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spk04: Ladies and gentlemen, thank you for standing by and welcome to the first quarter of 2021 Momo Incorporated Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you need to press star and then number one on your telephone. Please note that this conference is being recorded today. I'd like to hand the conference over to your first speaker today, Ms. Kathy Tank. Thank you. Please go ahead.
spk05: 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 John, CFO of the company. They will discuss the company's business operations and highlights, as well as the financial fund 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. Most 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 maturely 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. Wang. I will translate for him. Mr. Wang, please.
spk03: Good morning and good evening, everyone. Thank you for joining our conference call today.
spk05: 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 MoMa 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'm going to give you an update on the progresses that we've made against the company's priorities.
spk03: First of all, I will briefly introduce the financial performance. In the first quarter of 2021, the total revenue was 34.7 billion RMB, which was reduced by 3% in total. This is mainly due to the structural changes we made in the third quarter of last year, which led to a decline in live streaming revenue. However, it is noteworthy that both from the perspective of user indicators and revenue, the changes have been effective. In addition to the rapid growth of the first quarter's WANCE business, the total revenue of the co-contributors has decreased significantly compared to that of the previous quarter. At the same time, the revenue structure continues to diversify, achieving a longer and more stable revenue structure. From 10,000 a quarter to 74% of live revenue.
spk05: First of all, a brief overview of the financial performance. For the first quarter 2021, total revenue was RMB 3.47 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'm 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 YY decrease rate from the previous quarter. At the same time, the revenue mix continues to diversify into a more long-tail and stable structure, with VAS reaching 74% the size of live streaming in Q1.
spk03: The total profit after adjustment of this quarter is 6.34 billion RMB, corresponding to 18% of net profit. If we look at the loss of Tantan, the total profit after adjustment of MoMoZuApp is 6.76 billion RMB, corresponding to 23% of net profit. Tantan's total revenue of 1 quarter is 5.68 billion RMB, which is 49% of net profit. Tantan's loss after adjustment is 4,204 million RMB, which was 1.03 billion RMB last year.
spk05: Adjusted net income for the quarter was 634 million RMB, representing an 18% profit margin. Excluding Tantan's net loss, adjusted net income for the core memoir was 676 million RMB, or a 23% profit margin. Tantan's total revenue came in 568 million RMB for the first quarter, up 49% year-over-year. Adjusted net loss from Tantan was 42.04 million RMB for the quarter, compared to 103.2 million RMB for the year-ago period.
spk03: Next, I will briefly introduce this quarter's situation. First, it is the growth of the number of users. The number of MAU users in the first quarter is 1.153 billion, which is 7% of the total growth. The number of users in the second quarter is 1.153 billion, which is 7% of the total growth. I am very happy to see that even with the negative impact of these factors, not only has the creation of MAU been high, but also some key user indicators that reflect the silent social efficiency have also been greatly improved. Among them, the amount of interaction generated around the nearby dynamic, the number of pairs of double-line relationship chains, and the number of points-to-points messages have all reached the highest level since 2017. The optimization of the user recovery model has increased the 30-day flow rate of back-to-back users by 4% from the same period last year. Now a deeper dive into the quarter. First, the growth of our community.
spk05: The Core Momo had 115.3 million monthly actives for the first quarter of 2021, up 7% year-on-year and growing against seasonality with a 1.5 million net addition from Q4 last year. I'm proud to say that despite the negative seasonality in Q1, not only did MAU reach a record high, but also some of the most important metrics reflecting core mobile social efficiency grew meaningfully. Among them, the number of interactions around nearby content, the number of average daily two-way interactions, as well as the number of one-to-one messages have all reached their peak since the year 2017. The optimization of user resurrection model drove 30 days retention ratio for resurrected users to improve 4 percentage points versus Q1 last year, which enabled the overall retention ratio to remain stable at a high level despite the increase of channel investment. The positive trajectory that we've been seeing on the core memoir, both in terms of traffic and in terms of grossing, can be attributable to three factors. Number one, the progress is that we made in improving the basic social experiences last year. Number two, the right approach is that we adopted on the channel marketing side, both during and after Chinese New Year holiday. And number three, the fruits that came out of the structural reform in the second half of last year. The number of ping users for the quarter was 9.1 million, representing a 100,000 net addition from a quarter ago. The number of ping users has grown against the negative seasonality in Q1 as a result of the robust recovery trend in MAU post-lunar year holiday.
spk03: Next, I would like to introduce Tantan's user trend and relevant indicators. As we said at the last quarter's financial report conference, Tantan's DAO has been under pressure since the end of the third quarter, under the influence of channel resource competition and Tantan's own customer efficiency. Since November last year, we have reduced Tantan's channel investment and transferred our energy to repair the existing problems in its own customer system, so that it can more effectively grasp the time window after the Spring Festival. The reduction in channel investment led to a decline in fall in January, which continued the decline trend in December last year, and was at the top in February. In February, the channel competition slowed down, and we increased the market share by one share. The stock market data is also warming up. In addition, with the initial adjustment of the market strategy, we saw some initial but very important progress in terms of user data, such as the new advertising material for female users has greatly improved the number of new female users, and the flow rate has also been greatly improved. Look at the DAU gradually rebound from the low in mid-February, and the average DAU rebound in March was slightly higher than that in December last year. More importantly, the growth of users in this quarter is based on a lower channel investment than before. Now turning to Tantan's user trend and related metrics. As mentioned on our last earnings call,
spk05: Tantan's DAU has been under pressure since late Q3 last year due to intensive competition of channel resources as well as the low efficiency in Tantan's own user acquisition efforts. Since November last year, we've lowered Tantan's marketing spend and shifted the efforts toward fixing some of the technical problems in the user acquisition system in order to more effectively seize the marketing window post-Chinese New Year. As a result of the decrease in marketing spend, the December week user trend continued through January and hit the lowest point in early February. The user data started picking up after we stepped up our marketing efforts when channel competition became milder towards mid-Feb. Furthermore, as a result of these preliminary improvements, In the marketing approach, we were able to see some initial but meaningful progresses in the user data. For example, the new, more female-oriented ad materials have substantially improved the gender ratio in the newly acquired users. The retention ratio has also seen meaningful improvements. Contents DAU also gradually ramped from the lowest point in mid-February and eventually delivered a slightly higher average DAU in March than in December 2020. More importantly, we managed to achieve that while further lowering the quarterly marketing spend from Q4. This round of test campaign shows that even some initial adjustments in the marketing approach could make some meaningful changes, both in terms of quality of user growth and in terms of cost efficiency. This has confirmed our belief that Tantan has plenty of headroom to grow its user base while making better sense of ROI. The challenges that we encountered in the second half of last year and more broadly across the past two years is very much fixable. At the end of the first quarter of 2021, the number of paid users decreased by 3.5 million to 3.8 million in the previous quarter.
spk03: There are three main factors that led to the decrease in the number of paid users. The first is the drop in the number of paid users in January and February. The second is the increase in the number of paid users in the number of new users. The increase in the number of paid users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users in the number of new users Sometimes paying user count came in 3.5 million end of Q1 2020, down from 3.8 million last quarter.
spk05: The 300k net decrease was due to the combination of three factors. Number one, the weak DAU performance in January and February. Number two, the increase in the female percentage in the new users having a negative impact on paying conversion, as women are much less likely to pay for value-added services in comparison with men. Number three, the lingering impact of the rollout of SZIP package, which had a price-lifting effect and thus a negative impact on the number of paying users.
spk03: Before I review the operation and financial results of this quarter, I would like to reiterate the strategic goals I set up for the team at the beginning of the year. There are three goals I set up for the team with Momo Group App. First, use limited sales budget to achieve a steady growth of main battle users and achieve a better ROI than last year. Second, promote business to return to the growth track. Third, continue to enrich brand evidence and broaden the business boundary beyond Momo and Tantan. Before I start the operational and business review of the company, I would like to reiterate the strategic priorities that I set for my teams at the beginning of the year. On the core Momo side, I have three goals for the team.
spk05: Number one, further grow the core user base with limited marketing budget and improve the ROI versus last year. Number two, bring the business back onto growth track. And number three, continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan. On the Tantan side, the single most important goal for the year is to deliver solid user growth by substantially improving the marketing efficiency as well as the coordinating experience. Next, I'm going to take you through what we've done in the past quarter regarding each of the priorities.
spk03: First of all, I would like to introduce the progress we have made in promoting the growth of the user community and the growth of the customer base. One of the most important tasks of the product list is to continuously explore the needs of users who are not satisfied and to find effective solutions. On the other hand, we obviously need to do a better job of satisfying the social bias of female users. For a long time, we have been able to see that female users have shown a strong social interest in Momo. but their social preferences are very different from that of men. Women have a strong need for emotional intimacy, while strangers, especially heterosexuals, are more warm-hearted. Our past products and services seem to be more friendly to male users, but they don't take care of women's social preferences very well. In the first quarter, we conducted some new product experiments to make up for this blank space. We tested a small-scale audio and video social experience called the emotional radio, as well as a new experience called the small universe based on information flow, where users can release and interact without the need to disclose personal information. First,
spk05: I like to review the progresses we made in better serving the Momo community and drive user growth. One of the most important goals on the product side is to keep identifying the underserved user demand and figure out ways to effectively address them. One obvious thing that we can do on that front is to take better care of female users' social preferences. We've long been seeing social desire from female users on Momo. Women's social preferences can be quite different from that of men's. Women tend to have stronger inclination to express their feelings. Also, it takes longer for them to open up to strangers and get acquainted with others, especially those of opposite sex. The product and services we offered in the past were clearly more male user friendly. Therefore, there was a mismatch between what the female users needed and what we empowered them with. In Q1, we started some new product experiments to bridge that gap. We test-launched an audio-social experience called Affection FM, or 情感电台 in Chinese, and a brand-new news feed experience called the Meaningverse, which allows users to post and interact with content without releasing their profile information. Both of these two product experiments aim at encouraging the users to share their relationship stories and express their feelings. which caters to the part of user mentality that falls on the other side of the spectrum against what is commonly seen on Momo. Our objective here is to improve female users' engagement and retention by better serving them with what we didn't do well before. If we can successfully do that, we can improve the engagement of the entire platform as well. This is a very important direction for our product team to explore this year.
spk03: Next, let me review the progresses that we've made against our priority of bringing the cash cow business back onto the growth track. Firstly, on live broadcasting, our objective for live broadcasting this year is to deliver a gradual and steady improvement at both revenue and gross profit level.
spk05: Here I would like to underscore gross profit because one commonly seen missteps in managing live streaming business is to drive top-line growth at the expense of gross profit and long-term health of the ecosystem. This year, we will be sticking to a more sustainable growth model by focusing on fostering the mid-to-long-tail content ecosystem and avoid applying strong revenue-oriented operational efforts, especially those aimed at lifting our people for speedy recovery, which may cause centralization at the very top of the pyramid.
spk03: A necessary requirement to achieve a healthy internal ecosystem is to have an active internal supply system. This is very important after the adjustment last year. In the fourth quarter of last year, we successfully locked down most of the current high-end streamers. In February this year, we started to solve the other problem of the supply chain, which is the recruitment and training of new streamers. It is very important for the supply chain to maintain a healthy content supply system that can attract continuous new streamers and have reasonable mechanisms to provide smooth promotion channels for new people. As a social platform, this has always been one of our advantages, but in the past two years, we have not provided sufficient support and encouragement for the important part of the supply chain of newcomers. In order to solve this problem, we made another adjustment to the encouragement policy, making it more attractive to the new anchors. The two rounds of encouragement policy adjustments in the past have received the support of the new anchors and the union. The excellent performance of the New Year's Eve event and the growth of the super-season after the Spring Festival are all good proof. One imperative for a healthy content ecosystem is to have a vibrant content supply system.
spk05: This was particularly critical after taking the big surgery last year. Last Q4, with the Golden Broadcaster contract renewal project, we've successfully locked down the big majority of the existing high-grossing broadcasters. In February, we moved on to addressing another issue that we had on the supply end, new talent recruitment and growth. Having a constant flow of high-quality new talents and the right mechanism to make sure they can surface from the bottom to the top is important for maintaining a good metabolic system. As a social platform, this used to be one of our strong areas. However, during the past two years, Momo had not provided sufficient support and motivation to this vital part of the supply system. To address this issue, we made another adjustment to our incentive program to make it more appealing to the newcomers. These two rounds of adjustments of the incentive program were very well received by the new broadcasters and agencies. This can be proven by the outperformance of the year-end competition as well as better than expected trajectory post the Chinese New Year holiday. I believe our current program provides adequate incentives and motivation to all kinds of broadcasters that we consider important to our content ecosystem. As expected on our last call, the two rounds of adjustments collectively had a 2.4% drag on the GP margin. We believe payout ratio should remain stable from Q1 onwards. I'm glad that our team was able to put together a well-rounded incentive program at a fairly manageable cost level.
spk03: In addition to more effective financial incentives, in order to better support entry-level human resources, we have also adjusted the algorithm to generate more traffic to medium and medium-sized anchors. In addition, since the beginning of the year, we have held a forum every month to communicate with different unions and anchors to ensure that the management can understand their needs, challenges, and suggestions. Through this series of efforts to revitalize the content and ecology, we have seen that some key indicators that reflect the health of the ecosystem have been greatly improved. These indicators include the live broadcast DAO, flow rate, and the number of paid users in Japan. Besides more effective financial incentives, as another part of our effort to better support the entry-level talents,
spk05: We made adjustments to our algorithm to divert more traffic to the MIT long tail. Moreover, since the beginning of this year, we've also been holding monthly forums where we sit down with different kinds of agencies and broadcasters, making sure their needs, challenges, and suggestions are heard by the management. Due to these concerted efforts to revive the content ecosystem, in Q1, we were able to see meaningful improvement in some of the important metrics that we used to gauge the healthiness of the ecosystem. These metrics include the number of in-channel DAUs, retention ratio, and the number of average daily paying user. As the overall content ecosystem continues to recover, the spending has also been showing steady and gradual improvement. So far into the second quarter, the non-event-based daily grossing has fully come back from the trough around Chinese New Year and is now back to December's level. It sets a good foundation for the spending to continue to improve as the content ecosystem does in the second half of the year.
spk03: The performance of DigitalWise is very outstanding. Even with the negative impact of seasonal factors, the income has achieved 42% of the same growth, and the growth rate has been significantly increased since last year. In the situation of DigitalWise, the chat room is the biggest scene of this season's growth. Compared to other audio and video social experiences, the size of the chat room is larger and the fee-paying user structure is longer. Last year, the whole year, the team has been taking an active attitude in operation, and focused on the natural growth of product innovation. This year, we will continue to take this growth method. Last year, in the fourth quarter, we launched a set of gifts with different holidays as the theme, which proved that this product is very effective in improving the income and user activity. In the first quarter, we built a new set of gifts for the Spring Festival and Valentine's Day, and the promotion of the chat room achieved a very strong growth. We also copied this gift play method in the interest group group, and received good reviews from group users.
spk05: Now turning to VAS. Value Added Services has been a real outperformer in Q1, growing against seasonality at 42% year over year, a significant acceleration from last year. Among various experiences within VAS, chat room was the biggest growth contributor for the quarter. In comparison with other audio and video based social entertainment experiences, chat room has a much larger user base and the paying user structure is also more long tail driven. Throughout last year, the team has been operating this business at a controlled pace and mainly focusing on introducing innovative products that drive organic growth. This will continue to be the way we grow this business this year. Last Q4, we introduced Taoxi Liwu, which means themed seasonal gifts. It has proven to be very effective in terms of driving revenue and engagement. In Q1, we reinvented it for Chinese New Year and Valentine's Day, which enabled chat rooms to deliver an exceptional growth for the quarter. We made this gift feature available in the interest group as well, which was also well-received by the users there.
spk03: In addition to the set of gifts, fate exchanges are another driving factor in the growth of EGW. Fate exchanges are a video exchange experience where the host participates, and are widely welcomed by low-end users. In addition to the boost that we got from the themed seasonal gifts, the other thing that started to gain traction in Q1 was the matchmaking experience, or 缘分 交友 in Chinese.
spk05: Matchmaking is a moderated video dating experience. It is particularly popular among lower-care city users. It started gaining traction in terms of retention and product experience in the second half of last year. Meanwhile, its revenue also began to ramp up steadily. The growth trend continued into Q1, and we expect it to become a meaningful revenue contributor heading into the second half.
spk03: Next, I will quickly introduce the new business. Customers and customers continue to reveal their goals to us in terms of flow and user size. The growth of the user size of revenue has been improved and has been closer to RRQ. The level of revenue has the ability to cover its own income growth and marketing costs. Now quickly on the new endeavors, both Herds and ZuiDui continue to make progress against our target.
spk05: both in terms of user retention and user scale. Their revenues have been growing in line with user growth. We're currently on track to reach RI2, which means generating enough revenue to cover both revenue sharing costs and marketing expenses. Our goal is to hit the RI2 target for both Hertz and Duidui in the coming few months. If we can fulfill that target, we then have planned to push the marketing button more aggressively in the second half of the year. As said, On our last earnings call, this year our main focus will remain on product and user experience. That said, we do expect our revenue to trend up and contribute further into the vast business line as we head deeper into the year.
spk03: To put things in a nutshell for the core business,
spk05: a live streaming business after a very bumpy journey last year is finally on a steady improving trend. That coupled with the growth opportunities we have in VAS gave us the confidence that the core of Momo will continue to be a very productive and evolving cash cow business. This will leave us ample room to invest in new endeavors beyond Momo and Tantan in order to build longer-term drivers.
spk03: Next, let's talk about Tantan. Before we go back to Tantan's business and key points, I'd like to talk about Tantan's team's changes. In April this year, Tantan's CEO Wang Yu and CEO Pan Yin resigned from their respective positions. They are no longer involved in Tantan's daily management work. As we all know, Tantan has faced many challenges in the past few years. Wang Yu and I have always believed that Tantan's main task is to improve product experience and market investment efficiency, and strengthen the team's executive ability. This way, we can effectively grasp the huge opportunity for user growth in the eyes. However, we need to make any changes to be able to work more effectively. Wang Yu and I have different views. Now turning to Tantan. Before I get into the business and strategies at Tantan, I'd like to talk about a major change for the Tantan team.
spk05: In April, Pantan's founder and CEO Wang Yu as well as CEO Pan Ying stepped down from their respective positions. They are no longer involved in Pantan's daily executions. As many of you know, Pantan encountered many challenges in the past couple of years. Mr. Wang and I have have a consensus view that the biggest priority for Tonton is to make Tonton's product and marketing efforts more effective and execution more efficient so that we can grab the great growth opportunities that we're seeing. However, in terms of what changes we need in order to move things forward more effectively, Mr. Wai and I had some major differences that are difficult to reconcile. Mr. Wang chose to respect my opinion and decided this is the time that Tantan needs a new leadership. I'm now the acting CEO of Tantan and personally leading Tantan's reforms, which is happening now as we speak. Going forward, Momo and Tantan teams will work closely together to move faster on a deeper level of collaboration.
spk03: Wang Yu and Pan Ying have always been our valuable partners. I want to take this opportunity to express my gratitude to them for their hard work and contribution. On behalf of Momo and the Tantan team, I wish them to achieve greater achievements in their new career.
spk05: Wang Yu and Pan Ying have been valuable partners to our company. I'd like to take this opportunity to thank them for their dedication and contribution to Tantan. On behalf of both Momo and Tantan teams, I wish them the very best in pursuing their new endeavors.
spk03: Before I introduce the progress of the target target, I will quickly review the financial performance of Tantan. In the first quarter of 2021, Tantan's total revenue was 5.68 billion RMB, which increased by 49%. This is mainly due to the growth of the RP pool promoted by live broadcasts. In addition, the transfer of users to higher-priced member services has also been improved by the RP pool. On the other hand, due to the impact of the live broadcast business, the income has shown a strong seasonal decline. Looking at the live broadcast, most of the income comes from the spread of long-term broadcasting. During the winter, the total number of live broadcasts in fashion and live broadcasts has significantly decreased, causing the live broadcast income to drop sharply and slowly recover after the festival. The average income of live broadcasts in this region has dropped by 38% to 251 billion RMB, and the average income of mass has dropped by 6% to 3.16 billion RMB, mainly due to the decline of users in January and February and the negative impact of the increase in the number of new users and the increase in the number of women.
spk05: Before I talk about the progresses we've made against our strategic goal, let me quickly review Tantan's financial performance. Total revenue for the first quarter was 568 million RMB, up 49% year-on-year. The growth was driven by the increase in RPPOO, which was largely contributed by the live streaming service. And to a lesser degree, users shift toward higher-priced membership services. On a sequential basis, Revenue had strong seasonality this year due to the live streaming service. A big majority of Tantan's live streaming revenue comes from long-tail broadcasters who are difficult to manage. Total broadcasting time and the number of active channels declined significantly during the winter holiday period, causing a deep dive in live streaming revenue and subsequent slow recovery. As a result, live streaming revenue dropped 38% sequentially to 251 million RMB. Fast revenue decreased 6% from Q4 last year to 316 million RMB. The sequential decrease was due to the weak user trend in January and February, as well as the higher female ratio in the newly-acquired users.
spk03: Next, let's get into the most important part of my presentation today, which is the focus of Tantan this year, and how we will effectively drive user growth and fully release Tantan's potential.
spk05: Now turning to the most important part of my speech today, Tantan's strategic priorities for the year and our plan on how to drive user growth more effectively and unleash the full potential of Tantan going forward.
spk03: We have always believed that Tantan has the potential to develop into a bigger platform than MoMo. This is mainly due to some of the long-term trends that we have seen and the fact that it has been misused. Tantan is currently the most focused and most effective product in China in terms of helping people build romantic relationships and realize the social product of offline relationships. We have always believed that Tantan has the potential to grow bigger than where Momo is today.
spk05: This view is supported by the secular trends that we are seeing in China's dating space, as well as the fact that Tantan is the most committed, as well as the most effective product in connecting people for romantic purposes and offline relationship conversions. The reason why Tantan has not been growing as fast as it should was not because the opportunities are not there or somebody else is stronger than we are, but because there are important areas where we need to improve. Quite a long period of time in the past, our marketing efforts have been ineffective, and the product experience has a lot of room for improvement as well.
spk03: This year, Tantan's biggest goal is to solve the problem of goods and products in the market, so that users can grow faster and more stable. Since April, my main task has been to set up a team to promote this work. The single most important goal for Tantan this year is to make sure that we deliver solid user growth by addressing the above-mentioned issues. From April till now, my job has been putting together the right team to lead these efforts.
spk05: I moved some of my best people and Momo onto this project so that we can hit the ground running. We spent the past two months combing through the key areas of focus and now have a plan to achieve our goal for this year. Now let me walk you through the key steps of this plan.
spk03: First of all, we need to greatly improve the efficiency of our carbon-dioxide production. Unfortunately, we have not done well in the past two years. After taking over Tantan in April, we did a comprehensive review of its marketing method. As a result, we once again confirmed our point of view, that through the reform of the customer system, Tantan still has a lot of room for user growth. And through the reform, we realized that in terms of channel promotion and user growth, there is an experimental solution. So, through channel reform, we promoted Tantan's user growth. For our team, First, we need to significantly improve Tantan's marketing efficiency.
spk05: On that front, I'm afraid we have not been doing the right things during the past two years. After we took over in April, we've conducted a comprehensive review of Tantan's marketing approaches. The review reconfirmed our belief that Tantan should have ample room for user growth by reforming its user acquisition system. We have a standard playbook and MoMo for the reform, and thus we view it as a low-hanging fruit that we can pick. Our job in Q1 would include building up a fully functioning marketing team, resetting and restarting the data management system, and devising a new set of user acquisition programs, including targeting strategy and ad materials to completely replace the old ones. The number of DAU were under some pressure in April and May while we decreased the marketing spending in order to focus on rebuilding the team and reworking the system. We expect the user trend to start picking up again as the new system gains traction moving into June.
spk03: In terms of market marketing, we believe that another opportunity to effectively promote the growth of Tantan users will be brand ads. In the past three to four years, we have hardly done any work in terms of brand. Tantan, as a relatively young brand, is far behind in terms of awareness. Many people do not use Tantan because they have not heard of Tantan, or because they do not really understand the core values that Tantan provides, or because there is a negative understanding of Tantan's brand awareness. However, if we can clearly convey the core values of the product to the target audience, Tantan can gain huge growth opportunities by improving user awareness and brand value. Therefore, we will choose the right time to promote Tantan. This work will be done after we complete the next round of major changes.
spk05: Another thing on the marketing side that we believe can contribute to the overall user growth is brand advertising. We hardly made any branding efforts in the past three to four years. However, Tantan, as a relatively younger brand, its brand awareness is far from the level where it needs to be. There are many people who are not using Tantan because they have not heard of us before or yet to be fully aware of the core values that Tantan can provide or have some misconception about Tantan's brand and services. There is a huge opportunity for us to drive user awareness and enhance brand equity if we can clearly articulate the core value of Tantan to those who may need our service. We will invest more into branding when opportunity arises. It should be the right timing after we complete our next major product upgrade.
spk03: On the front end, we want to provide a more concise product plan to improve the core dating experience. On the back end, we want to make the sliding matching system more effective. Let's take a look at the situation of having a user data. We can dig and use this data to make more personalized recommendations. This is an important area where technology and big data can play an important role. The second growth driver is product innovation. We need to make Tantan's product experience more appealing.
spk05: While Tantan is undoubtedly the most dedicated and effective dating app in China, we do have many opportunities to optimize so that we can do better in connecting the users for romantic purpose. On the front end, we need to make the user's interface more succinct and core dating experience more prominent. On the back end, we need to make the swipe and match system more effective. Tantan is sitting on a gold mine of user data that we can mine and leverage to make more relevant recommendations. This is where technology and big data mining can play very important roles. We have not been very effective in doing that during the past three to four years. We need to see real efforts made and concrete changes on that front as well. The goal is to improve user experience in a core swipe and match mechanism through more effective recommendations. We need users to be able to feel these changes when they swipe through the cards and interact with the matches.
spk03: While continuing to strengthen our dating-related product offering, we are also going to keep exploring more diversified features
spk05: and services to make the Tantan experience better fit into the Asian dating culture. This, in turn, will further improve user engagement and retention, which will translate into user growth.
spk03: The third pillar of Tantan users' growth comes from the co-efficiency of MoMo. Although Tantan will continue to maintain an independent organization and operation structure, I believe that Tantan can cooperate with MoMo in many areas and generate huge co-efficiency. This is the case in the market, technology, and data fields. In the future, we will speed up the pace of cooperation and development.
spk05: The third pillar of our Tantan plan is to drive more synergies between Momo and Tantan. While Tantan will continue to maintain an independent organizational and operational structure, I believe there are many areas where Tantan and Momo can work together and drive significant synergies. This is especially true in the areas of marketing, technology, and data collaborations. This is an area where we will definitely move faster in the future.
spk03: That's all for this call. I'd like to share more with you. These are the things I'd like to cover on this call.
spk05: Now let me pass the call over to Mr. Jonathan Zhang for financial review. Zhang, please.
spk01: 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 3.47 billion RMB. 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 MomoVas. Non-GAAP net income attributable to Momo was 633.7 million RMB compared to 736.3 million RMB 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 of 2021 was 1.96 billion RMB, down 16%, both from the same period last year and from last quarter. Core mobile live broadcasting revenue totaled 1.71 billion for the first quarter, down 26%. from the same period last year and 11% from last quarter, while Tantan's live broadcasting revenue amounted 251 million RMB, 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 West, revenue from value added services reached 1.46 billion RMB, up 24% year-on-year, and 4% quarter-on-quarter. Wang Li has revealed contents revenue performance, so I will focus on Core Momo. Revenue from VATS, excluding 316 million from Tantan, reached 1.14 billion RMB in the first quarter of 2021, a 42% increase year-on-year and 7% increase sequentially. The solid performance of Momo's core VATS business was primarily driven by the team's focus on product innovation and effective operational efforts. Audio and video-based social entertainment experience continued to generate strong growth momentum and was the biggest revenue driver for the core mobile VAS. In addition, our new endeavors started gaining traction and contributed incremental revenue to the VAS line in Q1. Let me briefly review the cost and expenses items for the quarter. Our non-GAAP cost revenue for the first quarter 2021 was 1.92 billion RMB compared to 1.85 billion for the same period last year. Non-GAAP cost of revenue as a percentage of total revenue was 55.2%, an increase from 51.5% from Q1 2020. Non-GAAP gross profit margin for the quarter was down 3.7% from a year ago. The decrease was attributed to the following factors. Number one, higher payout ratio from core mobile live broadcasting business. A lower gross margin for Tantan, its live broadcasting business has become sizable. Higher payout ratio from core MoMA vast business due to the robust growth coming from the audio, video-based social entertainment business, a big part of which involved third-party professional moderators. And lastly, certain fixed nature costs such as hack counts impacted gross margin negatively as total revenue declined, and these items represent a higher percentage of total net revenue. On a sequential basis, the non-GAAP gross margin was down two percentage points compared to Q4 last year, which fell into the optimistic end of our original expectation. As mentioned on our last call, we had expected the new broadcaster-oriented incentive program adjustment to have two to three percentage adverse impact on gross margin from Q1 onwards. I'm glad that the team was able to put together a well-rounded incentive program that is well received by the new broadcasters and agencies. At the same time, managed to control the cost structure at a fairly reasonable level. We believe the current incentive program provides sufficient motivation to all kinds of broadcasters that we deem important to maintain a vibrant ecosystem. We expect a payout ratio to maintain stable level from Q1 onwards. Non-GAAP R&D expenses for the first quarter was 244.1 million RMB compared to 217 million RMB for the same period last year, representing 7% and 6% of total net revenue respectively. On a sequential basis, non-GAAP R&D expenses decreased 15% from $286.5 million in Q4 last year due to the year-end bonus expenses accrued at the year-end. We ended the quarter with 2,333 total employees, of which 828 are from Tantan. R&D personnel as a percentage of total employees for the group was 57%, compared to 56% in Q1 last year. Non-GAAP sales and marketing expenses for the first quarter was 579.8 million RMB, or 16.7% of total revenue. compared to 645.3 million RMB, or 18% of total revenue for the same period last year. The year-over-year decrease in sales marketing expenses, both in terms of RMB amount and in terms of as a percentage of total revenue, was primarily due to less spending from core Momo, as we postponed our live streaming year-end gala event as a precaution against the pandemic and lower user acquisition investment from Tantan in the first half of the quarter to avoid channel competition while focusing on fixing the broken pieces in its user acquisition system. Non-GAAP G&A expenses was 94.2 million RMB for the first quarter 2021, compared to 105.5 million RMB for the same quarter last year, representing 2.7% and 2.9% of total net revenue, respectively. Non-GAAP operating income was 661.2 million RMB a decrease of 17 percent from Q1 2020, representing 19.1 percent non-GAAP operating margin for the first quarter, down 3.2 percent from the same period last year. Non-GAAP OPEX as a percentage of total revenue was 26.5 percent, a slight decrease from 26.9% from Q1 2020. Now briefly on income tax expenses. For Q1, the company received a tax refund, which was resulted from additional expense deduction related to previous years. Without one-off refund, our estimated non-GAAP effective tax rate was around 19% for the first quarter. Now turning to the balance sheet and cash flow items. As of March 31st, 2021, MOMOS cash, cash equivalent, short-term deposit, long-term deposit, and restricted cash totaled 16.96 billion RMB compared to 16.2 billion RMB. 4.8 billion RMB as of December 31, 2020. Net cash provided by operating activities in the first quarter of 2021 was 502 million RMB compared to 543 million RMB in the same quarter last year. Lastly, on the business outlook, we estimated our second quarter revenue to come in the range from 3.6 billion RMB to 3.7 billion RMB, representing a decrease of 6.9% to 4.3% year-on-year, but an increase of 3.7% to 6.6% quarter-over-quarter. For Q2 2021, on a sequential basis, we expected the total revenue from Cuomomo to increase in a high single percent. The total revenue from Tantan is expected to decrease around 10% due to the following factors. Number one, the decrease in paying users, especially in April and May due to the weak DAU performance caused by temporary disruption during the management transition period. Number two, changes in gender ratio. The increase in female percentage in the new user acquired in recent periods adversely impacted paying conversion as women are much less likely to pay for value-added services in comparison with men. Number three, The spin-off of two early stage businesses, which will have a slight negative impact on the number of paying users as well as the total revenue. The business involved were loss-making at the point of spin-off and generated immature revenues in comparison with the total revenue. We will recognize one month revenue from these businesses in Q2 as the transition was completed in early May. The spin-off will have a full quarter impact on the top line in Q3. Please be mindful that this forecast represents the company's current preliminary view on the market and operational conditions, which are subject to changes. The other thing worth mentioning here is that up to this moment, we have paid a special cash dividends for the third year in a row. To replenish our US dollar funding consumed, the company has repatriated 1.3 billion RMB in total from our WUFI in China for our offshore entity in the second quarter. In accordance with the respective taxation law in China, the company has paid 10% or 130 million RMB withholding tax to the Chinese tax authorities. The withholding tax payments will be recorded as income tax expense for the company's second quarter, 2021. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Cathy to start a Q&A. Cathy, please.
spk05: Yeah, 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 could leave, limit the number of questions to two at max. Operator, ready for questions.
spk04: Thank you. As a reminder, to ask a question, you need to press star and the number one on your telephones. To withdraw your question, please press the pound or hash key. And please stand by while we compile the Q&A roster. Once again, for your questions, please press star and the number one and continue to be announced. First question comes from the line of Thomas Chong of Jefferies. The line is open. Please go ahead.
spk02: Good evening. Thank you for accepting my question. I have two questions. The first question is about Tantan. After the management change in Tantan, how should we look at the number of users and income in the second half of the year? We can share our expectations with you. In addition, if we look at A more important KPI is the growth of the number of users. We can share our budget for the market promotion, sales and marketing this year. Will this affect the profit this year? Then my second question is about the core model. I mainly want to ask how we see the future of live streaming in the second half of the year. Thanks, management, for taking my questions. I have two questions. The first one is about Tan Tan. Can management share about our strategies on the user and the revenue trend in the second half after the management change? In addition, if Tan Tan focuses 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 CoreMOMO. Can management comment about the live streaming outlook in the second half? Thank you.
spk03: Thank you. First of all, our team has fully accepted Tantan's investment management for a month. In this process, we still found that many problems in the original investment mechanism needed to be corrected. This gives our team full confidence in the future growth space, because any past problems can be made into opportunities in the future through the right methods. Moreover, there are quite a few technical problems that are not difficult to solve. Let me translate the first point first.
spk05: We've fully taken over Tantan's user acquisition effort for about a month. During that process, we've 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've identified Many of them are actually technical errors that are not difficult to fix. So our plan is to use the coming two to three 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 data 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.
spk03: We will also start to announce the number of users of Tantan at the right time, because some of the third-party institutions in the market have a significant impact on the number of users of Tantan. I hope investors can understand the development of Tantan through reliable data. This work will start to be carried out after the completion of the team structure and the entire logistics of the background data. We expect to announce the number of users of Tantan later this year.
spk05: The second point on the user front is that when we get ready, we're going to start disclosing Tantan's user data because right now I'm 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 combing through and iterating the backend data system, we're going to start getting prepared for the disclosure. I think investors can expect to have Tantan self-disclose user data sometime later this year.
spk03: On the revenue side, here are some points for you to sort of form some preliminary expectation about the second half. First point is
spk05: 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 months of April and May. That is going to have some negative impact on revenues, but as user numbers start 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.
spk03: Secondly, in the process of solving the problem of product experience, we found that in the past, in order to complete the user number, member number, and income target, there were some short-term behaviors in the design of male-female ratio and paid wall. Although these short-term behaviors help to improve paid conversion, they are very unfavorable for user experience and long-term ecology. Therefore, in the second half of the year, we will remove some short-term revenue methods for user experience and ecological abundance, which will have a certain negative impact on the paid value. We think it must be a correct thing in the long run.
spk05: 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, Kantan has made some very short-term oriented revenue efforts that were positive in driving up the paying conversion ratio could cause harm on the user experience and the healthiness of the dating co-system. For example, we acquired way more male users than female users, and the paywalls were also designed a bit more aggressively than we probably should have. So the plan is that as we head into the second half of the year, we're 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.
spk03: Another point is about Pantai's live broadcast. Live broadcast is a support-type enterprise with a lower penetration rate compared to Pantai. It won't become a high-percentage global scene on the mobile platform. This is one of the special features of Tantan Live. The second special feature is that Tantan users have a higher average payment capacity, and the distribution is more average, rather than double-digitization like MoMo. Therefore, Tantan Live is relatively optimized, The other point that is relevant in forming the revenue expectation is our view about Tantan's live streaming.
spk05: The way I think about 10 times 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 MoMA's live streaming, which is a fairly mainstream sort of use case with a high level of DAU penetration. 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 MuMod's situation where there's 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 flat-ish structure, and at the same time, a very high level of RP pool. 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 RPP-oriented revenue efforts. And at the same time, we are going to be heavily leaning toward the core dating experience and further de-emphasize live streaming in terms of product design.
spk03: Overall, we believe that the growth of users in the second half of this year will increase overall revenue. But due to the above mentioned factors, the rise in commercialization is likely to go back in time. Once the user experience is adjusted and the growth of users goes up, we will restart the new commercialization project, including the last project of non-members. We are completely confident in the revenue and money-making ability of carbon. Investment in this respect does not need any doubt. But in the recent few seasons, we will fully focus on core social experience and user growth, including commercialization and pursuit of profits. Anything else will be part of this goal. This strategy will also affect the income and profits of the second half of the year. We will therefore temporarily give up the goal of balance of profit and loss in the second half of the year. But we believe this is a very correct decision for the current stage.
spk05: 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're 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 the users onto a stable and rapid growth track, we're going to reactivate the monetization projects that we have been running, including the Alucard RAS feature that we've been testing. Overall, we have full confidence in Tanta's ability to bring in revenues and ultimately make a lot of profit. I don't think investors really need to have any doubt on that front. But for the coming few quarter, we're 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 and the pursuit of profits 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 forego, I think we need to temporary forego our previous target to reach breakeven point in the second half of the year. But, you know, I believe for longer-term good, this is definitely the right thing to do at this point in time.
spk03: Now here's Jonathan to talk about the bottom line. Hi, everyone. Let me just...
spk01: Let me provide some specific color on what Wang Li just briefed. On the revenue side, to be specific, we currently, because we scale 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 a 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 350 million RMB to 450 million RMB, which is higher than you know, what we previously communicated less than $100 million maybe net loss for the year target we set at the beginning of the year. So that's the for content.
spk05: Sorry, second question. On the revenue side of the core MoMA, this is the second question. On the revenue side of the core MoMA, I've actually shared a lot in the previous section. Maybe I'll just try to sum up a little bit. The revenue performance on the core during the past few months has actually exceeded our expectation at the 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.
spk03: If you look at the live streaming business from
spk05: 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've also fully completed the adjustments that we needed in order to have satisfactory and effective incentive program through the agency and broadcaster. So payout ratio is going to stay at a stable level as well.
spk03: On the WANs side, the creativity of the team is constantly improving, which also promotes the growth of WANs revenue space. As you can see, in the first half of the year, the core WANs business has increased from 30% to 40% last year, which exceeded our expectations earlier. But we don't want WANs to grow too rapidly, so in the second half of the year, we will control the growth and put more energy into the product experience, making WANs' run longer.
spk05: 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 percent of YY growth last year to 40-something percent YY growth during the first half of this year. That has also exceeded our earlier expectation. But actually, I do not think we need to pursue the rate of growth that aggressively on VAS. So in the second half, I'm hoping that the team can maybe control the pace of growth a little bit and shift part of the focus onto the product itself. And the goal here is to build a longer runway for the future growth of VAS business.
spk03: Again, if you put all these different pieces together, it looks like that it's very possible that the core will turn YY positive.
spk05: the course revenue will turn YY positive in the second half of the year. I'm hoping that in the fourth quarter, we could reach double-digit YY growth, and now it looks like a pretty easy target to reach. You know, in the interest of time, I think this is going to be the end of the Q&A session. Operator, we're ready to close. Thank you for joining our conference call. We'll see you next quarter.
spk04: Thank you for participating.
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