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spk05: Thank you for standing by, and welcome to the third 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 star key followed by the number one on your telephone keypad. Please note, this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.
spk07: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's third 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. Tang Yan, 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 be both available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions. and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's findings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forwarding statement as a result of new information, future events, or otherwise, except as required under law. I will now pass the call over to our CEO, Mr. Tang Yan.
spk04: Hello, everyone. Thank you for attending today's call. This is my first call to report after returning to the first-line management work. I am very happy to have the opportunity to communicate with investors as the CEO again. Good day, everyone.
spk07: Thank you for joining our conference call. This is my first earnings call since returning to the CEO position. I'm very happy to have the opportunity to communicate with the investor community again. In the third quarter, thanks to the product and operational enhancements, we delivered good financial results and made solid progress in our businesses. Now, I'll walk you through the details.
spk04: The profit of the business has increased by 30% compared to the previous year. The main benefit is that the company-level policy of reducing cost-effectiveness has achieved good results in the implementation process of various business lines. Momo's main app has received 28.9 billion RMB, which is 11% lower than the previous year. The main reason is that many external factors such as the pandemic and supervision have caused pressure on the live broadcast business. The rapid growth of independent apps outside the war has partially compensated for the water shortage caused by the decline in live broadcasts. Compared to the previous year, Momo's main app has received a 4% increase, After the adjustment, the operating profit is 6.43 billion RMB, which corresponds to 22% of operating profit. The revenue of Tantan is 3.41 billion RMB, which is 33% lower than before. The main reason is that in September last year, the improvement of user experience, the increase in the flow of commercialization, and the repeated increase in the number of I will start with a brief overview of our financial performance.
spk07: For the third quarter of 2022, total group revenue was 3.23 billion RMB, down 14% year-over-year, but up 4% quarter-over-quarter. Revenue growth came in stronger than we expected, as live streaming performed slightly better than our conservative estimates. Adjusted operating income was 605 million RMB, up significantly by 30% sequentially, with a profit margin of 19%. This was mainly attributable to solid execution of our strategy to optimize cost and improve efficiency, delivering good progress across all business lines. On an ex-content basis, total revenue was 2.89 billion RMB, down 11% year-over-year, but up 4% sequentially. And adjusted operating income was 643 million RMB, with a margin of 22%. The year-over-year decrease in total revenue was mainly due to pressure on the live streaming business caused by the pandemic and regulatory factors. However, this decrease was partially offset by rapid growth in stand-alone apps. Tantan's total revenue for the quarter came in at 341 million RMB, down 33% year-over-year, but up 3% sequentially. The year-over-year decrease was mainly due to the demonetization process we initiated in September last year to improve user experience and retention, as well as the negative impact of COVID and the reduction of channel investment on content user growth and paying conversion. Adjusting net loss was significantly narrowed to 38.84 million RMB from 119 million RMB in the second quarter, mainly due to our initiative to optimize channel marketing strategy since July.
spk04: Next, I would like to introduce the implementation of the three seasons of the team in various strategic key areas. This year, the strategic goals of MoMoTanTan and the new business are that MoMo has a limited sales budget to achieve a steady growth in the size of users, and at the same time to ensure that cash flow business is stable and productive. Although the three-season epidemic and consumption are full of uncertainty, the team can respond flexibly. The implementation of the strategic key areas of the MoMo main battle has achieved very acceptable results. At the beginning of the year, Tantan's goal was to promote user scale stability and growth through market promotion and product optimization. However, due to the continued increase in the control of the epidemic in the first half of the year, it seriously affected the number of users, appointments, and paid members, and greatly reduced the number of customers. The three-level management of ROI decided to adjust Tantan's strategic goal to reduce capital control, continue to reduce losses, and run through the product and business model suitable for the Asian market appointment culture. Now,
spk07: I'll discuss the execution of our strategic priorities during the third quarter. The goal we set for Momo, Tantan, and our new endeavors this year are as follows. 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 this cash cow business remains stable. Although the consumer and regulatory environments were full of uncertainties, our team adapted well and did a good job in executing our normal strategic goal. For Tantan, our goal set at the beginning of the year was to deliver solid user growth by improving marketing efficiency and the core dating experience. However, in the first half of the year, the COVID situation continued to deteriorate, which largely affected users' dating sentiment and their propensity to pay for baths, resulting in a significant decline in channel ROI. Therefore, In the third quarter, we decided to adjust Tantan's strategic goals to focus on narrowing net loss by reducing low efficiency channel marketing spend and accelerating our efforts to develop products and modernization models that are suitable for the Asian dating culture in order to pursue profitable growth. Tantan's financial performance this quarter demonstrated the initial success we achieved in executing on this strategic goal. With respect to new products and businesses, Our goal is to continue to enrich our product portfolio and push the boundaries beyond MoMo and Tantan. We made steady progress on this front during this quarter. Next, I will discuss the progress we made with the four mentioned strategic priorities and our future plans.
spk04: First, MoMo App's user growth situation and core operating data. MoMo 3G's MAU is 1.088 billion people, with a 2% drop in return. The wind control tools' emotions towards strangers The negative impact has penetrated the entire third quarter, and has continued to increase in the quarter, causing natural flow and welfare hospitals to face the following pressure. In terms of channels, during the epidemic period, out of control, considering to cut the low channel with poor pay and poor flow, the limited budget will be cleared to high channels. In the third quarter, there are 8.4 million people who have no pay. Compared with the 8.6 million in the second quarter, it has reduced by 200,000. Firstly, regarding MoMo app user growth and key operating matrix, MoMo had 100.8.8 million monthly active this quarter, down 2% sequentially.
spk07: The negative impact of pandemic control measures pressures the overall open social sentiment throughout Q3, and the situation worsened starting in the middle of the quarter, resulting in a sequential decline in organic traffic, retention, and users' propensity to pay. In terms of channel marketing, in order to control cost amid the pandemic, we scaled back investments in channels with low paying conversion and less satisfactory retention, and tilted our limited marketing budget towards channels with high ROI. The number of paying users for the quarter was 8.4 million, down from 8.6 million in Q2. The 200,000 sequential decrease was mainly due to the decline in MAUs. Paying conversion remains stable, thanks to our team's timely adjustments in user acquisition strategy, focusing on high ROI channels and paying conversion. and continuous paying experience optimization of commercial features. This laid a solid foundation for our cash cow business to remain stable.
spk04: Next, I would like to introduce the progress we have made on the strategic focus of ensuring the stable production of cash flow. Although the pandemic has caused a lot of pressure on the cash flow, the team, through timely adjustment of product strategy and operation plan, on the basis of ensuring a stable profit rate, Now, our discussed progress we made regarding the priority of ensuring the cash cow business remains stable. Although the COVID control measures put pressure on our user base, on an ex-tenten basis, revenue grows sequentially,
spk07: and profit margins stayed largely stable thanks to our team's efforts to adjust product and operational strategy in a timely manner. Our team managed to drive gross profit increase along with revenue growth against the challenging external environment with the COVID and discretionary spending softness. This demonstrates our strong adaptability and execution skills.
spk04: Zeng Jidu. MoMo's live streaming revenue is 15.2 billion RMB, which is 21% lower than before, and 8% higher than before. The main reason for the drop is due to the pandemic and monitoring factors. The increase in the rate of return is due to the recommendation of users with more than 100,000 users, and the effective improvement of the group's product experience, which drives the increase in the rate of return of high-paying users. The operating team controls the cost of division by adjusting the activity policy and play design, At the same time as promoting the growth of water supply, it basically maintains stability and achieves profitable income growth. In terms of ecology, the optimization of the recommendation algorithm for users of different levels leads to an increase in the number of live broadcast DAOs, and a significant increase in the number of high-quality new broadcasts. The overall ecology maintains health and stability.
spk07: Momo's live streaming revenue was RMB1.52 billion for the third quarter, down 21% year-over-year, but up 8% sequentially. The year-over-year decrease was mainly due to COVID and regulatory factors. The sequential growth was mainly attributable to the increase in the number of high-paying users, driven by promotional events targeting meet-to-high cohort users and designated broadcaster recommendation algorithm, which effectively enhanced the product experience of the relevant groups. Our operation team controlled revenue sharing costs by adjusting event policy and design of gamified features so that growth profit margins stayed relatively stable while revenue increased sequentially, generating growth profit of creative revenue growth. Our ecosystem remained healthy and stable as we optimized the recommendation algorithm for different cohorts of users, driving sequential growth in live streaming DAU. On the supply side, the number of high-quality talents grew significantly quarter over quarter.
spk04: 接下来介绍增值业务。 三季度不包括碳碳,WAS营收13.4亿人民币, 同比增长6%,环比增长1%, 增量全部来自于新业务的收入贡献。 默默站位WAS营收11.4亿人民币, 同比下降3%,环比保持稳定。 独立新APP营收1.96亿人民币,
spk07: With regards to VAS, revenue from Value Added Services, excluding Tantan, totalled 1.34 billion RMB for the third quarter, up 6% year-over-year and 1% sequentially. All incremental revenue from our new endeavors contributed to this... Sorry, all incremental revenue came from our new endeavors. VAS revenue from the main Momo app totaled 1.14 billion RMB, down 3% year-over-year, and flat sequentially. Revenue from the new app was 196 million RMB, up 147% year-over-year, and 8% sequentially. I will provide an overall update for our new endeavors later. For now, I'll focus on Momo app VAS business.
spk04: In terms of WAX scenarios, the three seasons have been affected by the increase in COVID-19 control. For example, the strong scenario flow of groups and offline gatherings, such as LBS, and the low activity rate have led to a lower total payment amount for traditional gifts. Memberships have been affected by the decline in flow and the reduction in revenue. Traditional social line scenario revenue scale feedback is the main reason for the increase in revenue in WAX. For bars within the roadmap, Q3 has seen COVID situation deteriorating and lockdown measures getting increasingly stringent.
spk07: As a result, user traffic and engagement level of highly LBS-related features, such as the interest group and offline gatherings, were particularly depressed by the pandemic control measures in Q3. This was reflected in the relatively low overall spending on traditional gifts and revenue from membership services also decreased sequentially due to weaker traffic. The revenue decline in traditional LBS-related social use cases was the main drag on the sequential performance of the Momo app. For audio and video-based social entertainment experiences, we introduced new features to try paying conversion and sequential revenue growth, which offset the decline in traditional virtual gifting and kept more and more vast revenue stable.
spk04: Next, let's talk about the survey. First, let's review the user trend and overall financial performance. In order to respond to the uncertainty of the epidemic and economic situation, Sanji Road Management has decided to officially launch a low-cut policy. To reduce the loss of carbon. Short-term reduction has caused obvious pressure to Tantan MAU. Since the fall of August, the epidemic control intensity has increased in various regions of the country. In September, Tantan's overall user size was 20.9 million, down by 16%. As of the end of March, Tantan has paid 2 million users, down by 200 million. The main reason is the decline of MAU. With respect to TenTen, I will start with the user trend and overall financials in response to uncertainties created by the pandemic and the macro environment.
spk07: In the third quarter, management decided to pursue a cost control strategy to narrow Canton's net loss by reducing marketing spend and cutting investment in channels and methods with low ROI. Such strategy had a clear impact on Canton's overall MAUs in the near term, compounded by the escalated COVID control measures in multiple regions in China since late August. Tantan's overall MAUs decreased 16% quarter-over-quarter to 20.9 million in September. The number of paying users for the quarter was 2 million, down 200,000 sequentially, mainly due to the decline in MAUs. The sequential improvement in paying conversion was mainly attributable to two factors. First, the retention of paying users is better than that of non-paying users. The optimization of our product and the algorithm drove spending from users with a high propensity to pay.
spk04: Next, let's review Tantan's financial performance. In the third quarter, Tantan's total revenue was RMB34.1 billion, which fell by 33% in the same ratio and increased by 3% in the same ratio, which is better than our previous forecast. The same drop came from last September's commercialization review to enhance the user experience. Although the MAU's drop in the number of paid users in this quarter But with the promotion of live streaming businesses and other high-consumption projects, the ratio is significantly improved. The decrease in the number of paid employees caused pressure on revenue. On the right-hand side, WAX income 2.02 billion yuan, the ratio dropped by 6%. The decline is all due to the decrease in the number of paid employees. Now, I'll briefly review Tenten's financial performance. Total revenue for the third quarter was RM341 million, down 33% year-over-year, but up 3% sequentially.
spk07: revenue for the quarter came in better than expected. The year-over-year decrease was mainly due to our demonetization strategy to improve user experience since September last year. Although the number of paying users decreased sequentially due to the decline in MAUs, the significant improvement in RP pool driven by live streaming and other high-spending services offset the pressure on MAU caused by the decline in paying user count. For the third quarter, VAS revenue was 202 million RMB, down 6% sequentially, mainly due to a decrease in paying user count. The proportional increase in SVIT sales led to a slight increase in VAS RP pool. Live streaming revenue for the third quarter was 140 million RMB, up 20% sequentially. The sequential growth was mainly attributable to the significant increase in RP pool, driven by supply-side optimization.
spk04: Next, I would like to introduce Tantan's strategic focus on the implementation situation and return plan. In the second half of the year, Tantan's goal is to reduce capital control and continue to reduce losses. At the same time, through the calculation of product innovation and the promotion of new non-contractors and non-contractors, we will promote the flow and increase growth. After the ROI is hit, the profits will be invested in the market promotion, and thus form a positive cycle of self-satisfaction. There are two key factors in Tantan's loss-loss ratio. First, what kind of reduction plan can be adopted to improve the efficiency of goods at the same time as spending less? Now, let's move to the progress Tantan has made against its strategic priorities and our future plans.
spk07: Tantan's goal for the second half of the year is to reduce spending in low-efficiency channels to narrow net loss. At the same time, we are working hard to improve user retention and driving ARPU growth through algorithm, product innovation, and new non-membership BaaS features. Once ROI turns positive, we will reinvest the profit into marketing to form a self-sustaining positive cycle. Content's breakeven depends on two key factors. First, reducing cost while ensuring the improvement of user acquisition efficiency. Second, improving user retention and ARPU through new product experiences. Next, let me explain each of the two in detail.
spk04: First of all, it is the channel cutoff. The loss from the third quarter to the second quarter of RMB1.19 billion has been greatly reduced to RMB38.84 million. The cutoff effect is better than expected, mainly due to the channel strategy of cutoff, control, and本提效. Since July, we have continuously cut off the channel and investment methods of low efficiency, and continued to optimize the distribution of channel budget. According to the flexible changes in the market environment, the price strategy has been adjusted. In the third quarter, the cost of goods and customer units decreased by nearly three-thirds compared to a decrease of more than 40%. The continuous optimization of the goods and customer strategy has made the addition, storage, and return of goods and customers better. The adjustment of custom strategy for goods and customer materials and for different user groups, the addition of female user ratio has been improved to the highest level of the year, and the average age of new users has been further younger. First,
spk07: Regarding reduction in channel investments, in the third quarter, Tantan's adjusted net loss meaningfully narrowed to 38.84 million RMB from 119 million RMB in the previous quarter. The better-than-expected net loss reduction was mainly due to our channel strategy to reduce and control marketing costs and improve user acquisition efficiency. Since July, we have gradually cut off channels and methods with low ROI. continued to optimize budget allocation for channel investment and adjusted bidding strategy timely according to market dynamics. In the third quarter, unit user acquisition cost decreased by nearly 30% sequentially and by more than 40% from a year ago. The continuous improved user acquisition strategy drove new user retention to increase both on a year-over-year and on a sequential basis. Thanks to the adjustments in user acquisition, advertisement material, and targeting strategies for different user groups. The female ratio of new users reached a peak for the year, and the average age of new users continued to get younger. The initial results of channel investment reduction has laid a solid foundation for us to further narrow Tenta's net loss to achieve breakeven and enter into a positive business cycle next year. In the fourth quarter, we plan to further reduce marketing spend in the domestic market and continue to optimize our user acquisition strategy so that, excluding specific year-end expenses such as annual bonuses, we can further narrow 10x loss from operations. In the meantime, we will continue to improve new user retention and the proportion of young users and maintain the female ratio of new users at a satisfactory level.
spk04: Although we have achieved good results in the past three seasons, we want to achieve our goals and achieve profitable growth. In addition to improving the efficiency of the channel, another indispensable factor is to improve the level of single-user revenue. In terms of how to improve the level of single-user revenue, let's take a look at a curve. After re-offering in 2019, until the end of 2021, before we decided to take an active commercial return, we decided to improve the approach of RPU. The daily detailed payment wall strategy to improve the payment transformation of member services This strategy is explained in a more common way In other words, users think that they use services with higher value to build more and more payment barriers so that everyone can't play without paying Because the member service unit price cannot be divided infinitely Therefore, the income growth method from the payment rate plus the two legs of APU becomes the only way to increase the payment rate to complete This is also why Tantan chose to increase the number of male users in the first half of 2020 to 2021 by increasing the ratio of male users and increasing the number of high-paying users, etc., to make the member pay rate more and more extreme. The fundamental reason for this is that although Tantan was once very close to profit and loss balance, but the overly aggressive payment strategy seriously affected the user experience, which brought a significant loss of male and female proportion. New users and female users continued to deteriorate, member pay rate decreased, Although we delivered good results in lowering marketing spend in the third quarter, to achieve our goal of profitable growth
spk07: we need to address another critical factor, which is to increase ARPU. In the past, Tantan took a wrong path in driving ARPU. After the resumption of App Store downloads in 2019, and before we initiated the demonetization process in mid-2021, the way to increase paying conversion and ARPU was to make the payroll strategies more and more aggressive. In other words, This was a strategy to build more and higher paywalls around features deemed to be highly valuable to users and making it impossible for users to fully enjoy Tantan services without paying. Since membership subscription is limited in differentiating users in different paying capabilities, in order to drive revenue growth, Tantan team at the time had to heavily focus on increasing paying conversion rather than driving both paying conversion and RP pool at the same time. That was the fundamental reason why Tantan chose to push the membership subscription ratio higher and higher by increasing male user ratio and aggressively building paywalls between 2020 and the first half of 2021. Although doing so made Tantan once very close to break even, the overly aggressive paywall strategy severely affected users' experience, resulting in a number of problems, such as the largely disproportionate gender ratio continuously deteriorating new users, and female users retention, lower membership renewal rate, and growing customer complaints. That detour, which ended up hitting a dead end, taught us that it's not feasible to entirely rely on a membership model with limited options to differentiate users. This model won't put Tantan's revenue growth into a scalable and sustainable virtuous cycle. Therefore, we have to try a better way to drive ARPU growth. This goal can only be achieved through greater product and operational innovations.
spk04: Our plan is to improve the process and ARPU through new product experiences. User products can quickly explore effective social experiences other than dynamic matching. And paid products can improve single-user revenue contributions by more easily dividing the non-subsidized service. In the past few seasons, the team has been committed to improving the flow of these two users by improving the product experience of women and non-face-to-face users, and thus drive the growth of the overall flow. For example, we have recommended WASS products for women users, and the optimization of the algorithm has led female users to use the market flow and the number of human-to-human dialogue to improve. For example, the chat room for people with virtual headsets provides real-time chat accompaniment for non-face-to-face users. Our solution to improve retention at Apple is to introduce new product experiences. On the user product front,
spk07: Our urgent priority is to explore effective social experiences beyond the swipe and match mechanism. For commercial products, we will leverage non-membership bus paying models that can better differentiate users to drive ARPU growth. Over the past few quarters, our team was dedicated to optimizing product experience for female users and those without qualified photos to improve retention of these two specific groups thereby enhancing overall retention. For example, we introduced the female-oriented VAR features to recommend potential matches for high-quality conversations. And algorithm iteration on the backend of this feature drove a sequential increase in female users' time spent, retention, and number of average conversations. Another example I can share with you here is the chatroom experience. Users who feel reluctant to show their real photos can use Avatar to chat with others and enjoy a sense of companionship. In the third quarter, we improved the chatroom's user engagement by leveraging innovative features and initiating hot topic discussions. In the fourth quarter, the key is on introducing more innovative features in the chatroom in order to enhance product penetration and user engagement. we were also going to be testing different modernization models. The goal is for the chatroom to contribute more to ARPU growth and improve modernization efficiency.
spk04: Overall, the team of 3G team has made a good progress in cutting and editing. Although there is no breakthrough progress in product and scene innovation, the user experience and flow are stable. This allows me to continue to reduce operating losses for the next few seasons. In the third quarter, Tantan made good progress in narrowing the network by reducing low-efficiency channel marketing spend. Although we haven't made breakthroughs in user experiences and product innovations, we have seen steady improvement in user engagements.
spk07: This makes me feel more confident that we will continue to narrow operating loss in the coming quarters and eventually achieve profitable growth. We have enough confidence and patience to keep trying and gradually refining our products and operations.
spk04: Next, let's look at the progress of our innovative business. In the third quarter, we achieved 203 billion RMB in total revenue of ROI-oriented independent apps. The same rate increased by 154% and the return rate increased by 2%. For domestic products that are relatively mature in life cycle, our strategy this year is to accelerate the commercialization process, improve transformation efficiency, and expand the scale of profits. As for overseas social products that are in the expansion period, our goal is to expand users' water supply scale by deepening the mature market on the basis of profit, optimizing supply and demand, while reducing the share ratio, and improving the efficiency of goods. In the third quarter, ROI-oriented products, the overall number of users is steadily rising, and the profit scale is growing significantly. This excellent user and financial performance is mainly due to the improvement of customer efficiency, so that the promotion cost can be reduced, and thus significantly increase the operating profit rate. In this quarter, overseas revenue, overseas product revenue scale has surpassed domestic business, and has shown greater growth potential. In the future, in the future, Lastly, I will review the progress we made with our new endeavors. In the third quarter, total revenue for the profit-driven ROI-oriented standalone apps was 203 million RMB.
spk07: up 154% year-over-year and 2% sequentially. For the domestic products that are more mature, our strategy this year is to step up the monetization process, improve monetization efficiency, and scale up profits. As for overseas social apps in the expansion stage, our goal is to expand user base and grow profitable revenue by deepening operations in established markets and expanding into new markets. In addition, we will optimize supply-side ecosystem, lower the revenue sharing ratio, and improve user acquisition efficiency. In the third quarter, user base of the ROI-oriented products grew steadily and profit increased significantly from the previous quarter. Such encouraging user and financial performances were mainly attributable to reduction in marketing expense due to improved user acquisition efficiency. which in turn drove substantial growth in operating margin. In Q3, revenue generated by apps in the overseas markets surpassed that in the domestic market, and overseas apps showed greater growth potential. Going forward, we will continue our current management approach to ROI-oriented products, namely to pursue steady growth and scale up profit contribution. We will launch new social apps and innovate monetization model to meet local users' specific preferences while expanding into new markets.
spk04: This concludes my remarks today. I will now pass the call over to Cassie for the financial review. Cassie, please.
spk08: Thank you, Tangzong 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 third quarter of 2022 was $3.23 billion, exceeding the high end of our revenue guidance, down 14% year-on-year but up 4% quarter-over-quarter. Non-GAAP net income attributable to the company was 535.8 million RMB compared to 571.6 million RMB from the same period of 2021, or a 6% decrease. The year-on-year decrease on bottom line was significantly narrowed from the previous quarters. Looking into the key revenue items for the quarter. Firstly, live streaming. Total revenue from live broadcasting business for the third quarter 2022 was 1.66 billion RMB, down 24% year-over-year, but up 9% quarter-over-quarter. Core monolith live broadcasting revenue totaled RMB 1.52 billion for the third quarter, down 21% year-on-year, but up 8% quarter-over-quarter. The year-over-year decrease was mainly due to the pressure caused by the COVID and the regulatory factors. The sequential growth was mainly attributable to an increase in the number of high-paying users driven by product and operational efforts. Tempest library casting revenue amounted to $139.7 million, down 40% from Q3 last year, but up 20% from the previous quarter. The year-over-year decrease was mainly due to product adjustments to improve user experience in September last year, as well as the negative impact of the pandemic resurgence on the channel investment reduction. In the third quarter, our efforts to reform Tantan's live streaming service to make it more geared toward facilitating social interaction started to bear fruit, which coupled with the supply side optimization drove a meaningful sequential increase in Tantan's live streaming revenue. Revenue from value added service was 1.54 billion RMB, the same as in Q3 last year and flattened sequentially. Revenue from value-added service on an ex-tonton basis reached 1.34 billion RMB in the third quarter of 2022, a 6% increase year-over-year and a 1% increase sequentially. The growth in value-added service on an ex-tonton basis was driven by incremental revenue contributed by the standalone new applications. Tantan's Validated Service Revenue amounted to RMB 201.6 million, down 27% from Q3 last year and 6% from the previous quarter. The year-on-year decrease was due to the demonization process to improve user experience and retention in the latter half of 2021, as well as the pressure on Tantan's MAUs on paying conversion costs by the COVID resurgence and reduction on marketing spend. The sequential decrease in Tan Tan's value-added service was largely attributable to the latter factor. Non-GAAP cost of revenue for the third quarter of 2022 was 1.88 billion RMB compared to 2.16 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.7%, down less than one percentage point both from a year ago and from the last quarter. The decrease was mainly due to a couple of Tantan-related factors. One, the decrease in Tantan's revenue contribution to the group as Tantan bears higher gross margin than the Momo app. Two, lower gross margin from Tantan as its live streaming contributed more to the top line. With respect to the Momo application, gross margin in the third quarter remained largely stable compared to the same period last year and the previous quarter. thanks to our team's operational strategy to focus on gross profit and margin instead of just revenues. Non-GAAP R&D expenses for the third quarter was 223.4 million RMB compared to 231.8 million RMB for the same period last year, or a 4% decrease year-over-year, which was due to the continuous optimization in personnel costs since the beginning of the year. We ended the quarter with 1,750 total employees, of which 479 are from Tantan, compared to 2,050 total employees, of which 548 from Tantan a year ago. The RMB personnel as a percentage of total employee for the group was 62%, compared with 59% Q3 last year. Non-GAAP sales and marketing expenses for the third quarter was 458.6 million RMB, or 14% of total revenue compared to 637.1 million renminbi or 17% of total revenue for the same period last year. The significant year-over-year decrease both in terms of absolute renminbi amount and as a percentage of revenue was primarily attributable to Tantan's shift in marketing strategy to cut spending on low ROI channels and methods in order to take care of ROI amid COVID and lockdowns. With respect to Momo application, We also trimmed low efficiency marketing spend and shifted our savings to promote new applications such as TATF. We will continue to reallocate resources to support growth of those with higher ROI and promising potential. Non-GAAP G&A expenses was 82.6 million RMB for the third quarter of 2022 compared to 114.8 million RMB for the same quarter last year. The decrease was again the reflection of our continuous efforts to improve cost efficiency as well as some one-off cost items occurred in the third quarter of 2021. G&A expenses as a percentage of revenue remained stable. Non-GAAP operating income was 605.1 million RMB, a decrease of 5% from Q3 2021, but up significantly by 30% from the previous quarter. Non-GAAP operating margin for the third quarter was 19%, up 2 percentage points from the same period last year and 4 percentage points from the previous quarter. Non-GAAP OPEX as a percentage of total revenue was 24%, a decrease from 26% from Q3 2021 and 29% from last quarter. Non-GAAP operating expenses on a year-on-year and sequential basis decreased 22% and 15% respectively. The decrease in both absolute remuneration amounts and as a percentage of revenue for OPACs was mainly due to a reduction in social marketing expenses. And to a lesser degree, our cost optimization strategy applied to other operating expenses line items since the beginning of the year in response to the macro and pandemic uncertainty. Now briefly on the below the line items. During the third quarter, the company generated 40.4 million other gain, mainly from the repurchase of our convertible senior notes from certain bondholders, which was partially offset by impairment loss on other long-term investments. Now briefly on income tax expenses. Total income tax expenses was 156.0 million RMB for the quarter, with an effective tax rate of 22%. In Q3, the company accrued withholding income tax of 42.9 million RMB, which is 10% of undistributed profit generated by our WOFI. Without withholding tax, our estimated non-GAAP effective tax rate was around 16% in the third quarter. Now turning to balance sheet and cash flow items. As of September 30, 2022, Hollow Group's cash cash equivalents, short-term deposits, long-term deposits, and restricted cash totaled 13.02 billion renminbi compared to 15.71 billion renminbi as of December 31st, 2021. The decrease was due to a number of cash flow items, including our cash dividend payment of 841 million renminbi to shareholders. An aggregate payment of 2.14 billion RMB for the repurchase of the company's convertible notes. An aggregate of 288 million RMB in relation to the show repurchase program and 300 million RMB payment to Chinese tax authorities to repatriate cash from a wolfie in China to our offshore entity in the first nine months of 2022. Net cash provided by operating activities in the third quarter of 2022 was 445 million RMB compared to RMB 560 million in the third quarter of 2021. Lastly, on business outlook, we estimated our fourth quarter revenue to come in the range from 3.15 billion RMB to 3.25 billion RMB, representing a decrease of 14.3% to 11.5% year-over-year, or a decrease of 2.6% to an increase of 0.5% quarter-over-quarter. For Q4 2022, on a sequential basis, we expect the total revenue for the core normal to be flattish toward a slight decrease due to the negative impact on VAS from the continued COVID control measures. On the time-to-time side, we expect revenue to decline low single digit Tata's membership revenue will decrease quarter over quarter due to a decline in user base as we further reduce marketing spend on low efficiency channels. The membership subscription revenue decrease will be partially offset by the growth of live streaming. 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. With that, let me turn the call over to Ashley to start Q&A. Ashley, please.
spk07: Thanks. Just a quick reminder before we take questions. For those who can speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Operator, we're ready for questions, please.
spk05: 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 then two. If you're on a speakerphone, please pick up the handset to ask your question. Today's first question comes from Thomas Chong with Jefferies. Please go ahead.
spk00: 晚上好,谢谢管理层接受我的提问。 我的问题是关于唐总回归CEO之后, 我们应该怎么看集团的战略后续的发展呢? 会不会发生什么改变?谢谢。 Thanks, management, for taking my questions. As Tang Zhong returns as CEO, should we expect there will be any changes to the group's overall strategies? Thank you.
spk04: Okay, thank you for the question. In the past two years, I have not participated in the company's daily management work, but as the CEO of the board, I have been very concerned about the overall operation and financial situation of the company. Thank you for your question.
spk07: Well, I was not directly involved in the daily management of the company over the past two years. In my role of executive chairman of the board, I was closely following the overall operations and financial performance of the group. And I was involved in setting strategic priorities and in the decision-making process on major issues. Therefore, our strategy will genuinely remain unchanged, focusing on MoMo, TanTan, and our new endeavors. If there is anything different between my approach to strategic execution and the past, I would say that we will step up our efforts on new products and businesses with enhanced resource allocation and execution. Let me elaborate a bit on these three aspects.
spk04: First of all, MoMoZuApp is the most mature commercialized product in our product range. Currently, the main goal is to increase user size and profit stability, especially in an environment full of uncertainty due to the external epidemic and the macroeconomic environment. The most important responsibility of MoMo is to continue to produce stable and objective net profit and cash flow. This requires the team to do the utmost in product operation and to continuously increase the efficiency of cost control and capital use. We believe that by relying on the improvement of product and operation efficiency, even in the situation where the external environment is more difficult, is a very achievable goal.
spk07: First of all, Momo asks, as the product with the largest user scale and the most mature commercial experience in our brand portfolio, Momo's main goal for now is to maintain a steady user base and profit contribution to the group and seek growth on top of that. And especially when we are facing uncertainties created by the pandemic and the macro environment. The most important task for MoMo app is to continuously and steadily generate decent level of net profit and cash flow. This requires our team to continuously improve cost control and capital utilization efficiency while doing an excellent job in product operations. We believe that by improving product and operational efficiency, maintaining stable profits is a very achievable goal for MoMo. even in the current difficult external environment.
spk04: Secondly, Tantan, as the second biggest brand of the group,
spk07: In terms of connecting people for romantic purposes, we are seeing very clear growth potential for Tantan, both in China and in overseas markets. Especially in the Asian markets, we do not see any other product that can do a better job than us in meeting users' dating needs. However, COVID control measures in the past few quarters went beyond our expectation at the beginning of the year. We therefore decided to control cost and reduce low-efficiency marketing spend. Tantan's user scale declined somewhat as we expected. And based on Tantan's user retention and financial performance in the recent months, I'm very confident that we will drive Tantan into a positive business cycle and achieve our strategic goal of profitable growth through product innovation.
spk04: In the past two years, the team has made good progress in this regard. The products of the RY direction maintain rapid growth on the basis of profit. Our goal is that in the next three to five years, we can run out of several such apps and contribute more profits to the group. On the other hand, we also made a breakthrough for the products of the non-RY direction for the first time this year. In the beginning of the year, we seized the opportunity to replace and replace, and launched the first large DAU product after 00. The user size soon reached a very considerable body weight. The team was able to establish a new market in the social sector and gain new opportunities.
spk07: Thirdly, with respect to new products and businesses, our team has made encouraging progress over the past two years. ROI-oriented products maintain strong growth momentum on top of profitability. Our goal is to develop a few more apps like this in the next three to five years so that collectively they can make more contribution to the group's bottom line. And on the other hand, this year, we've also made an initial breakthrough in non-RI-oriented product. At the beginning of the year, we captured the opportunity of a generational transition and launched our first large DAU product for Gen Z and Gen Alpha. And its user base reached a very considerable level within a short period of time. This demonstrated our ability to discover new markets and sees new opportunities in the social space and creating a competitive advantage in the process.
spk04: Recently, we have made some adjustments to the organization structure of the group, so that we can better utilize the central advantage of technology and channels at the same time as clarifying the positioning of each product. The successful experience we have accumulated is used to support the development of new business. I myself will directly lead the innovative business team to explore and open up a new business growth path for the group.
spk07: Recently, we've made some adjustments to the organizational structure in order to clarify the functional positioning of each product, and at the same time, better leverage R&D and channel marketing capabilities so that we can apply the successful experiences that we accumulated to support the development of new products. I personally will directly lead our new endeavors team to explore and open new growth paths for the group. I think that's it for the questions. Maybe let's move on to the next person. Operator?
spk05: Absolutely. Our next question today comes from Leo Chang with Deutsche Bank. Please go ahead.
spk01: Hi. Thank you for accepting my question. My question is about Tantan. Thank you management for taking my question. I have two questions about Tantan. The first question is, has 10 times MAU already reached bottom. What is the sales and marketing strategy in 2023, and how can we expect the MAU trend in 2023? My second question is, what is the revenue outlook in 2023, and what is the key measures to help reach great events? Thank you.
spk04: We did a test before we started the strategy to reduce the cost. We expect that the reduction of carbon emissions will cause a 20% decrease in MAU. About 5%. This fluctuation is mainly due to the situation of the epidemic. The current three-week decline is beyond our expectation. Mainly because the epidemic is more serious than our expectation in August. Judging from the current situation, we estimate that the final carbon emissions users may be around 18 million to 19 million.
spk07: Before we initiated our strategy to reduce cost and improve marketing efficiency, we estimated that the reduction in tenant channel investment would lead to a roughly 20% decrease in MAUs, plus or minus 5%, depending on the extent of the pandemic control measures. And the decline in MAUs in the third quarter exceeded our expectations, as the COVID resurgence was worse than we expected in August. Based on the current situation, we expect Tantan's MAU to bottom out around 18 to 19 million. Of course, the number can fluctuate because of the uncertainties around the pandemic.
spk04: So next year, which is 2023, I think Tantan's user trend depends on the epidemic situation. First, it depends on the epidemic situation. Second, it depends on our investment strategy. Its investment strategy will use ROI as a guide. In other words, we will gradually increase the investment force on the basis of ROI as a policy. There are two factors that affect this. The first is the lockdown. This policy will gradually open up, and the existing social hospitals will be restored. This will lead to an improvement in the flow and payment transfer. On the other hand, it is the improvement of our own product experience that will lead to the improvement of flow and APU. If any of the above factors change, As for Tentas' user trend in 2023, it depends first on how the pandemic evolves and second on our marketing strategy. Tentas' channel investment will be ROI-oriented.
spk07: In other words, we will moderately increase marketing spend based on positive ROI. There are two factors at play here. One is the recovery of the offline social sentiment as China relaxes its COVID control policy, which should lead to improvement in user retention and paying conversion. And the other is the enhancement in product experience, which should also drive retention in our pool growth and drive retention in our pool growth. If any of those two factors can drive ROI to turn positive, or in other words, to generate profit with what we spend, then we will increase marketing investment and pursue growth on top of a self-sustaining positive cycle.
spk04: With respect to financials, I'll leave it to Cathy.
spk08: Okay, I've heard two questions. One is how we're going to reach breakeven point, and the other thing is about the revenue outlook for 2023. Maybe I'll answer the breakeven question first. As you can see from Tatan's segment reporting in Q3, by cutting down on the low efficiency channels, we've already narrowed the net loss from close to 120 million women being in Q2 to within 40 million in Q3. From there, I guess several things need to happen before we reach, ultimately reach breakeven point. One is that COVID has to come completely off people's mind as a deterrent that keeps young people away from dating and more generally from meeting someone that you just got to know on the internet. in real-life occasions. Right now, we are indeed seeing a pretty substantial relaxation on COVID containment measures as well as lockdowns. But sentiment-wise, I think it's still going to take some time for the dating sentiment to fully come back. And the second is that we need to continue, as Tang Yan said, to make progress on the product side, including both consumer experience as well as monetization features in order to drive retention and R2. These are the key operational targets for the Tantan team next year. With regards to the financial outlook, I hate to say this, but as you can imagine, it's still a little bit too early to give any reliable guidance into 2023. But here are some things I can point toward which hopefully can give you guys some color about how to think about 2023. I'll generally put them into two buckets. One is external factors, and the other one is internal factors. With respect to external factors, of course, as I said, COVID is the biggest swing factor here, which unfortunately we do not have much control over. But however long it may take, for the dating sentiment to ultimately come back, eventually we're going to come completely out of it and the social sentiment is going to come back. So what we need to focus on right now is internally what we can do so we can better capture the growth opportunities post-COVID when the sentiment does come back. On that front, we are looking at several drivers that we need to work on. One is new product launches that may drive ARPU growth. For example, the chat room and some other social entertainment services that we're working on. A lot of these will be structured as non-subscription revenues, which will be more effective in driving top line growth than, you know, subscription revenues. The second internal driver is, of course, MAU growth. COVID aside, we do expect the MAU to bottom out after Chinese New Year, especially as the COVID fear gradually tails out. And as MAU gradually comes back, top line is going to recover as well. So these are the few things that I can share at this point in time to help you build the TANTA model next year.
spk07: Next question, please.
spk05: Thank you. Our next question comes from Daniel Chen at JPMorgan. Please go ahead.
spk02: Okay, thanks management for taking my question. This is Henry speaking on behalf of Daniel Chen. I have two questions. First, could you share the progress of new apps and overseas business? And what's your revenue expectation for the next year? The second question is about TT. What's the progress of TT? And can management share more color on marketing and monetization strategies? Thank you.
spk04: In the overseas market, we can reach out to a larger group of users and income opportunities. In the field of social overseas, we have a relatively obvious competitive advantage compared to the local single brand or the large market that lacks social industry experience. But our way of investing is still in the direction of ROI. We will not take a one-size-fits-all investment to exchange users for growth at a cost-free price.
spk07: We have increased our focus and investment in our overseas businesses since last year. And this is because with our product and operational experiences, we can access a larger group of users and greater revenue opportunities in overseas markets. And in terms of social products, overseas expansions, we have very obvious competitive advantage compared with standalone local apps or large platforms lacking experiences in social space. We will pursue an ROI-oriented marketing strategy and explore the most suitable model for local markets one at a time. And we will not be pouring money into marketing to pursue user growth regardless of cost.
spk04: We design overseas businesses, including Tantan, Our overseas business consists of three parts.
spk07: standalone social apps, and standalone gaming apps. Revenue from our overseas business this year accounted for a single-digit percentage of our total revenue. Revenue from the overseas business for the first three quarters increased a high double-digit percentage from the same period last year and achieved a small profit. Our plan is to reinvest the profit from each product in the established market into the promotion of that product in new markets, especially with many developing countries that share a lot of commonalities. We will try to explore opportunities across them all.
spk04: After the launch of the Spring Festival, Tietie has experienced rapid growth and higher market investment in the second quarter. So far, it is a large-scale social product. Currently, the focus of the team is to expand the social relationship chain TT delivered rapid user growth since its launch after Chinese New Year this year, and we stepped up our marketing efforts to support its strong growth momentum in the second quarter.
spk07: And it now has become a social app with a sizable user scale. And the current focus of our team is to encourage users to invite more of their friends to join TTA and increase their time spent on the app together. So we will take a relatively conservative approach to marketing investment before we achieve these two targets. As for now, we have no plans for TTA to expand overseas. but we will not rule out this possibility when it gets into a more mature stage. Next question, please.
spk05: Thank you. And our next question comes from Rafael Chen with BOCI. Please go ahead.
spk03: Thank you, Manager Chen, for accepting my question. My question is about默默主战的。想请问管理层如何在持续的将本成效策略下稳定主战的用户规模? Thank you for taking my question. My question is regarding Core Momo. I'm just wondering how to maintain the users of Core Momo app with disciplined cost control strategy. And can management share some color on the revenue outlook of live streaming and the virus of Core Momo next year? Thank you.
spk04: OK. MoMo is an old brand that has been around for more than 10 years. It is not easy to maintain a stable user size. This requires the joint efforts of the product and the channel. In terms of the product, we need to constantly improve the social experience of the mass number of users. At the same time, we try to make additions based on this. We constantly try new social scenarios As a mature brand with a history of more than a decade in the mobile internet era, it's not a very easy thing for Momo to maintain a stable user base.
spk07: This requires the joint efforts of both product and channel marketing. On the product front, we need to keep improving the social experience for existing users, and on top of that, continuously explore new social experiences to cater to the needs of new users. In terms of channel marketing, considering the pressure of the external environment on open social sentiment, we intend to tilt our limited marketing budget towards users with more obvious demand and stronger inclination to pay for our services, so as to improve the overall user application efficiency.
spk04: ZHANG ZHANG ZHANG ZHANG ZHANG
spk08: Again, with the uncertainties on the macro front and the COVID front, it's hard to be very prescriptive at this point and move too far into the year 2023. But here are some things that I can share with the limited visibility that we have at this point, which hopefully could help you guys build out a preliminary outlook for next year. For live streaming, as you guys can see, Q3 turned out to be better than what we originally thought, both in terms of top line and in terms of gross profit. We were able to see both top line growth and a stable gross margin. However, as the macro remains quite uncertain at this point of time, at least for the coming six months, we'd rather stay on the conservative side about the revenue and profit growth outlook for live streaming. Value-added service, I would say it's not completely immune from the macro uncertainty. And in comparison with live streaming is actually more, that is actually more susceptible to COVID and the weak social sentiment as a result of it. For most value-added service, if COVID lingers and takes longer for the dating sentiment to fully come back, We'll try to keep the value added service revenue line stable as we did pretty successfully for the past few quarters. It has not been an easy task because the one-on-one and some of the interest group activities are seeing pretty significant impact from the COVID. What we have been doing and will continue to do, I guess, next year is to pull the levers that we have in social entertainment experiences to make it up. The value-added service from the bucket of new applications is especially so chill. The Oversea app, the picture is much brighter. I think this year, value-added service from the new applications so far has been growing at triple digits on a year-over-year basis. Despite the fact that it's now already at a pretty sizable revenue size, the pace of growth is not really slowing down much from the year 2021. We do expect the value added surveys from the new bucket of applications to continue to grow at a pretty rapid pace in 2023, although at this point it's hard to pin it down to a specific number. And the other thing worth mentioning is that although these new applications are still at a fast-growing phase, fast-growing phase, we're not merely focused on revenue and user growth at the extensive bottom line. In Q3, as a matter of fact, we've successfully termed all of the three new applications bottom-line positive. And the goal next year is to continue to pursue profitable growth, meaning growth across all the three important lines, including users, revenues, as well as profits. So, you know, hopefully these answers your questions about the outlook for revenue and value added service for the MoMA segment next year. I think we have, perhaps have time for one last question.
spk07: Right. So, Rocco, do we have any more questions on the line?
spk05: We do. We have one more question.
spk07: Oh, please.
spk05: And our final question today comes from Shuqing Zong with CITC. Please go ahead.
spk06: Thank you, Manager Chen. My question is related to the profit rate. Previously, Preparer Remarks mentioned that it is a very important strategy in the second half of the year. If we look at the four seasons and 2023, can you help us share more about the strategy on cost control and the trend on the overall profit rate? Thank you. Thank you for taking my question. My question is related to margins. As you mentioned in the preparatory remarks, reducing costs and improving efficiency is a key strategy in the second half of 2022. So can management share more on the cost control strategy and the overall margin trend in the first quarter of 2023? Thank you. Okay.
spk08: I'm going to take this one last margin question. We can end the call. before market is open, the three biggest cost items that we have are number one is payout to the broadcasters and the performers and the moderators in the value added service line. And the second and third biggest are marketing expenses and payroll. I guess I'll take them one by one. For payout, as you can see, Q3 versus Q2 this year has been largely stable. The dip in gross margin was really caused by the mixed shift in between different business line items. Q4, we do expect payout to go up a couple of percentage points due to the year-end promotional events. But that should be QPOR specific. It happens every year and will bounce back early next year when the year-end gala is gone. Overall, for next year, at this point of time, my view is that payout is likely to remain largely stable because, A, no one that we are currently seeing out there in the market is still aggressively boosting the supply side by pulling up the payout ratio. And B, internally, we do not see it as an effective strategy to grow revenues by sacrificing margins. So that's my view on the payout. Gross margin-wise, it may fluctuate a little bit around the current level due to the mixed shift one way or another. Moving down to payroll and marketing, this year we've done a pretty good job in controlling these two cost items. And this can be evidenced by the decrease in R&D and marketing expenses. I guess in Q4, because we have the year-end bonus, the double pay, et cetera, the payroll might increase a little bit. But overall, we have that overall downward trend in the payroll and marketing due to the cost optimization. We are going to continue to apply the same strategy next year, and investors can expect tighter control and more focus on the cost efficiency for payroll and marketing. The other thing worth mentioning as far as cost control and the overall strategy to increase efficiency is concerned is that in terms of the allocation of resources internally, we won't treat every business line in an equal manner. What that means is that we're going to lean more towards new businesses with higher ROI In the second half of this year, we've been reallocating engineering resources and marketing dollars from MoMA to new applications. I'm happy to see that while the overall payroll and marketing expenses went down, we did not underinvest in the new applications, and they've been growing pretty well. And that will continue to be the case next year. I guess these are the answers to the margin question. And with that, I'm handing back to Ashley for the closing remarks.
spk07: Well, we're very much over time, so thank you very much for participating in today's call, and we'll see you next quarter.
spk05: Thank you. That does conclude our conference for today, and thank you for participating. You may now disconnect your lines and have a wonderful day.
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