Ladies and gentlemen, thank you for standing by, and welcome to Third Quarter 2023 Hello Group Inc. Earnings Conference Call. 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 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.

Thank you, operator. Good morning, and good evening, everyone. Thank you for joining us today for Hello Group's third quarter 2023 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. Tang Yan, CEO of the company; Ms. Zhang Sichuan, COO of the company; and Ms. 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 be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events 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 statement as a result of new information, future event, or otherwise, except as required under law. I'll now pass the call over to our COO, Mr. Zhang Sichuan. Ms. Zhang, please.

Hello, everyone. Thank you for joining our call. We are pleased to report strong financial results for the third quarter and steady progress on various strategic priority across all business lines. I will now walk you through the details of our work for the quarter end. Together with Tang Yan and Cathy, take questions in the Q&A session that follows. I will start with a brief overview of our financial performance. Total group revenue was RMB3.04 billion, down 6% year-over-year and 3% sequentially, exceeding our previous guidance. The main reason for the decline in revenue were the consumption softly caused by the softer economy and product adjustments we made to maintain a healthy community ecosystem. Adjusted operating income was RMB681 million, up 30% year-over-year, but down 4% sequentially. Profit margin was 22.4%, up 3.7 percentage point year-over-year and down slightly, 0.2 percentage point quarter-over-quarter. Compared to the same period with last year, adjusted operating profit increased significantly despite lower revenue. This improvement was driven by our effective cost optimization and efficiency improvement initiatives, which turned Tantan profitable compared to a year ago as well as supported the stable productivity of Momo cash cow business. Total revenue from the Tantan app from the Momo app and standalone new app was RMB2.74 billion, down 5% year-over-year and 3% sequentially. Adjusted operating income was RMB675 million, up 4% year-over-year and down slightly 1% quarter-over-quarter with a margin of 24.6%, up 2.2 percentage points year-over-year and 0.4 percentage point quarter-over-quarter. Profit margin improved despite the decline in revenue, primarily due to our team's solid ability to control costs and expenses. Total revenue from Tantan came in at RMB295 million, down 40% year-over-year and 8% sequentially, mainly due to our reduction in channel investments, combined with our anti-spam initiatives, resulting in a drop in our…

Thank you, Sichuan. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the third quarter 2023 came in better than our previous expectation at RMB3.04 billion, down 6% year-over-year and 3% quarter-over-quarter. Non-GAAP net income attributable to the company was RMB605.9 million, up 13% year-on-year, but down 4% from the previous quarter. Net income significantly outperformed our expectation mainly due to two factors: one -- number one, better than expected top line performance; and number two, our continuous cost control efforts resulted in better than expected profitability for both Momo and Tantan. Net income continued to grow on a year-over-year basis despite lower revenue, thanks to our effective cost optimization and efficiency improvement initiatives, which enabled us to maintain the stability of Momo cash cow business turned Tantan profitable as well as support the development of new endeavors. Now let me walk you through the details. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue for live broadcasting business for the third quarter of 2023 was RMB1.53 billion, down 8% year-over-year and 4% quarter-over-quarter. The decrease was mainly due to a soft consumer sentiment in the current macro environment. And to a lesser degree, Tantan pivoting away from the live streaming service, which we deem is not the priority for Tantan at this point for the dating business. Momo app live broadcasting revenue totaled RMB1.41 billion for the quarter, down 7% year-over-year and 2% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB120.0 million, down 14% from Q3 last year and 17% from the previous quarter. Revenue from value-added service for the third quarter of 2023 was RMB1.47 billion, down 5% from Q3 last year and 2% sequentially. Revenue from…

Thanks. Just a quick reminder before we start taking the questions for both who can speak Chinese, please ask your questions from Chinese first and followed by English translation by yourself. Thank you. And we're ready for questions, operator.

Thank you. [Operator Instructions] The first question today comes from Leo Chiang with Deutsche Bank. Please go ahead.

[Foreign Language] [Interpreted] I’ll translate myself. Hi management. Thanks for taking my question and congratulations on the strong results. My question is on Tantan side, can management share the outlook of Tantan's user scale and financial outlook in 2024? Thank you.

[Foreign Language] [Interpreted] Let me translate first. So as Sichuan mentioned earlier, Tantan's biggest progress this year was to achieve a breakeven at the operational level and our effective cost optimization and efficiency improvement initiatives. This is the result of the joint efforts of several teams that delivered, among others, product-driven ARPPU growth and continuous improvement in channel ROI and staff allocation efficiency. On the product front, on top of the basic pay monthly membership subscription service, we launched a variety of pay-as-you-go privileges such as accelerated matching, which is called [indiscernible] in Chinese. So this kind of special privileges increased exposure and improved matching efficiency, thereby driving VAS ARPPU growth. So on the channel front, our team-controlled unit acquisition cost well, at the same time has been trying to testing paying features oriented marketing materials with a limited budget to explore new ways to improve our ARPU and channel ROI. Due to the outbreak of the spamming activities this year, our product team had to devote a large part of their efforts to anti-spam and maintaining a healthy ecosystem. In this case, we have reallocated excess R&D staff to support the development and operation of new endeavors to improve the overall staff utilization efficiency. Although the community ecosystem currently has returned to normal, the decline in ARPPU due to a weak live streaming revenue has led to a temporary reduction in the overall channel ROI. Therefore, we cut investment in channels with negative ROI. The reduction in marketing expenses put some pressure on the recovery of the user scale. But we believe that compared with the approach of pursuing user growth regardless of costs, being able to improve user retention and VAS revenue on top of breakeven is a healthier and more sustainable business model. Therefore, our product and channel strategies in 2024 will carry on with this current approach. In terms of revenue-related question, I'll leave it to Cathy.

Okay. I've been very optimistic about Tantan. And I continue to be so despite all the arduous journey that Tantan has been through since 2019. The reason for my optimism is quite simple. Chinese users have genuine demand for dating applications to help them discover romantic relationships, which they can bring to their real life. And that demand is currently underserved. Although Tantan is not doing as good a job as we excited to, it's still undoubtedly the biggest and most effective and also the most relentless player in serving that demand in China market today. As long as that is still the case, we believe the revenue and profit potential remains there for us to cultivate. That's why I remain very optimistic about Tantan's long-term potential in revenue and profit. It's -- I think it's just a matter of continuing to stick to that goal and finding the right formula for the Asian user in the dating space. As far as next year is concerned, there are several things I can share at this point. First of all, we are going to refocus on the dating aspect of the applications, meaning that we're going to continue to pivot away from some of the peripheral features, such as the live streaming showroom business. Live streaming currently bring in a little bit less than CNY1 million per day in terms of grossing -- daily grossing. So as we continue to downsize that service, I think top line could be pressured. However, as live streaming, there's a 20%-something gross margin and consumes a lot of operational human resources, downsizing live streaming would have minimal or even positive impact on the bottom line. However, the fact that Tantan has built a pretty sizable customer base for live streaming show business shows that its…

Operator, next question, please.

Your next question comes from Zhang Xueqing from CICC. Please go ahead.

[Foreign Language] [Interpreted] Thanks, management for taking my questions. Congratulations on the strong quarter. My question is about our new apps. Could the management share more latest updates on the new apps? And do we have any revenue and profit guidance of new apps in 2024? Thank you.

[Foreign Language] [Interpreted] Let me translate first. Starting from 2019, our incubator launched several revenue and profit-oriented standalone apps, targeting vertical social segments and overseas markets. And this apps has begun to gradually contribute to the group financials. In 2022, for example, another revenue pressure brought by the pandemic, we pushed a little bit harder on the monetization efforts for this new stand-alone apps in order to keep the group levels of VAS revenue stable. And as a result, revenue from these new endeavors in 2022 increased around 1.5x compared with the previous year. The incremental revenue not only offset the decline in VAS revenue from Momo and Tantan, but also drove a slight increase in our group's VAS revenue despite several unfavorable external factors. Our team did a good job in controlling our expenses while driving users and revenue growth. So we could enjoy operating leverage and achieve sustained profitability for the three small apps last year. And our goal for the new endeavors this year has been to continue to grow our revenue and profit. And on the product front, we launched a new paying features to increase paying ratio and ARPPU. And in the first nine months of the year, the contribution of these new endeavors to the group's top line increased to high single digits from mid-single digits last year. And we expect this contribution to be in the double digits next year. Our team adjusted various expenses are based on revenue growth and channel ROI to ensure the profit will grow together with our revenue. Since new endeavors collectively achieved breakeven at the beginning of last year, the profit has continued to improve steadily. In the overseas business, which is growing revenue and profit faster and has greater growth potential, we plan to replicating these apps, some gamified features that have proven to be beneficial to user experience and monetization in our domestic products and further drive revenue growth by increasing ARPU. And on the channel front, we will continue to focus on high-quality users with paying potential in the affluent market and improve the retention of high-paying users through monetization innovation. We will slightly lower the revenue sharing ratio to improve gross margin based on a stable supply. Profit from the new endeavors is expected to grow much faster than revenue this year. Currently, there are some new apps that are being tested and have not yet generated meaningful revenues. We expect them to further support revenue growth once this product format are stabilized. And for the specific revenue and profit guidance, I will leave it to Cathy.

Sure. That was already a pretty thorough description of our strategy to the new apps and the achievements we've made under those strategies. For financial outlook, as you understand, a little bit too early to talk about the numbers now in December. But there are a couple of things we see happening next year, which I can share to help you understand how the new apps are going to contribute to the P&L in 2024. First of all, social, which is the social app that we won in the Middle East and North Africa area is going to -- that app is going to continue to grow pretty rapidly next year. The driver will come from three directions. One is the continuous penetration into the existing markets by beefing up local operations and providing better customer service and so on. Compared with our peers, we believe we still have potential in driving further user and ARPU growth in those markets. The second direction of growth is that as Sichuan and Tang Yan mentioned just now, we are now mainly providing the peer-to-peer social entertainment on social, and we expect to launch new features and services such as live streaming. That obviously can help us increase the share and ARPU as well. And thirdly, we are also looking at some other markets that we might be able to penetrate in. But as competition is already pretty intensive elsewhere in the GCC region, in the Gulf countries, this third strategy will be more of an uphill battle, but we'll see how it plays out. Overall, for social and also the other two smaller apps in China should continue to grow quite rapidly next year. This year, these three apps grew 15%-something year-over-year and are on track to bring in somewhere between CNY 1.1billion to CNY1.2 billion in top line and more than CNY 100 million at bottom line. Next year, the top line could slow down a little bit. The growth could slow down a little bit, but profit growth should be quite impressive as the operating leverage manifests itself. That's my answer to the financial outlook for the new business. Back to Ashley for the questions.

In the interest of time, let's just take one last question. Operator, we're ready.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] [Interpreted] Thanks management for taking my questions. My first question is about core Momo. Can management comment about the 2024 product strategies as well as the revenue outlook? And my second question is about shareholders' return. Can management comment about the thoughts on share repurchase and dividends?

[Foreign Language] [Interpreted] So let me translate first. Our goal for the mature Momo app for now and for the next few years is to keep the users and revenue scale stable and continue to optimize the cost structure and maintain the productivity of this cash cow business. Therefore, our execution plans for our products, user products, commercial products and channel efforts are all focused on this strategic goal. And for example, this year, our user product team added a navigation bar for flash chat on the homepage to direct users to matching-based real-time voice or text chatting experiences such as [indiscernible]. And our commercial product teams embedded paying features such as live streaming or chatroom into these experiences. This design not only highlights the timely social value of the Momo app, but also increases the penetration rate of paying features and the monetization potential of the platform. Our user acquisition team has fine-tuned its focus on paying users and has strengthened cooperation with the commercial product team to better accommodate users from the channels. And the resulting ARPU growth has supported the continued improvement in channel ROI, enabling us to maintain a stable user scale and solid social fundamentals with a continuously decreasing marketing budget, which plays a positive role in improving Momo's overall profit. In 2024, we will continue to execute the strategy for the Momo product and channels. In terms of financials, I'll leave it to Cathy.

Okay. After this earnings call, our job will move forward to putting together the financial plan for next year. Before that plan comes together, it's hard for me to talk about the outlook in a very quantitative way. However, same as in the past, as we approach the end of the year, there are several trends that we can talk about to help you think about how the different line items may move heading into next year. And many of the investors know, Momo is a brand that has been around for more than 12 years. In terms of monetization, being 12 years old has both advantages and disadvantages. The biggest disadvantage here, obviously, is that it's already pretty mature in terms of user penetration and also deeply monetized in terms of ARPU, that will make the business more cyclical to the macro and the regulatory environment. So next year, we continue to see macro and regulation has 2 biggest factors that are going to move the Momo business either up or down. Macro-wise, I guess, everybody has his or her own estimation. So I don't think I know better than investors do in this space. Regulatory front, as you can see, we've been very prudent and conservative in making sure we stay compliant. That's why in the past few quarters, if you look at our performance, we have clearly been more stable than most of our peers in the social entertainment space. I guess that will continue to be the case next year. That said, in view of the overall environment that we face today, what we need to do is to focus more on profitable user and revenue growth instead of pursuing top line growth at all costs. During the past few quarters, we've been scaling back from…

Thank you all for your time. And I think that's it for the quarter. We will see you next year. Thank you. Bye.

Thank you for participating in today's conference. You may now disconnect.