Hello Group Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter and fiscal year 2021 Hello Group, Inc. earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require operator assistance, please press star 0. Please note that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Please go ahead.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's fourth quarter and fiscal 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 same type of provisions of 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 cost the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's findings 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. I will translate for him. Mr. Wang.

Today everyone, thank you for joining our conference call today. 2021 was a busy year for us.

Despite a variety of external challenges, our team was able to methodically execute our strategic priorities set at the beginning of the year and delivered solid results. In my remarks today, I will begin by reviewing the key operational and business results for the fourth quarter and fiscal year 2021, followed by outlining our strategic priorities for FY 2022 and our execution plan.

First of all, let me briefly introduce the financial performance. In the fourth quarter of 2021, the total revenue was 36.7 billion RMB, down 3% in the same ratio, down 2% in the same ratio. After adjustment, the operating profit was 5.07 billion RMB, corresponding to 14% of operating profit. MoMo's main app's revenue was 32.4 billion RMB, which increased by 6% in the same ratio, down 2%. After adjustment, the operating profit was 6.52 billion RMB, corresponding to 20% of operating profit. Tantan's revenue of 4.37 billion RMB dropped by 41% in the same year, and by 14% in the same year. The drop comes from the commercialization withdrawal that has been launched to improve the user experience and improve the flow. After the adjustment of this quarter, Tantan has lost 1.30 billion RMB, which was 8.84 million RMB in the same year.

I will start with a brief overview of our financial performance. For the first quarter of 2021, total revenue at the group level was 3.67 billion RMB, down 3% year-over-year and 2% quarter-over-quarter. Adjusted operating income for the quarter was 507 million RMB, representing a 14% profit margin. For the core mobile business, total revenue was 3.24 billion RMB, up 6% from Q4 last year and slashed from last quarter. Adjusted operating income was 652 million RMB with a 20% margin. Tantan's total revenue for the quarter came in 437 million RMB, down 41% year-over-year and 14% sequentially. The decrease was due to the monetization process to improve users' experience and retention. Adjusted net loss from Tantan was 130 million RMB for the quarter, compared with 8.84 million RMB for the year-ago period.

In 2021, the total revenue of the Group was 146 billion RMB, which was the same as 150 billion RMB in the previous year. The main reason for the decline in revenue is that Tantan has returned to the business model in the second half of the year in order to improve the experience and flow of users and promote the growth of equal users. Not to mention that Tantan's annual revenue decreased by 1% last year and returned to the growth track in the second half of the year. The profit after the Group's adjustment is 25.9 billion RMB, which corresponds to 18% of the profit. Not to mention that Tantan's annual profit For fiscal 2021, total revenue at the group level was 14.6 billion RMB, compared with 15 million RMB in 2020.

The year-over-year revenue decrease was due to our strategic decision to lower Tantan's monetization level in the second half of the year to improve user experience and retention to drive overall user growth. Excluding Tantan, revenue for the core MoMo was slightly down 1% from last year, with the second half of 2021 back onto the year-over-year growth track. Adjusted operating income at the group level was 2.59 billion RMB with a 18% margin. Excluding Tantan, operating income for the core Momo was 2.92 billion RMB, with a 23% margin. Adjusted net loss for Tantan was 337 million RMB.

Next, I will introduce the other cases of this year. I will first introduce the Momo main app, and then talk about Tantan. First is the core data. Momo main app's 4G MAU is 1.14 billion people. The bottom is the highest, and the bottom is the lowest. The bottom is the lowest because of the year-end, The epidemic has been repeated in many parts of China, and the prevention and control measures have been upgraded, which has led to a decline in the number of unfamiliar social hospitals. At the same time, with the arrival of the e-commerce era, the channel competition has increased the cost of goods and services. Please note that we have reduced the power of channel delivery. The number of paid users in this quarter is 8.9 million, which was 9 million in the same period last year. Compared to the third quarter, the number of paid users has decreased by 400,000. The main reason is that the decrease in MU and the negative impact of the epidemic on the conversion rate of paid users. In the face of external pressure such as the epidemic and channel competition, the product team effectively promotes the social behavior of the maximum number of users through the improvement of MoMo's basic social experience. The number of two-way relationships has also been significantly increased, and the news and recruitment recovery rate have also maintained a growth trend. Product optimization and channel strategy upgrades have made the new process higher since the outbreak. The overall flow rate has reached a high point in Q4. MoMo's social basic platform continues to remain stable.

Now, a deeper dive into other aspects of the year. I'm going to focus on the CoreMOMO business and move on to Tantan later. As for the key operating matrix, CoreMOMO had 114.1 million monthly active for Q421, up slightly from a year ago and down slightly from the previous quarter. The sequential decline was due to a COVID-19 resurgence and related control measures in various regions in China towards the end of the year. This had a clear negative impact on users' social sentiment. In addition, the peak e-commerce season drove up unit acquisition costs for channel marketing. As a result, we lowered our channel investment for ROI considerations. The number of paying users for the quarter was 8.9 million compared with 9.0 million a year ago, on a sequential basis, paying user count decreased 400,000. This was mainly due to the decrease in MAUs. And on top of that, COVID-19 having a negative impact on paying conversion. Despite external challenges, our product team managed to enhance user engagement by improving the basic social experience on the platform. The number of two-way interactions grow meaningfully from the year-ago period, and the number of greetings and response rate also increased, continued to trend up. Product organization, together with China's strategy refinement, led new user retention to hit a record high since the beginning of the pandemic, while the overall retention ratio reached a year high in Q4. This shows that the fundamentals of the core MoMo as a social platform continue to remain stable. Next, let me walk you through the progress we made with our strategic priorities for the financial year 2021.

First of all, in terms of the number of users, in 2021, especially in the second half of the year, the impact of the epidemic prevention and control has continued to be low. Other traffic sources are concentrated and resource competition has become more and more intense, causing the cost of pulling out to a higher level. In terms of customers, we aim to maximize revenue, grab the window of profitable time, increase the number of customers, and flexibly adjust the proportion of new integrations and recalls, so that resources can flow better, the conversion rate is high, and the unit cost is lower. Old users recall cleanly. We have eliminated the pressure caused by the high daily cost of new customer orders. The continuous optimization of the customer ROI and the effort to match the product price have allowed us to achieve a small growth in MAU in 2020, which is better than the previous year's overall decline budget. We have completed the strategic goals of the users in 2021, and have created an effective path to maintain a stable and stable exploration in 2022.

Firstly, on Comorma's user front, COVID-19-related control measures suppressed the overall open social sentiment throughout 2021, especially in the second half of the year. Meanwhile, channel traffic became increasingly concentrated on a few platforms, resulting in a more intensive competition for channel resources and driving up unit acquisition costs for new users. Our goal has been to maximize ROI by seeding favorable marketing windows to step up user acquisition efforts. We have been subtly adjusting the allocation of marketing spend for new user acquisition and reactivation of dormant users. We offset the overall cost pressure caused by the increase in the unit price of new users by shifting resources to reactivate dormant users because the retention ratio and paying conversion of dormant users are considerably higher than that of new users, and the unit price is meaningfully lower. Thanks to the continued improvement in channel ROI and product efforts, we were able to achieve our strategic goal for core mobile users to deliver a moderate increase in MAUs at a slightly lower cost compared to last year. This has proven to be an effective way for us to maintain a stable user base in 2022.

In terms of product, Momo and its product team have achieved good progress in optimizing core scenarios and continuing product innovation in both directions in 2021. In the first half of the year, they launched a new experience, Small Universe, where users can share their emotional experiences and satisfy their personal needs without the need for public information. On the product side, the Core Momo product team made good progress in optimizing core user experience while making continuous product innovation throughout 2021.

The introduction of the Miniverse experience in the first half of the year allowed users to share their relationship stories and express their feelings without releasing their profile information. It played a positive role in enhancing female users' engagement and retention. The revamp of the nearby people list in the second half of the year has also enhanced the users' experience by decentralizing the distribution of traffic. Improving the efficiency of relationship discovery within the call experiences and introducing new features that provide incremental value to previously underserved users are key means for the product team to improve retention and ultimately drive steady user growth.

From MoMo's main app, in 2021, we have achieved positive progress in broadening our brand, broadening our business boundaries beyond MoMo and Tenten. One of the highlights is the so-chill voice social app in the media market. The team used the rich product experience accumulated in China to combine localization with the gradual improvement of user flow and RRI. In the second half of the year, we increased the market investment, and the user scale and revenue achieved rapid growth. Although the user and commercialization level of Suqiao is in the early stages, its monthly flow is equivalent to the sum of Hertz and Debit. In the second half of the year, we launched a new model of female users in the European and American markets, which mimics the business type of game, Plague. With the increase in promotion during the winter, the flow has increased rapidly in the four seasons, and the RRI has steadily improved.

In addition to Code Momo, in 2021, we continue to execute our strategic priorities of enriching our product portfolio and pushing the boundaries beyond Momo and Tantan. One highlight here is Socio, a voice-based social app targeting the MENA area. Our team leveraged our rich product experience accumulated in China and combined it with a localized operational approach. With user retention and ROI gradually improving, we stepped up our marketing efforts in the second half of the year. As a result, user scale and revenue showed rapid growth. Although Xochitl is still in the early stages of user and monetization, its monthly revenue has already caught up to the level of Hezi and Duidui combined. In the second half of the year, we launched Fairy Town, a Disney-like simulation game, specifically targeting overseas female users. As we stepped up our marketing efforts during the holiday season, revenue grew rapidly in Q4, and ROI continued to improve steadily.

In addition to food and medicine, two domestic market social media products, Hezi and Rui Rui, have also made good progress in 2021.

In addition to social, the two audio and video-based social apps targeting domestic markets also made impressive progress in 2021. For these two relatively mature apps, our strategy was focused on reducing cost and improving efficiency during the second half of the year. As a result, both apps turned profitable within Q4. Next, I will review the progress that was made regarding our priority of bringing the cash cow business back onto the growth track.

The first is the live broadcast business. In the fourth quarter, MoMo's live broadcast business revenue of 19.5 billion yuan increased by 1% compared to the last quarter. In 2021, the total live broadcast revenue of 74.8 billion yuan decreased by 13%. Over the years, we have continued to focus on strengthening the supply end to improve the content ecosystem, and the flow of water enters the loophole after the break-in point, and the growth trend continues to the third quarter. In the face of the hotbed challenge that has been severe since September, the flow of water during the non-seasonal period of the fourth quarter shows a clear return to the summer peak. Firstly, with respect to live streaming,

How MoMo live streaming business revenue totaled 1.95 billion RMB for the first quarter, up 1% year-on-year and flattish sequentially. For fiscal 2021, revenue from live streaming totaled 7.48 billion RMB, down 13% compared with 2020. During last year, we continued to focus on the improvement of the content ecosystem by beefing up the supply end. Revenue entered a sequential growth track after Chinese New Year low seasonality, and its growth momentum was maintained until Q3. The non-event-based daily growth revenue came down quite a bit in Q4 compared with the summer peak due to the increasingly challenging macro headwinds starting in September. In order to overcome spending softness, we hosted a series of small-scale promotional events. to keep various cohorts of spenders and performers well engaged so that we could keep daily growth revenue at a decent level through relatively mild stimulative measures. Although the related costs associated with these additional events put some pressure on growth margin, we believe it was a necessary expense to help our content ecosystem partners with a tough economic condition.

Despite the macro challenges, the overall content ecosystem continues to show steady improvement.

The new incentive program continues to take effect in enabling us to secure the supply of high-growth revenue broadcasters and making us more attractive when recruiting new talents. The amount of high-quality new talents grew 60% compared to the beginning of the year, and the retention and share of revenue contribution increased significantly.

Next, I will introduce the increase in business. In the fourth quarter, Wang and Tantan's net income was 12.4 billion RMB, which increased by 16% and decreased by 1%. Due to the control of the epidemic, there has been a decline in the number of virtual gifts and small amount of pay, and there has been a small decline in the number of members. With 11.4 billion RMB revenue from the stock market, which has increased by 11%, and 97.84 million RMB revenue from the independent X app, which has increased by 142%, the revenue ratio has been further improved.

Now turning to us, revenue from Value Added Service, excluding TanTan, totaled 1.24 billion RMB for the fourth quarter, up 16% year-over-year, and down 1% sequentially. The sequential decrease was mainly due to the pandemic-induced suppression of users' social sentiment and propensity to pay, resulting in the number of long-tail virtual 15 paying users, particularly in the interest group, declining significantly. The number of membership subscriptions also showed a slight sequential decrease. Comomobast's revenue was 1.14 billion RMB, up 11% from the same period last year. Revenue from the new bucket of standalone apps totalled 97.84 million RMB, up 142% from Q4 last year, making a more meaningful contribution to our top line.

In 2021, not only did we receive 48.5 billion RMB in total revenue, but we also increased it by 29%. The total revenue of MoMo is 45.4 billion yuan, which is a 25% increase in total. Due to the innovation of gaming in video and social entertainment scenes and the promotion of online activities, the revenue continues to grow rapidly in high-tech. For example, the second-generation chat room launched the 8-day sale experience, which allows users to send virtual gifts in the form of singing, reading, and performing. In the third quarter, we introduced the game-based gift play method and the planet summoning when chatting. These experiences are widely welcomed by users. In addition to audio and video entertainment, we also introduced innovative play methods in virtual gifts in traditional scenarios. For example, in the beginning of the year, we launched a warm-up gift as the theme in the interest group. Through regular update gift creation, we continue to effectively attract users' consumer enthusiasm. In addition, the 520 Love War is a very good case for us to maintain the user's freshness and vitality through business activities.

For fiscal 2021, revenue from VAST, including can-can, totaled 4.85 billion RMB, up 29% year-over-year. Common VAST revenue totaled 4.54 billion RMB, up 24% year-over-year. Rapid growth from a high base was mainly driven by the introduction of gamified features and operational events into the audio and video social entertainment experiences. For instance, In Q2, we brought in the by-the-mind experience in the chat room, where eight grassroots talents are concurrently available, and users can send virtual gifts to request performances ranging from singing to script reading. In Q3, we introduced Planet Summon, or 星球召唤, a gamified gift feature in the chat room. These features were well received by users across the board. In addition to audio, video, and social entertainment, the team also introduced innovations into the traditional gifting category. To illustrate this, we made themed seasonal gifts available in the interest group at the beginning of the year, where we periodically reinvented gift ideas that effectively stimulated spending enthusiasm amongst users. Furthermore, Last Battle is a good example of how we keep users fresh and engaged through operational events.

Now, briefly about the new apps.

For fiscal 2021, revenue from the new bucket totaled 304 million RMB, almost tripled that of last year, driven by both user and ARPU growth. The performance were collectively driven by Socio, Hezi, and Duidui. And the performance of each of these apps were already reviewed in the previous product session. So I'll quickly skip here.

Next, let's talk about the trend and overall financial performance of users. The pandemic has repeatedly caused a significant negative impact on users' dating enthusiasm and reduced the efficiency of the market. Therefore, we have adopted a relatively conservative strategy in terms of channels. The pandemic has significantly controlled the size of local users, and the number of customers has dropped significantly. The team has concentrated its energy on product adjustments that help improve the experience of users through fast delivery. Due to the steady improvement of the product, the size of users has been improved in relatively wide areas without the control of the epidemic. In the fourth quarter, MAU of 27 million was increased by 1% and increased by 8% in June, which is lower than our expected year. By the end of the fourth quarter, the number of paid users decreased by 2.5 million, and the number of paid users decreased by 2.9 million in the last quarter. Three reasons led to a decline in the number of paid users. The first is to improve the experience of users, and to start a business return by increasing the flow, which has a significant negative impact on the paid conversion rate and RP pool. Now, turning to Tantan, I will start with user trend and overall financials.

The COVID resurgence had a clear negative impact on people's dating sentiment, which made large-scale marketing campaign less effective. We therefore took a moderate approach in terms of marketing investment. User scale decreased significantly in regions where COVID containment measures were severe. Internally, we focused our efforts on product adjustments aimed at improving user experience through rapid iterations. The steady product improvement led to an upward trend in user scale in regions that were free of pandemic and the control was more relaxed. Canton had 27 million monthly active users for the fourth quarter, up 1% from September and 8% from June, but lower than our media expectation. Canton's paying user count came in at 2.5 million at the end of Q4 21, down from 2.9 million last quarter. The 400,000 net decrease was mainly attributable to three factors. First, the demonetization process to improve user experience and retention had a negative impact on paying conversion and RP pool. Second, the pandemic suppressed the user's dating sentiment and inclination to pay. Third, our current product efforts mainly focus on experiences beyond the swipe and match mechanism, which diverts traffic away from the existing vast paying features. This is obviously a negative factor to the membership paying conversion and revenues. However, this is a temporary problem, which can be addressed by introducing new mass features beyond the swipe and match system.

Next, let's review the financial performance of the probe. The total revenue of the 4G probe is 4.37 billion RMB, with a 41% decrease in the share price and a 14% decrease in the share price. The NAS input has a 14% decrease in the share price and a 2.36 billion RMB decrease in the share price. Part of the users and the RP pool have declined. The reasons are explained. Now, let me briefly review Tencent's financial performance. Total revenue for the fourth quarter was 437 million RMB, down 41% year-on-year and 14% quarter-over-quarter. Mass revenue decreased 14% sequentially to 236 million RMB.

The sequential decrease was due to the decrease in both paying user count and RP pool, for reasons explained earlier. Live streaming revenue decreased 14% sequentially to 201 million RMB. The sequential decrease was due to the decline in paying user count, as we substantially de-emphasized live streaming in the September product upgrade. RP pool grew on a sequential basis, driven by the promotional events held at the end of 2021.

In 2021, the total revenue of 20.3 billion RMB decreased by 14%. After adjustment, the loss was 3.37 billion RMB. In 2020, the loss was 2.50 billion RMB. The decline in revenue and profit levels is mainly due to some of the mistakes we have made in order to enhance the user experience and flow. These include the annual adjustment of the impact strategy to increase the female ratio and the return of commercialization in the second half of the year. In addition, the four-season epidemic has repeatedly caused additional negative impacts on income. The increase in GDP has minimized the impact on income by the number of taxpayers. The total revenue of NAS in 2021 is 11.3 billion RMB, down by 18%. The total revenue of live broadcast is 9.03 billion RMB, down by 10%.

For fiscal 2021, total revenue for Tantan was 2.03 billion RMB, down 14% year-on-year. Adjusted net loss was 337 million RMB, compared with the net loss of 250 million RMB in 2020. The decrease in the top line and bottom lines was mainly caused by our initiatives to improve user experience and retention, including marketing strategy adjustments to increase the female ratio at the beginning of the year and the demonetization process in the second half. In addition, the COVID-19 resurgence in Q4 also had a further negative impact on revenue. RPPOO improvement partially offset the impact of a decrease in paying user accounts. Fast revenue for fiscal 21 decreased 18% year-on-year to 1.13 million B. Total revenue from live streaming business decreased 10% to 903 million B.

Next, let's summarize the implementation of Tantan's 2021 strategic goals. Tantan's only important strategic goal this year is to improve market headquarter efficiency and core user experience to drive stable growth in user size. The internal and external challenges in the past few years have caused Tantan's user size to drop from a high point in the first half of 2019. This challenge mainly comes from the ongoing epidemic and other uncontrollable external factors since the beginning of 2020. On the other hand, there are some obvious problems in core product experience, channel customer efficiency, and brand construction, which have led to the lack of market opportunities in the past few years. Now, I'll quickly recap Tantan's execution of strategic priorities in FY21. The single most important goal for Tantan during the year was to deliver solid user growth by improving marketing efficiency and quality experience.

Several external and internal challenges over the past few years led to a decline in Tantan's user base from its peak in the first half of 2019. The external challenges mainly came from the ongoing COVID-19 pandemic since the beginning of 2020 and other factors that were out of the company's control. In retrospect, we could have done much better in important areas, including core product experience, channel marketing efficiency, and brand building. As a result, we haven't been able to take full advantage of the tremendous market opportunities that we were seeing in the past few years. Our most important move in 2021 was to put Tantan back on track by deploying a viable strategic target together with an execution plan as well as assembling a fully competent team after group realignment. In this process, We encountered unexpected obstacles, but also achieved encouraging results. Now, I'll go through the details.

First of all, let me talk about the aspects that we didn't do well enough during the management transition.

Our assessments about how fast we can push forward the product and operational reform was a bit too optimistic. This compounded with the COVID-19 resurgence in Q4 have caused us to meet the user growth target I set in mid-2021.

Although user growth was lower than we originally hoped for, we were pleased to see that the entire management and execution team was in place by the end of the year.

Before that, we had spent two quarters thoroughly reviewing Tantan's product experience, marketing strategy, and branding plans. Based on large-scale research surveys and in-depth studies of user behavior, we identified key problems in these three areas and formulated corresponding solutions.

In terms of sales, our biggest gain is the adjustment of the user structure of Tantan. In the past few years, Tantan has sacrificed the quality requirements of the new customers in the customer segment to control the ROI and the conversion rate for those who want to pay for it. The channel headband is closer to the male users who are more likely to get married, causing the gender ratio to deteriorate gradually. The balanced male and female ratio is extremely important for the overall user experience of the dating community and the long-term health development of the ecosystem. On the marketing side, the most important area of progress we've made was to adjust the increasingly unbalanced user structure.

In the past few years, in order to control ROI and paying conversion to meet quarterly numbers in paying user count and revenue, Tantan compromised the quality of new users acquired through channels. Marketing efforts were tilted towards male users with a strong competency to pay, resulting in a gradual deterioration of the gender mix. We believe a balanced gender ratio is crucial to the overall user experience in the dating community and the long-term healthiness of the ecosystem. The percentage of female users acquired through channels increased significantly since we introduced new ad material specifically targeting women. We managed to keep the proportion of female users from channels within a reasonable range of 40 to 50 percent. After several months of adjustments, Canton's overall gender ratio returned to early 2018 level with a stable upward trend.

In terms of the product, one of the main progress of this year is to clearly improve the flow of the key to improving the experience of female and non-face-to-face users. Research has found that due to the lack of 40% of female users in Asian women's social media, it is impossible to carry out matching interactions. In addition, 60% of the visitors, due to the lack of head-to-head contact, were blocked outside the social media community, which shows that they are not willing to show their face due to personal concerns, and there is no social interest. Currently, we have one-third of the users in our daily new service as non-face-to-face users. Looking at the face, the product mechanism of the sliding skin can not effectively meet the dating needs of users with no face and no sex. In this way, their flow is significantly lower than that of the big plate. Providing more rich product functions helps to improve the dating experience and flow of these two users, which leads to a considerable increase in contribution from MAU. Although the team has not yet achieved breakthrough progress in this regard, we have already seen some satisfactory test results. This year, we will continue to explore in a fast way.

On the product side, one of the most important areas of progress made in 2021 was that we determined that the key to increasing user retention is to improve the experience of female users and users without qualified photos. Our survey showed that, due to the passive nature of Asian women, 40% of female users on Canton swipe in an extremely selective way, resulting in them hardly getting any matches or interactions. In addition, for those who failed to provide qualified photos and were therefore denied access to the swiping system, 60% of them expressed their genuine desire to use Tantan's dating service. Currently, this group of people represents around one-third of average daily new registrations. The swipe and match product mechanism tends to be less effective in terms of addressing the needs of these two categories of users. That's why their retention has always been significantly lower than average. We believe providing richer alternative features can help improve that dating experience and retention, ultimately making a significant incremental contribution to MAUs. While the team has yet to make a breakthrough in this aspect, we have seen some encouraging test results. We will continue to explore this with rapid iteration in 2022.

In addition to clearly promoting the growth of the number of users, the product also provides a large range of dating functions with smooth matching. The other important point to note is that in the three-season revision, a large number of user experiences have been removed to prevent the rapid design and impact strategy of the payment wall. Although the return of the payment rate, the number of paid users, RP pool, and sales and other business indicators have dropped in the short term, the number of members after the revision has been greatly improved, and the flow rate has also improved. The second-month data shows that

On the product side, in addition to clarifying that the key to driving user growth is to provide richer alternative dating experience on top of the swiping mechanism, the other important initiative that we undertook in the Q3 product upgrade was to remove the excessive paywall features and merchandising tactics that caused the customer complaints. such as the modernization process had led to decrease in commercial matrix, including paying conversion, paying use account, copy pool and revenue in the short run. However, in the months following the product upgrade, the membership renewal rate showed a substantial increase and the retention ratio also improved. In January and February, overall paying conversion returned to a steady improvement track. The improvement in membership renewal rate laid a solid foundation for us to balance user experience and further grow revenues.

The data of the third-party platform, Beta.ai, shows that in the second half of the year, the number of users and revenue has always been leading in the Indonesian market. In December, the flow was 1.4 times higher.

In parallel with our domestic efforts, our team made impressive progress in overseas expansion since taking over 10 times the execution. We made a forward back into the Indonesian market in Q2 by introducing audio and video-based real-time interactive features on top of the swiping experience. We were able to leverage live streaming and a non-membership graph monetization model to break through the output ceiling that is often seen in developing countries. The combination of innovative consumer and modernization products brought steady improvement in channel marketing ROI. Meanwhile, engagement on the supply side, user penetration, and time spent continued to trend up as well. Statistics from Data AI showed that content user and revenue scale in Indonesia was ahead of Tinder throughout the second half of the year, and its December revenue was 1.4 times that of Tinder.

The improvement of the user's male and female ratio, the improvement of the demand, and the steady progress achieved in Indonesia, all contribute to the growth of users in the second half of 2021. These positive changes make us believe that moving forward in the right direction is the effective route to achieve user growth. This journey is long and difficult, but it will also be fruitful in the end. In the process of chasing the goal, focus and determination are the most important things. Patience and perseverance are the most important things. The most important thing is the persistence of long-termism.

The more favorable gender ratio improved the subscription renewal rate, and solid progress was made in Indonesia have collectively contributed to the user growth during the latter half of FY21. These positive changes have given us firm confidence that small yet solid steps in the right direction can be an effective way towards user growth. The journey won't be easy, but will be an extremely rewarding one in the end. Along that journey, commitment matters, patience matters, perseverance matters, perhaps the most important of all, focus on the long-term matters. This concludes the business update. Now, I'll move on to the most important part of my speech today, the group-level strategic priorities for 2022, and how we plan to achieve them.

In terms of DRIVE, our goal will still be to achieve a steady growth in terms of user size with limited sales budget. Two of the key tasks to achieve this goal are to continue to optimize the customer model, increase the return rate, and balance the overall customer R&D. Second, the needs of users who have not been able to fully grasp the needs of the product have been optimized to improve the flow of social scenarios based on female images, and use new technology to continue to promote product innovation and create a product experience that faces young users to attract and increase users.

For CodeMormo, our goal continues to be able to maintain a stable user base with a limited marketing budget and try to seek user growth on top of that. Our action plan consists of two pillars. First, we'll continue to optimize user acquisition model and increase the proportion of domain users to balance overall ROI. Second, on the product side, we'll continue to identify underserved users' needs and optimize female-oriented social experiences to improve retention and leverage new technologies to push forward product innovations to meet the needs of young generation and attract new users.

On the other hand, we need to continue to enrich the traditional evidence and expand the business boundaries beyond MoMo and Tantant. In addition to Hertz and SoChill, these are apps that have been launched and are profitable. We plan to duplicate this successful model and continue to launch several other products. The goal is to have more than a dozen profitable products in the next three to five years, and at the same time occupy 0% of these apps in some segment areas.

On the other hand, we need to continue to enrich our product portfolio and push the boundaries beyond MoMA and Tantan. In addition to Hezi, Duiduan, and Socio, whereby profitability has already been proven, we plan to replicate this model in other apps. Our goal is to have a dozen profitable apps that can take leading positions in niche markets in the next three to five years.

We have seen a clear long-term trend where the user's screen consumption time will follow the technological development and be transferred from the mobile end to other smart components. These technological breakthroughs bring new details to the model and experience of stranger social media. We have been paying close attention to, for example, 3D display, action capture, AI and XR devices, and other technological development movements that can help to increase the sense of social experience in multiple dimensions, and are making bold explorations and layout in this regard. In addition to these vertical apps, I'd like to share my views on something bigger. As technology evolves, we can see a clear long-term trend of people's screen time shifting from mobile devices to other types of smart hardware.

Technological breakthroughs bring new opportunities for open social experiences in terms of how people can connect and interact with each other. We have been paying close attention to the development of technologies such as 3D rendering, motion capturing, AI, and XR devices, all of which can help enhance social experiences in multiple dimensions, and we are making bold explorations on this front. As a leading company with over a decade of experience in dating and open social space, we help more than 100 million users discover new relationships, expand their social connections, and build meaningful interactions on a monthly basis. This is the core value of our business. I look forward to helping users better meet the most basic human needs through technological advancement.

This year's third strategic goal is to ensure the stable production of current business. The biggest uncertainty in 2022 comes from the impact of the global economic and epidemic on consumer sentiment, which has brought severe challenges to the realization of commercial goals. Our current strategy is to increase commercial product innovation and to speed up the commercialization of new apps to drive the overall growth level of NAS.

For the MoMA team, the third strategic goal for the year is to ensure the cash cow business remains stable. For 2022, the biggest uncertainty will arise from the impact of the macroeconomy and pandemic on consumer sentiment, which brings significant challenges to achieving this specific goal. Our plan is to enhance commercial product innovation while ramping up the monetization level of new apps to drive overall growth of MoMA.

With respect to Tantan, the strategic goal this year remains to deliver solid user growth by improving marketing efficiency and the quality experience. On the product side, we'll continue to focus on improving the retention ratio of female users and those without qualified photos. We are currently trying to resolve these two issues through efforts mainly in two areas.

Number one, enriching user profile information as well as other content that can reveal personality. Number two, expanding the ways people connect and interact with one another.

In terms of increasing market efficiency, the three key tasks are to optimize the cost of the unit, enrich advertising materials, and establish a new brand image. The past few months of investment experience has shown us that by increasing the cost of individual customers and achieving user growth, the cost is high and the effect is poor, and the improvement of materials can instead bring high-quality and objective increased users. This will be the key direction of this year's channel benefits. In addition, look at the huge room for improvement in the brand. The key to achieving user growth and a positive cycle is to increase the volume of natural quantity among new users, rather than relying on channel purchases. In terms of improving marketing efficiency, three key areas are crucially important for us to achieve our goal. Optimizing unique acquisition cost, enriching ads content, and enhancing brand equity.

Our channel marketing experience over the past few months made us realize that driving user growth by simply allowing user acquisition costs to go up is costly and inefficient. On the contrary, improving ad material can bring considerably more high-quality new users. This will be the key direction for channel marketing optimization this year. In addition, we are seeing huge potential for Tantan to enhance its brand equity. The key to creating a virtual circle in user growth is to increase organic portion of new users as opposed to those coming from page channels. These goals can be achieved only through continuous investment into branding, which also needs to go hand in hand with genuine improvement in product experience. This is going to be so much more efficient than simply pouring money into marketing channels. This year, we will further explore opportunities and invest in content branding. we will time the branding efforts with progress on the product side.

Finally, I would like to announce that we have approved a special cash-out plan for US$0.64 per share. The cash-out total is about US$1.27 billion, which is equivalent to 40% of the net profit after adjustment in 2021. This is the result of our continuous sharing with shareholders in the fourth year. It shows the management's basic confidence in the company and the sincerity to create and deliver long-term value for shareholders. Thank you for your trust in Zhifeng Group.

Lastly, I would like to conclude by announcing that our board has declared a cash dividend in the amount of US$0.64 per ADS, which will amount to a total cash payment of approximately US$127 million, or 40% of adjusted net income attributable to the Hello Group Inc. in 2021. This is the fourth consecutive year that we've shared the fruits of our work with our shareholders. It demonstrates management's confidence in the fundamentals of the company as well as our commitment to creating and delivering shareholder value for the long term.

Thank you for your faith in the Hello Group team. This is what I'd like to cover today.

Now let me pass the call over to Mr. Jonathan Zhang for financial review.

Thanks. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the fourth quarter of 2021 was 3.6 billion RMB, down 3% year-on-year, or 2% quarter-over-quarter. Non-GAAP net income attributable to Halo Group was 280.9 million RMB compared to 836.4 million RMB from the same period of 2020. or a 66% decrease year over year. During the fourth quarter, the company accrued 207.4 million RMB withholding tax on undistributed earnings generated in 2021 by our wholly owned enterprise. Due to our plan to continue to repatriate profit from the WUFI to support our capital allocation demands, including not limited to returning cash to our shareholders and overseas business investment, et cetera. Excluding this special item, non-GAAP net income for the quarter would have been 488.3 million RMB. As Wang Li has covered, revenue analysis in a grid level of details. In the interest of time, I will skip it and dive directly into the cost and the expenses items for the quarter. Our non-GAAP cost of revenue for the fourth quarter of 2021 was 2.19 billion RMB compared to 2.02 billion for the same period last year. The non-GAAP cost of revenue as a percentage of total revenue was 59.6%, an increase from 53.2% from the Q4 2020. The non-GAAP gross profit margin for the quarter was down by 6.3 percentage points from a year ago. The decrease was attributed to the following factors. Number one, which is the biggest one, higher paying payout ratio from core MOMO live broadcasting business on a year-over-year basis due to our adjustments to the broadcaster and agency incentive program. And number two, Tantan accounted for a smaller percentage of the group's total revenue as its gross margin is higher than core MOMO. Number three, Fixed-natured cost items, such as Hacktown and IDC CDN expenses, represented a higher percentage of revenue as total revenue declined, particularly on patent side, which was due to the demonetization plan. On a sequential basis, the non-GAAP gross profit margin for the quarter was down by 2.2% from Q3. The cost of revenue in Q3 2021 included 49 million production costs. Excluding this quarterly specific item, we would have seen a 3.4% sequential decrease in the non-GAAP gross margin for the quarter, which was primarily attributable to the higher payout ratio in connection with the year-end gala. and more promotional events to help the agencies and broadcasters weather through the macro headwind. We currently expected the non-GAAP gross margin to see a rebound of a couple percentage points from Q1 onwards due to less competition events related costs, as well as positive revenue mix change as we expect vast revenue to represent an increasingly higher percentage of total revenue. Non-GAAP R&D expenses for the fourth quarter was 279.7 million RMB, compared to 286.5 million for the same period last year, representing 7.6% and 7.5% of total revenue, respectively. The decrease was mainly due to decrease in employee salaries and social welfare resulting from a reduction in headcount. We ended the quarter with 2,051 total employees of which 552 are from Tantan. R&D personnel as a percentage of total employees for the group was 62% compared to 57% Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was 648.6 million RMB or 17.7% of the total revenue compared to 654.1 million RMB or 17.2% of total revenue for the same period last year. The year-over-year decrease in sales and marketing expense in RMB amount was mainly due to a lower user acquisition investment for Tantan, as Wang Li mentioned earlier. The decrease was also partially offset by our stepped-up marketing efforts to promote a recent launch simulation game, Eriton, in the overseas market. The non-GAAP G&A expenses was 89.4 million for the fourth quarter of 2021 compared to 134.5 million RMB for the same period last year, representing 2.4% and 3.5% of total net revenue respectively. It's worth mentioning here due to the fact that the group fair market value as indicated by its market cap has been significantly below its net book value of equity. For competitive conservative perspective, we recorded a 4.397 billion RMB as an impairment loss during the quarter, which represented the total value of all goodwill and intangible assets, with the exception of the group's operational license and permits. on the consolidated statements of operations for the year ended December 31st, 2021. This impairment resulted in a 4.02 billion RMB operating loss for the Q4 2021. Now briefly on income tax expenses. As I mentioned at the beginning, in Q4 we accrued withholding income tax of 207.4 million RMB on undistributed earnings generated in the year of 2021 by our WUFI. This amount was recorded as income tax expenses for the company. In the past, we recorded withholding income taxes in connection with the repatriation of WUFI's profit whenever it actually happened. as we intended permanently reinvest the undistributed earnings from our WUFIs in China. Starting from Q4 2021, all undistributed profit generated by WUFI will be subject to 10% withholding tax accrual based on the company's repatriation history and expected ongoing demand for U.S. dollar funding needs. including but not limited to returning cash to our shareholders as well as offshore business development. Therefore, going forward on a quarterly basis, we will accrue 10% of net income from WUFI for the quarter and record as income tax expenses. Now turning to balance sheet and cash flow items. As of December 31st, 2021, HALO Group's cash, cash equivalents, short-term deposits, long-term deposits, restricted cash, and long-term restricted cash totaled 15.71 billion RMB compared to 16.48 billion RMB as of December 31, 2020. Net cash provided by operating activities in the fourth quarter of 2021 was 665.5 million RMB, Lastly, on the business outlook, we estimated our first quarter of 2022 revenue to come in the range from 3.1 billion RMB to 3.2 billion RMB, representing a decrease of 10.7% to 7.8% year on year, or a decrease of 15.6% to 12.9% quarter over quarter. The Q1 2022, for Q1 2022, we expect total revenue for core mobile to decrease in meet single digit from Q1 last year due to macro weakness and the pandemic control negatively impact users' spending sentiment. On content side, we expect the revenue to be in the trough in Q1, mainly due to the combination of factors, including resurgence in COVID, lacking vast revenue impact from the demonetization process last year, as well as restructuring of Tantan's live streaming business, which could translate into a similar level of year-over-year decrease rate as seen in Q4 2021. However, we do expect Tantan's revenue to improve from Q1's level as the year progresses. Please be mindful that this forecast represents the company's current and preliminary view on the market condition and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start the Q&A.

Ashley, please. Thanks, John. Just a quick reminder before we take in the questions. For those who can speak Chinese, please ask your questions in Chinese first, followed by English translations. And also, please limit the number of questions to maximum two. Thank you. Operator, we're ready for questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered and you wish to move yourself from the queue, please press the pound key. Our first question comes from Thomas Chong with Jefferies.

Good evening, thank you for accepting my question. I have two questions. The first one is about Call Tantan. Can you share your expectations for 2022 in terms of growth, FAST, and live broadcast revenue, as well as the current year's profit and loss? My second question is also about Thanks management for taking my question. I have two questions. The first question is about Core Momo. Can management share about the 2022 user growth expectations and the revenue trend for bars and live streaming together with the full year profitability profile. And the second question is about Tantan. Can management comment about the user trend, revenue, as well as the earnings profile? Thank you.

Thank you for your question. First of all, let me answer the first question. Regarding the MoMo Group, the user goal of this year's Group is consistent with that of last year, which is to maintain a stable sales budget and maintain a stable demand strategy. In terms of the current channel, to achieve this goal, it needs to insist on improving the strategy and widening the channel. However, due to the impact of the pandemic and the pandemic, it is unlikely that there will be a decline. There are several factors to consider in terms of input. First of all, it is the situation of the red line. As a guide for the first quarter, it can be seen that the challenge brought by the red line to the live broadcast is more severe. In addition, the change in the external environment also has a great impact on the positivity of the union. If the red light situation in the second half of the year and other external factors, such as slowdown, and then the live broadcast situation will also be short-lived, then the downward pressure will continue. In theory, we will take active product and operation measures to ensure user experience and the ecological stability of the content supply end. In terms of WANs, the pandemic has also had an impact on MoMo's main platform, but compared to live broadcasts, WANs will have a stronger anti-pandemic capacity, especially since the number of households is in a rising period. This year, we will gradually increase the commercialization of WANs and drive the growth of WANs as a whole. We hope that WANs as a whole can still maintain a double-digit growth this year. In terms of revenue structure, the last year's debt ratio will continue to increase, and the live broadcast debt ratio will continue to decline. We estimate that at the collective level, it will drop from 60% at the end of last year to about 50% by the end of this year. Since the revenue of our first quarter will be relatively low due to the low income collection, I would like to make some shares in this year's use case. In terms of the pressure on the current red line uncertainty, the management has a corresponding optimization plan in terms of marketing and business costs. It is expected that the overall cost scale of MoMo will be greatly reduced. Although there are still some uncertainties about the current income, the use level will rise again after the first quarter. It is expected that MoMo's overall annual business use rate will remain at more than 20%. It is expected to be similar to last year's level.

So Thomas, to answer your question on the Core Momo part, our user growth target for the Core Momo in 2022 remains the same as last year, which is to remain a stable user base with a flattish marketing budget and try to seek user growth on top of that. And as far as the current channel marketing environment is concerned, to achieve this goal, we need to continue to optimize our strategy for reactivating dominant users and expanding marketing channels. However, MEU in Q1 may experience a decline due to the impact of the pandemic and the negative seasonality. In terms of revenue outlook, there are a few factors that need to be taken into consideration. First of all is the macro economy. Our Q1 guidance reflects the severe challenges to our live streaming business from the macro headwinds. And besides, changes in the external environments have had quite an impact on the engagement of agencies. So if the macro and other external conditions ease in the second half, the live streaming business may very well improve. Otherwise, the downward pressure will continue. And to address this, we will try to make more efforts on the product and operational side to enhance user experience and ensure stable content supply. And in terms of value added service, The macro environment and pandemic have had a negative impact on the core mobile value added service. But compared with live streaming business, MaaS is a lot more resilient to the economic cycles. So in particular, as the new bucket of standalone apps is taking off, so we will moderate the ramp up monetization efforts this year to drive overall user growth of MaaS. We expect value added service to grow as a whole in the double digit in 2022. As for the revenue structure, revenue contribution from value added service will continue to increase while the proportion of live streaming will further decrease. At the group level, we expect live streaming revenue contribution to drop from 60% at the end of last year to around 50% at the end of this year. Given the net income in Q1 will be quite low due to negative seasonality in revenue, here I would like to provide a bit more color about profitability this year. In response to current pressure on revenue from market uncertainty, management has a strong focus on optimizing operating expenses. We expect OPEX to reduce significantly this year. Although there are some uncertainties on the revenue front, we expect profits to rebound after Q1. Excluding Tantan, the annual profit margin for the core mobile is expected to remain above 20%, which is about the same as last year.

In the first quarter, the epidemic is repeatedly more serious, and the prevention and control measures are also very strict. Therefore, there is a clear decline in some areas where the epidemic is more serious. But due to the steady improvement in product and delivery, the epidemic is not serious, and the prevention and control of relatively large areas is still growing. In general, we need to wait for the situation of the epidemic to be clearer, so that we can be reliable and estimate the situation of user growth. I think

Tenten's user growth in the upcoming year will depend on both external and internal factors. The external factors include when the pandemic and the related control measures will ease. In Q1, the COVID-19 resurgence has been quite serious, and the related control measures were very strict. As a result, active user base decreased significantly in areas where COVID resurgence was severe. However, the steady product and marketing improvement led to an upward trend in user scale in regions where COVID-19 containment measures were relatively relaxed. On the whole, we need to wait until the pandemic situation becomes clearer before we can make a more realistic estimate of the user growth. The internal factors come from progress on the product side and the pace of our marketing efforts. Last year, the target we set at which how fast we should push forward the product and operational plans was a little bit too aggressive, yet user growth has bottomed out and returned to a growth track. As for now, we are making steady progress in various product iterations and channel marketing optimization. we expect to see a steady upward trend in MAUs when the pandemic subsides. Our target is to deliver a steady take-up growth of 20% for MAUs over the next three years.

As for the revenue, we expect MAUs to be a low in the first quarter, mainly due to the issue of the pandemic and accounting. After the first quarter, we expect MAUs to gradually rise. There are several main factors. First, we expect MAUs to rise steadily after the pandemic. Secondly, it comes from a stable return on pay. The product adjustment of the initiative's new commercial and return has been completed. The return on pay of the first quarter has been in a stable recovery path. To give you a sense of the data, although the impact of the epidemic on MAU in January and February has decreased, due to the recovery of the return on pay, the return on pay users in February and December are basically the same. The third is from the contribution of new WAN products. At present, flash chat, chat room, and other new member products may bring an increase. Of course, this also includes the stable growth of overseas markets. On the revenue front, we expect mass revenue to be in the crowd in Q1, mainly due to the pandemic impact and revenue deferral.

However, last revenue should gradually pick up after Q1, mainly due to the following factors. First one is the steady recovery of MAUs after the pandemic ease up. Second factor is that we should benefit from a stable paying conversion. We're done with our demonetization initiatives, and paying conversion is back on a steady growth track in Q1. Here, I will share some recent developments to give you more insight on the situation. although COVID resurgence led to a sequential decrease in MAUs in the first couple of months of the year. And thanks to the improvement in paying conversion, the number of paying users in February remained pretty much stable compared to last December. And the third driving factor for revenue growth is the contribution of new value added service products. For example, flash chat, chat room, and some other new membership-based paying features are very much likely to bring in incremental revenue. And steady growth in overseas market will also make incremental contribution to the top line. Although we expect vast revenue to be on a sequential upward trend after the trough in Q1, a total vast revenue for the year 2022 will still be lower than last year. due to our substantial demonetization strategy in the second half of 2021. As for live streaming, since it's not Tantan's current business focus, we expect its revenue to further decline significantly in Q1. We will shift our strategic focus to multiplayer live video, which fits better with the overall social atmosphere on Tantan.

In terms of cost, according to our annual budget, we will take cost-efficient measures, such as labor costs, IDC, CDN, and other details, and have a corresponding budget plan. But because this year we will start to plan to invest in the brand, so the marketing cost may rise, and the degree of investment is determined by the output ratio. In terms of cost and expenses, according to our annual budget, we will take measures to optimize cost controls across various areas, including labor costs and expenses for IDC and CDN.

However, since we will start to invest in 10 times brand building as planned this year, marketing expenses will go up depending on the effectiveness of the campaigns. We will control the annual net loss to be somewhere around 500 million RMB. Revenue in the first half of the year will be relatively low, so net loss will widen from Q4 level. However, we expect the net loss to narrow as revenue grows in the second half. So I think that helps. We've answered your question, Thomas. I think in the interest of time, we are getting quite close to market open. So maybe we're just going to wrap up here for today's call. And thank you all for participating to our Q4 earnings conference call. And we will see you next quarter.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.