Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2024 Hello Group Incorporated 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 second quarter 2024 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today, we have 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 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 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 and 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 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 our COO, Ms. Zhang Sichuan. Ms. Zhang, please?

Hello, everyone. Thank you for joining our call. I will now walk you through the progress we make in the second quarter against our strategic priorities across all businesses. I will start with a over -- a brief overview of our financial performance. For the second quarter of 2024, total group revenue was RMB2.69 billion, down 14% year-over-year, but up 5% sequentially. Adjusted operating income was RMB477 million, down 33% year-over-year and 7% sequentially. Profit margin was 17.7%, down 4.9 percentage points year-over-year and 2.4 percentage points sequentially. In terms of business segments, total revenue from the Momo app and standalone new apps was RMB2.46 billion, down 30% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to the decline in revenue from the Momo app, resulting from spending softness amid the weak macroeconomy and our proactive product and operational adjustments to maintain a healthy community ecosystem since the end of last year. The sequential decrease -- increase was due to seasonality. In quarter two, standalone new apps maintained their growth momentum on both year-on-year and sequential basis, driven by our overseas business. Adjusted operating income from the Momo app and standalone new app was RMB456 million, down 33% year-over-year and 6% sequentially, mainly due to the revenue decline. Adjusted operating margin was 18.5%, down 5.5 percentage points year-over-year and 2.4 percentage points sequentially. For Tantan, total revenue for the quarter was RMB234 million, down 27% year-over-year and 3% sequentially, mainly due to the decreased number of paying users. Adjusted operating income was RMB20.6 million, compared with RMB31.9 million a year ago and RMB28.8 million a quarter ago, representing a margin of 8.8%, down 1.1 percentage point year-over-year and 3.1 percentage points sequentially. Now, I will walk you through the progress we have made against our strategic priorities…

Thank you, Sic. Hello, everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the second quarter 2024 was RMB2.69 billion, down 14% year-on-year, but up 5% quarter-over-quarter. Non-GAAP net income attributable to the company was RMB449.2 million, compared to RMB632.1 million for the same period of 2023 and RMB59.9 million from the last quarter. In Q1, we had a one-off non-cash tax provision. Excluding this non-cash tax item, non-GAAP net income would have been RMB508.5 million for last quarter. Looking into the key revenue items for the quarter, firstly, on live broadcasting, total revenue from live broadcasting business for the second quarter of 2024 was RMB1.30 billion, down 18% year-over-year, but up 5% quarter-over-quarter. The year-over-year decrease was largely attributable to a decline in the core Momo live streaming business and, to a lesser degree, the decrease in Tantan. The sequential growth was driven by the core Momo live streaming service. In terms of segments, Momo app live broadcasting revenue totaled RMB1.22 billion for the quarter, down 15% year-over-year, but up 6% quarter-over-quarter. The year-over-year decrease was due to our proactive product and operational adjustments to deemphasize revenue-oriented competition events and weak consumer sentiment. The sequential growth was due to a rebound after negative seasonality. Tantan's live broadcasting revenue amounted to RMB83.0 million, down 43% year-over-year and 5% quarter-over-quarter. The decrease was due to our strategic decision to pivot away from the less dating-centric service. Revenue from the value-added services for the second quarter of 2024 was RMB1.35 billion, down 10% from Q2 last year, but up 4% sequentially. The Y-o-Y decrease was due to a decline in both Momo and Tantan, however, the growth of standalone new apps partially offset the downward revenue pressure. Value-added service…

[Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Please go ahead.

[Foreign Language] Thanks, management, for taking my question. My question is about core Momo. Considering current macro and regulation environment, how to build the revenue and the profit of your [Technical Difficulty] half of the year and what sales strategy for live streaming and VAS business in the next few years? Lastly, does Momo have a chance to achieve topline growth in 2025? Thank you.

[Foreign Language]

Okay. Let me translate first. At the end of last year, we adjusted our operating strategy for live streaming and audio and video-based value-added service experiences to reduce revenue-oriented competition events. The decline in competition events and related revenue in the past few quarters has indeed had a negative impact on the core Momo app revenue, but our live streaming and VAS team managed to partially offset the revenue decline by introducing new interactive gamified features. For example, as Sic just mentioned, we have introduced personalized costume props in the live streaming showrooms and also added new categories, such as love fortune telling in our value-added service chatroom experience, which have played a positive role in improving paying conversion. And overall, the impact of the operating strategy adjustment on Momo revenue is pretty much in line with our expectations, and the impact on the profit side is actually, indeed, better than our expectations for the first half of the year. Therefore, we have decided to continue the operational adjustments to the ecosystem in the second half and further deemphasize agency-dominated experiences and features, particularly various competition events. On the product front, we will leverage Momo's social attributes to introduce richer interactive gamified features for paying users at different levels. Although this will cost some short-term financial sacrifice, we believe it will create a positive ecosystem for the stable and healthy development of the cash cow business in the long run. As for whether our revenue can grow in 2025, it depends mainly on macroeconomic and regulatory changes. It's a bit too early to tell now. As for the revenue and profit guidance for the second half, I will leave that to Cathy. Cathy, please?

Okay. On the financial outlook of the cash cow business, for top line, last quarter, we said Q2 would be a good basis to think about the back half of the year. What that means is that if you take the 18% year-over-year decrease in Momo application live streaming and value-added service in Q2, you can apply that same rate for the back half of the year as well. Originally, we thought that second half might be a little bit better, because the Y-o-Y comparison could get a little bit easier as we entered into the back half of the year. However, since the cash cow over -- actually overdelivered on the bottom line for the first half, we decided that we should continue our -- we should use this opportunity to continue our operational adjustments to push the ecosystem more toward social entertainment rather than competition-driven events. That decision could dip the revenue slightly for the second half of '24. But overall, the cash cow is on track to deliver the annual profit target we internally set for it at the beginning of the year. So that's for -- that's how to think about the cash cow. Other than the cow, within Momo segment, we also have the new applications, mainly the overseas apps. This piece will continue the robust Y-o-Y growth momentum. So, that could partially offset the Y-o-Y decrease from the cow. I think for the whole year for the Momo segment revenues, we will likely to fall into the 10% to maybe 12% range in terms of Y-o-Y decrease. With regards to 2025, as Tang Yan said, it's still too early to tell, but the two biggest determining factors here are still going to be macro and regulatory environment. Profit-wise, our view remains pretty much the same as last quarter. We're still well on track to hit the same adjusted operating margin of high-teens for the year. Also, internally, we are actually trying to deliver the same annual profit target in absolute dollar amounts. We do have the flexibility and are also prepared to control the spending more tightly if topline is under a little bit of a pressure down the road. On the other hand, if things turn out to be more positive on the revenue front, we will perhaps invest a little bit more for the future. In other words, we are trying to manage the cost against the topline so we can deliver the annual profit target we set for ourselves at the beginning of the year. So, I guess, those are the colors I can give at this point on the outlook for both topline and bottom line. Other than that, I don't want to pin ourselves down too much by promising a bottom line number at this point -- at this time of the year. So, hopefully, that helps. Back to Ashley for next question, please.

Hi, operator. Ready for next question, please.

Thank you. Your next question comes from [Jenny Hwang] (ph) with UBS. Please go ahead.

[Foreign Language] So, I will translate myself. First of all, thanks for taking my question, and congrats on the solid quarter results. My question is regarding our overseas business. With good revenue growth momentum in the new apps, could the management update us with overseas progress so far? And do you have any financial outlook or guidance for this year that you can share with us? Thank you.

[Foreign Language]

As I mentioned before, we believe that the growth in our overseas business depends on three main factors. Number one, strengthen localized operation. Number two, expand product offering from voice-based to live streaming services. And number three, expand our businesses in wealthy GCC region and other countries in the Middle East. As Sic just mentioned, we have accelerated the localization process since the beginning of the year, and in the first half, we have made some good progress in feature design, refined services offering for high paying users, and supply side collaboration.

[Foreign Language]

This is certainly far not enough for a group company that pursues a global expansion. We have -- we need to continue to expand our overseas personnel pool, strengthen localized operations, and improve our cross-border personnel management practices. And improving the international awareness of our team will help us more deeply understand and better meet the social preferences and needs of users from different cultural backgrounds.

[Foreign Language]

The rollout of the live streaming experience in the first half was slightly slower than our expectations at the beginning of the year. This is mainly because it took longer to resolve localization and agency cooperation issues on the product and operational front. Recently, key members of our product and tech team at the Beijing headquarters visited several key social markets and worked with local teams to sort out user feedback and optimize the product and technical solutions. And the growth of the overseas team has laid a solid foundation for upgrading localized virtual gift design and use inter -- users' interface and speeding up testing of live streaming features to enrich gamified experiences and deepening our exploration in GCC countries and Turkish market. After this round of visit and joint work with the overseas team, we are more convinced of the revenue growth opportunity in the Middle East market and the strategy of achieving growth through enhanced localization. As for the financial part, I will leave that to Cathy. Cathy, please.

As Tang Yan mentioned, now it looks like we need to spend some time beefing up our local operations before we could pursue larger-scale revenue growth in the broader MENA area. We've been lagging behind on that front in comparison with some of our -- I mean, we've been lagging behind on localization front in comparison with some of our peers who were early into the Middle East markets. For example, the senior management paid our first visit to our major markets in MENA only last month. It was not until then did we realize that there is still some basic level of the infrastructures we need to put in place in order to take the revenue to the next level. So, I guess, we are going to spend the second half of the year playing some catch-up in those areas. The good news is that after the trip, we are even more convinced that there are still a lot of growth opportunities in MENA. So, revenue will continue to grow. But before we go full force into, for example, live streaming service, the Y-o-Y growth, we're likely to slow down a little bit from Q1 level as we spend time laying the groundwork for strong localization. In Q2, the overseas piece achieved 40-something-percent year-over-year growth. It could further slow to maybe mid-30s in the back half before our initiatives in Gulf countries and live streaming start bearing fruits. So that's the color that I can give in terms of financial outlook for the overseas business.

Okay. Operator, next question, please?

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks, management, for taking my question. My question is about Tantan. Just in the prepared remarks, management talks about the revamp of Tantan is still in progress. Can management talk about the current situation and our ultimate goal, as well as how our revenue and profitability will be impacted by this revamp? Thank you.

[Foreign Language]

Tantan has achieved good results over the past two years in terms of reducing channel investment, improving channel efficiency, and driving ARPPU growth and resulting in six consecutive quarters of profit. However, its user base has not yet stabilized and revenues have also shown a slow downward trend due to the impact of user scale. And we believe the fundamental reason for this is that Tantan has not made significant breakthroughs in the core dating experience, and we need to be bolder at the product level to find product solutions that can significantly improve retention and drive organic user growth.

[Foreign Language]

In this round of version upgrade, we aim to fully return to the user experience by adjusting the interface and optimize the user guidance strategy. For example, to enhance a sense of authenticity of users, we will encourage them to upload real pictures and text information by issuing trial membership benefits and guide users to complete real-person authentication in the chat session after matching. And another prominent issue is that in order to improve DAU, our algorithm tries to take care of the experience of some male users who don't easily get matching opportunities. As a result, a small number of high-quality female users got excessive exposure, resulting in a large number of matches that could not be converted into chat interactions. Therefore, our algorithm team will make it easier for women to make up their minds by reducing low-quality matches, thereby improving chat conversions.

[Foreign Language]

To encourage more exploration on the product side, management does not want the team to be constrained by short-term operational and financial targets during the pilot phase of the upgrade. Therefore, we are allowing some fluctuations in user scale and revenue in the short term. We believe this is the right decision for Tantan in the long run. I am very pleased to see that the team is maintaining the spirit of innovation and adoption in a challenging environment. The redesign of Tantan demonstrates not only our insight into evolving user needs but also our strong commitment to improving user experience. As for the financial part, I will leave that to Cathy.

Okay. For Tantan, I guess, there are three things worth calling out on the financial side. One is what Sic and Tang Yan pointed toward in their comments. After a long period of trial and error, we figured that the only way out for Tantan is to not worry about short-term KPI numbers and do whatever we believe is the right thing to do in order to give the users the best dating experience. So, for the coming six months or so, we are going to allow the Tantan team to put financial targets aside and set top priority on the dating experience. While I do not have full clarity at this point on where the revenue could land -- would land for the rest of the year, I guess, Q2's Y-o-Y decrease could be a good reference point to project the back half of 2024. The second point I like to call out here is, while Tantan is still not ROI-positive in terms of user acquisition, we believe we need to keep the marketing spend at the Q2 level for the coming couple of quarters so that the scale of Tantan will be maintained. And the third thing I would like to mention here is that if you put the first thing and the second thing I mentioned just now together and try to think about the bottom line for Tantan, I think the profit will likely to decrease from the first half of the year. But for the whole year 2024, our view is that Tantan is still going to be profitable. So, that's Tantan's financial outlook. Now, I'm handing back to Ashley to [Technical Difficulty] call. Ashley?

I think -- yeah, this is perfect timing. So, thank you for participating, and we'll see you next quarter.

Thank you. This does conclude our conference for today. Thank you for participating. You may now disconnect