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spk00: Welcome to second quarter 2022 Hello Group, Inc. earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the start key followed by the number one on your telephone keypad. Please note this event is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, Mary.
spk01: Thank you, Alpreetha. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's second quarter 2022 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 Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will 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 hub of provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risk, uncertainties, and other factors. all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statement. Further information regarding this and other risks and certain self-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 due to 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.
spk03: Hello, everyone. Thank you for attending today's call. In the beginning of the year, I introduced to you the key units and implementation plans of the Group this year. In the first half of the year, the epidemic has repeatedly brought many challenges and uncertainties to the overall business environment and our achievement of these strategic goals. But I am very happy to see that we have achieved good results in dealing with external changes, Thank you for joining our conference call today.
spk01: At the beginning of the year, I outlined the group's strategic priorities and our execution plan for the year. The COVID resurgence in the first half has brought many challenges and uncertainties to the overall market environment and our execution of these goals. I'm pleased to see that our team still managed to deliver good results by adjusting our product and operational initiatives in a timely manner to cope with external headwinds. At the same time, we have adopted our execution plan to feed the evolving external environment. Now, I'll walk you through the details.
spk03: The total revenue of the second quarter of 2020 was 3.1 billion RMB, with a decline of 15% in total, and a decline of 1% in return. The revenue after adjustment was 4.64 billion RMB, with a decline of 15% in return. The revenue of this quarter increased by 1% in return. This is the first time in the second half of 2021, since the outbreak and the environmentalization of the outside world, that the revenue has increased by 1% in return. The total revenue of the second quarter of 2020 was 27.8 billion RMB, with a decline of 12% in return, and a decline of 1% in return. The main reason for the decline in return is the pressure on live broadcast business due to the factors such as the epidemic and supervision. The rapid growth of new apps has brought a lot of revenue to VAS, which has made up for the flow gap caused by the decline of live broadcasts. If we don't consider Pantan, the net profit after adjustment is 5.83 billion RMB, which is 21% of the corresponding profit. Pantan's revenue is 3.31 billion RMB, which is 36% down at the same time and 5% down at the same time. I will start with a brief overview of our financial performance.
spk01: For the second quarter of 2022, total revenue at the group level was 3.11 billion RMB, down 15% year over year, and a slight 1% decrease quarter over quarter. Adjusted operating income was 464 million RMB, with a profit margin of 15%. Adjusted operating income was up 1% from the previous quarter, the first sequential growth since the pandemic and the market environment started to deteriorate in the second half of 2021. On an ex-TenTen basis, total revenue was 2.78 billion RMB, down 12% year-over-year, or a slight 1% decrease quarter-over-quarter. The year-over-year decrease was mainly due to pressure on the live streaming business caused by the pandemic and regulatory factors. Incremental revenue brought to the live business by the rapidly growing new apps partially offset the decline in live streaming. Adjusted operating income on an ex-tenten basis was $583 million with a 21% margin. Tenten's total revenue for the quarter came in at $331 million down 36% year-over-year and 5% 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 the negative impact of the COVID resurgence on Tantan's user growth and paying conversion. Tantan's adjusted net loss was 119 million RMB for the quarter, compared with 44.52 million RMB a year ago.
spk03: Next, I would like to introduce the implementation of the second quarter of the team in terms of various strategic focuses. The strategic target set by the team this year is MoMo, Tantan, and the new business department. MoMo's limited sales budget aims to achieve a steady growth in the scale of users, At the same time, it ensures the stable production of cash business. Although the consumption and monitoring environment of the first half of the year is full of uncertainty, in terms of achieving these two strategic goals, we are still doing very well. This shows the team's super-strong hardware and execution capabilities. Tantan's goal is to promote user-friendly and stable growth through market promotion and product optimization. In terms of achieving Tantan's growth goals, we have encountered more serious external challenges. Due to the continued increase in the control of the epidemic in the first half of the year, it has seriously affected the appointment of customers and the payment of hospital fees, greatly reduced the turnover of customers, In the second quarter, we decided to temporarily reduce the investment budget and reduce the decision-making scale. This strategy has achieved good results. I will give you a detailed introduction later. Considering that in the future, there will be many uncertainties in the pandemic and the red light environment, The management team has decided to adjust Tantan's goal to reduce headcount, continue to reduce losses, and run a product and business model that is suitable for the Asian market dating culture. On the basis of implementing the business cycle, that is to say, seeking growth under the premise of profit and loss, I will introduce this decision in detail later and implement the path. In terms of new business, our goal is to continue to enrich the product and business system, and expand the business boundary between MoMo and Tantan. In this respect, our current system has also achieved a new progress that makes people excited. Now, I will discuss the execution of our strategic priorities in the second quarter.
spk01: At the beginning of the year, I set strategic goals for Momo, Tantan, and the new endeavors. For the Momo app, our goal is to maintain a stable user base with a limited marketing budget and seek growth on top of that, while ensuring the cash cow business remains stable. Although the consumer and regulatory environment was full of uncertainties in the first half, we still did a very good job in meeting MoMA's strategic goals. This demonstrates our team's strong adaptability and execution skills. Kantan's strategic goal was to deliver solid user growth by improving marketing efficiency and the coordinating experience. However, we encountered quite serious external challenges in meeting Kantan's growth goal. In the first half of the year, the COVID situation continued to deteriorate, which largely affected users' dating sentiment and the propensity to pay for baths, resulting in a significant decline in channel ROI. We therefore decided to temporarily scale back channel investment in late Q2 to narrow 10 times net loss. This strategy, in fact, worked pretty well, as I will explain in more detail later. Considering that there are still many uncertainties surrounding the pandemic situation and the macro environment in the foreseeable future, management has decided to adjust content's strategic goal to focus on narrowing the net loss by reducing low-efficiency channel marketing spend. At the same time, we are accelerating the effort on developing product and monetization models that are suitable for the Asian dating culture in order to improve retention and output. With retention and approval improvement, we can pursue growth on the back of a positive business cycle. Or in other words, we are now prioritizing growth with profit instead of growth with cost. I will elaborate this strategy and our implementation plans in greater detail later. With respect to new products and businesses, we aim to continue to enrich our product portfolio and push the boundaries beyond MoMA and Tantan. We made encouraging progress on that front in the second quarter, Next, I will discuss the progress we made with the aforementioned strategic priorities and areas for improvement.
spk03: First, regarding Momo App user growth and key operating matrix, Momo had 111.2 million monthly active for the second quarter of 2022. MAUs remained stable from the previous quarter.
spk01: The number of paying users was 8.6 million, flat from the previous quarter. In general, although Momo's MAUs declined 4% from Q2 last year, due to pandemic resurgence in the first half, excluding the impact of external factors beyond the company's control, the fundamentals of Momo as a social platform remain stable and healthy due to the improvement of channel efficiency and enhancement of overall retention driven by product efforts. This provided a solid foundation for our cash cow business.
spk03: Now,
spk01: I will discuss progress we made regarding the priorities of ensuring the cash cow business remains stable. In the second quarter, although multiple external factors brought challenges to our live streaming business at the beginning of the year, mass revenue growth primarily generated by new apps largely offset the overall pressure on the foremost top line, caused by the decline in live streaming. On an ex-content basis, Revenue was 2.78 billion RMB, slightly down 1% quarter over quarter. The revenue ratio of mass and live streaming further increased to 94%. Mass revenue was very much close to the size of live streaming.
spk03: There are three main reasons for the decline in GDP. First, the restriction policy of the management of the stock market and the banning of gambling and the banning of gambling has a negative impact on high-end consumption. Second, the research on the supply and demand of goods has a negative impact on the supply and demand of goods. Third, the economic stability of the epidemic-related consumption has a negative impact on the economic stability of the epidemic-related consumption. In addition, the change in the external environment has a negative impact on the external environment. Almost live streaming revenue totaled 1.4 billion RMB for the second quarter, around 26% year-over-year and 5% quarter-over-quarter. The year-over-year decrease was mainly due to three factors. First,
spk01: Regulators imposed restrictions on the design of the ranking system and competition in May, which had a negative impact on top spending. Second, the negative impact of tax compliance scrutiny on the engagement of talent agencies. And third, consumption softness due to the COVID resurgence. In response to the changes in the external environment, on the operational side, We focused on optimizing our live streaming ecosystem and driving user engagement by organizing small scale events. In terms of event related incentives, we continued to maintain a conservative operation strategy with a minimum budget on bonuses to better control revenue sharing costs. Although revenue decreased sequentially due to regulatory related product adjustments, foremost gross profit margin due to health study quarter over quarter, and the overall ecosystem maintained healthy and stable.
spk03: With regards to VAS,
spk01: Revenue from value-added services, including CanCan, totaled 1.32 billion RMB for the second quarter, up 9% year-over-year and 5% quarter-over-quarter. Past revenue from the Ming Momo app totaled 1.14 billion RMB, flat from Q2 last year, and up 1% quarter-over-quarter. Revenue from the new app maintained its rapid growth momentum and achieved full quarter profitability for the first time. Collectively, revenue from the new apps grew at an accelerating rate, up 159% year-on-year to $182 million, and up 34% quarter-over-quarter, making it the main incremental revenue contributor for VaaS. I will provide an overall update for our new endeavors later. For now, I will focus on MoMo app, VaaS business.
spk03: Since Q4 last year, the COVID resurgence continued to suppress users' social sentiment.
spk01: and the established mass use cases are getting increasingly fully monetized, resulting in a continuous slowdown in year-over-year growth in core mobile mass revenue. In Q2, we differentiated various users' groups and catered to their specific social preferences. Our product team brought a series of innovative features that effectively enhanced interactions among long-tail and mid-cohort users and their propensity to pay for mass. driving a slight increase in vast revenue from the previous quarter despite pandemic and consumption softness.
spk03: Let's take a look. First, let's review the trend and overall financial performance of users. In the early part of the second quarter, the epidemic control in many regions across the country continued to increase, greatly suppressing users' willingness to go on a date. Natural chain decline, the flow of new users significantly decreased, and the turnover rate was significantly lower than the normal level, causing LTV to drop sharply, and the recovery period of channel customers was too long. Based on RR's consideration, we temporarily adjusted a conservative investment strategy to reduce market investment and shorten the rules during the epidemic. The epidemic increased channel cuts, which caused downward pressure on domestic MAUs. Due to the growth of overseas markets and the rapid relaxation of epidemic control since June, domestic users have rebounded. Look at the total user size in June, which fell by 3% to 24.8 million in March.
spk01: With respect to Tantan, I will commence with users' trend and overall financials. In the early part of Q2, COVID control measures in numerous regions of China continued to escalate, which largely surprised users' dating sentiment and put pressure on organic traffic. New user retention dropped significantly and paying conversion was much lower than under normal circumstances, resulting in a substantial decrease in LTV and a longer payback period for channel investments. For ROI considerations, we temporarily adopted a conservative marketing approach to reduce 10x net loss during the pandemic period by lowering channel investments. The negative impact of the pandemic, coupled with the reduction of channel investment, put pressure on China's domestic MAUs. However, due to the growth in the overseas market and a rebound in domestic users since COVID restrictions started to ease in June, China's overall MAUs in June edged down only 3% from March to 24.8 million. The number of paying users for the quarter was 2.2 million, down 200,000 sequentially, mainly due to the decrease in MAUs. and a decline in the paying conversion as the pandemic suppressed the users' propensity to pay in the domestic market.
spk03: Now, I'll briefly review Tantan's financial performance.
spk01: Total revenue was 331 million RMB, down 36% year-over-year and 5% quarter-over-quarter. The yearly decrease was mainly due to our demonetization strategy to improve user experience since the second half of last year. The sequential decrease was mainly due to the decline in paying user for the aforementioned reasons. The slight sequential increase in RP pool partially offset the pressure on revenue caused by the decline in paying user count. For the second quarter, mass revenue was 214 million RMB, down 4% sequentially. Flash chat drove membership subscription to shift toward high-end SVIP services, which in turn lifted PanTan's overall RP pool on a sequential basis. Live streaming revenue for the second quarter was 116 million RMB, down 7% quarter over quarter. Live streaming RP pool continued to face pressure during product transition period.
spk03: Now, let's discuss Tantan's strategic priorities for the second half of the year and how these efforts will help us unleash Tantan's long-term product and commercial value. After the adjustment of the team last year, we made it clear that the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term target of the long-term To narrow down the loss of Tantan, Tantan has achieved a good effect. At the same time, the user experience has not been affected by the negative impact of the reduction in salary. Tantan is also the most effective one as China's most concerned market, helping people to build romantic relationships and realize the relationship transition of the phenomenon. The current user volume is as large as it should be, and there is a big gap. In addition, the Chinese market has not seen a real competitor in the field of effective dating. Therefore, our long-term goal of pursuing the growth of users is still full of confidence. But considering that the red light environment has been uncertain for a period of time, and considering the current status of mobile Internet, we believe that the growth model of mobile Internet consumption in China should also be adjusted accordingly. For Panchan, it is a more sensible choice to achieve a profitable growth by investing in a more efficient way compared to the purchase expansion without cost. Therefore, Guan Yucheng decided to adjust the priority of his judgment in the second half of the year to reduce capital control, continue to narrow down and narrow down the scale. At the same time, through the algorithm and new non-member products, the flow of the flow will increase. After the fight, he will invest the profits into market promotion, form a self-sufficient heavy cycle, and achieve positive growth on this basis. With the reduction of the channel, the 3rd quarter carbon deficit will be greatly reduced. We will reduce the carbon deficit from 1.2 billion RMB in the 2nd quarter to about 50 million RMB in the 3rd quarter. In the 4th quarter, we will further shrink and reduce the channel. At the same time, with the improvement of non-contractors and the reduction of age, the carbon deficit will continue to be reduced in March. We will reach a balance of profit and loss next year and establish a basis for business circulation. After the management changes last year, we determined that the key to achieve Tencent's long-term strategic goal of user growth is to enhance user retention by improving marketing efficiency and quality experience.
spk01: through a year of channel optimization and product experiment. Our team has had some preliminary results in achieving this strategic goal. However, in order to cope with the COVID-19 in the second quarter, we decided to temporarily adopt a cost control strategy to scale back channel investment and narrow content net loss. This initiative delivered good results in Q2. In the meantime, user experience was not negatively affected by the decrease in new users. We believe that Kantan is the most committed and the most effective product in connecting people for romantic purposes and converting the online relationship to real-life connection. Kantan's current user base is far from the size it should be. In addition, as far as dating and offline conversion are concerned, we are not seeing any meaningful competitors in the China market. Therefore, we are fully confident in our long-term goal of growing Tantan's user base. However, given that there are many uncertainties in the macro environment, and given where the smartphone penetration is, we believe that the growth model of consumer internet in China should be adjusted accordingly. As far as Tantan is concerned, It makes better sense to pursue profitable growth through a more ROI-efficient marketing approach than simply pouring money into channels, regardless of unit acquisition costs. Therefore, management has decided to adjust the 10x strategic priorities for the second half of the year, specifically reducing spending in low-efficiency channels in order to narrow 10x net loss. At the same time, We are working hard to improve user retention and drive ARPU growth through algorithm and new non-membership mass products. Once our items are positive, we will reinvest the profits into marketing to form a self-sustaining positive cycle and pursue growth on top of that. With the reduction of the channel budget, we expect 10 times net loss in the third quarter to significantly narrow on a sequential basis, from approximately 120 million RMB in Q2 to somewhere around 15 million RMB in Q3. In Q4, we will further scale back investment in channels with low ROI. As we do so, and with the increase in our pool driven by non-membership class, including year-end specific expenses, such as annual bonuses. Sometimes monthly net loss should continue to narrow into fall, which would lay a solid foundation for reaching breakeven and a positive business cycle next year. We expect the reduction in channel investments to cause a short-term decrease in user scale in the coming two to three quarters. Nonetheless, we expect that with the increase in retention ratio driven by improving China efficiency and new product experience. The user space will stabilize at around 80% of the current level before it enters into a growth space that is based on a positive business cycle.
spk03: In order to achieve the new goals of profitable growth, we need to implement two things. First, what kind of control plan do we adopt to improve the customer efficiency while reducing the cost? Second, how do we control
spk01: I'd like to answer these two points in terms of how we're going to execute the strategy to achieve the profitable growth. First, how exactly we're going to cut costs and at the same time ensure the improvement of user acquisition efficiency. Second, how we're going to improve user retention and while cutting down the channel spending. This is the key to achieving a positive business cycle.
spk03: Let's first take a look at how to reduce costs, control costs, and improve efficiency. The reduction of costs in the second quarter is mainly based on the channels with lower customer efficiency, and is opposed to the improvement of high-quality channel customer efficiency through methods and technical methods. The cost of the second quarter channel is gradually increasing, but the cost of their unit customers is reduced by nearly 20%. The new users' flow is slightly improved, and the age of new users is getting younger. The second quarter reduction experiment has effectively reduced the cost of the market, narrowed the supply scale, and has had a bad impact on the environment. First, let's talk about how to reduce and control marketing costs and improve efficiency. Our attempt to reduce channel investment in late Q2 was mainly focused on channels with low efficiency.
spk01: Our team improved the marketing efficiency of premium channels through algorithm and other technical means. In Q2, despite the seasonal increase in channel costs, sentence unit acquisition costs decreased by nearly 20% compared with the previous quarter. At the same time, new user retention showed a slight uptick, and the average age of new users tended to be younger. The investment reduction experiment in Q2 not only effectively lowered marketing costs, and narrowed the net loss, but also had no adverse impact on the overall dating experience. We will continue to practice our Q2 marketing approach in the second half, starting from channels and methods with the lowest ROI and retention. We will closely monitor the impact of budget adjustments on our ecosystem and user retention to ensure that decline in new user registration does not cause any negative user experience on our platform and at the same time, control the user age and gender ratio within a reasonable scope.
spk03: Let's take a look at how to use the new experience to enhance the flow and ARP. In this regard, we use the past few technical explorations and clear directions, such as continuing to focus on improving the experience of female and non-female users to enhance the flow, and exploring the effective non-employment enrollment distribution model, while enhancing the user experience, and increasing ARP growth. For example, when we open a chat room for users who show their face, we can build a social relationship with these users by talking to them, and then guide the group to upload real photos to increase their chance to make an online date. As a commercial product, The chat room users can express their friendly attitude and lively atmosphere with virtual gifts that can be sent to the designated members in the form of images or other traditional forms. The rest of the team will use virtual gifts as a basic framework to continue to add interesting interaction methods in the chat room, which has become a breakthrough point for improving the experience, flow, and communication of the blog users. Looking at the current data, we expect that with the increase in the number of chat rooms, the scene will also have a positive commercial effect and a positive impact.
spk01: Now, I will explain how to improve retention at ARPU with new product experience. In this regard, we have clarified our direction through exploration in the past few quarters. Namely, continue to optimize the product experience of female users and those without qualified photos to improve retention. And at the same time, explore an effective non-membership model to drive ARPU growth while improving user experience on that front. We made Chirooom available to users who feel reluctant to show their real photos so they can get some initial connection with others via the real-time audio experience. We then encourage these users to upload photos to reveal their appearances in order to enhance their probability of getting offline dating conversions. As a commercial product, Chirooom allows users to send profile photo decorations or other traditional virtual gifts to designated members to show their friendly gesture and enliven the atmosphere. We will take virtual GIFs as a basic monetization tool and continue to introduce interesting interactive features to chat rooms, making it a breakthrough in optimizing the experience of users with our qualified photos and improving retention and paying conversion. Based on the data seen so far, we expect Tech Room to have a positive impact on driving R pool and modernization efficiency once we make it available to a wider range of content users.
spk03: Although the previous mode of high-level service is strong, it can still lead to improvement, but the ceiling is lower and it seriously affects the user experience. It is difficult to achieve up and flow solidification. The correct approach is to use new products to experience drive up and flow continuous growth. The past year's model experience tells us that this kind of new experience relies on two key factors. One, continuous improvement of the algorithm. Two, through product innovation, the product model is suitable for Asian culture. We believe the key to achieving a positive business cycle is to improve ARPU and user retention.
spk01: Although the previous excessive paywall model was effective in driving up ARPU, on the downside, it not only had a low ceiling, but also severely affected users' experience, making it challenging to improve ARPU and retention at the same time. The right thing to do is to drive organic growth of APU and retention by introducing new product experiences. Our research in the past year taught us that attaining such new experiences depends on two key factors. First, the continuous improvement of algorithm. Second, building a product model that is more suitable for Asian culture than the swipe and match mechanism through product innovation. In the past six months, The improvement of algorithm and the initial success of the diagram experience have given us opportunities to tackle these issues. This will be the direction we continue to focus on going forward.
spk03: 接下来介绍一下创新业务取得的进展。 之前电网会上我给大家介绍过内部对工具RI导向和DNA导向的区别对新产品采取不同的管理方式。 In the second quarter, the R&D of R&D-oriented products with the goal of pursuing profits increased 1.99 billion RMB in total, which increased by 184% and increased by 24%. After these apps' product experience stabilized, in the second half of last year, we began to implement a strategy to reduce the cost-effectiveness, increase the commercialization rate, and increase the turnover turnover rate and R&D. With the expansion of the product, revenue scale, and brand influence, we have gained greater voice power and reduced the proportionality, thereby increasing the level of profit. On the basis of deep-rooted and mature market, the overseas market wants to expand the new field. The brokerage efficiency continues to increase. With a balanced budget, we will quickly expand the size of our users, and the turnover rate will increase rapidly, in order to achieve profit in this quarter. Since then, we have been innovative, and we have been contributing to the overall position of our group. With this year's progress in this field, we will ensure that on the basis of profit, the global stable growth will expand the size of our users. Next, I will review the progress we made with our new endeavors.
spk01: As I mentioned in our previous course, we undertake different approaches to managing ROI-oriented and BAU-oriented new products. In the second quarter, the total revenue of the profit-driven ROI-oriented standalone apps was 199 million RMB, up 184% year-over-year and 24% quarter-over-quarter. As the product experience of these apps gradually stabilized, we started adopting an operational strategy to reduce costs and improve efficiency in the second half of last year, and stepped up monetization efforts to improve paying conversion and output. With the continued expansion of revenue scale and brand influence, we have had enough leverage to lower the payout ratio, thereby improving profitability. Our overseas social app expanded into new regions on top of Beepen's operation in established markets. We continued to improve user acquisition efficiency and user base expanded rapidly with a flattish budget. Revenue growth of the overseas apps accelerated from the previous quarter while achieving full-quarter profitability. ROI-oriented standalone apps as a whole have started to contribute positively to the group's bottom line. We expect these products that target vertical user groups in niche markets to simultaneously pursue steady growth and ensure profitability this year. On the product front, we will continue to explore innovative features suitable for new markets to pave the way for long-term growth.
spk03: In addition to RRI products, I have introduced you to new CAO products in the last video. As a picture and video software that can interact with family and friends, it can broadcast the momentary life of the user in the form of pictures or videos directly to the mobile phone desktop of your loved ones. The user does not have to open the app and can also understand the real state of life of your loved ones in real time. This product perfectly complements the expression package method of the 00s that likes to use the expression package of happiness, but because of the need to take care of self-image in front of everyone, it is not possible to meet the satisfaction needs of the social media in large and full. Therefore, after the spring festival, the demand for raw materials has increased rapidly. I feel that the second quarter has gradually increased the strength of the market. During the time of the size of the use, the cost of customers has been in the control range and the storage rate has been maintained at a high level. At the same time, the size of the use has already reached a very considerable price. This average and total size in today's consumer online market is a rare achievement. This is also the first time that we have achieved progressive progress in social products with a positive effect after two or three years of exploration. We think this is a accurate result of the new social change of the younger generation. The new product range will increase the speed of delivery, increase the speed of delivery, eliminate more new and new props and interactive mechanisms, improve the overall experience and flow, drive users to share, to expand the impact of the brand. The close early results show that although the long-term view of the social model and experience of new devices is mainly dependent on technical breakthroughs, but before the users' consumer market has moved from one section to the other, the generation of new devices can still bring comfort to the social industry, and bring new opportunities for the use of large-scale products. The strong social gene of this group is that we can discover new markets and grasp the advantages of new genes. In the future, in this respect, whether it is a horizontal exploration or a vertical promotion, we will all walk more boldly and firmly.
spk01: In addition to ROI-oriented products, I introduced our new DAO-oriented product, TTA, on our last conference call. TTA is a picture- and video-based social app for users to interact with intimate friends and family members through documenting their daily lives in photo and video format. This content is automatically pushed to the mobile phone homepage of the predefined intimate friends on TTA so that users can sync with the authentic life status of their TTA friends without loading up the app. This product accurately captures the demand of Gen Z and Gen Alpha who like to express their true self in a fun way with amusing selfies. Such needs cannot be well satisfied on the existing large and ubiquitous social media platform where everybody is watching and therefore you need to worry about your perceived image. Therefore, KTS organic user base grew rapidly since its launch after Chinese New Year. Following that, our team stepped up marketing efforts in the second quarter, and user scale increased rapidly, while unique costs remained within a controllable range, and retention maintained a high level. Meanwhile, user scale has reached a very considerable point. The growth rate and overall user scale that TTA has delivered is an achievement rarely seen in today's consumer internet market. This was also the first time that we have made a breakthrough in DAU-oriented social apps after our exploration over the past few years. We believe this is a reward for accurately capturing the new social preferences of younger generations. In the third quarter, our team will accelerate product iteration to enrich features and functionalities. We will introduce more novel and sunny pop filters and interactive mechanisms to enhance product experience and retention. and encourage users to share their TAT content on other social media apps, thereby expanding our brand influence. The initial success of TAT shows that, while in the long run, new opportunities for social model and experience mainly depend on technological breakthroughs, generational transition can still bring new opportunities to the social industry for large DAO products before users' screen time shifts from mobile to elsewhere. Our strength and long-standing leadership in the social space is the advantage we can leverage to discover new markets and capture new opportunities. Going forward, we will move in a bolder and more determined way to expand our territory and explore deeper in our vertical markets.
spk03: This is what I would like to share with you today. Next, I would like to introduce you to the financial situation.
spk01: This is what I would like to cover today. Now I'll pass the call over to Cassie for financial review. Cassie, please.
spk02: Thanks, Guangdong and Ashley. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the second quarter of 2022 was 3.11 billion RMB, down 15% year-on-year and 1% quarter-on-quarter. Non-GAAP net income attributable to the company was 463.5 million RMB, compared to 551.0 million RMB from the same period of 2021, or a 16% decrease year-over-year. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue from live broadcasting business for the second quarter 2022 was 1.52 billion RMB, down 28% year-over-year and 6% quarter-on-quarter. Coromant's live broadcasting revenue totaled RMB 1.40 billion for the second quarter, down 26% year-on-year and 5% quarter-over-quarter. The increase was mainly due to pressure caused by the consumption softness and regulatory changes. Hanpan's live broadcasting revenue amounted to RMB 116.4 million, down 46% from Q2 last year and 7% from the previous quarter. The decrease was due to our strategic decision to de-emphasize live streaming as a supplementary experience to dating. A few months ago, we made a decision to reform Tantan's live streaming business to lean more toward facilitating social interactions rather than the traditional showbiz. Based on the data that we've seen so far, such strategy is bearing fruit. Therefore, we expect Tantan's live streaming to exit the period of decline and stabilize at the current level as we head into the second half. Revenue from Value Added Service reached 1.54 billion RMB, up 2% a year and 4% quarter over quarter. Revenue from Value Added Service on an ex-Tantan basis reached 1.32 billion RMB in the second quarter of 2022. a 9% increase year-over-year, and a 5% increase sequentially. The growth in value-added service on an ex-Khantan basis was primarily driven by incremental revenue contributed by the fast-growing new application. Khantan's value-added service revenue amounted to RMB 214.4 million, down 28% from Q2 last year and 4% from the previous quarter. The year-on-year decrease was due to the demodernization process to improve user experience and retention in the latter half of 2021, as well as the pressure on Tantan's NAUs and pain conversion caused by the COVID resurgence. The sequential decrease in Tantan's value-added service was largely attributable to the latter factor. Non-GAAP cost of revenue for the second quarter of 2022 was $1.79 billion. compared to $2.05 billion for the same tree last year. Non-GAAP gross margin for the quarter was 42.5%, down 1.7 percentage points from a year ago. The decrease was mainly attributable to the higher payout ratio to the content providers as we put more money back to the system to help the agencies as well as broadcasters navigate through the tough times. On a sequential basis, non-GAAP gross margin remained stable with a slight uptick. Non-GAAP R&D expenses for the second quarter was 214.3 million RMB compared to 232.9 million RMB for the same year last year, or an 8% decrease year over year, which was due to continuous optimization in personnel costs since the beginning of the year. We ended the quarter with 1,825 total employees of which 516 are from Tantan compared to 2,092 total employees of which 617 from Tantan a year ago. The R&D personnel as a percentage of total employees for the group was 61% compared with 57% due to last year. Non-GAAP sales and marketing expenses for the second quarter was 600.1 million RMB compared to 619.5 million RMB for the same period last year. As Wong Lee mentioned, improving marketing efficiency has been one of the top operational priorities of the company. Since the beginning of the year, we've been cutting down on low-efficiency marketing plans across different business lines, which bears negative RIs. For the second quarter, marketing spend for Momo and Tantan decreased $74 million, or 15% from the same period last year. We shifted part of the savings to promote the new application, PTF, following its initial success in Q1. Reallocating resources from low ROI plans to higher ROI ones will continue to be an important strategy for us for the coming few quarters. On a sequential basis, non-GAAP sales and marketing expenses increased 4% from 578.0 million in Q1 this year. The increase was primarily due to TTS marketing, partially offset by the reduction in other low-efficiency marketing channels. Non-GAAP G&A expenses was 82.6 million RMB for the second quarter of 2022, compared to 78.8 million RMB for the same period last year. Non-GAAP operating income was 464.1 million RMB, a decrease of 41% from Q2 2021, but up 1% from the previous quarter. Non-GAAP operating margin for the quarter was 15%, down 6 percentage points from the same period last year. Non-GAAP operating expenses as a percentage of total revenue was 29%, an increase from 25% from Q2 2021. The increase was mainly due to the negative operating leverage resulted from the decrease in revenues. Non-GAAP operating expenses decreased 4% year-over-year due to the cost control we've been exercising since the beginning of the year. We expect to continue to exercise cost discipline for the rest of the year in order to improve cost efficiency to navigate through the uncertain macro environment. Now briefly below the line items. During the second quarter, the company repurchased $161.8 million aggregate principal amount of our convertible senior notes from certain bondholders. for an aggregate repurchase price of approximately $151.6 million. The CB repurchase resulted in a gain of 66.3 million RMB. Now briefly on income tax expenses. Total income tax expense was 146.0 million RMB for the quarter, with an effective tax rate of 24.5%. In Q2, the company accrued a withholding income tax of 37.7 million RMB, which is 10% of contributed profits generated by our low fee. Without withholding tax, our estimated non-GAAP effective tax rate was around 18% in the second quarter. Now turning to balance sheet and cash flow items. As of June 30, 2022, Hollow Group's cash-cash equivalents, short-term deposits, long-term deposits, and restricted cash totaled 13.95 billion RMB compared to 15.71 billion RMB as of December 31, 2021. In Q2, we paid an equivalent of 841 million RMB cash dividend to our shareholders. and repurchased an equivalent of 1 billion RMB of the company's convertible notes. Excluding the 100 million RMB cash payment to Chinese tax authorities to repatriate 1 billion RMB from a wealthy in China for offshore entity, net cash provided by operating activities in the second quarter of 2022 was 300 million RMB. Lastly, on business outlook, We estimated our third quarter revenues to come in the range from 3.1 billion RMB to 3.2 billion RMB, representing a decrease of 17.5% to 14.9% year-on-year, or a decrease of 0.3% to an increase of 2.9% quarter-over-quarter. For Q3 2022, on a sequential basis, we expect the total revenue from the core MoMo to increase low single digits driven by the recovery of live streaming business thanks to the product and operational efforts of the team. On the Tantan side, we expect revenues to be flattish toward a slight decrease on a sequential basis. Tantan's membership revenue will decrease quarter over quarter due to the temporary decline in user base as we cut down on the low efficiency marketing channels. The decrease will be offset by the sequential growth of live streaming, driven by the initial success in the shift of strategy, as mentioned in the earlier part of my remarks. 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. prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.
spk01: Thanks. Just a quick reminder before we take the questions. For those who can't speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Thank you. Operator, we're ready for questions, please.
spk00: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on speakerphone, please pick up the handset to ask your question. Our first question comes from Thomas Chong from Jefferies. Please go ahead.
spk06: Thanks management for picking my questions. My first question is on Tan Tan. Can management comment about the user trend in second half as well as related revenue as well as bottom line? And my second question is about the development of our new apps as well as our overseas strategies. Thank you.
spk03: On the last conference call,
spk01: I mentioned that content user growth depends on two factors. One is an internal factor, which is the enhancement of user experience and the improvement of channel efficiency driven by product efforts. And the second factor is about external reasons, namely the extent of COVID control policy and related users' offline dating sentiment.
spk03: As for internal factors,
spk01: Our biggest progress made after the management changes last year was that we determined that the key in enhancing user experience and improving channel efficiency is to improve retention of female users and those without qualified photos. And we have found that initial solution through algorithm and new product features. We will continue to make steady progress in this regard, and I have full confidence in this aspect.
spk03: On the other hand, due to the spread of the epidemic and the relevant prevention and control measures, it is indeed more challenging. On the other hand, the overall red light environment is also uncertain. Therefore, we have adopted a strategy to reduce the number of people, control the number of people, and improve the efficiency. On the one hand, we first cut down the efficiency channel. On the other hand, through the new play method of the chat room, we can increase the number of people who are not exposed to the virus, and at the same time, we can increase the number of people who are not exposed to the virus, and at the same time, we can increase the number of people who are not exposed to the virus, and at the same time, we can increase the number of people who are not exposed to the virus, In terms of external factors, the continuous resurgence of COVID in various regions in China and its related control measures has brought about quite a bit of challenges. In addition, there are still many uncertainties in the overall macro environment.
spk01: Consequently, we've decided to adopt a strategy to reduce marketing investment, control costs, and improve efficiency. Our plan is to reduce spending in low-efficiency channels while improving retention of female users and those without qualified photos, as well as driving ARPU growth with the new Tyrone experience. In order to turn 10x channel ROI positive as soon as possible, so that we can pursue profitable growth based on a positive business cycle. And based on the current test data on the reduction of China investment and the China experience, we believe we are very much likely to achieve this goal next year.
spk03: I'll leave it to Cassie for the financial outlook. Okay, sure.
spk01: Let me...
spk02: give you guys more color on the top line and also the bottom line of Tantan. Firstly, on the revenues, it seems like the zero COVID policy is going to sustain for a while. Actually, the recent few days are seeing a new round of tightening lockdowns in some of the big cities due to the resurgence in confirmed cases. And as you guys know, Tantan's users are pretty concentrated in bigger wealthier cities in China. This is obviously going to have a negative impact on the dating sentiment and paying conversion, which would continue to pressure the marketing ROI. As Wang Li mentioned earlier in his speech, under the principle to prioritize growth with profits over growth at cost, we are prepared to cut down the marketing cost in order to take care of the ROI and bottom line. As we cut low efficiency channel marketing in the second half, we should expect user count to trend down, as Wong Lee said, I think around 20% from the June level, plus minus 5%, and then perhaps hit a balance point around there. The plus minus 5% really depends on how the COVID factor swings in the second half of the year. a subscription revenue should decrease as the user count does, probably with a time lag because of the deferrals, but it should ultimately catch up to the same magnitude of user decline. However, we do see a countering factor here for Tantan, and that is that as the year progresses, we expect a ramp up of non-subscription revenues to materialize and offset part of the decrease in subscription as a result of the cost cutting. So if you piece all these different pretty dynamic factors together, I would say that for Tantan, revenue would trend down a little bit in the second half versus the first, but it would be a slight trend down before it picks up again. The other thing I would like to sort of reiterate here a little bit is that despite the small sacrifice on the top line, as we cut down the low efficiency marketing channels in the back half of the year, bottom line should see pretty significant improvement from Q2 onwards for content. I think in earlier part of Wang Li's prepared remarks, we mentioned that we expect Q3, the non-GAAP net loss for content to narrow to within 50 million. I think for Q4, excluding some of the Q4 specific expenses such as double pay and bonus at the end of the year, we should continue to see a narrow down in Tantan's net loss on a monthly basis. So that's the overall sort of financial picture of Tantan in the back half of the year. Given where we are in terms of zero-COVID policy and given the macro uncertainties, we believe it's definitely a wise choice for Tantan to perhaps sacrifice some top-line growth short-term-wise so we can get into a positive business cycle and grow with profit down the path. I hope that answers your question.
spk03: I've been pretty comprehensive about the new business in my prepared remarks. Here I can briefly discuss Tantan's overseas development. Since we made a foray back into the overseas market about a year ago,
spk01: We have been adopting an ROI-oriented management approach, striving to achieve profit growth, thereby overcoming the previous predicament of growth without profit or profit without growth.
spk03: Our implementation plan includes three steps. The first is to run the commercial model of live streaming and non-member live streaming in the Indian market, and then greatly improve the local R2 and RI. At present, the team has started to left-handedly copy the model to some other regions. The second is to adopt a low-cost-benefit strategy, such as the reduction of capital, such as the RRI, which is a relatively low market, and then put the budget of the rich in this area where the profit potential is higher. The third is to reduce the proportion of income in the market and increase the level of use. Under the three aspects of our efforts, we believe that in the second half of the year, investors will see the overseas business of carbonation to present a clear growth trajectory on the basis of the positive cycle.
spk01: Our execution plan consists of three parts. First, leveraging live streaming and non-membership mass monetization model to significantly increase ARPU and ROI in the Indonesia market. Currently, our team is working on replicating this business model in other markets. Second, adopting a strategy that focuses on reducing costs and improving efficiency. We are reducing China investments in markets such as Japan and South Korea with the low ROI and redeploying our limited budget to regions with higher profit potentials. And third, lowering the payout ratio to increase profit level in markets with larger scale revenue. We believe that in the second half of the year, investors will see a clear growth trajectory in China's overseas business on the back of a positive business cycle. I hope that answers your question, Thomas. Operator, we're ready for the next question.
spk00: Our next question comes from Daniel Chen from JP Morgan. Please go ahead.
spk05: I'll translate myself. Thanks, management, for taking that question. This is Henry speaking on behalf of Daniel. My question is about core Walmart. Can management share more color on the second half? Is there any expectation for live streaming or VAS? Thanks.
spk02: Sure. Let me take these two different lines one by one because I think they have very different dynamics behind them. For Walmart's live streaming business, June and August have been tracking better than what we saw three months ago, and obviously that has been reflected in our Q3 guidance. Originally, we thought Q3 would see a bounce from Q2, but now it looks like we can expect an upward quarter on a sequential basis for normal live streaming. I would say that at this point, it's still too early to call that we've exited the period of uncertainties for live streaming. But based on what we're seeing on the macro and regulatory fronts, we have some reasons to remain cautiously optimistic about the stability of the live streaming bids for the rest of the year. So that's for live streaming. For graduated service on an ex-tantan basis, because we've already explained Tantan earlier. For FAS X Tantan, we are also trying to optimize the marketing cost so that the new applications can achieve higher quality growth, which means by higher quality growth, I actually mean growth with higher profit margins. That means that we may also cut down marketing spend for new applications if the ROI of certain channels isn't good enough. In addition, the continuing zero-COVID policy and the lingering outbreaks in different geo-regions continue to weigh on the social sentiment, which could limit the growth pace of validated surveys on the main application as well. Previously, I think we communicated with investors that for masks on an ex-town-town basis, we expected to grow double-digit. on a year-over-year basis. Now, due to the aforementioned factors, one being the optimization of marketing cost for the new applications and the other one being COVID lingering into Q4, we would allow that previous double-digit growth target to slow a couple of percentage points to maybe high single-digit range. Overall, I would say that that added service continue to be a pretty healthy growth engine for MoMA for the back half of the year. So that's separately for MoMA live streaming.
spk01: I think in the interest of time, maybe let's just take one more question before we call it a day. Ready for the next question, operator?
spk00: The next question comes from Leo Chang from Deutsche Bank. Please go ahead.
spk04: Thank you for accepting my question. My question is about the profit trend of Cole and Momo. How do we think about the profit and profit-making rate in the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second What should we expect for CoreMOMO's growth margin and OP margin given the ongoing cost control initiative?
spk02: Thank you. Yep. I guess instead of reviewing CoreMOMO, maybe what I'll do is just go through the cost and expenses at the company level with some more color on MOMO. I think gross margin-wise, as you guys can see in the numbers that we put out earlier today, we've been able to maintain a pretty stable trend during the first half of the year for the non-GAAP gross margin line. Now it looks like for the core mobile business, Q3 should continue to be relatively stable as the content supply system remains pretty solid. I don't have full visibility into Q4, but I think Q4 could dip a little bit due to the year-end promotional events. But that should be rather one-off for the year-end gala thing, and we do it every year in Q4. Part-time schools margin in the second half will see some decrease from first half level as the subscription revenue trends down and revenue from non-subscription service starts ramping up. With regards to operating expenses, we've been optimizing the key line items, including marketing, personnel, and infrastructures, and we'll continue to do so as we look out into Q4 and next year. I guess the biggest cost saving in OPEX in the second half will come from Tantan as we gradually cut all of the low efficiency channels. And the other thing worth calling out here for operating expenses is that cutting marketing costs doesn't necessarily mean that we're sacrificing future growth opportunities as a sort of a defensive play in a tough macro environment. What we are really doing here is cutting down on the low RI marketing plans and reallocating part of the savings to where marketing dollars could generate much higher yields. For example, we increased marketing spend quite substantially on Pietia in Q2 and will keep spending if retention continues to be satisfactory for this new fast-growing application. But such spending will be absorbed uh by cost cutting uh other by cutting down uh other less efficient marketing plans so overall marketing will still see pretty significant decrease in the back half of the year um so to uh sum up although at this point it's uh sort of impossible to be very prescriptive about you know the bottom line for the second half of the year but i think on an x-time basis 2022 is still contract to deliver a non-GAAP operating margin north of 20%. And for Tonton, due to the focus on growth with profits, we expect net loss to shrink down to less than 100 million RMB for the second half of the year. Hopefully that answers your question.
spk01: Okay, I think this is going to be the end of the Q&A session. Thank you for joining us today, and we will see you next quarter. Ready to close.
spk00: Thank you, operator. This concludes our conference for today. Thank you for participating. You may now disconnect.
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