Ladies and gentlemen, thank you for standing by and welcome to the First Quarter of 2021 Momo Incorporated Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today. And I would 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 you for joining us today for Momo’s first quarter 2021 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. 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 all be available to answer your questions during the Q&A session 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 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 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. Wang. I will translate for him. Mr. Wang, please.

Good morning and good evening, everyone. Thank you for joining our conference call today. Q1 was a good quarter and a decent start to the year 2021. On our last earnings call, I outlined our strategic priorities for the year. In Q1, both Momo and Tantan teams have stepped up our efforts to drive towards the strategic goals. On the call today, I will walk you through the key operating and financial results for the quarter and then I am going to give you an update on the progresses that we have made against the company’s priorities. First of all, a brief overview of the financial performance. For the first quarter 2021, total revenue was CNY3.47 billion, down 3% year-over-year due to the decrease in live streaming revenue, which was further attributable to the structural reform we undertook in Q3 last year. However, I am happy to see that the reform has started bearing fruit, both in terms of the user metrics and in terms of revenue trajectory. That, coupled with accelerated growth in the VAS business in Q1, has significantly narrowed down the YoY decrease rate from the previous quarter. At the same time, the revenue mix continued to diversify into a more long tail and stable structure, with VAS reaching 74% the size of live streaming in Q1. Adjusted net income for the quarter was CNY634 million, representing an 18% profit margin. Excluding content’s net loss, adjusted net income for the core Momo was CNY676 million, or a 23% profit margin. Tantan’s total revenue came in CNY568 million for the first quarter, up 49% year-over-year. Adjusted net loss from Tantan was CNY42.04 million for the quarter compared to CNY103.2 million for the year ago period. Now, a deeper dive into the quarter. First, the growth of our community,…

Thank you. Hi, 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 2021 was RMB3.47 billion, down 3% year-on-year or 9% quarter-on-quarter, exceeding the high end of our revenue guidance. The year-on-year decrease was significantly narrowed compared to Q4 last year, thanks to the combination of fruits coming out of the structural reform in live streaming business as well as accelerated growth in the core Momo VAS. Non-GAAP net income attributable to Momo was RMB633.7 million compared to RMB736.3 million from the same period 2020 or a 14% decrease year-over-year. Looking into the key revenue items for the quarter. Firstly, on live broadcasting, total revenue for live broadcasting business for the first quarter 2021 was RMB1.96 billion, down 16%, both from the same period last year and from last quarter. Core Momo live broadcasting revenue totaled RMB1.71 billion for the first quarter, down 26% from the same period last year and 11% from last quarter, while content live broadcasting revenue amounted RMB251 million, down 38% from previous quarter. The year-over-year decrease for core was due to the structural reform that we have been undertaking since August last year. The sequential decrease for both Momo and Tantan was due to the Chinese New Year negative seasonality. Moving on to VAS. Revenue from value-added services reached RMB1.46 billion, up 24% year-on-year or – and 4% quarter-on-quarter. Wang Li has reviewed Tantan’s revenue performance, so I will focus on core Momo. Revenue from VAS, excluding RMB316 million from Tantan reached RMB1.14 billion in the first quarter 2021, a 42% increase year-on-year and 7% increase sequentially. The solid performance of Momo’s core VAS business was primarily driven by the team’s focus on product innovation and effective operational efforts.…

Yes. Just a quick reminder, for those who can speak Chinese, can you please ask the question in Chinese first followed by English translation by yourself and also if you can limit the number of questions to two. And operator, ready for questions.

[Operator Instructions] First question comes from the line of Thomas Chong of Jefferies. Your line is open. Please go ahead.

[Foreign Language] I have two questions. The first one is about Tantan. Can management share about our strategies on the user and the revenue trend in the second half after the management change? In addition, if Tantan focus on user growth this year, how we should think about the trend in sales and marketing expenses as well as our thoughts on Tantan profitability in 2021. My second question is about core Momo. can management comment about the live streaming outlook in the second half? Thank you.

[Foreign Language]

Okay. Let me translate the first one first. We have fully taken over Tantan’s user acquisition effort for about a month. During that process, we have identified many broken windows that we need to fix. That actually has given us a lot of confidence in the user growth prospects of Tantan because any past problems, if addressed with the right approaches, could be turned into future opportunities. And among the problems that we have identified, many of them are actually technical errors that are not difficult to fix. So, our plan is to use the coming couple, 2 months to 3 months’ time to get all the problems fixed. Doing that alone should be able to bring in pretty considerable increase in the new registrations as well as improvement to the dating ecosystem. The goal that I have here is to see meaningful increase in the user base. Currently, we are targeting a range between 20% to 35% growth. And more importantly, we also need to see a substantial improvement in the quality of new users that we acquire. For example, we obviously need more younger users and we also need a more balanced gender ratio in the new users.

[Foreign Language]

The second point on the user front is that when we get ready, we are going to start disclosing Tantan’s user data. Because right now, I am seeing pretty significant underestimate of Tantan’s user scale by some of the third-party data monitoring platform. I know a lot of you guys are relying on these third-party to gauge Tantan’s user performance. I think we need to give investors more reliable and accurate data to do so. So, the plan is that after we have a fully functional data team and finishing coming through and integrating the back-end data system, we are going to start getting prepared for the disclosure. I think investors can expect to have Tantan’s self-disclose user data some time later this year.

[Foreign Language]

On the revenue side, here are some points for you to sort of form some preliminary expectation about the second half. First point is the transition in the second quarter did cause some temporary disruption on the user acquisition front, which has led to a decrease in the number of new users, particularly in the month of April and May. That is going to have some negative impact on revenues. But as user number starts picking up in the second half, revenue is going to grow as well. I do think that user growth is going to be the biggest revenue driver in the second half of the year.

[Foreign Language]

The second point is that while we combed through the problems that we had on the user front, on the product front, what we found out was that during the past quite long period of time, in order to meet some of the short-term targets in the number of paying users as well as the quarterly revenue targets, Tantan has made some very short-term oriented revenue efforts that were positive in driving up the paying conversion ratio, but could cause harm on the user experience and the healthiness of the dating ecosystem. For example, we acquired way more male users than female users. And the paywalls were also designed more aggressively than we probably should have. So, the plan is that as we head into the second half of the year, we are going to remove some of the extremely short-term oriented efforts in order to take care of user experience and the dating ecosystem. That is going to have some negative impact on the paying conversion. But long-term wise, we think this is definitely the right thing to do.

[Foreign Language]

The other point that is relevant in forming the revenue expectation is our view about Tantan’s live streaming. The way I think about Tantan’s live streaming is that, ultimately, it’s going to be only a supplementary experience that has a relatively lower DAU penetration. This is in comparison with Momo’s live streaming, which is fairly mainstream sort of use case with a high level of DAU penetration. That’s the difference in penetration ratio is one thing different about Tantan’s live streaming. The other uniqueness about Tantan’s live streaming is that the average paying capabilities of Tantan’s users is actually pretty high and it’s much more evenly distributed as opposed to Momo situation, where there is a wide disparity between the top and the bottom in terms of how much each individual is paying on the platform. So, Tantan’s live streaming is able to maintain a pretty flattish structure and at the same time a very high level of ARPPU. So, my view is that, ultimately, Tantan’s live streaming is going to be a very profitable small use case within the application. And our strategy is to keep it small, keep it flattish by not putting in very ARPPU oriented revenue efforts. And at the same time, we are going to be heavily leaning towards the core dating experience and further deemphasize live streaming in terms of product design.

[Foreign Language]

Overall, if you put all these different pieces together, we believe that as we move into the second half, the revenue on Tantan is going to grow, primarily driven by user growth. But because of some of the factors that I mentioned, we are going to take a few steps back in terms of how deep we monetize Tantan. After we get to a satisfactory level in terms of product experience and get users on to a stable and rapid growth track, we are going to reactivate the monetization projects that we have been running, including the – as part of VAS feature that we have been testing. Overall, we have full confidence in Tantan’s ability to bring in revenues and ultimately make a lot of profit. I don’t think investors really needs to have any doubt on that front. But for the coming few quarters, we are going to be solely and fully focused on the coordinating experience and doing the right thing on the user growth front. Any other stuff, including monetization, the pursuit of profit will be subservient to that main goal. Such strategy will have some negative impact on both the top line and bottom line in the second half. And therefore, we have to forgo, I think we need to temporary forgo our previous target to reach breakeven point in the second half of the year. But I believe for longer term good, this is definitely the right thing to do at this point in time.

[Foreign Language]

And now here is Jonathan to talk about the bottom line.

Hi everyone. Let me provide some specific color on what Wang Li just briefed. On the revenue side, to be specific, we currently, because we scaled back many monetization efforts on Tantan platform, we still target to achieve the revenue growth sequentially from Q2 level in the second half of the year. However, for the full year, the lowered revenue target, we currently see will be most likely to be down by high-single percentage point from last year’s level for the full year. And also as we intend to continue to invest in the marketing channels to even better support the user growth, we expect the non-GAAP net loss will widen sequentially. So, the total loss for the year could reach to RMB350 million to RMB450 million, which is higher than what we previously communicated less than RMB100 million net loss for the year target we set at the beginning of the year. So, that’s the – for Tantan.

Second question.

[Foreign Language]

On the revenue side of the core Momo, this is the second question, on the revenue side of the core Momo, I have actually shared a lot in the previous section. Maybe I will just try to sum up a little bit. The revenue performance – the revenue performance on the core during the past few months has actually exceeded our expectation at the beginning of the year, which has given us full confidence to say that the core is still a very strong and productive cash cow business.

[Foreign Language]

If you look at the live streaming business from different aspects, whether it’s the health of the content supply system, the content ecosystem, the situation on the supply end or demand side, it’s on a stable recovery trend from all those different aspects. In addition, we have also fully completed the adjustments that we needed in order to have a satisfactory and effective incentive program through the agency and broadcasters. So, payout ratio is going to stay at a stable level as well.

[Foreign Language]

On the VAS side, the team’s ability to continue to innovate on the product side is pushing the headroom for further revenue growth for VAS higher and higher. As you guys can see, the VAS on the core has accelerated from 30% something YoY growth last year to 40% something YoY growth during the first half of this year. That has also exceeded our earlier expectations. But actually, I do not think we need to pursue the rate of growth that aggressively on VAS. So in the second half, I am hoping that the team can maybe control the pace of growth a little bit and shift part of the focus on to the product – product itself. And the goal here is to build a longer runway for the future growth of VAS business.

[Foreign Language]

Again, if you put all these different pieces together, it looks like that it’s very possible that the core will turn YoY positive. The core revenue will turn YoY positive in the second half of the year. I am hoping that in the fourth quarter, we could reach double-digit YoY growth. And now it looks like a pretty easy target to reach. In the interest of time, I think this is going to be the end of the Q&A session. Operator, we are ready to close. Thank you for joining our conference call. We will see you next quarter.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.