Ladies and gentlemen, thank you for standing by and welcome to First Quarter 2019 Momo Incorporation Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. Please note, this conference is recorded today. I will now hand the conference over to your first speaker Ms. Cathy Peng. Thank you. Please go ahead, ma'am.

Thank you, operator. Hello everyone and thank you for joining us today for Momo's first quarter 2019 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; Mr. Wang Yu, Founder and Chief Executive Officer of Tantan; and Mr. Jonathan Zhang, Chief Financial Officer. 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&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 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 US 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 Mr. Tang. I will translate for him. Mr. Tang, please.

Good morning and good evening everyone. Thank you for joining our conference call today. Q1 was a solid quarter and a good start to the year 2019. Now my team and I will take you through the details. Firstly, an overview of the financial performance. For the first quarter 2019, total revenue reached RMB3.72 billion, up 35% year-on-year, driven by the rapid growth of Momo's virtual gifting service as well as Tantan subscription business. The revenue mix of the company continue to diversify. I’m happy to see that VAS revenue for the first quarter of 2019 already represented more than one-third of the revenue contribution from live broadcasting service. With the VAS business getting increasingly sizable and the initiative that we took in live broadcasting service to drive the middle cohort spending, our revenue structure is becoming healthier and more defensive to macro uncertainty. Wang Zhang is going to elaborate a little bit more in his remarks. Adjusted operating income for the quarter was RMB1.01 billion. Excluding Tantan's financial impact, our adjusted operating income for the quarter would have been RMB1.09 billion, representing a 32% adjusted operating margin. Now turning to the progresses that we’ve made on the user growth and product front. Firstly, our community continue to grow. The core Momo app had a 114.4 million monthly actives for the first quarter, up 11% year-on-year and representing a 1.1 million net addition from the previous quarter. The slowdown in quarterly net add in Q1 was mainly due to the negative impact from Chinese New Year, which Momo platform experiences almost every year. Total paying users for the core Momo platform was 9.0 million in Q1 2019, up 12% year-over-year. The number of paying users on Momo was slightly down by 0.5% from the previous quarter due to the seasonality…

Thanks. As this is to review the first quarter 2019 business results, before we get into the details I would like to reiterate the priorities that we currently have on the business front. For the coming few quarters, we will be focusing on the following key things. Number one, drive steady and healthy growth from live broadcasting business through product innovations and operational efforts. Number two, cultivate a paying potential from the middle cohort and the long tail users through greater VAS experience. Number three, drive monetization growth of Tantan through optimization as existing premium features and the introduction of new paying experiences. Wang Yu will elaborate on the third one later in his remarks. So next I’m going to take you through what we’ve done and the future plans regarding the first two priorities. Firstly, on live broadcasting business. Total revenue from live broadcasting business for the quarter was RMB2.69 billion, an increase of 14% from the same period last year. During our last earnings call, we shared the mix revenue performance among different cohorts paying users doing the CNY holiday. During the seven days holiday period, the tipping revenue from the top hundred live broadcasting paying users only showed a slight uptick as compared with the same period in 2018, while the middle and the long tail cohorts contributed nearly all of the year-over-year growth. It also took longer as compared with last year for the top users to recover from the CNY weakness. That made us believe that the macro headwinds still have some lingering impact on the top-level spending in Q1. Therefore, we had decided not to push too hard in the Q1 competition events. For example, we remain fairly disciplined in terms of stimulating the top spending in the March tournament. Such kind of operational…

Thanks. So let me briefly review Tantan's operational and business developments in the last quarter and the next plans. First, on user growth. In Q1 2019, the growth of the Tantan community accelerated significantly. Total paying users reached 5 million for the quarter, a net addition of 1.1 million from three months ago compared to a quarterly net add of 0.3 million in the fourth quarter last year. Impressive paying user growth in Q1 was on the back of the strong user expansion, particularly in February and March. The user acceleration in Q1 was due to a combination of seasonal factors as well as our initiatives on the product and marketing side. Let me share some more details. Number one, Q1 has historically been a strong quarter for user growth on Tantan, especially during the period after Chinese New Year's holiday. We believe that this has something to do with the uniqueness of Chinese culture and family tradition as well as the fact that Tantan is increasingly recognized by young Chinese singles as a platform of choice for dating. Number two, with ARPPU and paying per merchant continuing to improve, we’ve stepped up our efforts with the paid marketing channels for user acquisition. And number three, in Q1 we initiated an effort called real photo verification and made remarkable progress with it. Such initiatives has substantially improved the social experience for the Tantan users. We believe that these concerted efforts had boosted the user growth in Q1. Other than this acceleration in user growth, which we believe is the primary reason for the big jump in the number of paying users. The paying conversion also meaningfully improved in the first quarter due to the optimizations we made to the premium features. Next, turning to monetization. Total revenue for the quarter…

Thanks, Wang Yu. 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 2019 was RMB3.72 billion, up 35% year-on-year and exceeding the high-end of our revenue guidance. Non-GAAP net income attributable to Momo was RMB910.3 million compared to RMB903.8 million for the same period 2018. Now let me talk about our paying user metrics. Total number of paying users across of the core Momo platform was 9 million for the first quarter of 2019 compared to 8.1 million from the same period last year and 1.9 million -- 9.1 million a quarter ago. As of March 31, Tantan have 5 million subscribers, up from 3.9 million a quarter ago or a 1.1 million quarterly net addition. As Tang Yan and Wang Yu mentioned in their remarks, we do expect the self inspected measures that Momo and Tantan are currently undertaking to negatively affect the number of paying users on Momo and Tantan. This number show get back to the growth track after the temporary challenges gets behind us. In the industry of time, I am not going to review the revenue lines in detail which has been covered comprehensively by Wang Li. Now on the costs and expenses items. Our non-GAAP cost of revenue for the first quarter of 2019 was RMB1.85 billion compared to RMB1.33 billion for the same period last year. Non-GAAP cost of revenue as a percentage of total revenue was 49.7%, an increase of 1.6% from Q1 2018, a decrease of 4.3% from the previous quarter. On a year-over-year basis, the lower non-GAAP gross margin on -- in Q1 2019 was mainly caused by the higher payout ratio for our live streaming business and the fast ramping virtual gifting…

Operator, before we began just a quick reminder to the analysts waiting in the queue. For those who can speak Chinese, please ask the questions in Chinese first followed by English translation by yourself. And also please limit the number of questions to a maximum of two, so that more people can get the opportunity to ask questions. Operator, we are ready for questions.

[Operator Instructions] Our first question comes from the line of Jialong from Nomura. Please ask your question.

Hi. Thanks management for taking my question. I will first ask my question in Chinese and then I will translate it. Thanks for taking my question. I have two questions both related to regulation. Just wonder if management can provide any update on Tantan app following your recent communication with regulators. And can management give more colors about the potential impact from the suspension on Momo's news feed service and the Tantan's app downloads. And what are the impacts you’ve monitored on your business from these suspensions. And also just wonder whether this suspension may have any impact on your expenses and a profit this year. And secondly, just wonder, if the tightening regulations -- regulatory environment may have an impact on your product and operation plans? Thank you.

I will be focused on Momo's situation and I will pass the call to Wang Yu to talk about Tantan later. Momo has been undertaking a comprehensive self inspection on direction from certain government authority. At the same time we’ve been strengthening our content reviewing team and beefing up our content monitoring capabilities to eradicate any non-compliant content from the platform. And so far we’ve been very proactively driving the self inspection process as according to the requirements from the regulators and we’re moving forward in a very solid manner. And at the same time, we’ve also been maintaining very smooth communication with the regulators. On the user side, for the core Momo app, our self inspection mainly involves the suspension of user posting for a month. Other than that, during the one month inspection period certain other product modules are also going to see some negative impact. But the magnitude of the impact from other corrective measures is going to be much, much smaller as compared to the impact from the user posting. And based on our observation and based on the data that we’ve seen from the past two weeks after the inspection started, we do expect that user engagement mainly represented by total time spent, number of interactions and number of relationships formed to see pretty meaningful decrease during the inspection period. DAU is also going to see some level of decrease, but to a much less degree than total time spent. And of course the decrease in user engagement and DAU is also going to cause the paying users of the platform, especially the VAS paying users to decrease during the inspection period. However, we do expect these engagement metrics to gradually start to resume growth after inspection period is over. With regards to the impact…

Okay. Let me first elaborate a bit more on progresses we’ve made so far. We have an open dialog window with government authority and have been maintaining a smooth communication. Since the download suspension happened, we have thoroughly reviewed content on the platform and also substantially strengthened our content monitoring system as according to government directives. For example, during the past month we've doubled our content review personnel, strengthened the training program and significantly increased our investment on pics fronts to beef up the content review and monitoring capabilities. We have also been reporting these progresses to the government authority on a regular basis to make sure that we are doing things the right way. We are confident that we will be able to resume rapid growth in a healthier environment after our download service gets [technical difficulty] the access. Regarding the impact on users and paying subscribers, as we said in the prepared remarks, the cost -- the download suspension did have a negative impact on new users. We do expect active users to take a pretty meaningful hit before Tantan gets back on the app stores. And due to the suspension of payment on iOS, we expect paying users to decrease more than active users. However, as said, these challenges are temporary. The fact that we hit 5 million paying users demonstrated the strong user demand for the service we provide and the solid execution capabilities of the team. On the revenue side, by making a conservative assumption, which is that the download suspension and the iOS payment suspension last throughout the quarter. We expect Tantan's total revenue to decrease from low to mid teen percentage points in Q2 compared to Q1. Regarding expenses and bottom line, during this whole -- during the download suspension period, we’ve substantially scaled back our marketing efforts and thus a significant saving on the marketing expenses. However, we do plan to increase the marketing spending after the regulatory issue get passed, so that we can get back to the -- on the growth track as soon as possible. So the cadence of our marketing spending will shift from our original plan depending on when the download service can get -- can be restored. And because their revenue may take some time to recover it's likely that the net loss for Q3 will widen from the Q2's level. Regarding the impact on new feature launches and other strategic goals, we will refer the new feature launches and some of the revenue optimizations till assess in terms of download is restored on app stores. So there's going to be some delay on that front. But we are committed to our strategic plan and moving forward in a methodical way, contemporary challenges may cause some short-term disruption, but won't change our long-term strategy.

Yes, I think both of the questions have been answered. Operator, can we take the next one in?

Our next question comes from the line of Daniel Chen from J.P. Morgan. Please ask your question.

I will translate myself. So my question is on the live streaming segment. So we are doing some of the new value accretive methods lately, such as some offline events and also a new way of ranking system etcetera. So how are these measures working recently? Thank you.

We believe that we still have a lot of growth opportunities for live broadcasting service this year for -- through product innovations, as well as operational efforts. Currently, we’ve several priorities that the live broadcasting team's has been working on. Number one, is that we’re going to stimulate middle cohort spending through the introduction of the interactive gifts and mini games. And the interactive gifts that we've introduced so far has been very effective in driving user engagement as well as monetization growth. But the experiences that we’ve introduced so far are -- it's fair to say that they’re quite preliminary in terms of the underlying technology and also the form of interaction that we can offer to the users. So we do see opportunities for improvement and optimization. So we’ve prepared a series of upgraded experiences to be launched later or believe that these new experiences that we are going to be introducing are going to be more fun and thus making bigger contribution to drive the interactions and also the monetization growth. And the second priority is that similar to what we did to the broadcasters ranking system in Q1, starting from next month, we are going to start making changes to the paying user ranking system, specifically targeting the high paying users. And in that new system we are going to putting in that emotional factor in order to better stimulate the top spending -- the spending from the top users. And the third priority is that starting from the second quarter, we’ve started to introduce some online and offline promotional events targeting the hardcore paying users. For example, on May 18, we held our first offline music tour in Shanghai. In that event, we let some of our highest paying users invite their local friends to join us in the party and together they could experience what they could resonate with, what makes live streaming such a unique and gratifying entertaining experience for them. We -- so far that -- our first offline music tour has been pretty well received. So we do have plan to roll out more of these promotional events in order to expand the pool of high paying users on the platform. We believe that by pulling these product and operational levers, this year we're still looking at -- we will be looking at a very steady and healthy growth from live broadcasting business growth from the middle and long tail and from the high paying users. Operator, given the time, we -- let's take the last question from the other one and then we are ready to close.

Our last question comes from the line of Tianxiao Hou from T.H. Capital. Please ask your question.

We have witnessed the good performance of Tantan in Indian market. So it is the trend for many international as well as Chinese companies to go to the market where they’re not currently in. So in overseas expansion strategy, what’s company's thoughts on that? Are you planning to go abroad? And how are you going to go abroad, if you plan so? Is it going to burn a lot of cash or some other ways? That's my question. Thank you.

Hi. So we’ve been taking initiatives in some of the Asian markets for some time and things have been progressing quite well. The progresses we’ve made so far in overseas markets prove our earlier belief that some products can resonate well with different Asian cultures. We do see a lot of growth opportunities in overseas markets, especially in Asia. As a Chinese social company, Tantan does have a very unique advantage in seizing these opportunities. But at this point the bigger focus is still on China, because we are still early in penetrating the domestic market and the opportunities are huge here. In terms of the spending, just to answer that, our thoughts is basically that we will manage the ROI of our spending into marketing. So that’s whatever we spend overseas we will maintain the same or better ROI than we do domestically in China. Thank you.

Okay. Thank you.

Operator, we are ready to close. Why don't I just close on our end. That’s all for this quarter's earnings conference call. Thank you for joining us. We look forward to speaking with you guys next quarter. Operator, back to you.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.