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spk00: Ladies and gentlemen, thank you for standing by and welcome to Hello Group Inc.' 's first quarter 2022 earnings conference call. At this time, all participants are in 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 will need to press star 1 on your telephone. Please note that this conference is being recorded today. And I'd like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.
spk01: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 2022 earnings conference call. The company's results were released earlier today and 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. You 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 and involve known or unknown risks, uncertainties, and other factors. all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. I'll now pass the call to Mr. Wang. I'll translate for him. Mr. Wang, please.
spk04: Good day, everyone. Thank you for joining our conference call today. Q1 was a very challenging quarter for numerous companies in China. The same applies to us.
spk01: However, I'm pleased that our team was able to focus on our product and operational initiatives to cope with headwinds from the resurgence of COVID-19 and related challenges, getting 2022 off to a good start. In my remarks today, I will begin by reviewing the key operational and business results for the first quarter, followed by an update on the progress that we've made pertaining to the company's strategic priorities.
spk04: First, I will briefly introduce the financial performance. The total revenue of the first quarter of 2022 was 3.1.5 billion RMB, down 9% in total, down 14% in total. The profit after adjustment was 4.61 billion RMB, with a profit rate of 15%. MoMo's main app revenue was 28 billion RMB, down 4% in total, down 14% in total. The main reason for the downfall is the negative impact of the COVID-19 pandemic on live broadcast business. MASS has made up for the downfall of live broadcasts, which has caused pressure on the total revenue. Of the seven apps, the performance is excellent. The increase of this level of contribution has surpassed Momo's previous business, and has become MASS's new growth engine. After Momo's main app was adjusted, the profit of the business was 6.19 billion RMB, which corresponds to 22% of the profit of the business. I will start with a brief overview of our financial performance.
spk01: For the first quarter of 2022, total revenue at the group level was 3.15 billion RMB, down 9% year-over-year and 14% quarter-over-quarter. Adjusted operating income for the quarter was 461 million RMB, with a profit margin of 15%. On an ex-tenten basis, total revenue was 2.8 billion RMB, down 4% from Q1 last year and 14% from last quarter. The year-over-year decrease was mainly due to the negative impact of the macro headwind and the COVID on live streaming business. Last revenue growth partially offset the decline in live streaming. Among them, the new bucket of standalone apps was a real outperformer this quarter, and its incremental revenue contribution exceeded that of the mobile app value-added services, making it a new growth engine for the vast business line. adjusted operating income on an ex-Tenten basis was 619 million RMB with a 22% margin. Tenten's total revenue for the quarter came in at 349 million RMB, down 39% year-over-year and 20% quarter-over-quarter. The year-over-year decrease was due to the demonetization process to improve user experience and retention in the second half of 2021, as well as COVID's negative impact on user dating sentiment and intention to pay for baths. Adjusted net loss from Tantan was 159 million RMB for the quarter, compared with 42.04 million RMB a year ago. Next, I would like to introduce the progress of our first quarter in terms of each strategic focus.
spk04: In the beginning of the year, the strategic goals set by our teams included the three parts of Momo, Tantan, and new business. The goals of Momo in 2022 are to achieve a steady growth in the scale of users with limited sales budget. Second, to ensure the stable production of cash flow business. The goal of the year is to increase the market impact efficiency and core dating experience to drive user scale stability and growth. However, due to the continuous upgrade of the second wave of the epidemic, it caused a significant decline in the number of users dating and paying for the hospital, and the team decided to temporarily reduce the investment budget after the comprehensive RRI. We will make a more detailed explanation of this decision later. Accordingly, we will also consider the goals in the next few months from user growth to temporarily adjust to continue to improve the promotion efficiency, improve core dating experience, and improve the flow rate of users. Now, I will walk you through the progress we made with our strategic priorities during the first quarter. At the beginning of the year, I set strategic goals for Momo, Tantan, and the new endeavors.
spk01: For the Momo app, our first goal for the year 2022 is to maintain a stable user growth with a limited marketing budget and seek growth on top of that. The second goal for Momo is to ensure the cash cow business remains stable. With respect to Tantan, the strategic goal set at the beginning of the year was to deliver solid user growth by improving marketing efficiency and quality experience. However, as we entered into Q2, the COVID situation continued to escalate which resulted in a significant decline in users' dating sentiment and propensity to pay for that. Our team has temporarily decided to scale back channel investment for ROI considerations. I'll explain this decision in more detail later. For that reason, we have shifted our focus for the next few months from user growth to continuous improved marketing efficiency and enhanced call dating experience in order to improve user retention. At the same time, we have lowered Tantan's marketing budget to reduce net loss amidst the escalation period of the COVID lockdowns. For new products and businesses, we aim to continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan.
spk04: First of all, Momo app's user growth situation and core data. Momo has 1.109 million users in the first quarter of the MAU. The spring festival factor adds up to the number of epidemic prevention measures in multiple regions across the country. This has led to a decrease of 3% in MAU and a decline of 6% in the beginning of the first quarter of 2020 due to the outbreak of the first quarter of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the decline of the first quarter of 2020 due to the Firstly, regarding MoMA's user growth and key metrics,
spk01: Momo had 110.9 million monthly actives for the first quarter of 2022, down 3% from the previous quarter. The sequential decrease was due to Chinese New Year seasonality compounded by continuous escalation of pandemic containment measures in various regions across China. However, the magnitude of the decrease was lower than the 6% seen in Q1 2020 at the beginning of the initial COVID-19 outbreak. Negative seasonality and the COVID resurgence led to a significant decrease in organic user growth. We therefore stepped up our channel marketing efforts to counter this trend. In terms of the channel strategy, our team optimized the data models and ad materials and took advantage of favorable marketing windows during Chinese New Year, which significantly improved overall user acquisition efficiency. These in turn resulted in an increase in traffic acquired from channels on the back of a slight decrease in total marketing expenses from the previous quarter. On the product side, we upgraded the design of the core nearby features, which improved the efficiency of relationship discovery for male users. At the same time, we continue to refine the Miniverse experience launched last year to enhance a sense of companionship and content consumption to meet the needs of female users to express their feelings. The number of paying users for the quarter was 8.6 million. The 300,000 sequential decrease was mainly due to the decrease in MAUs. Paying conversion remains stable thanks to the success of our product and operational efforts. Now, I'll discuss progress we made regarding our priority of ensuring the cash cow business remains stable. Despite the negative impact of multiple external factors such as macro headwind and the escalation of COVID, On an ex-Tenten basis, revenue was 2.8 billion RMB, down 3.6% from Q1 last year. Value-added service revenue represented 85% of the size of live streaming, up 21 percentage points quarter-over-quarter.
spk04: DigiDuo MoMo's live streaming revenue was 14.8 billion RMB, down 13% from Q1 last year. Due to the two-month delay, factors such as the uncertainty of the PR level and the related consumer softness, and the impact of the tax reform investigation on the public economy, In response to external challenges, the first quarter adopted the operation strategy of weakening revenue orientation to organize large-scale competitions. The focus is on small-scale daily activities and the optimization of live broadcast ecology. Resources for live broadcast to waist and high-quality new shoes. The reduction of competition activities has reduced the cost of bonus related functions. The first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter the supply side, the headquarter, the anchorage, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side, the supply side, the headquarter, and the market to maintain stability. In terms of the supply side,
spk01: MoMA's live streaming revenue totaled 1.48 billion RMB for the first quarter, down 13% year-over-year. The decrease was mainly due to two factors. First, consumption softens due to macro headwinds. Second, the negative impact of tax compliance scrutiny on the engagement of talent agencies. In order to overcome these external challenges, we de-emphasized the revenue in favor of improving profitability during the first quarter. Instead of hosting one large quarterly tournament, we focused on small-scale promotional events and optimized our live streaming ecosystem by allocating more resources to mid-level performers and quality newcomers. The scale back in competition events led to a decrease in bonus-related revenue sharing costs. MoMo's gross profit margin in Q1 rebounded from the previous quarter. and the agency revenue contribution mix shifted from top agencies to median-sized ones. Operational indicators reflecting the health of live streaming ecosystem improved from the previous quarter. The number of sections and on-air time committed by the top broadcasters remained stable. However, revenue recovery was slow after Chinese New Year due to unfavorable macro conditions. We believe the macroeconomy and regulatory environment will remain quite challenging throughout the second quarter. We plan to continue our conservative operation strategy with minimum budget on event-related bonuses, stabilizing gross profit margin and driving spending from mid-cohort users to ensure steady improvement in our ecosystem so that revenue can recover as soon as the consumer sentiment comes back.
spk04: Next, I will introduce the increasing business. EG Group includes Tantan. The last revenue is 12.6 billion RMB, which is 11% higher than the previous one. MoMo standing last revenue is 11.2 yuan RMB, which is 4% higher than the previous one. The unique apps maintain rapid growth on the basis of continuous improvement in the size of Crescent. The revenue is 1.35 billion RMB, which is 104% higher than the previous one. Later, I will do a detailed analysis of the progress of the new business. Let's talk about the MoMo standing increasing business first.
spk01: With regards to VAST, revenue from value-added services, including Tantan, totaled 1.26 billion RMB for the first quarter, up 11% year-over-year. VAST revenue from the main mobile app totaled 1.12 billion RMB, up 4% year-over-year. Revenue from the new bucket of standalone apps maintained rapid growth momentum, totaling 135 million RMB, up 140% year-over-year, while the net loss continued to narrow. I will provide an update of our new endeavors in detail later. But for now, I will focus on Momo App's last business.
spk04: In addition, the epidemic has been upgraded in many regions across the country, and control measures have been increased. This has led to a significant slowdown in the net income of VAS. But compared to the live broadcast business, VAS has a stronger anti-weekly ability in a more difficult external environment. A group of teams focused on new products for small and medium-sized users, such as the play of the love confession wall in the video chat room. Users can display specific gifts that have been sent on the confession wall, and the whole chat room will look around and send comments and blessings. This kind of play design is very good to meet the needs of users in the mid- to long-term market. Continuous product innovation makes the dynamic mass income under the influence of the epidemic, spring festival, and the three-point pressure of consumer softness. At the same time, the overall flow rate ratio is more like the mid- to long-term users and the clean mass will be very clean.
spk01: In Q1, consumption softness in connection with macro headwinds had a negative impact on some of our users, and the resurgence of COVID in various regions of China led to escalation of containment measures, leading to a significant slowdown in year-over-year growth in more and more vast revenue. However, compared with live streaming, Mars is more resilient to economic cycles and difficult external conditions. In the first quarter, the team focused on product innovation for long-tail and micro-haul users, taking audio and video-based experiences as an example. We introduced a love confession wall, 念爱告白墙 feature, in the chat room, where users can display specific gifts they send out on the wall for other users in the chat room to comment and give blessings. This kind of design addressed the long-tail and mid-cohort users' desire for attention-seeking fairly well. Continuous product and operational innovations allowed revenue to remain stable on a sequential basis despite pressure from the pandemic, Chinese New Year seasonality, and challenging macro conditions. In addition, the overall revenue structure tilted towards mid-cohort and long-tail users as small-ticket blast features.
spk04: Let's take a look. First of all, the user trend and overall financial performance Since the end of last year, the number of epidemic prevention measures in many regions across the country has continued to increase, oppressing users and social hospitals. The increase in the number of infected users has caused pressure, In the first quarter, there were 25.6 million people in the MAU, with a total decline of 5% and a decline of more than 5%. The main reason is that the core value of Tantan is to help users discover and establish romantic relationships, and to continue this relationship into real life. The desire to meet users offline is more obvious than the desire to meet in silence. When people's outdoor activities are restricted due to the epidemic, compared to the relatively diversified silence of social scenarios, the impact of Tantan is more serious. The low-level profit from the improvement of the product and the quality of the channel has been optimized, and the overall storage of users on the platform has been improved, but the relatively available area users of the epidemic have increased. However, due to the fact that there are many areas across the country, especially those with a large population and densely populated cities, the epidemic is more serious and the prevention and control continues to upgrade. Naturally, there is a significant decline in the number of new customers, and the storage of new customers appears to decline significantly, causing most of the users of the epidemic-serious areas to retreat significantly. With respect to Tantan, I will start with users' trend and overall financials. Since the end of last year, COVID prevention and control measures in many regions of China continued to intensify.
spk01: which surprised the user's social sentiment and puts pressure on user growth. Tantan had 25.6 million monthly active for the first quarter, down 5% from December last year. The decrease was greater than that of normal. This was mainly because the core value proposition of Tantan is helping users discover new relationships, connecting them for romantic purposes, and converting the relationship to offline dating activities. Kantan's users have a higher propensity to meet in real life than Momo's users. Therefore, compared with Momo, which has relatively diversified social use cases, Kantan took a bigger hit during the pandemic, as people were often restricted from participating in outdoor activities. Steady optimization of the product and marketing approach led to improvement in the overall retention ratio. Users in regions that were free of pandemic grow sequentially. However, due to the severe epidemic situation in many regions of the country, especially large and densely populated cities, and continuous escalation of prevention and control measures, both organic user growth and retention of new users significantly deteriorated, leading to a considerable decline in the active user base in most of the severely affected areas. In light of the decline in the retention of new users and the decrease in ROI, we lowered our channel investment and strategically focused on improving retention through product improvement to ultimately drive user growth. The number of paying users for the quarter was 2.4 million, down 100,000 sequentially. This was mainly due to the decrease in MAU.
spk04: The drop in carbon emissions is mainly due to the initiative and commercialization of the management to improve the user experience and improve the flow of losses after the management adjustment in the second half of last year. Therefore, our analysis of carbon consumption will mainly be based on the return ratio. In the first quarter, the net income of 2.24 billion RMB dropped by 29% and fell by 5%. The main reason for this drop is two factors. First, the drop in MAU caused a decrease in the number of paid employees. The RP pool remained relatively stable. Second, the impact of commercial withdrawal on finance has not been fully absorbed. This is mainly due to the lack of local income in some member businesses. The net income of RMB1.25 billion has dropped by 38%. The main reason is that in the first quarter, the traditional live broadcasts Second, there is still a long way to go for live streaming. The current strategy of the product is to turn live streaming into a multi-person video pathing mode that is more compatible with social media.
spk01: Now, I'll briefly review Tantan's financial performance. Total revenue for the first quarter was 349 million RMB, down 39% year-over-year, 20% quarter-over-quarter. And year-over-year decrease was mainly due to our demonetization strategy to improve users' experience and retention after the change of management in the second half of last year. For this reason, we will discuss Tantan's revenue on a sequential basis. Vast revenue for the first quarter was 224 million RMB, down 29% year-over-year and 5% quarter-over-quarter. The sequential decrease was mainly attributable to two factors. First, the decline in paying users as a result of decreased MAUs, while our people remained relatively stable. Second, the financial impact from the monetization efforts was not completely observed. This was reflected in the lack of deferred revenue for the membership business. Live streaming revenue for the first quarter was $125 million, down 38% quarter over quarter, mainly due to two factors. First, Q1 seasonality for the live streaming business in general. Second, the demonetization process of live streaming last year continued into this quarter. Our current product strategy is to gradually transform live streaming into a multiplayer video party mode, which fits better with an open social networking atmosphere,
spk04: Now, let's move to the development Tantan made on the strategic priorities of improving marketing efficiency and coordinating experience. The customer service team specializes in marketing materials for different groups of people, and increases the quality of customers in the core channels through specialized work. The new customer service method helps us to more accurately reach the target user group to increase the flow of customers. In the first quarter, due to the epidemic, the natural quantity dropped significantly, and we increased the number of channel customers in the strategy. I am very happy to see that in the case of the growth of the channel customer volume, the total cost of customers is steadily decreasing, and the new products and age are all controlled within the ideal time frame. This is a more challenging situation, mainly due to the continued upgrade of the epidemic and local prevention and control measures. Due to the expansion of the epidemic range and the increase in air-conditioning, we expect that the MAU will continue to be suppressed. Considering that during the epidemic, the flow of new customers is significantly reduced, and the payment transfer rate is significantly lower than the normal level, resulting in the overall new customer acquisition of RRI is lower. The second stage takes a conservative strategy to reduce market investment and reduce the overall loss of carbon. This strategy will continue to improve the epidemic, and the users' social hospitals will gradually recover.
spk01: In terms of improving marketing efficiency in Q1, we mainly focused on reducing unit acquisition costs, as well as optimizing and innovating ad content. Our team made particular efforts to target users from core channels more effectively. These new user acquisition initiatives enabled us to more accurately reach 10 times target users, thereby improving retention. As organic user growth in the first quarter slowed significantly amidst the pandemic, we strategically increased the number of users acquired from channels. I'm pleased to see that the total number of users acquired from channels increased, while overall channel marketing expenses steadily decreased from last quarter. In addition, we managed to keep the proportion of female users and the age of new users within a favorable range. This demonstrates preliminary yet solid progress the team has made in improving users' acquisition efficiency. While this was encouraging, the market environment for user growth became more challenging than Q4 last year, mainly due to the pandemic and continuous escalation of containment measures. We believe MAU may continue to face challenges in Q2 due to the further spread of COVID and escalated control measures. Considering the significant decline in new user retention and a lower paying conversion ratio during the pandemic, which resulted in low ROI, we have adopted a conservative marketing approach in Q2, lowering channel investment and reducing the net loss for Tantan. We will keep this practice until the pandemic improves and user social sentiment gradually reappears.
spk04: Despite the challenges faced by the pandemic and the consumer environment, our work in the field of product improvement is still advancing according to the established plan. Remember that we are trying to work through two aspects to continue to improve the flow problems of new users and non-famous users. First of all, it is to enrich user information and other contents that can affect the personality. For example, to guide users to upload photos that help to reflect personality characteristics and lifestyle, add data, etc. based on practical information hobbies, so that users have more information to rely on when choosing each other. Second, it is to broaden the connection and interaction between users. For example, to launch a greeting function on the dynamic page to help users to realize relationship breakdown based on content, and provide passive social opportunities to female users whose social initiative is poor. Although user appreciation was challenged by the pandemic, the team continued to push forward on product improvement against our original plan. In Q1, we tried to improve the retention of female users and those without qualified photos on two fronts.
spk01: The first is to enrich user profile information as well as other content that can review users' personalities in a more comprehensive way. For example, we encourage the users to upload photos truly depicting their personality and lifestyles and provide more detailed interests such as books and dramas that they've recently consumed. This gives other users more information to base their swipe decisions on. The second is to expand the ways people connect and interact with one another. For example, we launched a greeting function on post to help users break the ice based on content. This provides more passive social opportunities for female users who are more reserved when it comes to dating. In addition, we created an exclusive swiping experience for those who fail to provide qualified photos. Our algorithm is designed to prioritize users who have initiated right swipes to improve probability of matching among users without qualified photos.
spk04: 以上是探探國內業務的更新。 下面我想簡要為大家介紹下, 探探海外的發展情況。 探討在海外市場的戰略簡單明瞭, 即追求有盈利的增長。 這一目標的實現有兩個重要組成部分。 第一是我們需要通過引入應視頻服務, 以及非會員訂閱的商業模式, 提升發展中國家的upv. The second is to reduce market investment in areas with relatively low RIA. In the previous few episodes, I introduced the management layer adjustment, and we restarted the English market. After that, one of the biggest advances we have made is that we have successfully improved the local market ARPU and Huoke RIA through the live and non-member VAS business model. On the basis of ARPU and RIA improvement, we have increased market investment and promoted user and customer growth. This concludes Tantan's domestic business update. Now, I'll briefly discuss Tantan's overseas development.
spk01: Content strategy in the overseas market is simple and clear to pursue profitable growth. Our approach to achieve that goal has two important components. One is that we need to improve our pool by introducing audio and video services and on the back of that, non-subscription based revenue models in developing countries. The other component is lowering marketing costs in areas that are not currently making any sense from an ROI perspective. As I mentioned in the previous quarters, after the management transition, we made a foray back into the Indonesia market. One of our biggest progress made since then was that we successfully improved the R pool and ROI in that market by leveraging live streaming and the non-membership value added service monetization model. With an increase in our pool and improvement in ROI, we stepped up channel investment to drive users and revenue growth. At the same time, we scaled back marketing efforts in some of the loss-making regions. As the number of overseas users and the scale of live streaming business grows, we have enough leverage to lower the payout ratio of the non-subscription business. As a result of all of the improved RP pool, lowered marketing costs, and optimized payout structure, Tantan's overseas business turned profitable in Q1 on an ex-payroll-rich basis. Tantan will continue to execute such a strategy for the rest of the year in overseas market.
spk04: Finally, I would like to introduce the team's progress in innovating business. In 2018, we launched a brand combination strategy through the acquisition of Tantan, and launched the first step of effectively satisfying the needs of different groups of people through different apps. Since 2019, the company has been continuously promoting new apps, allowing us to realize a multi-brand and multi-platform approach from the real sense of the word, covering a wider audience to satisfy their different social preferences. This strategy also allows the company to more quickly and more deeply penetrate other vertical areas of the social industry, and seize opportunities from overseas markets to stabilize our industry status quo.
spk01: Lastly, I'll review the progress we made with our new endeavors. In 2018, we launched a brand portfolio strategy through the acquisition of Tantan. This marked our first step in meeting the social needs of different target groups more effectively through different apps. Starting from 2019, our incubator continued to launch new apps, enabling us to reach a broader group of users and cater to the different social preferences through a multi-brand and multi-platform approach. This strategy helped us quickly and effectively penetrate niche areas within the social space, explore opportunities in overseas markets, and solidify our industry-leading position.
spk04: The improvement of the RP pool and the promotion of revenue compared to the growth of the fast food industry. In the first quarter, these two apps achieved a three-week profit and made a significant profit and made a significant contribution. In particular, DuiDui, as a video exchange software launched in the face of the down-to-earth market in 2020, the team, based on the product and operating experience accumulated in other projects in the early stage, achieved a profit-loss balance in two years and showed the potential to continue to expand the revenue and profit scale. Our overall strategy for domestic innovation this year is to ensure a stable growth on the basis of profit.
spk01: Revenue from the new bucket in the first quarter was 160 million RMB, up 184% year-over-year, and 43% quarter-over-quarter. Revenue from the new bucket includes ROI-oriented social apps, Hoots, Feidui, and Socio, revenues of which were recorded in the Baseline, as well as Fairytown, a simulation game focusing on the Western market. revenue of which was recorded in the game line. For Hertz and Duide, the two social apps targeting domestic markets, we continue to focus on cost reduction and efficiency improvement, as we did in the second half of 2021, optimizing costs and expenses while moderately ramping up the monetization level. Driven by an increase in RP pool, revenue rapidly increased quarter over quarter, and both apps achieved full quarter of profitability and made incremental contribution to the group's bottom line in Q1. In particular, for Duidui, a video matchmaking app targeting lower-tier markets, our team leveraged the rich product and operational experience accumulated in our other projects and achieved break-even in less than two years after its launch in 2020. On top of that, the app has also shown the potential to sustain top line growth and profit expansion. Our strategy for domestic market new endeavors this year is to simultaneously pursue steady growth and ensure profitability.
spk04: In the overseas R&D products, SoChill, which is leading the Middle East market, has increased the operating power of the revenue direction in the first quarter, and the income of non-customers has been greatly improved. With the continuous growth of users and income, we have also adopted a strategy to reduce the proportionality ratio, and the scale of the discount has been greatly expanded. Our plan for SoChill this year is to achieve revenue growth in the Middle East core market, and to explore the product model suitable for Southeast Asia and the South American market. It is not easy for long-term users and income growth to spread.
spk01: Among overseas ROI-oriented products, we ramped up efforts to drive revenue growth of Socio, a social app targeting the MENA area. As a result, in Q1, both the paying user count and revenue showed rapid growth from the previous quarter. We adopted the same strategy to lower the payout ratio as users and revenues continue to scale. As a result, net loss significantly narrowed compared with the previous quarter. Our plan for Xochitl this year is to achieve profitable growth in its core market in the MENA region, and at the same time, to develop a product mode suitable for the Southeast Asian and South American markets. This will lay the groundwork for Xochitl's long-term user and revenue growth.
spk04: In addition to RR-type products, we have also launched DAO-type products after the Spring Festival. This is a social product based on front-end small components, mainly for those who like to share content with friends and family. Users can record their daily lives with photos or videos, and these contents will be automatically uploaded to their TTT media desktop. A product like TTT allows users and friends to share their real life moments more quickly and conveniently, and form a high-level complement in the function and target group. Due to the spiritual protection of the social needs that have not yet been dug up and satisfied after 00, after TTT is launched, the natural growth and circulation will grow rapidly. We will gradually increase the volume of product and market investment. At present, TTT has reached a considerable number of users, and it is still growing rapidly. This product gives us a lot of new opportunities in the future. This also marks the company's achievement in satisfying the needs of new users and cultivating the app with a big drop. This is a new direction that we will continue to strive for in the future.
spk01: In addition to ROI-oriented products, we launched a DAU-oriented product, TTA, after the Chinese New Year. TTA is a widget-based social app, which mainly targets Gen Z and Gen Alpha users who prefer to share content with a few intimate friends. Users can document their daily lives in photo and video formats, and these content will be automatically pushed to the cell phone home pages of their predefined intimate friends on Tietie. A product like Tietie, which supports more convenient real-time sharing of authentic life moments with their close friends, is highly complementary to the Momo app in terms of feature and intended users. As it accurately fulfills unique and untapped demands from Gen Z and Gen Alpha users, KTA delivered rapid growth in organic users and retention after its launch. We immediately stepped up our product iteration and marketing efforts. At the moment, KTA has already reached a pretty sizable user scale and is still showing strong growth momentum. We believe this is an app that will open the door to many future opportunities. It also marks the first milestone for the company in the area of new app development that earned a large deal base with a brand new category of user demand. This is a new front that we will continue to explore. In the second quarter, we have a plan to further accelerate the product iteration and step up the marketing efforts around it to drive bigger growth.
spk04: I am very happy to announce that today the board approved a return on stock of $200 million for 24 months. The plan allows the company to use the stock price of the company's basic face to increase the value of the shareholder. This return plan builds on our continuous pursuit of shareholder-oriented promises and management's confidence in the future business of the company.
spk01: Lastly, I'm pleased to announce that today our board approved a $200 million share repurchase plan during a 24-month period. This program will allow the company to significantly enhance shareholders' value, capitalizing on the undervalued share price that obviously is failing to reflect the fundamentals of the company. This share buyback plan demonstrates our long-term commitment to maximizing shareholders' value as well as management's confidence in the future of the business.
spk04: This is what I'd like to cover today.
spk01: Now I'll pass the call over to Mr. Jonathan Zhang for the financial review.
spk02: 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 first quarter 2022 was 3.15 billion RMB, down 9% year-on-year. or 14% quarter over quarter. Non-GAAP net income attributable to the company was 398.5 million RMB compared to 633.7 million RMB from the same period last year. As Wang Li has covered revenue analysis in a great level of details. In the interest of time, I will skip it and dive directly into the cost and expenses items for the quarter. Our non-GAAP cost of revenue for the first quarter of 2022 was 1.82 billion RMB compared to 1.92 billion for the same period last year. Non-GAAP cost of revenue as a percentage of total revenue was 58%, an increase from 55% from Q1 2021. Non-GAAP gross profit margin for the quarter was down by 2.5 percentage points from a year ago. The decrease was mainly attributed to higher payout to the content providers. On a sequential basis, non-GAAP gross profit margin was up 1.8 percentage points compared to Q4 last year. The sequential increase was due to two factors. Number one, less revenue streaming events related cost. Number two, a positive change in revenue mix towards VAS, which bears higher gross margin than live streaming. contributed more to the top line. Non-GAAP R&D expenses for the first quarter was 229.2 million RMB compared to 244.1 million RMB for the same period last year, representing 7.3% and 7% of total revenue, respectively. The decrease was the result of optimization in personnel costs. On a sequential basis, non-GAAP R&D expenses decreased by 18% from $279.7 million in Q4 last year due to the year-end bonus expenses during Q4 last year. We ended the quarter with 1,936 total employees, of which 563 are from Tantan. R&D personnel as a percentage of total employees for the group was 61% compared to 57% Q1 last year. Now sales and marketing expenses for the first quarter was 578 million RMB or 18.4% of total revenue compared to 579.8 million RMB or 16.7% of total revenue for the same period last year. On a sequential basis, non-GAAP selling marketing expenses decreased by 11% from 648.6 million in Q4 last year. The decrease was attributable to the following factors. Number one, lower marketing spend for new apps as a result of our focus on cost reduction and efficiency improvement. Number two, lower user acquisition investment on Tantan as we adopted a conservative marketing approach during the pandemic resurgence. Number three, in Q4 last year, Core Momo had a quarterly specific branding expense item. Non-GAAP G&A expenses was 85.9 million RMB for the first quarter of 2022, compared to 94.2 million for the same quarter last year, representing 2.7% of total net revenue, same in both periods. Same as in the R&D line, the decrease was mainly a result from optimization in personnel cost. Nungap operating income was 460.6 million RMB, a decrease of 30% from Q1 2021, representing 14.6% Nungap operating margin for the quarter, down 4.4% from the same period last year. Nungap OPEX as a percentage of total revenue was 28.4% an increase from 26.5% from Q1 last year. The increase... ...forward, we expect to continue to exercise cost discipline for the rest of the year in order to improve cost efficiencies in a difficult macro environment. Now briefly on income tax expenses. The total income tax expense was 150.8 million RMB for the quarter, compared to 100.3 million RMB for the same period last year. Effective tax rate for the quarter was 27.4%. In Q1, the company accrued withholding income tax of 44 million RMB, which is 10% of undistributed profit generated by our WUFI. Without the withholding income tax, our estimated non-debt effective tax rate was around 19% in the first quarter. Now turning to balance sheet and cash flow items. As of March 31st, 2022, Hallo Group's cash, cash equivalents, short-term deposit, long-term deposit, and restricted cash totaled 15.6 billion RMB compared to 15.71 billion RMB as of December 31st, 2021. Excluding the 140 million RMB cash payment to Chinese tax authorities to repatriate 1.4 billion RMB from our WUFI in China to our offshore entity. Net cash provided by operating activities in the first quarter of 2022 was 183 million RMB compared to 502 million in the first quarter of 2021. In addition, During the first quarter of 2022, we paid a greater portion of the revenue share to the content providers accrued in the previous quarter. We made such payments during the same period in previous years. It caused the operating cash flow from operating activities to decrease to a greater extent on a year-over-year basis. than the net income of the company in June 2022. Lastly, on business outlook, we estimated our second quarter revenue to come in the range from 3.05 billion RMB to 3.15 billion RMB, representing a decrease of 16.9% to 14.2% year-on-year. or a decrease of 3.1% by an increase of 0.1% quarter over quarter. For Q2 2022, on a sequential basis, we expect the total revenue from CoreMOMO to decline slightly due to negative impact on live streaming business from new regulation on live streaming ruled out in May. continued macro headwind, and intensified COVID control measures. We expect a vast growth to partially offset the decline in live streaming. The total revenue from Tantan is expected to decrease in mid-single digit due to the increased level of pressure from COVID control on Tantan's user and membership business. We expect content user and revenue to come back to the growth track after the large-scale lockdown is lifted and the dating sentiment improves. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. Let me turn the call back to Ashley to start the Q&A. Ashley, please.
spk01: 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 translations by yourself.
spk00: Operator, we're ready for questions, please. Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please press dial 1 on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. This question comes from the line of Daniel Chen from JP Morgan. Please ask the question.
spk06: 感谢管理层介绍我的提问。 我这边要帮Daniel提两个问题。 第一个是关于监管。 请问最近的新监管对我们直播业务的财务影响和对行业整体的影响是怎样的? I'll translate for myself. Thanks management for taking my question. This is Henry speaking on behalf of Daniel Chen. I have two questions. The first one is about regulation. Can management share more color on the regulation impacts on your financials and the overall China live streaming industry? The second question is about tenant user trends. Can management comment about the tenant user trend this year? Thank you.
spk04: Thank you for your question. First of all, regarding the monitoring part, in May, there was a request for the promotion of the online live broadcast on the regulation of the Internet to strengthen the opinion of non-adult protection measures, and the play of stimulating high-end consumer consumption such as binding and late high-end consumption was announced. At the same time, there are also more clear ground guidance and details. This is a good thing for the live broadcast industry, because it helps in the fair competition, and it also ensures the sustainable development of the entire industry. Within a month since this proposal was issued, our team has begun to carry out corresponding product and operation adjustments. In the next few weeks, we will still follow the management requirements of each program and carry out monitoring and adjustment. The new program began to work in early June, so the impact on revenue will mainly be reflected in the second half of the year. Currently, the adjustment and data that we can refer to only last a few days after the end of May. With regards to regulations,
spk01: The opinions on regulating tipping in live streaming and strengthening the protection of minors published in May issued standardized requirements on ranking systems as well as the peak competitions during evening peak hours that stimulate impulsive high spending behavior among users with relatively clear implementation guidelines and detailed rules. That's a blessing for the live streaming industry because it helps to level the playing field and ensure that the industry as a whole develops in a healthy and sustainable manner. In the months since the opinion was issued, our team operational adjustments. In the coming weeks, we will follow up with and fine-tune our product plan in line with regulatory requirements. The new product plan officially took effect in early June, so its impact on revenues will mainly be reflected in the second half of the year. Our assessment of the revenue impact may not be accurate at the moment because we only have a few days of adjusted operating income from the late May that can be used as a reference. However, according to our estimates based on such limited data, the impact of the new product plan on the full year of live-streaming revenue should be less than 10%, which is within a reasonably manageable range.
spk04: In addition, regarding Tantan's user trend, Tantan's user growth is based on two factors. From the sales environment, as I mentioned in my presentation earlier, Last year, the new round of the epidemic continued to spread since the second quarter, and the corresponding prevention and control measures continued to increase. The speed, range, and degree of upgrading have exceeded our three-month expectations. We saw that in April, the new increase in the main control areas and the flow of new increases were greatly affected. At the same time, there is a negative conversion rate. As for the trend observed in early 2020, it is very consistent. Due to the decline in the flow and payment transfer, our customer R&D will also be lower. We also reduced the budget for the second quarter accordingly. We will continue this strategy until the epidemic is better. At present, the epidemic in Beijing and Shanghai has been gradually controlled, but the prevention and control measures are still relatively strict. The user's social emotion has been restored for the last ten days, but we are still optimistic about the situation in the second half of the year. We hope that we can see some practical improvements in the second half of the year. Then from the inside, the growth of users comes from the two factors of goods and products. Since the beginning of the year, our work in these two aspects has been steadily advancing and has also made some progress. This is why from the point of view of the wind domain, our user data Ten times user growth depends on both internal and external factors.
spk01: As for external factors, as previously mentioned, the new wave of COVID-19 started at the end of last year, spread further since entering Q2. Consequently, related control measures continue to intensify, whereby the speed, the scope, and the extent of the escalation exceeded our expectations back in March. Our data in April showed that the new user growth, retention, and paying conversion were largely affected in major pandemic regions where prevention and control measures were severe. This is very much consistent with the trend that we saw in early 2020. Considering the decrease in retention and paying conversion, which resulted in low ROI, we have decided to reduce Tantan's marketing budget in Q2. We will maintain this practice until the pandemic situation improves. Currently, the pandemic in Beijing and Shanghai has been initially brought under control, but the containment measures are still relatively strict, and it will take time for users' social sentiment to recover. However, we remain optimistic about the outlook in the second half, and hopefully we'll see some substantial improvement by then. Regarding internal factors, user growth is driven by both user acquisition and product efforts. we have been making steady progress on those two fronts since the beginning of the year. And that's why from a geographical perspective, MAU declined significantly in regions where severe pandemic and a high level of control measures. Whereas users showed an upward trend in areas that was not affected by the pandemic. We plan to expand continuous efforts in improving retention and lay a solid foundation for steady user growth in the post-pandemic era. I think that answers your question. Operator, we're ready for the next one.
spk00: Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.
spk07: 晚上好,谢谢管理层介绍我的提问。 我的问题是关于宏观消费大环境对直播还有BAS的影响。 我们对传联的收入还有利润的预期可以分享吗? Thanks, management, for taking my questions. My question is really about the overall macro and the consumption environment in China. How should we think about the impact to live streaming and VAS, as well as for the full-year revenue and the earnings assumptions? Thank you.
spk02: Thanks, Thompson. This is Jonathan. Let me try to address your question. First of all, in terms of revenues, let me begin with a live streaming business. In contrast to a regulation, the macro uncertainties and spending softness has brought more severe challenges to the live streaming business. And this situation has become clearer. in Q2 than in Q1. Our Q2 guidance implied that Momo app live streaming business will see a year-on-year decline of high 20 percentage point. Since the visibility of the macro environment in the second half is quite low at this moment, to be conservative, I suggest investors to use Q2 as a baseline to think about or to predict the situation in the second half of the year. Strategically, we take active measures to enhance user experience and ensure stability of the supply-side content ecosystem in the context of a year-over-year decline in revenue. Based on the situation in Q1, we are quite confident in this regard. In that way, our live streaming business can recover as soon as the macro environment improves. With respect to the VAS business, although VAS has discretionary consumption, it's also being affected by the macro environment and the pandemic. It is more resilient to economic cycles compared with the live streaming. With the rapid growth of new apps, we expect the vast revenue on X time-time basis can still achieve double-digit growth target set at the beginning of the year. Time-time has been more severely affected by pandemic-related lockdowns in the first half of the year than we expected at the beginning of the year. Cooped with the monetization process in the second half of 2021, the year-on-year decrease in VATS revenue in the first half of the year will be relatively big, at somewhere between a high 20% to 30% range. Once the pandemic subsides, the revenue will resume its growth track as dating sentiment comes back and user numbers starts to uptick. However, we have to wait for the situation to improve before making specific estimates. Sometimes live streaming business is no longer our strategic focus. We will transform it into something that fits better with its social atmosphere. Lastly, I'd like to please emphasize on one crucial point in terms of a revenue structure. With the continuous sequential growth of a vast business, at the group level, vast revenue will reach or even exceed the scale of live streaming in the second half of the year. This is a stable and more resilient revenue structure which will make future development of the whole groups more balanced. It is also a safer revenue structure for our shareholders. With respect to the gross margin, the biggest factor causing the margin fluctuation is a live streaming revenue sharing ratio. The revenue sharing ratio in Q1 was two percentage point lower and that in Q4 last year, as we didn't host large-scale competition events, which led to a decrease in bonus-related revenue sharing costs. On a year-over-year basis, the revenue sharing ratio was up by 2% as a result of smaller-scale events we hosted to help agencies to navigate through the challenging environment. As we continue to invest in this kind of event throughout the year, the overall impact of the revenue sharing ratio of live streaming on gross margin will be around 2% for the whole year. However, due to the continuous increase in revenue contribution from VAS, which bears a relatively higher margin from the gross profit point of view, The shift in revenue mix is conducive to improve in gross margin. Therefore, for 2022, at the group level, the gross profit margin decline should be between 1% to 2%. On the cost and the expenses side, we have been optimizing MoMA's costs and expenses. And the marketing expenses for Momo apps will remain stable compared with last year. However, given the development of new apps, especially for ,, which is currently showing strong growth momentum with outstanding performance in various indicators, including unit acquisition cost, user retention, and engagement, We will step up our marketing efforts in the coming quarters, and this MAU will continue to deliver rapid growth. Although the marketing expenses of new apps have increased, thanks to cost optimization of mobile apps, we expect that operating margin on an ex-time-to-time basis will still be around high 10% to 20%. For Tantan, we expect its net loss to be between 500 to 600 million RMB.
spk01: Okay. Maybe in the interest of time, let's just take one last question. Operator, next one, please.
spk00: Thank you. Our last question comes from Leo Cheng from Deutsche Bank. Please go ahead.
spk05: Thanks management for taking my questions. My question is about the new apps and Tantan Overseas. As these two new businesses gradually become our new growth drivers, can management show with us the longer-term potential of these two initiatives and the difference of user spending behaviors between the new initiatives and our elder business? Thanks.
spk04: Thank you for your question. Regarding the new product, we have different management methods and expectations for R2 products and D2 products. Currently, R2 products include Hertz, Deidre, Sochelle, and Fairytown. These apps on the strategy will focus on pursuing profitable growth, shrinking the number of unprofitable users and increasing revenue. We plan to achieve this goal by increasing the number of apps, reducing the cost of purchase, and reducing the share ratio. Last year, the total revenue of these apps was about 300 million yuan. This year, it is expected that the revenue growth will be between 700 million and 800 million yuan. At the same time, the profit situation is also greatly improving, and it is expected to achieve profit overall. As for DAO-like products, the main goal of TTT this year is a rapid growth of products and users. Currently, there is no revenue plan. The main goal of Tantan's overseas business is to improve the development area of APU through non-member business. At the same time, it will reduce the cost of goods and services, and the growth of demand will be advantageous. Our first point of view is Indonesia. After half a year of growth, a user in a region in Indonesia has increased 27% of APU, and the income has doubled twice as much. In order to ensure that the profit is at the same time limited in resources, and to avoid multi-line combat, Thank you for your questions. We have different methodologies and expectations when managing ROI-oriented and DAU-oriented apps.
spk01: For ROI-oriented apps, which include ,, strategically, these apps focus on profitable growth and scaling back from non-profitable users and revenue growth. We plan to achieve this goal by improving ARPU, reducing user acquisition cost, and the revenue sharing ratio. Total revenues from the bucket of new apps was slightly over 300 million RMB last year. And this year, revenue is expected to be somewhere between 700 to 800 million RMB, while the net loss continues to narrow. And the profitable trend as a whole is starting to emerge. For DAO-oriented apps, our main goal this year is to deliver rapid product and user growth with no revenue plan for now. And for Tantan Overseas business, our main goal is to improve our RP pool in developing regions by leveraging a non-subscription monetization model while reducing user acquisition costs in order to pursue profitable growth. Our first pilot was Indonesia market. And so over the past six months period of time, user scale in Indonesia market grow 27%, and the RP pool doubled, with revenue growth 2.5 times. So basically, In order to ensure profit and avoid multi-front operations with limited resources, we started to reduce investment in law-making markets with low ROI, such as Japan and South Korea. And although revenue from these markets declined accordingly, revenue from the overseas market as a whole will still grow. And at the same time, profitability has also improved substantially. Our strategy is to initially replicate the Indonesian model in Asia and then focus our resources to develop our appearance in other regions. I think this is going to be the end of the conference, so thank you guys for participating, and we will see you next quarter. Back to you, operator.
spk00: Thank you. So with that, we conclude our conference for today. Thank you for participating. You may now disconnect.
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