’s the reason why during the past 1.5 years period of time we have been very proactively driving the integration of short video functionalities with every major social experiences and modules on the platform such as news feeds, user profile page and live streaming. In Q1, because what we did to the algorithm around short video we actually saw new hike around a lot of operating metrics, including the number of video viewed, number of video published and some other operating methods that internally we view as more important such as deal penetration and number of interactions around the short video content. For example in Q1, the short video DAU penetration ratio has already reached 67%. So, it’s fair to say that short video has already become a very important content medium over which users are building up your social activities. Okay. With regards to future optimization around the short video service, basically we are looking at several key areas. Number one is that we are going to continue to optimize the short video creation tools. For example, we will soon be launching a new feature that encourages the professional short video creators on the platform to set examples and drives more and more content creation activities from regular Momo users. Number two is that we are going to continue to optimize the algorithms. And as a social platform, we are going to be optimizing for interactions, for…

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You may all disconnect your lines now. Thank you.