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spk04: Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 Hello Group Incorporated earnings conference call. 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.
spk02: Thank you all, Preeta. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's third 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 are Mr. Wang Li, CEO of the company, and Mr. Jonathan Zhang, CFO of the company. They will discuss the company's business operations and highlights as well as the financials and guidance. They will both 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 statement. Further information regarding these other risks, uncertainties, and factors is included in the company's filing 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 to Mr. Wang. or translate for him. Mr. Wang, please.
spk00: Good morning and good evening, everyone. Thank you for joining our conference call today. Q3 was a good quarter. I'm glad we delivered solid financial results while continuing to push forward with all of our strategic priorities.
spk02: Now, let me walk you through the details.
spk00: 首先,简单介绍一下财务表现。 2021年3季度总营收37.6亿人民币,同比持平,环比增长2%。 调整后营业利润6.37亿人民币,对应营业利润率17%。 默默主App总营收32.5亿人民币,同比增长7%。 很高兴看到默默主App自疫情爆发以来首次实现营收同比增长。 Comparing the revenue of HomeDrive to 3%, the profit after adjustment is 7.5 billion RMB, which corresponds to 23% of the profit. As I mentioned in the previous video conference, after the adjustment of Tantan management team in May, in order to improve the user experience and improve the flow of data, the new management team turned from the original strategic strategy of switching to paid conversion to active commercialization. This caused Tantan's total revenue in this quarter to drop by 30% to 5.1 billion RMB. Comparing to a drop of 1%, First of all, a brief overview of the financial performance. For the third quarter 2021, total revenue at the group level was RMB3.76 billion, flattish year-over-year and up 2% quarter-over-quarter.
spk02: Adjusted operating income for the quarter was 637 million RMB, representing a 17% profit margin. For the core business, total revenue was 3.25 billion RMB, up 7% from Q3 last year. I'm glad to see that for the first time after the pandemic struck, the core was able to turn year-over-year positive on top line. On a sequential basis, revenue from the core business was up 3%. adjusted operating income for the core model was 750 million RMB or 23% profit margin. As I said at previous conference calls, after 10 times management changes in May, the new teams strategically shifted the focus from driving paying conversion to lowering the monetization level in order to improve user experience and retention. As a result, Tantan's total revenue for the quarter came in 511 million RMB, down 30% year-over-year and 1% sequentially. Adjusted net loss for Tantan was 120 million RMB for the quarter, compared to 66.87 million RMB for the year-ago period. The revenue mix of the group remained stable and healthy, with last representing 71% of the size of live streaming.
spk00: First of all, the core data shows that the number of 1.155 billion people in the third quarter of Momo's app has increased by 2% compared to the average. The number of negative users in this quarter is 9.3 million, which was 9 million last year. The number of negative users has remained stable compared to the previous year, which is consistent with the trend of the MAU. In September, the trend of positive users compared to the average was reflected. Although the increase in the number of positive users has been affected by the trend, the productivity of platform storage users has continued to increase. Now, a deeper dive into the quarter. I'm going to focus on the core mobile first and move on to Tantan later. First, on key operating matrix.
spk02: Comomore had 115.5 million monthly active for the third quarter of 2021, up 2% year-on-year and flattish on a sequential basis. The number of paying users for the quarter was 9.3 million compared to 9.0 million a year ago. On a sequential basis, paying user count remained flattish, which is in correlation with the trend of MAUs. September is seasonally low in terms of top of the funnel activities as students go back to school after the summer holiday. The flattish quarterly user trend was a reflection of that. Despite weaker top of the funnel auditions, our product efforts continue to drive better in the funnel activities during the quarter. The number of greetings and the number of messages stayed at a high level compared to the year-ago period. The number of impressions of nearby people and nearby posts has grown steadily since the beginning of the pandemic. These improvements show that the fundamentals of CallMomo as a social platform continue to be healthy and stable.
spk00: 接下来介绍下我们在年初公布 的战略重点方面所取得的进展。 对于Momo Drive,今年的三个目标是, 第一,利用有限的营销预算实现主战用户稳中求长,并且取得比去年更好的RI。 第二,推动业务重回增长轨道。 第三,持续丰富品牌矩阵,拓宽Momo和探陈之外的业务边界。 Next, let me walk you through the progress we made in the strategic priorities I laid out at the beginning of the year. On the quote moment side, the three goals for the year are
spk02: Number one, further grow the core user base with limited marketing budget and improved 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 most important goal for the year is to deliver solid user growth by substantially improving the marketing efficiency and the core dating experience. Now, let me walk you through the progresses that we've made as well as the challenges that we continue to face on each of these front lines.
spk00: 首先是推动默默主App用户增长。 为适应日趋挑战的渠道环境,我们年初以来的重点工作之一是优化招户模型,提升老用户招户效率以平衡总体获客成本。 招户用户的单位成本远低于新用户,而他们的留存率和付费转化率又显著高于新客。 Firstly, taking user growth for the CodeMomo platform.
spk02: In order to adapt to the challenging channel environment, one of our key efforts since the beginning of the year was to optimize our user resurrection model to make the calling back effort more efficient. The unit price of resurrected users is meaningfully lower than that of the new users, while their retention ratio and paying conversion are considerably higher. Driving better ROI from the reactivations is one of the key means to achieve our first strategic goal for the year. I'm glad to see that such strategy has paid off pretty well so far into the year. Based on the trajectory that we are seeing, I believe we'll be able to end this year with a slight increase in the overall MAU against last year, and more importantly, on an overall flattish marketing spend in comparison with the year 2020.
spk00: MoMo is already a mature brand with 10 years of history. Therefore, we need to continuously innovate products to make the strategy more effective. Only when the platform can continuously promote new products and return to MoMo users can we have better storage and more consumption. We have recently made a bold change to MoMo's trademark features. The new version provides a greater space for promotion of the engine, giving more exposure to more and more female users, especially those female groups that are easily ignored in the old version. In the new version, the number of female users has been greatly increased, which has led to a significant increase in the number of two-way messages. In order to increase the flow rate and activity rate of users, we plan to gradually increase the number of people around the new version in the fourth quarter, and make a positive contribution to the long-term growth of users.
spk02: Momo is a metro brand that has been around for more than 10 years. To make the user resurrection strategy work better, we need to move fast on product innovations. This is because users would only come back, stay longer, and spend more when we have something new and something better to offer. Recently, we made a bold effort to change the user interface of our signature nearby people list. The new interface gives the recommendation engine greater leverage to allocate higher exposure to a wider range of female users, especially those who could be easily ignored in the previous version. The number of responses from female users grew meaningfully, driving a significant increase in the number of two-way interactions, which in turn enhanced the retention and engagement level. We intend to gradually roll out the new version of Nearby People to the entire mobile community in Q4 so that it can contribute positively to overall user growth in the long run.
spk00: In addition to MoMo's main app, we are also achieving continuous progress in broadening MoMo and other e-commerce boundaries other than our main app. In the R and R platform, the audio and social apps facing the overseas market have achieved outstanding results in the past few seasons in terms of user size and revenue. With continuous product innovation and hard work, SoChill's flow rate and commercialization potential have been steadily improved. In the third quarter, we have increased the sales power of high-value users. The increase in user size and IP pool has led to rapid growth in revenue. The number of partial users has increased by 50% in the beginning of the year, and the IP pool has doubled. We believe that SoChill has a significant competitive advantage in the MENA market, and we plan to continue to invest in the market under the premise of ensuring ROI.
spk02: In addition to the core MoMo, we continue to advance our strategic priority of enriching our product portfolio and pushing the boundaries beyond MoMo and Tantan. Amongst the ROI-oriented projects, Sochill, a voice-based social app targeting overseas markets, has been an outperformer in the recent couple of quarters. driving by ongoing product innovation and operational efforts. Socio continued to show steady improvement in retention and monetization potential. In Q3, we stepped up our marketing efforts, targeting high-value users. As a result, Socio generated robust revenue growth, driven by both user base and RP pool expansion. Number of paying users increased 50% compared to at the beginning of the year, and RP pool more than doubled over the same period of time. We believe Sotio has a strong competitive advantage in the MENA area. Our plan is to continue to invest in its marketing channels as long as it remains on target for ROI. The goal is to form a self-sustaining commercial cycle so that the product can achieve rapid growth in both users and revenues at the same time, not hurt the bottom line of the company.
spk00: In addition to achieving initial success in the overseas market, we continue to promote the RRI target for video communication products and video communication products focused on the downstream market. We believe that the video communication field still has a lot of potential to be discovered, especially in the downstream market. Therefore, we will continue to invest in the consumption and profit growth of users who promote these two applications.
spk02: In addition to this early success in overseas development, both He Zi, a voice-based social app primarily serving the Gen Z, and Zui Zui, a video matchmaking application targeting lower-tier markets, continue to progress well toward the ROI target. Currently, we're still seeing lots of potential in video matchmaking category, especially in the lower-tier cities. Therefore, we are going to continue to invest in these new apps to drive growth, both in terms of users and in terms of revenue and profits.
spk00: Next, let me review the progress that was made against our priority of bringing the cash cow business back onto the growth track. First of all, the live broadcast business. The live broadcast business income of the three-segment MoMo main app is 19.3 billion RMB, which has dropped by 2%, but has increased by 3%. Last August, the structural reform caused a decline of 22% in the second quarter. Since September, the flow of the Japanese army in non-combat days has weakened. We think the main reason is that the macroeconomic economy is low and the overall consumption is weak. However, the various contest activities in September have been welcomed by the streamers and users, and have been held quite successfully.
spk02: Firstly, on live broadcasting, formal cost live broadcasting revenue totaled 1.93 billion RMB for the third quarter, down 2% from the same year last year, but up 3% from last quarter. The year-over-year decrease caused by the structural reform in August last year was largely narrowed from 22% in Q2. we have been seeing some weakness in non-event-based daily growth since September, which we believe was due to the macro headwind and consumption softness. However, the promotional events that we held in September turned out to be quite successful and were well received by the performers as well as the users. The incremental revenue contribution from the events helped us to overcome the September weakness and ended up turning a pretty strong quarter.
spk00: On the day of the World Cup, the consumption pattern continued in October and November. We have not yet seen any signs of red-light pressure in the short term. Most of our high-end users are private owners. Their financial situation is closely related to non-hardware consumption and red-light factors. Due to the judgment of the above red-light environment, we will adjust the operating plan accordingly to better adapt to the current external environment. For example, in the third quarter, we will divide the previous major tournaments into with different levels of small-scale contests, and the activity of different levels of users. It is not that people are looking forward to it because the threshold is too high. We believe that the impact of the high-cost consumption of the Hongguan factor will continue in the short term. Considering the uncertainty of Hongguan, we plan to hold more smaller-scale contests in the fourth quarter. This will involve additional rewards for the anchorage and the union. We set 1 to 2 points on the interest rate, which can keep the daily flow at a good level. It also helps the broadcasters and the union to maintain a better economic situation in a challenging external environment. It is worth mentioning that, unlike a few seasons ago, we made a permanent adjustment to the basic structure of the G-LEAD plan. The funding for the event activities in the second quarter has a limited impact on the profit margin and has a very high flexibility. After the consumer sentiment warms up, we can quickly reduce this part of the expenditure.
spk02: The softness of spending during non-event days continued into October and November, and we are not currently seeing signs for macro headwind to tail out in the near term. Given that most of our high-paying users are private business owners whose financial conditions and discretionary spending are closely tied to macro factors, we adjusted our operational plans to better adapt to the current environment. Instead of utilizing heavy stimulating measures during the quarterly tournament, in Q3, we broke down the one big event into different levels of smaller ones so that we can keep various cohorts of spenders better engaged without pushing too hard to turn them away. We believe the macro factor may continue to be a headwind for the top spending in the near term. In the face of macro uncertainty, we plan to continue hosting a number of smaller events in Q4, which may involve additional investments from us in setting up bonus plans for performers and agencies. By throwing one to two percentage points of growth margin back into the system, we can keep the daily growth at a decent level and help our agencies and performers stay in a good economic condition when macro is tough. It's worth mentioning that, contrary to the permanent rise to payout ratio structural changes to the incentive program, such as the ones we undertook a few quarters ago, the budget we set aside for Q4 events is highly elastic, with moderate growth margin impact. We can easily scale it back when sentiment gets better.
spk00: Next, I will introduce the increased value of the business. The total revenue of the 3G device is 12.6 billion RMB, which is 26% of the total profit, and 4% of the total profit. Now, turning to VaaS. Revenue from earlier added services on an X-10-10 basis totaled 1.26 billion RMB for the third quarter, up 26% year-on-year and 4% quarter-over-quarter.
spk02: Core Momo VaaS revenue was up 21% from the same period last year. Revenue from the new bucket of standalone apps grew 188% from Q3 last year.
spk00: The growth of our standing apps is mainly due to the innovative play and game activities launched in the video and social entertainment scene. At the same time, independent apps have made further contributions to the sales of apps. The total income is almost three times the same as last year. We have maintained the level of commercialization at a relatively low level. Therefore, the growth is mainly due to the increase in user size and turnover, as well as the gradual improvement of ROI and the growth of user size. We may consider increasing the level of commercialization of some relatively mature apps next year. It is expected that with the increase in both user and app growth,
spk02: For the core mobile application, the growth was mainly driven by the introduction of gamified features and operational events in the audio and video social entertainment experiences. At the same time, revenues from the new bucket made more meaningful contribution to the vast top-line Q3. Collectively, revenues almost tripled from the year-ago period. The growth was mainly driven by user and engagement growth, because we are still keeping the monetization at a low level. With gradual improvement in ROI and steady ramp up in users, we may consider rising monetization level next year for some of the more mature apps. We expect the revenue contribution from the new bucket to continue to grow meaningfully, driven by both user and ARPU improvement next year.
spk00: ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG ZHANG First of all, the trend of users and overall financial performance. The structure of new users in the third quarter continues to improve. The increase in the number of new users has now reached 50%. But we are slightly behind our previous goal in optimizing channel strategy. The cost of goods and services is still relatively high throughout the third quarter. Given the consideration of R&D, we have adopted a relatively conservative investment strategy. Now, turning to Tantan. Firstly, on user trend and overall financials. New user structure continue to improve in Q3, with females now accounting for 50% of the newly acquired users.
spk02: However, we've been a bit behind our own target in optimizing the marketing formula, and thus, unit acquisition cost stayed at a relatively high level throughout Q3. Therefore, we have been maintaining a moderate approach in terms of marketing spend in order to take care of ROI. User growth in July and August turned out to be quite strong, with MAU growing more than 10% from June. In September, which as I said is seasonally low due to the students going back to school, the user trajectory came down a bit from August and ended up with an 8% increase from the month of June.
spk00: The first is to increase the number of female users, because in the current product mechanism, female users are far less likely to pay for increased service. The second is because we want to return to the commercialization of user experience. For example, in July, we adjusted the consumer-led design of the member subscription page, resulting in a significant decline in the payment transfer rate and the RP pool. In addition, in the new version released in September, we removed a lot of paid wall design and commercialization that are not conducive to improving user experience. In addition, the new version has also weakened the live broadcast to a great extent. These product adjustments have had a significant negative impact on the fee conversion rate and IP pool, but we believe that these current adjustments are indispensable for Tantan to actually improve user experience. In addition to the above two reasons, I think there is a third factor that may have a negative impact on the fee conversion rate in the short term. As I said before, one of the important directions of the product is to create a richer functional experience outside the core sliding and matching mechanism. In fact, many of our current attempts in the product sector are focused on the core sliding and matching mechanism. However, at present, more than 95% of our VAS is based on the core product based on sliding and matching. Therefore, in addition to this core experience, a more diversified social experience has been created by the user, which obviously has not had a positive impact on the previous payment transition. Therefore, I think the long-term solution is to include VAS into the new experience. And I can confidently say that based on different social experiences, creating diversified VAS products is the strength of our team. However, before the launch of new VAS paid functions, our efforts in product diversification will likely have a negative impact on the paid conversion rate in the short term.
spk02: Tantan's paying user count came in 2.9 million end of Q3 2021, down from 3.1 million from last quarter. The 200,000 net decrease was mainly attributable to three factors. The first one is the improvement in the female percentage in the newly acquired users, as women are much less likely to pay in comparison with men with Tantan's current product mechanism. The second factor pertains to the demonetization process to protect user experience. For example, we removed some misleading narratives from membership subscription pages in July, resulting in a considerable decrease in both membership conversion ratio and RP pool. In addition, in the new product upgrade released in September, we took down quite a number of paywall and merchandising tactics that may not be helpful in improving user experience. Moreover, the new version also de-emphasized live streaming in a pretty significant way. These product changes had a clear negative impact on paying conversion and RP pool, but we believe they are necessary at this point to help us get Tantan back to the right track in terms of user experience. Other than these two reasons, I can also see a third factor that in the near term could be negative to the paying conversion. As I said multiple times in the past, One of the key directions on the product front is to build richer alternative experiences on top of the core swipe and match mechanism. As a matter of fact, many of our product experiments today focuses on non-swiping related features. However, over 95% of us are currently built up on the core swiping system. Diversifying into other experiences outside of the system certainly won't be positive for pushing the users into VaaS. I believe the long-term solution here is to embed value-added service into the new experiences, which I shall say with confidence is our team's longstanding strength. However, somewhere in between the diversification from swiping and the catch-up of new VaaS features, the paying conversion could be under a bit of pressure.
spk00: Next, let's review the financial performance of Tantan. In 2021, Tantan's total revenue of RMB 5.11 billion decreased by 30% and decreased by 1% in total. NAS's total revenue decreased by 7% to RMB 2.76 billion, mainly due to the decrease in the number of paid users and the decrease in the number of RPOs. The reason is explained in the video. Live income decreased by 8% to RMB 2.35 billion, mainly due to the increase in the number of RPOs. Now, let me briefly review Tantan's financial performance. Total revenue for the third quarter was 511 million RMB, down 30% year-on-year and 1% quarter-on-quarter. Vast revenue decreased 7% sequentially to 276 million RMB,
spk02: The sequential decrease was due to the decrease in both paying user count and RP pool, reason of which already explained earlier. Live streaming revenue increased 8% sequentially to $235 million driven by RP pool improvement. We expect the bulk of the revenue impact from the September product upgrade to fall into the fourth quarter. Therefore, the downward pressure on paying conversion and last revenue should continue into Q4. As we enter into next year, both numbers should gradually pick up.
spk00: 接下来介绍一下探探在用户增长方面的执行情况。 这是今年探探最重要的战略目标。 三季度对探探来说是一个非常忙碌的季度。 既有意料之外的挑战,也有可喜的发现和进步。 这里我想和各位投资人分享一下我们围绕这个战略目标所取得的进展,以及一些尚在完成的工作。 Now, moving on to the execution details of the single most important goal for Tantan this year, user growth.
spk02: Q3 was indeed a busy quarter at Tantan, where we saw both unexpected challenges as well as encouraging observations and progresses. Here are a number of things I'd like to share with investors to help you understand what we've done and what remains to be done in order to reach our goals.
spk00: First, let's start with the questions. After the adjustment of Tantan management in May, one of our main tasks is to form a strong team to lead Tantan's product and user growth work. Our original expectation was to build a perfect leadership team within July, but unfortunately, we have clearly lowered the difficulty of the team structure. In fact, until October, Tantan has completed the construction work of the new management and execution team. Therefore, the key projects of some products and channels have been delayed from the third quarter to the fourth quarter, causing the user growth of the third quarter to be 8% lower than the previous expectation. I will start with the problem first.
spk02: One of my key priorities after management changes in May at Tantan was to put together a strong team to lead the product and user growth efforts. I originally expected to have a fully functioning leadership team by July. Unfortunately, I have underestimated the difficulties in filling in some of the key positions. It turned out that it was not until October did we fully assemble the new management and execution team at Tantan. As a result, some of the key projects on the product and marketing front got pushed from Q3 into Q4. And the 8% user growth in Q3 came in lower than our early expectations. Our original plan was to release the bulk of the product adjustments in Q3 and subsequently step up marketing spend after double 11 to drive faster user growth in Q4. However, now it looks like most of the new product adjustments aimed at substantially improve the user experience are going to be released only in December and early next year. In addition, the COVID research in certain parts of China since October also had a clear negative impact on the dating sentiment. which in turn would make large-scale marketing campaigns less effective. Due to these reasons, we decided to push more aggressive marketing campaigns from Q4 into next year.
spk00: In the past few years, due to the excessive pursuit of some seasonal revenue and financial indicators, the design and marketing strategy of the payment wall has been too aggressive. One of the main complaints we received in the user survey was that the payment was becoming more and more unpaid and we could not continue to play. We must change the user's view on this, so we made some important decisions in 3D devices. For example, in July, we made new adjustments to the member subscription guide page, and deleted those that were very effective in transferring payment to new users. There is a misinterpretation of the current market will lead to a large number of rapid drop and the loss of users in the later period. In September's product upgrade, we have further removed a large number of payment walls, such as SIP, readback, and flashback. We have also adjusted some other experience certificates for users' unfavorable marketing strategies. In addition, we have finished the bottom part, and the second part has changed from live broadcast to entertainment, and here again shows the chat-based enterprise. The live broadcast is adjusted to stimulate the page. After a few months of small-scale operation, we believe that the chat room is closer to the ecosystem than the live broadcast, and it has a greater communication effect in terms of social media. Therefore, it is very likely that there will be a higher penetration rate in the future. The changes in these products in September have led to a significant decline in the turnover rate and APB. which has led to a decrease in the number of negative users and revenue. But we believe that this is the right way to judge the user experience. In fact, in the following few months, we have seen a significant increase in the number of members who have lost money, and a significant improvement in the current and post-pandemic flow. These are good evidence that our user experience is indeed improving. In addition, from a long-term perspective, the increase in the number of members who have lost money will help to promote the increase in the number of negative users, and further transform it into an increase in the number of less users.
spk02: Although it took us longer to put together a fully functioning team, we have been able to make some solid progress in driving the product plans we laid out earlier. One of the most important moves we made on the product front in the past few months was to remove from the system some of the aggressive paying conversion measures that hurt user experience. Over the past couple of years, due to excessive pursuit of quarterly operating and financial matrix, Tantan had been overly aggressive in setting up payroll and merchandising tactics. One of the key complaints that we have received from our user survey was that it increasingly seemed so that it was impossible to use Tantan without paying. That is a perception that we have to change, and so we did by taking some important steps in Q3. For example, in July, we took down some misleading narratives on membership subscription page, which were extremely effective in driving new user-paying conversion that had led to a large number of customer complaints and unsubscribing, as well as user trends at later stages. In the September product upgrade, we further removed some excessive paywall features, such as SVIP's read recipient and FlashChat's peek. We also adjusted a few merchandising tactics that have proven to be not user-friendly. In addition, we replaced the live streaming tab on the Navi bar with a new entertainment page, which features the chatroom experience. After several months of pilot operations, we realized that chatroom fits better into Tantan's dating ecosystem than live streaming. It also generates higher level of synergy and thus has the potential to reach higher DAU penetration on Tantan than live streaming. Those adjustments in the September version resulted in a considerable decrease in both paying conversion and RP pool, which in turn led to a decrease in paying user count and revenues. However, we believe they are absolutely the right thing to do for Tantan to get onto the right track in terms of user experience. As a matter of fact, we started to see substantial increase in membership renewal rate over the subsequent months, alongside with meaningful improvement in next day and seven days retention. These are solid evidence that we have been on the right path. In addition, the increase in the sub renewal rate will benefit paying user account in the long run and will further translate into vast revenue growth on the path.
spk00: Despite the short-term recovery, our views on Tantan's commercialization are still the same. Compared to the previous generations, young people are more willing to pay for the service, and their consumption capacity is also increasing rapidly. In order to fully release Tantan's commercialization potential, we need to break through the current single member subscription mode and gradually increase the mode of hidden payment. In addition, with the diversification development of the product beyond the sliding matching mechanism, we still need to continue to enrich the service. Next year, you will see us make different attempts in this direction.
spk02: Despite the temporary pullback, our view on tenant monetization potential stays unchanged. Young people today are much more willing to pay for dating services in comparison with their prior generations, and their purchasing power is also rapidly rising. To fully unleash that monetization potential, we need to go beyond the currently dominant membership subscription model and gradually add pay-per-use model. We also need to evolve our value-added services as the consumer features continue to diversify beyond the swipe and match mechanism. You are going to see us testing different possibilities towards those directions next year.
spk00: Asian female social initiative is poor. About 40% of female users on Tantan never use滑卡, causing them to be unable to achieve matching and interaction under the current product mechanism. This is also the reason why Tantan female users' storage is obviously based on men. FAKE users refer to those who are unwilling to provide qualified personal photos and are unable to enter the matching system of滑卡 users. Due to the inability to obtain any matching or interaction, the storage of FAKE users is often quite low. Our research shows that the vast majority of these two types of users have a real need to use Tantan交友服务. Another important aspect on the product side that has a long-term impact on user experience is better addressing female user and fake users' demands. Asian women generally tend to be quite passive when it comes to dating.
spk02: around 40% of female users on Tantan hardly swipe at all, resulting in them getting no matches or interactions. This explains why female users' retention on Tantan is significantly lower than that of men. Fake user, on the other hand, refers to those who feel reluctant to provide qualified profile photos and are therefore denied full access to the swiping system. Fake users' retention is extremely low due to their inability to get matches and interact. Our survey showed that the big majority of these two kinds of users have genuine desire to use 10 times dating service, with now 50% of new users being female and 5 users representing around 1 third of average dating new registrations. If we can better retain these two groups of underserved users by offering more effective social experiences that better address their demands, they can make very significant incremental contribution to 10 times MAU.
spk00: During the past couple of months, our product team has developed a clear roadmap to address the above-mentioned issues and also undertook a few important product experiments.
spk02: Some of them have shown encouraging lab results in terms of improving the retention of those two groups of users that are underserved. Our plan is to push these tested product adjustments into the system methodically through rapid iteration in the coming few months.
spk00: The other thing running in parallel at Tantan is overseas expansion.
spk02: We have resumed our pursuit of opportunities beyond China market since we took over Tantan's execution. Our goal is simple and clear, to become an indispensable part of people's dating life in Asia and for the global Asian community. Our first step is to solidify Tantan's leadership position in overseas Chinese communities and use that as the base camp to penetrate into Southeast Asia and MENA markets.
spk00: In the past few months, our team has successfully restarted the Indian market. This is one of the main markets that the previous management team set up in 2019. The previous team encountered a major problem in the development of countries such as Indonesia and India. The GDP of these markets is relatively low, and it is difficult to achieve the scale profit. But we now have a solution to this core problem. to use live streaming and gradually add the non-member VAS mode to upgrade the IP pool based on the local personal income and consumption. So far, we have launched live streaming in Indonesia. The channel has been affected by the steady growth of RI. Since July, the download and active user scale in the Indonesian market has exceeded Tinder. We will increase the channel's investment accordingly based on the RI performance. This allows us to maintain a useful level while promoting the user scale and income growth.
spk02: During the past few months, our team made a pretty successful foray back into Indonesia, which was one of the major markets that Wang Yu's old team made their footprints on back in 2019. One major issue Wang Yu's team encountered in developing countries such as Indonesia and India was that it was difficult to scale profit due to the low per capita GDP in those markets. Our new team's answer to Our issue is to leverage live streaming and eventually non-membership bots to take advantage of the extreme disparity in personal income and spending. So far, we've already launched live streaming in Indonesia. And ROI for channel marketing has been improving steadily. And Tantan has surpassed Tinder in Indonesia in terms of app download and active user base since July. We will increase marketing spend according to ROI performance. so we can drive user growth while keeping an eye on profitability level. As we progress further, overseas market will become an increasingly important part of the company's growth strategy.
spk00: These are the things I'd like to cover on this call. Now, let me pass the call over to Mr. Jonathan Zhang for financial review. John, please. Thanks.
spk01: Hello, everyone. Thank you for joining our conference call today. Let me briefly take you through the financial review. Total revenue for the third quarter 2021 was 3.76 billion RMB, flat-ish year-on-year, up 2% quarter-over-quarter, and exceeded the high end of our guidance. Net income attributable to Momo was 571.6 million RMB compared to 653.8 million RMB for the same period of 2020, or a 13% increase year over year. In the interest of time, I will jump directly to cost and expenses. Revenue line items was just covered by Mr. Wang Li pretty comprehensively. Our non-GAAP cost of revenue for the third quarter of 2021 was 2.16 billion RMB compared to 2.00 billion for the same period last year. The non-GAAP cost of revenue as a percentage of total revenue was 57.4 percent an increase from 53% from third quarter 2020. Nungap's gross profit margin for the quarter was down by 4.4 percentage point from a year ago. The decrease was attributed to the following factors. Number one, higher payout ratio for Cool Momo's live broadcasting business on a year-over-year basis. Number two, our wholly owned subsidiaries, Cool Media and Momo Pictures, produced a variety show and a film, respectively, during Q3. The vast majority of the costs were recognized in Q3, which had over 1% percent drag to the GP margin. Number three, Tantan accounted for a smaller percentage of the group's total revenue, as its gross margin is around 10 percentage points higher than the core mobile. Non-GAAP R&D expenses for the third quarter was 231.8 million RMB compared to 252.3 million RMB for the same period last year. representing 6.2% and 6.7% of total revenues, respectively. The decrease was mainly due to the decrease in employee salary and social welfare, resulting from a reduction in headcount. We ended the quarter with 2,050 total employees, of which 548 are from Tantan. R&D personnel as a percentage of total employees for the group was 59% compared to 58% Q3 last year. Non-GAAP sales and marketing expenses for the third quarter was 637.1 million RMB or 16.9% of total revenue compared to 696 million RMB or 18.5% 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 percentage of revenue, was primarily due to lower user acquisition investment for Tantan. a reflection of our conservative marketing approach at this stage. We believe this is a wise choice before we make further progress in improving the user retention and the marketing efficiency. Non-GAAP G&A expenses was 114.8 million RMB for the third quarter 2021 compared to 105.8 million RMB for the same quarter last year, representing 3.1% and 2.8% of total revenue respectively. Non-GAAP operating income was 637.2 million RMB, a decrease of 14% from Q3 2020, representing 17% non-GAAP operating margin for the quarter. down by 2.6 percent from the same period last year. Nungat OPEX as a percentage of total revenue was 26.2 percent, a decrease of from 28 percent from Q3 last year. The decrease mainly due to the decrease in selling marketing expenses as a percentage of total revenue. Now turning to the balance sheet and cash flow items. As of September 30, 2021, hollow group's cash, cash equivalents, short-term deposit, long-term deposits, restricted cash, and the long-term restricted cash totaled 15.17 billion RMB compared to 16.48 billion RMB as of December 31, 2020. In Q3, we repurchased an equivalent of 557 million MMB of company's share from the open market. The net cash generated by operating activities in the third quarter 2021 was 559.9 million MMB. Lastly, on the business outlook, We estimated our fourth quarter revenue to come in the range from 3.6 billion RMB to 3.75 billion RMB, representing a decrease of 5.1% to 1.2% year-on-year, or a decrease of 4.2% to 0.2% quarter-over-quarter. The fourth quarter For the fourth quarter 2021, we expect the total revenue for Core Momo to maintain a similar level of year-over-year growth momentum as in Q3. Sequential-wise, the revenue on X time-time basis should remain flattish or show a slight versus previous quarter due to the macro weakness impact on spending from users. On content side, as Wang Li mentioned earlier, we expect a big part of the negative revenue impact from September product adjustments to fall into Q4. That would translate into a sequential decrease in content's top line in the meetings percentage. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions. We are subject to changes. That concludes our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.
spk02: Just a quick reminder before we take the questions for those who can speak Chinese Please ask your questions in Chinese first followed by English translation by yourself and also Please limit the number of questions to maximum two so we could take more people to ask questions Operator we're ready for questions.
spk04: Thank you Certainly as a reminder if you wish to ask a question you will need to press star 1 on your telephone and To withdraw your question, press the pound or hash key. Once again, it's star and the number one on your telephone keypad. Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.
spk06: Guan Yicheng, can you share with us from Q4, and next year, in terms of users' income and profits, and also for non-users, how should we look at the trend of the number of users, and when can we see a bottom-out situation? My second question is about MoMo. Thanks, management, for taking my questions. I have two questions. The first question is on Tantan. Can management comment about Q4 as well as 2022 outlook from the user revenue and profit expectations. And how should we think about the paying users trend and when we should expect the paying users to bottom out? And my second question is on Coa Momo. Can management comment about how the MAC quote should affect the live streaming and the VAS business trend? Thank you.
spk00: Thank you for your question. Regarding the first question, due to the delay in product and investment plans, our previous user growth target of more than 20% seemed to be too close. Q4, we should maintain a market budget of the same level as Q3. At the same time, considering the impact of the electric business season and the epidemic, it looks like the MAU in December should be equal to Q3.
spk02: Let me translate here. So due to the delay in product and marketing plans, our previous users' growth target of over 20% seems to be a bit too aggressive. In Q4, we've budgeted similar level of marketing spend as Q3. Considering the impact of e-commerce peak season and pandemic research, it now looks like MAU in December could be flattish versus Q3.
spk00: Even though user growth is coming lower than our early expectation, I'm quite pleased with our product roadmap and the lab results of the product experiment.
spk02: I'm confident that these measures can effectively address our current user experience and retention issues. We have already started moving forward with our plans to make various product adjustments through rapid iterations. Our marketing plan for next year will be based on the results of these efforts. In addition to channel marketing, we'll also invest more into branding next year to enhance Tantan's brand equity. We will provide user growth target for the year 2022 in Q1 next year based on progress in improving product and marketing efficiency.
spk00: It will grow again next year. The main factors include the following aspects. First, the growth of users. Second, the growth of the chat room and the chat room. We think that the chat room and the chat room are two more suitable for exploring the environment and contributing to social media. In the next two scenarios, there will be a good growth in both penetration rate and revenue. The third is the launch of the new NAS. As for the live broadcast, because it is not the focus of the current stage of exploration, it may be further reduced next year.
spk02: With regards to revenue and paying users, we expect the demonetization impact on BaaS to bottom out in Q4, and both numbers should pick up next year. Here are some driving factors that we are looking at. Firstly, it's the overall user growth. And secondly, it's the growth in flash chat and chatroom experiences. We believe that chatroom and flash chat fits well into content-stating ecosystems, and generates high level of synergy with social interactions. So we expect both features to show decent growth next year in terms of DAO penetration and revenue. The third factor that is going to be beneficial to paying user and revenue is the introduction of new VaaS features. And in terms of live streaming, since it's not the current product or operational focus, so it may shrink further next year.
spk00: Regarding the second question, live broadcasts and the macroeconomic situation, especially the economic situation of private enterprises, are closely linked. Therefore, the macroeconomic environment in the next year is indeed an important factor in determining the company's revenue. But we don't think investors need to worry too much. First, we have experienced a lot of fluctuations in the macroeconomic level since 2018. The team has already had enough experience and the best mechanism to deal with it. Second, after this year's division adjustment, MoMo's live streaming business is very stable. Third, MoMo is very stable as a social platform. Live streaming and other social scenarios have strong co-cooperation, which has a unique and indispensable role in increasing the social capital of high-end users. Live streaming revenue is closely tied to the macro economy, especially the financial conditions of private business owners.
spk02: Therefore, the market environment in this regard is indeed an important factor in determining the company's revenue next year. However, we don't think investors need to worry too much about this. Here are some key points. Firstly, we have gone through multiple rounds of macro-level fluctuations since the year 2018. Our team has plenty of experience and a well-established mechanism to navigate through the challenging external environment. The supply side of MoMA live streaming ecosystem has been very stable since we made the adjustments to the payout ratio at the beginning of the year. Third, the fundamentals of call MoMA as a social platform are very solid. There is a strong synergy and complementarity between live streaming and other social use cases on Womo. Live streaming plays a unique and indispensable role in helping high-paying users accumulate social capital. It is true that we had some consumption bubbles in our live streaming business back in 2018 and 2019. We believe that after we took the initiative to squeeze out the bubbles in 2020, the remaining part of the business will continue to be solid and develop steadily as a social use case with high RP pool.
spk00: Value-added service should have a pretty good opportunity for continued growth next year, and the growth will be coming from the following areas.
spk02: First is the continuous product innovation and optimization on the core model. And the second area of growth will be the rapid growth from the new bucket of standalone apps, especially the overseas part, which now seems to have a strong growth momentum. So I guess that's the question for Thomas. Operator, let's take another question. Thank you.
spk04: Your next question comes from the line of Daniel Chen of J.P. Morgan. Please ask your question.
spk05: Good evening, Yutong. Thank you for answering my question. My question is about some of our new apps. In addition to the MoMoTanTan, we also have Hezhi, DoiDoi, and SoChill, these apps. So my question is on our non-MOMO and Tantan apps. So besides MOMO and Tantan, we also have several new apps like H.E.R.D.S. and also Duidui, Xochitl, etc. Could management share some color on the user growth outlook and the modernization outlook for this new app. Thank you.
spk00: For the ROI-oriented new apps,
spk02: We mainly focus on the scale of paying users. Collectively, new apps' paying user count is around 5% of the core mobile number, and the paying user count was up 40%-ish in October compared with at the beginning of the year. We have not included new apps' paying user in the company's reported quarterly paying user number yet.
spk00: We expect that RRI-based apps, such as Hezbollah, DeSoto, and Trill, will make a significant contribution to RANS next year. In addition to the apps that have been launched and have the ability to profit, we expect to launch a few other products next year. Our goal is to have more than 10 products that can profit in the next three to five years, and at the same time have leadership in a specific segment of the market.
spk02: We expect ROI-oriented apps such as Hezi, Juejue, and Socio to make meaningful incremental contribution to Vaas next year. And in addition to the apps we've already launched that have proven to be profitable, we have several other apps in the pipeline that we plan to roll out next year. Our goal in the coming three to five years is to have 10 or so apps that not only can be profitable, but also can dominate in specific niche markets in the social space. Operator, let's maybe take one more question.
spk04: Your last question comes from the line of Tianho of DH Capital. Please ask your question.
spk03: Good evening, Manager Cheng. I have one question. It's been 10 years since we started MoMo. In these 10 years, I think the market has changed rapidly. So MoMo has already been in the market more than 10 years. And the customer 10 years ago has already become older. So how can Momo continue to evolve itself and to keep pace with the younger generation to provide services that fit into their newer needs and demands to continue your market leadership position? That's my question. Thank you.
spk00: Thank you for your question. We should have answered similar questions in the previous few episodes. Momo and Tantan have clear advantages in the foreign exchange market. Momo is mainly inclined to social media, and Tantan's core value is to help young people build romantic relationships and bring these relationships into real life. We think this is a basic need for human history. In the younger generation, compared to the previous generation, the acceptance rate is gradually increasing. In terms of the core value of the relationship between romance and face-to-face, we have not seen any Chinese products that are worth paying attention to in the Chinese market. In the field of dating, Tantan is obviously the largest and most efficient platform in China.
spk02: Let me translate here. So we answered similar kind of questions a few quarters ago. And Momo and Tanta have a clear advantage in the open social territory. Momo mainly focused on online companionship via a variety of social use cases. Kantan's core value proposition lies in connecting young people for romantic purpose and converting online relationship to offline. We believe dating is a fundamental human need throughout the human history. To compare with the previous generations, such as more and more users from a decade ago, the younger generation is increasingly receptive to online dating products. So as far as Tantan's core value proposition is concerned, which is connecting people for romantic purposes and offline relationship conversion, we don't see any comparable products in the China market that are worthy of our attention. Tantan is clearly the biggest and the most committed, as well as the most effective platform in the dating space. So, Tian, I think that's it. answer to your question.
spk03: That's good. That's very clear. Thank you. Yeah.
spk02: Thank you. So maybe in the interest of time, this will be the end of the call today. And thank you very much for your interest in Hello Group and look forward to talk to you guys next quarter. Rachel, we're ready to close. Thank you. This concludes today's conference call. Thank you for participating.
spk04: You may now disconnect.
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