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spk06: Ladies and gentlemen, thank you for standing by and welcome to third quarter 2023 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.
spk04: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's third quarter 2023 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. Tang Yan, CEO of the company, Ms. Zhang Sichuan, 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 all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectation 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 forward-looking statements as a result of new information, future events, or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Jiang Sichuan. Ms. Jiang, please.
spk10: Hello, everyone. Thank you for joining our call. We are pleased to report strong financial results for the first quarter and study progress on various strategic priorities across all business lines. I will now walk you through the details of our work for the quarter end. Together with Chang-Yen and Cathy, take questions in the Q&A session that follows. I will start with a brief overview of our financial performance. Total group revenue was 3.04 billion RMB, down 6% year-over-year and 3% sequentially, exceeding our previous guidance. The main reasons for the decline in revenue were the consumption softly caused by the softer economy and product adjustments we made to maintain a healthy community ecosystem. Adjusted operating income was 681 million RMB, up 30% year-over-year, but down 4% sequentially. Profit margin was 22.4%, up 3.7% year-over-year, and down slightly, 0.2 percentage point quarter over quarter. Compared to the same previous last year, adjusted operating profit increased significantly despite lower revenue. This improvement was driven by our effective cost optimization and efficiency improvement initiatives, which turned TanTan profitable compared to a year ago, as well as supported the stable productivity of Momo Cash Cow business. Total revenue from the Momo app and standalone new app was 2.74 billion RMB, down 5% year-over-year and 3% sequentially. Adjusted operating income was 675 million RMB, up 4% year-over-year and down slightly, 1% quarter-over-quarter. with a margin of 24.6%, up 2.2 percentage point year over year, and 0.4 percentage point quarter over quarter. Profit margin improved despite the decline in revenue, primarily due to our team's solid ability to control cost and expenses. Total revenue from Tantan came in at 295 million RMB, down 40% year-over-year and 8% sequentially, mainly due to our reduction in channel investment combined with our anti-spam initiatives, resulting in a drop in our user base. Thanks to improvements in staff and channel marketing efficiency, Tantan achieved an adjusted operating income of 27.6 million RMB in the first quarter with a margin of 9%. Adjusted operating loss in Q3 last year was 38.3 million RMB and adjusted operating income in the previous quarter was 31.9 million RMB. Now I will discuss the progress we make against our strategic priorities and features development plans for Momo, Tantan, and the new endeavors. Starting with the mature Momo app. Our goal for Momo is to keep the user and revenue scale stable, continue to optimize cost structure, and maintain the productivity of the cash cow business. To achieve this goal, Our team has focused on two aspects, product operation and cost and expenses. First, we mitigated revenue pressure from the external environment by continuously optimizing product operation and introducing new monetization features. Second, we maintained broadly stable profit margin by improving cash unitization and staff efficiency. The group's better-than-expected financial performance in Q3 was mainly due to the better-than-expected financial performance of the Momo app. Now, I will walk you through the details. Firstly, on the product and operational front, our focus on product operations This year has been stabilized as user-based and improved monetization efficiency. While focusing on providing timely social experience and enriching content supply, our product team further integrated user products and consumer products to improve the overall monetization efficiency of the platform. On the channel side, The continuous improvement in user acquisition efficiency provides an effective way to maintain the stable of the user base under the strategy of cost optimization and efficiency improvement. Thanks to lower unit acquisition costs, we acquire 40% more new users on a slightly lower channel investment year over year. In Q3, the number of active users declined slightly, quarter over quarter, due to the start of school year and vast product adjustments. But the extent of the decline was less than a year ago. On a year-over-year basis, the total user scale was still slightly lower, but the gap has never significantly compared to the first half of the year. In quarter three, the number of Momo paying users decreased by 100,000 to 7.8 million from the previous quarter, mainly due to the policy adjustment in WAAS membership, which results in a decline in the number of WAAS paying users. Now, let's go through the productivity of our Momo Cash Cow business. In the first quarter, Momo's live streaming revenue was 1.41 billion RMB, down 7% year-over-year and 2% sequentially. The pressure on revenue mainly came from a softer consumer sentiment. Considering the current macroeconomic environment, our team decided to reduce revenue-oriented competition events. Meanwhile, on the product front, we have launched new interactive gamified features that able us to keep the number of core paying users relatively stable. The launch of interactive gamified features had not only improved the paying user experience of middle and long-time cohort users, which plays a positive role in stabilizing live streaming user engagement, but has also created new revenue streams for long-tail broadcasters in the traditional showroom live streaming business. In the first quarter, the revenue sharing ratio of live streaming decreased slightly quarter over quarter, mainly due to the reduction in event-related bonuses. User-oriented operational efforts led to a slight decrease in the proportion of revenue contributed by talent agencies, but engagement of the supply side remained stable. In the third quarter, wealth revenue, excluding Tantan, totaled 1.3 billion RMB, down 3% year-over-year and 2% sequentially. Last revenue from the Momo app totaled $1 billion RMB, down 12% year-over-year and 6% quarter-over-quarter. Revenue from the standalone app was $295 million RMB. The year-over-year growth ascended generated to 51% and revenue was up 30% sequentially. The decrease in normal vast revenue was mainly due to our proactive product adjustment to improve the overall ecosystem and the impact of macroeconomy on consumer sentiment. As I mentioned earlier about our user product, In order to improve the monetization efficiency of the normal app, we have embedded assets to pay experience in, for example, nearby people and some other non-paying features. The income in ZAU and the paying ratio of audio and video-based vast experience, particularly, mitigated the pressure on revenue caused by product adjustments and the external environment. The overall blast revenue sharing ratio decreased slightly quarter over quarter, primarily due to the discrimination of lower growth margin features following our ecosystem adjustments. This shift in the product makes contribute positively to an improvement in vast growth margin. Now, let's review TomTom's performance. Our strategic goal for TomTom is to achieve overall break-even from the year and develop product and monetization models that are suitable for the Asian dating culture in order to pursue sustainable growth on the back of a positive business cycle. Over the past year, Tantan has made solid progress in reducing low-efficiency channel marketing plans to achieve break-even. It delivered first operating profit at the beginning of this year and maintained profitability in Q3 despite lower revenue. However, we still have a long way to go in achieving our strategic goal. of sustainable growth on the back of positive business cycle. The underlying reason is that we have yet to make breakthrough in the development products and manifestation models that's suitable for the Asian dating culture. The ongoing anti-spam campaign started this spring, coupled with the seasonal impact of the new school year put notable pressure on Tantan's user base in September. MAU decreased 9% sequentially to 15.7 million. As of the end of Q3, Tantan has 1.4 million paying users. Despite a decrease in overall user base, the paying user count remains stable sequentially. primarily due to our commercial product team's efforts to improve user paying experience and the higher stickiness of the group compared to non-paying users. The total revenue for the first quarter was 295 million RMB, down 40% year-over-year and 8% sequentially. The year-over-year decrease was solely contributed to a reduction in the number of paying users caused by decline of overall user base. Thanks to improvement in both product and channels, our people increased by 20% from a year ago, which particularly offset the revenue loss from the decline in paying users. The sequential decrease in revenue is mainly due to significant impact of software macroeconomy on the live streaming business. Additionally, the policy adjustment on automatic renewal by the Ministry of Industry and Information Technology has some impact on vast membership subscription revenue. However, Tantan's growth margin was up by nearly four percentage point year-over-year and one percentage point quarter-over-quarter, driven by the greater revenue contribution of Watt's business, which carries a higher growth margin. As I mentioned at the beginning, the decline in users and revenue of Tantan has mainly attributed by to our initiative in cost optimization and efficiency improvement. In terms of improving staff efficiency, we have continued to reduce features and operational activities that cannot provide high quality user experience and incremental revenue and realigned human resource accordingly. In terms of improving marketing efficiency, we have continued to reduce unit acquisition costs and further cut marketing expenses that can generate positive ROI. Although this approach has resulted in a reduction in the number of users and revenue, the cost optimization strategy has brought greater benefit to our bottom line as the market spend that we cut were ROI negative. And this is why despite lower revenue, Tantan still achieves an adjusted operating income of 27.58 million RMB in the third quarter. So now I would like to walk you through the details of Tantan's progress on the channel and product fund. Firstly, On the marketing front, the unit acquisition cost of App Store increased sequentially in the third quarter due to the decline on its own traffic. Our team timely adjusted the proportion of investment across different channels in order to acquire more users while controlling the increase in unit acquisition costs to low single digits sequentially. On the product and operational front, the biggest achievement in the third quarter is that we managed to maintain spamming activity to a low level significantly, and therefore the community returned to normal. Our product team emphasized guidance of real person authentication on the swipe and match homepage. The increase in real person authentication rates positively contribute to the improvement of the community ecosystem. In terms of commercial products, on top of the basic monthly membership service, we launched a variety of pay-as-you-go privileges that aim to increase exposure and improve matching efficiency. As a result, our vast app people continue to grow both on a year-over-year and a sequential basis, largely offset the impact of user decline on vast revenue. However, due to the lack of breakthroughs in user products, our user retention unfortunately has not yet been stable, but basically improved. Additionally, the outbreak of spamming activities combined with a softer spending among live streaming users led to a decline in channel ROI. Therefore, our team's execution for the rest of this year has been focusing on further reducing costs and channel investments. Relocating exceeds access human resources to new endeavors and driving app-proof growth through new product features on the basis of operational efficiency improvement until our eye turns positive. Lastly, in terms of new endeavors, our goal is to enrich our product portfolio, push the boundary beyond normal and townhouse, the developed long-term growth engine. In the first quarter, total revenue of the new apps included social and games products with 302 million RMB, up 49% year-over-year and 50% sequentially. Among them was revenue of domestic and overseas social product was 295 million RMB, up 51% year-over-year and 30% sequentially. For domestic apps, given their relatively mature stage, the operational focus on our team is to control costs and expenses while pushing harder on monetization. so that profit can grow in line with revenue. Now, in terms of our overseas business, thanks to a border market space, revenue in the first quarter continues to grow rapidly from a higher base. The introduction of new features together with our paying user-focused acquisition strategy play a pivotal role in driving revenue growth. In Turkey, which accounts for a substantial portion of overseas market revenue, significant currency fluctuation during the quarter impacts revenue and exerts pressure on growth margins. To protect profits, our team reduced channel investments in a timely manner, resulting in continued sequential growth of operating income. At the moment, we have mitigated some of the problems affected the profitability level of overseas business, and it's expected that it will deliver better sequential performance in both revenue and profit at the end of the year. So this concludes my remarks. Now I will pass the call over to Kathy for the financial review. Kathy, please.
spk14: Thank you, Sik. 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 2023 came in better than our previous expectation at 3.04 billion RMB, down 6% year-over-year and 3% quarter-over-quarter. Non-GAAP net income attributable to the company was 605.9 million RMB, up 13% year-on-year, but down 4% from the previous quarter. Net income significantly outperformed our expectation, mainly due to two factors. One, number one, better than expected top-line performance, and number two, our continuous cost control efforts resulted in better than expected profitability for both Momo and Tantan. Net income continued to grow on a year-over-year basis despite lower revenue thanks to our effective cost optimization and efficiency improvement initiatives, which enabled us to maintain the stability of Momo Cash Cow business, turn Tantan profitable, as well as support the development of new endeavors. Now let me walk you through the details. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue for live broadcasting business for the third quarter of 2023 was 1.53 billion RMB, down 8% year-over-year and 4% quarter-over-quarter. The decrease was mainly due to a soft consumer sentiment in the current macro environment. And to a lesser degree, Tan Tan pivoting away from the live streaming service, which we deem is not the priority for Tan Tan at this point for the dating business. Momoa app live broadcasting revenue totaled 1.41 billion RMB for the quarter, down 7% year-over-year and 2% quarter-over-quarter. Tan Tan's live broadcasting revenue amounted to 120.0 million RMB, down 14% from Q3 last year and 17% from the previous quarter. Revenue from value-added service for the third quarter of 2023 was 1.47 billion RMB, down 5% from Q3 last year and 2% sequentially. Revenue from value-added service on an ex-tantam basis was 1.30 billion RMB in the third quarter of 2023, down 3% the young year and 2% sequentially. The decrease in mobile app value-added service was due to our proactive product adjustments, as well as the impact of macroeconomy on consumer sentiment. However, the downward pressure on mobile value-added service revenue was largely offset by the growth of standalone new apps. Time-tested value-added service revenue amounted to RMB 168.4 million. down 16% from Q3 last year and 1% from the previous quarter. The decrease was due to the decline in paying users, which was in turn an outcome of us scaling back from the low efficiency marketing span. However, the downward pressure was partially offset by the growth in our people driven by commercial product efforts. Now turning to cost and expenses. Non-GAAP cost of revenue for the third quarter of 2023 was 1.77 billion RMB compared to 1.88 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.8%. Gross margin remained relatively stable compared to the same period last year and the previous quarter. Non-GAAP R&D expenses for the third quarter was 186.7 million RMB compared to 223.4 million RMB for the same period last year, or a 16% decrease YY. The decrease was due to the continuous optimization in personnel costs. Non-GAAP R&D expenses as a percentage of revenue were 6.1% compared with 6.9% Q3 last year. We ended the quarter with 1,410 total employees, of which 314 are from Tantan, compared to 1,750 total employees, of which 479 from Tantan a year ago. The R&D personnel as a percentage of total employee for the group was 64%, compared with 62% Q3 last year. Non-GAAP social and marketing expenses for the third quarter with 368.1 million RMB or 12.1% of total revenue compared to 458.6 million RMB or 14.2% of the total revenue for the same period last year. The significant year-over-year decrease both in terms of absolute RMB amount and as a percentage of revenue was primarily attributable to Tan-Tan's shift in marketing strategy to control cost and focus on channel ROI, and to a lesser degree, MoMo's strategy to trim low-efficiency channel marketing spans. Non-GAAP G&A expenses were 76.5 million RMB for the third quarter of 2023 compared to 82.6 million RMB for the same quarter last year. G&A expenses as the percentage of total revenue remained largely stable at around 2.5% compared to Q3 last year. Non-GAAP operating income was 681.2 million RMB, up 13% from Q3 2022, but down 4% from the previous quarter. Non-GAAP operating margin for the quarter was 22.4%, up 3.7% percentage points from the same period last year. but slightly down 0.2 percentage points from the previous quarter. Non-GAAP operating expenses as a percentage of total revenue was 20.7%, a decrease from 23.6% in Q3 2022, but slightly up from 20.2% in Q2 this year. Non-GAAP expenses in absolute RMB amount decreased 17% year-over-year, This was due to reduction in sales and marketing expenses and optimization in personnel costs. Now briefly on income tax expenses. Total income tax expenses was 158.1 million RMB for the quarter, with an effective tax rate of 21%. In Q3, the company accrued withholding income tax of 47.9 million RMB, which is 10% of undistributed profit generated by our world fee. Without withholding tax, our estimated non-GAAP effective tax rate was around 15% in the third quarter. Now turning to balance sheet and cash flow items. As of September 30, 2023, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled 13.64 billion RMB compared to 13.40 billion RMB as of December 31, 2022. Net cash provided by operating activities in the third quarter of 2023 was 582.5 million RMB. Lastly, on business outlook. We estimate the group's fourth quarter revenue to come in the range from 2.9 billion renminbi to 3.0 billion renminbi, representing a decrease of 7.9% to 6.6% year-on-year, or a decrease of 4.7% to 1.4% quarter-over-quarter. At segment level, for Q3 2023, on a sequential basis, we accept more revenue to decrease mid to low single digits. The decrease was primarily due to the pressure on value-added service from the product adjustment we made in mid Q3, which will have a full quarter impact in Q4, and to a lesser degree, the macro impact on the overall spending sentiment. Considering the external environment, we've decided to cut back on the incentives to the agency-driven year-end competition events. Therefore, revenue contribution from year-end competition events will be quite limited. On the Tantan side, we expect revenue to decrease in low teams, primarily due to us pivoting away from live streaming business in Tantan, and to a lesser extent, the product adjustments we made to comply with a new policy rolled out by MIIT, which will have some negative impact on membership renewal revenue. 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 the prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please. Thank you.
spk04: Just a quick reminder before we start taking the questions, for those who can speak Chinese, please ask your questions in Chinese first and followed by English translation by yourself. Thank you. And we're ready for questions, operator.
spk06: 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 2. If you are on a speakerphone, please pick up the handset to ask your question.
spk05: The first question today comes from Leo Shang with Deutsche Bank.
spk06: Please go ahead.
spk01: Hi, 管理层,晚上好。谢谢接受我的提问以及恭喜这个 quarter 强劲的业绩。 我的问题是关于探探的。可以请管理层分享一下 I'll translate myself. Hi, management. Thanks for taking my question and congratulations on the strong result. My question is on Tantan's side. Can management share the outlook of Tantan's user scale and financial outlook in 2024? Thank you. 我来回答一下吧。
spk08: As mentioned in the speech, Tantan's biggest achievement this year was to achieve a profit-loss balance at the operating level under the cut-off control strategy. This is the result of a joint effort of multiple teams, such as product promotion, ARP improvement, channel ROI and personnel distribution efficiency, and continuous improvement. As for the product level, WAAS members have increased exposure, such as acceleration pairing, on the basis of the traditional music payment model. and the single-way payment special feature of matching efficiency, which has helped the growth of TradeOnWars RPPOOL. While the channel team controls the cost of single-customer unit customers, it uses limited budget to test the customer data for payment orientation to improve the channel's RPPOOL and the customer's ROI, and explore new and effective ways. As for this year's SPAN outbreak, Today, a large part of the product team's efforts are focused on combating this black-and-white industry and maintaining community ecological balance. In this situation, we have transferred some of the remaining technical staff to support the development and operation of new businesses, in order to improve the efficiency of the overall staff. Although the current community ecosystem has returned to its normal state, but due to the decline in our live income caused by the downfall of RPPOOL, the overall channel ROI has been gradually reversed. Therefore, we have cut off some of the channel budget of ROI. The reduction of investment costs will cause some pressure on the recovery of user size. But we think that the bottom line is to balance profit and loss, explore and improve user flow and income, and realize user growth by buying without counting costs. It is a more healthy and sustainable business model. Therefore, our product and channel strategy for 2024 will continue to Let me translate first.
spk04: So as Sieg mentioned earlier, Tandem's biggest progress this year was to achieve a breakeven at the operational level and our effective cost optimization and efficiency improvement initiatives. This is the result of the joint efforts of several teams that delivered, among others, product-driven RP pool growth and continuous improvement in channel ROI and staff allocation efficiency. On the product front, on top of the basic pay monthly membership subscription service, we launched a variety of pay-as-you-go privileges, such as accelerated matching, which is called jia su pei dui in Chinese. So this kind of special privileges increased exposure and improved matching efficiency. thereby driving vast RP pool growth. So on the channel front, our team controlled unit acquisition cost well. At the same time, has been trying to testing paying features-oriented marketing materials with a limited budget to explore new ways to improve our pool and channel ROI. Due to the outbreak of the spamming activities this year, our product team had to devote a large part of their efforts to anti-spam and maintaining a healthy ecosystem. In this case, we have reallocated excess R&D staff to support the development and operation of new endeavors to improve the overall staff utilization efficiency. Although the community ecosystem currently has returned to normal, the decline in RP pool due to weak live streaming revenues has led to a temporary reduction in the overall China ROI. Therefore, we cut investment in channels with negative ROI. The reduction in marketing expenses put some pressure on the recovery of the user scale. But we believe that, compared with the approach of pursuing user growth regardless of cost, being able to improve user retention and vast revenue on top of breakeven is a healthier and more sustainable business model. Therefore, our product and channel strategies in 2024 will carry on with this current approach. In terms of revenue-related question, I'll leave it to Cassie.
spk14: Okay. You know, I've been very optimistic about Tantan. I continue to be so despite all the arduous journey that Tantan has been through since 2019. The reason for my optimism is quite simple. Chinese users have genuine demand for dating applications to help them discover romantic relationships, which they can bring to their real life. And that demand is currently underserved. Although Tantan is not doing as good a job as we expect it to, it's still undoubtedly the biggest and most effective and also the most relentless player in serving that demand in China market today. As long as that is still the case, we believe the revenue and profit potential remains there for us to cultivate. That's why I remain very optimistic about Tantan's long-term potential in revenue and profit. I think it's just a matter of continuing to stick to that goal and finding the right formula for the Asian user in the dating space. As far as next year is concerned, there are several things I can share at this point. First of all, we are going to refocus on the dating aspect of the applications, meaning that we are going to continue to pivot away from some of the peripheral features such as the live streaming showroom business. Live streaming currently brings in a little bit less than 1 million yuan per day in terms of daily grossing. So as we continue to downsize that service, I think top line could be pressured. However, as live streaming bears a 20-something percent gross margin and consumes a lot of operational human resources, downsizing live streaming would have minimal or even positive impact on the bottom line. However, the fact that Tantan has built a pretty sizable customer base for live streaming show business shows that its users, Tantan's users, actually have sufficient spending power to support a much higher ARPU. The biggest priority for next year for the team is to build the right product and services to unleash that ARPU potential. And unlike live streaming, the new product and services that we're going to build should contribute positively to the dating aspect of the application of the Tantan platform. If we are successful in doing so, that could push our eye from negative to positive, and the positive growth cycle will start to form on Tan Tan. Currently, we're working on several new features in the pipeline to be launched next year. We'll see whether any of them works as the year progresses. Meanwhile, of course, we're going to continue to optimize the key cost items, such as personnel and marketing. One thing we know for sure is that cost efficiency will continue to improve. So although we cannot pin down a revenue target now for next year, we are very optimistic that profitability is going to continue to see improvement in 2024. So these are the things that I could share for Tantan's financial outlook next year. I'm handing back to Ashley for more questions.
spk13: Operator, next question, please.
spk05: The next question comes from Zhang Xueqing from CICC. Please go ahead.
spk09: 谢谢。 Thanks, management, for taking my question. Congratulations on the strong culture. My question is about our new apps. Could the management share more latest updates on the new apps? And do we have any revenue and profit guidance of new apps in 2024? Thank you. 我来回答一下。 自从2019年集团孵化器推出了几款以收入和利润为导向的独立apps以来,
spk08: These products for vertical areas and overseas social markets have continuously started to make visible financial contributions for the group. So in 2022, under the pressure of the pandemic, in order to keep the WASH income at the group level as stable as possible, the team of new business has increased the commercialization of independent apps. Therefore, the new business income in 2022 is nearly 1.5 times higher than the previous year. This amount of flow not only made up for the gap between Tantan and MoMo on WASH income, It also led the overall company to dig up revenue, and achieved a small growth due to multiple negative factors. At the same time as users and revenue growth, we also control the cost very well. This is due to the leverage effect of revenue growth. In 2022, we achieved a three-digit continuous profit. This year, our requirements for new businesses are that revenue and profits must continue to grow. Product tests, by introducing new payment play methods, improve payment rate and RP2, In the first three seasons, the group's revenue contribution to the new business increased by nearly 10% from last year's annual average, which is expected to break 2% next year. According to the growth of revenue and the changes in the channel, the operating team has adjusted the spending of various expenses in real time to ensure that income and profits grow together. Since the balance of profit and loss was achieved in the first year of the new business, is to continue to steadily improve. For the fastest growth in revenue and profit, it is also the most potential overseas business. We plan to introduce some of the domestic products. It has been confirmed that the user experience and income have been raised to the point of play, and the overseas product has been reproduced. Through the improvement of the RP department, the growth of the flow of water has been promoted further. In terms of channels, we focus on the rich countries and regions, and have paid potential high-quality users. Through commercialization, the play has improved the flow of the high-priced group. Let me translate first.
spk04: Starting from 2019, our incubator launched several revenue and profit-oriented standalone apps targeting vertical social segments and overseas markets. And these apps have begun to gradually contribute to the group financials. In 2022, for example, under the revenue pressure brought by the pandemic, we pushed a little bit harder on the monetization efforts for these new standalone apps. in order to keep the group level's vast revenue stable. And as a result, revenue from these new endeavors in 2022 increased around 1.5 times compared with the previous year. The incremental revenue not only offset the decline in vast revenue from Momo and Tantan, but also drove a slight increase in our group's vast revenue, despite several unfavorable external factors. Our team did a good job in controlling expenses while driving users and revenue growth, so we could enjoy operating leverage and achieve sustained profitability for the three small apps last year. And our goal for the new endeavors this year has been to continue to grow revenue and profit. And on the product front, we launched new paying features to increase the paying ratio and RP pool. And in the first nine months of the year, the contribution of these new endeavors to the group's top line increased to high single digits from mid-single digits last year. And we expect this contribution to be in the double digits next year. Our team adjusted various expenses based on revenue growth and channel ROI to ensure the profit will grow together with revenue. Since new endeavors collectively achieved a break-even at the beginning of last year, the profits have continued to improve steadily. In the overseas business, which is growing revenue and profit faster and has greater growth potential, we plan to replicate in this app some gamified features that have proven to be beneficial to user experience and monetization in our domestic products and further drive revenue growth by increasing RP pool. And on the channel front, we will continue to focus on high-quality users with paying potential in the affluent markets and improve the retention of high-paying users through monetization innovation. We will slightly lower the revenue sharing ratio to improve growth margin based on a stable supply. Profit from the new endeavors is expected to grow much faster than revenue this year. Currently, there are some new apps that are being tested and have not yet generated meaningful revenues. We expect them to further support revenue growth once these product formats are stabilized. And for the specific revenue and profit guidance, I will leave it to Cassie.
spk12: Sure.
spk14: That was already a pretty thorough description of our strategy to the new apps and the achievement we've made under those strategies. For financial outlook, as you understand, it's a little bit too early to talk about the numbers now in December. But there are a couple of things we see happening next year, which I can share to help you understand how the new apps are going to contribute to the P&L in 2024. First of all, SoChill, which is the social app that we run in the Middle East and North Africa area, that app is going to continue to grow pretty rapidly next year. The driver will come from three directions. One is the continuous penetration into the existing markets by beefing up local operations and providing better customer service, so on. Compared with our peers, we believe we still have potential in driving further user and ARPU growth in those markets. The second direction of growth is that, as Zeke and Tangyan mentioned just now, we are now mainly providing the peer-to-peer social entertainment on Sochi. And we expect to launch new feature and services such as live streaming. That obviously can help us increase the share and ARPU as well. And thirdly, we're also looking at some other markets that we might be able to penetrate in. But as competition is already pretty intensive elsewhere in the GCC region, in the Gulf countries, this third strategy will be more of an uphill battle. but we'll see how it plays out. Overall, you know, for social and also the other, you know, two smaller apps in China, you know, should continue to grow quite rapidly next year. This year, these three apps grew 50-something percent year-over-year and are on track to bring in somewhere between 1.1 to 1.2 billion yuan in top line and more than 100 million yuan at bottom line. Next year, the top line could slow down a little bit. The growth could slow down a little bit, but profit growth should be quite impressive as the operating leverage manifests itself. That's my answer to the financial outlook for the new business. Back to Ashley's question.
spk02: In the interest of time, let's just take one last question. Operator, we're ready. Thank you.
spk06: The next question comes from Thomas Chong with Jesse. Please go ahead.
spk07: Good evening, thank you for accepting my question. My question is about Momo. Can you share with us the plan of the product in 2024 and the expected income? The second question is about the return plan of the shareholder and the consideration of the stock market. Thanks, management, for taking my questions. My first question is about Core Momo. Can management comment about the 2024 product strategies as well as the revenue outlook? And my second question is about shareholders' return. Can management comment about the force on share repurchase and dividends? Thank you.
spk08: Okay, let me answer this question. There is an expectation about the revenue of MoMo's product planning. Yes, let's start with the revenue expectations, including the return on equity value, which may also be a suitable answer to start with. The stable output of the cost reduction and guaranteed cash flow business is currently and will be in the next few years. We have a strategic positioning for the mature business. Therefore, all implementation plans of user products, commercial products and channel teams will revolve around this strategic goal. For example, this year, the user product team added retail in the first business, This cloud-linked microphone is used to distribute and quietly match the chat scenes of the same language or text. And the commercial product team is involved in these free scenarios. Live broadcast and chat room are the entrances to the payment method. This can highlight the value of the product in a timely manner. It can also improve the penetration rate of the payment scene and the ability of the platform to transform. And the customer team, while clarifying the target of the customer who is focused on paying the user, has strengthened the cooperation with the commercial product team. In order to improve the ability of the platform to connect with the channel users, Let me translate first.
spk04: Our goal for the mature Momo app for now and for the next few years is to keep the users and revenue scale stable and continue to optimize the cost structure and maintain the productivity of this cash cow business. Therefore, our execution plans for our products, user products, commercial products, and channel efforts are all focused on this strategic goal. For example, this year our user product team added a navigation bar for flash chat on the home page to direct users to matching-based real-time voice or text chatting experiences, such as and . And our commercial product teams embedded paying features, such as the live streaming or chat room, into these experiences. This design not only highlights the timely social value of the app, but also increases the penetration rate of paying features and the monetization potential of the platform. Our user acquisition team has fine-tuned its focus on paying users and has strengthened cooperation with the commercial product team to better accommodate users from the channels. And the resulting ARPU growth has supported the continued improvement in channel ROI enabling us to maintain a stable user scale and solid social fundamentals with a continuously decreasing marketing budget, which plays a positive role in improving MoMA's overall profit. In 2024, we'll continue to execute this strategy for the MoMA product and channels. In terms of financials, I'll leave it to Cassie.
spk14: Okay. After this earnings call, our job will move forward to putting together the financial plan for next year. Before that plan comes together, it's hard for me to talk about the outlook in a very quantitative way. However, same as in the past, As we approach the end of the year, there are several trends that we can talk about to help you think about how the different line items may move heading into next year. As many of the investors know, Momo is a brand that has been around for more than 12 years. In terms of monetization, being 12 years old has both advantages and disadvantages. The biggest disadvantage here, obviously, is that it's already pretty mature in terms of user penetration and also deeply monetized in terms of ARPU. That will make the business more cyclical to the macro and the regulatory environment. So next year, we continue to see macro and regulation as two biggest factors that are going to move the Momoa business either up or down. Microwise, I guess everybody has his or her own estimation, so I don't think I know better than investors do in this space. Regulatory front, as you can see, we've been very prudent and conservative in making sure we stay compliant. That's why in the past few quarters, if you look at our performance, we have clearly been more stable than most of our peers in the social entertainment space. I guess that will continue to be the case next year. That said, In view of the overall environment that we face today, what we need to do is to focus more on profitable user and revenue growth instead of pursuing top-line growth at all costs. During the past few quarters, we've been scanning back from some of the user and revenue endeavors that generate limited or sometimes even negative margins. For example, you can see in this year's year-end competition event, we further cut the incentive for agency-driven promotional events. These competitions are not particularly helpful in building a healthy social ecosystem and thus post regulatory risks in today's environment. In addition, although the agency-driven events would create a spike in revenue, but they usually hurt margins and sometimes even bring negative profits. So in this Q4, what you're going to see is that the incremental revenue coming from year-end competition is going to significantly shrink down. However, as the extra promotional costs and spending also substantially went down, the profit impact is actually quite limited. That's why, although we're guiding, as you can see in our guidance, we're guiding Q4 to show a mid-to-high single-digit percentage year-over-year revenue decline, for core MoMA, bottom line for the core could see a high single-digit year-over-year improvement. Such an overall trend of focusing on bottom line will continue to be the case next year. Now I'm going to, you know, I wanted to spend a few minutes talking about the good thing about being a 12 years old application. Over, you know, those 12 years, MoMA has built up a strong brand loyalty. as the go-to place if you want to be around people, discover some new friends, and have fun and meaningful interactions with people you do not already know. And that brand loyalty allowed Momo to be able to navigate safely through the three years of pandemic and emerge on the other side with solid fundamentals and remarkable resilience. Looking into next year, I think Momo is going to continue to benefit from that stable and loyal user base. What that means as far as P&L is concerned is that we're going to be able to maintain the scale of users and revenue and at the same time continue to optimize on personnel and user acquisition costs. So that naturally leads to the question on profitability of the cash cow business. Looking out to next year, we expect gross margin to continue to be stable, as is the case throughout this year. With respect to operating expenses, for the reason that I just mentioned, we have a good opportunity to further cut the OPEX down with continuous efforts to improve cost efficiency. So if you put these different things together in a nutshell, I'm pretty optimistic that we'll be doing a decent job in maintaining the productivity of the cash cow business. There's a question on cash, okay. I guess it's really a question of how does the company utilize this cash and allocate its capital resources. I've said before that there are three priorities for the company in terms of capital allocation. Number one is, of course, to reinvest back into the business for organic growth. And the second priority is if there are good strategic investment opportunities that could help us grow beyond what we can achieve organically, we would go for those strategic opportunities and we prefer to use cash rather than through a stock deal. And the third priority is if we have excess cash, as has been the situation in the past, we would return the excess cash to the shareholders in the form of either cash dividends or share repurchase. We have... an ongoing repurchase plan of $200 million. Under that plan, I think so far we've brought back, we've bought back slightly under $90 million U.S. dollar worth of shares. So under that plan, we still have $110 million to go. We will continue to take advantage of the undervalued share price and make good use of our excess cash to enhance shareholder value. In terms of dividend, we have distributed special dividend five years in a row, starting from the year, I think, 2019. This, in a way, has proven our sincerity in sharing the fruit of our work with shareholders. Unless we have an opportunity to either reinvest our cash to drive organic business growth or through strategic investments, I think we're going to continue to return cash to shareholders in the form of cash dividends. I guess that's the end of this conference call. I'm handing back to Ashley for closing remarks.
spk02: Thank you all for your time. I think that's it for the quarter. We will see you next year. Thank you. Bye.
spk12: Thank you for participating in today's conference. You may now disconnect. you Thank you. you Thank you. Thank you. Thank you.
spk06: Ladies and gentlemen, thank you for standing by and welcome to third quarter 2023 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.
spk04: Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's third quarter 2023 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. Tang Yan, CEO of the company, Ms. Zhang Sichuan, 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 all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectation 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 forward-looking statements as a result of new information, future events, or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Jiang Sichuan. Ms. Jiang, please.
spk10: Hello, everyone. Thank you for joining our call. We are pleased to report strong financial results for the first quarter and study progress on various strategic priorities across all business lines. I will now walk you through the details of our work for the quarter end. Together with Chang Yan and Cathy, take questions in the Q&A session that follows. I will start with a brief overview of our financial performance. Total group revenue was 3.04 billion RMB, down 6% year-over-year and 3% sequentially, exceeding our previous guidance. The main reasons for the decline in revenue were the consumption softly caused by the softer economy and product adjustments we made to maintain a healthy community ecosystem. Adjusted operating income was 681 million RMB, up 30% year-over-year, but down 4% sequentially. Profit margin was 22.4%, up 3.7% year-over-year, and down slightly, 0.2 percentage point quarter over quarter. Compared to the same previous last year, adjusted operating profit increased significantly despite lower revenue. This improvement was driven by our effective cost optimization and efficiency improvement initiatives, which turned Tan Tan profitable compared to a year ago, as well as supported the stable productivity of Momo Cash Cow business. Total revenue from the Momo app and standalone new app was 2.74 billion RMB down 5% year-over-year and 3% sequentially. Adjusted operating income was 675 million RMB up 4% year-over-year and down slightly 1% quarter-over-quarter. with a margin of 24.6%, up 2.2 percentage point year over year, and 0.4 percentage point quarter over quarter. Profit margin improved despite the decline in revenue, primarily due to our team's solid ability to control costs and expenses. Total revenue from Tantan came in at 295 million RMB, down 40% year-over-year and 8% sequentially, mainly due to our reduction in channel investment combined with our anti-spam initiatives, resulting in a drop in our user base. Thanks to improvements in staff and channel marketing efficiency, Tantan achieved an adjusted operating income of 27.6 million RMB in the first quarter with a margin of 9%. Adjusted operating loss in Q3 last year was 38.3 million RMB and adjusted operating income in the previous quarter was 31.9 million RMB. Now I will discuss the progress we make against our strategic priorities and features development plans for Momo, Tantan, and the new endeavors. Starting with the mature Momo app. Our goal for Momo is to keep the user and revenue scale stable, continue to optimize cost structure, and maintain the productivity of the cash cow business. To achieve this goal, Our team has focused on two aspects, product operation and cost and expenses. First, we mitigated revenue pressure from the external environment by continuously optimizing product operation and introducing new monetization features. Second, we maintained broadly stable profit margin by improving cash unitization and staff efficiency. The group's better-than-expected financial performance in Q3 was mainly due to the better-than-expected financial performance of the Momo app. Now, I will walk you through the details. Firstly, on the product and operational front, our focus on product operation this year has been stabilized as user-based and improved monetization efficiency. While focusing on providing timely social experience and enriching content supply, our product team further integrated user products and consumer products to improve the overall monetization efficiency of the platform. On the channel side, The continuous improvement in user acquisition efficiency provides an effective way to maintain the stable of the user base under the strategy of cost optimization and efficiency improvement. Thanks to lower unit acquisition costs, we acquire 40% more new users on a slightly lower channel investment year over year. In Q3, the number of active users declined slightly quarter over quarter due to the start of school year and vast product adjustments, but the extent of the decline was less than a year ago. On a year-over-year basis, the total user scale was still slightly lower, but the gap has never significantly compared to the first half of the year. In quarter three, the number of Momo paying users decreased by 100,000 to 7.8 million from the previous quarter, mainly due to the policy adjustment in WAAS membership, which results in a decline in the number of WAAS paying users. Now, let's go through the productivity of our Momo Cash Cloud business. In the third quarter, Momo's live streaming revenue was 1.41 billion RMB, down 7% year-over-year and 2% sequentially. The pressure on revenue mainly came from a softer consumer sentiment. Considering the current macroeconomic environment, our team decided to reduce revenue-oriented competition events. Meanwhile, on the product front, we have launched new interactive gamified features that able us to keep the number of core paying users relatively stable. The launch of interactive gamified features had not only improved the paying user experience of middle and long-term cohort users, which plays a positive role in stabilizing live streaming user engagement, but has also created new revenue streams for long-time broadcasters in the traditional showroom live streaming business. In the first quarter, the revenue sharing ratio of live streaming decreased slightly quarter over quarter, mainly due to the reduction in event-related bonuses. User-oriented operational efforts led to a slight decrease in the proportion of revenue contributed by talent agencies, but engagement of the supply side remained stable. In the third quarter, wealth revenue, excluding time-to-time, totaled 1.3 billion RMB, down 3% year-over-year and 2% sequentially. Last revenue from the Momo app totaled 1 billion RMB, down 12% year-over-year and 6% quarter-over-quarter. Revenue from the standalone app was 295 million RMB. The year-over-year growth ascended to 51% and revenue was up 30% sequentially. The decrease in Momo vast revenue was mainly due to our proactive product adjustment to improve the overall ecosystem and the impact of macroeconomy on consumer sentiment. As I mentioned earlier about our user product, in order to improve the monetization efficiency of the Momo app, we have embedded assets to paying experience in, for example, nearby people and some other non-paying features. The income in CAU and the paying ratio of audio and video based RAS experience, particularly mitigated the pressure on revenue caused by product adjustment and the external environment. The overall RAS revenue sharing ratio decreased slightly quarter over quarter, primarily due to the discrimination of lower growth margin features following our ecosystem adjustments. This shift in the product makes contribute positively to the improvement in vast growth margin. Now, let's review TomTom's performance. Our strategic goal for Tantan is to achieve overall break-even from the year and develop product and monetization models that are suitable for the Asian dating culture in order to pursue sustainable growth on the back of a positive business cycle. Over the past year, Tantan has made solid progress in reducing low-efficiency channel marketing spend to achieve for even. It delivered first operating profit at the beginning of this year and maintained profitability in Q3 despite lower revenue. However, we still have a long way to go in achieving our strategic goal of sustainable growth on the back of positive business cycle. The underlying reason is that we have yet to make breakthrough in the development of products and monetization models that are suitable for the Asian dating culture. The ongoing anti-spam campaign started this spring, coupled with the seasonal impact of the new school year, put notable pressure on Tantan's user base in September. NYU decreased 9% sequentially to 15.7 million. As of the end of Q3, Tantan has 1.4 million paying users. Despite a decrease in overall user base, the paying user count remains stable significantly, primarily due to our commercial product team's efforts to improve user paying experience and a higher stickiness of the group compared to non-paying users. Total revenue for the first quarter was 295 million RMB, down 40% year-over-year and 8% sequentially. The year-over-year decrease was solely contributed to a reduction in the number of paying users caused by decline of overall user base. Thanks to improvement in both product and channels, our people increased by 20% from a year ago, which particularly offset the revenue loss from the decline in paying users. The sequential decrease in revenue was mainly due to significant impact of software macroeconomy on the live streaming business. Additionally, the policy adjustment on automatic renewal by the Ministry of Industry and Information Technology has some impact on WAAS membership subscription revenue. However, Tantan's growth margin was up by nearly four percentage point year over year and one percentage point quarter over quarter, driven by the greater revenue contribution of WAAS business, which carries a higher growth margin As I mentioned at the beginning, the decline in users and revenue of Tantan has mainly attributed to our initiative in cost optimization and efficiency improvement. In terms of improving staff efficiency, we have continued to reduce features and operational activities that cannot provide high-quality user experience and incremental revenue and realigned human resource accordingly. In terms of improving marketing efficiency, we have continued to reduce unit acquisition costs and further cut marketing expenses that can generate positive ROI. Although this approach has resulted in a reduction in the number of users and revenue, The cost optimization strategy has brought greater benefit to our bottom line as the market spend that we cut were ROI negative. This is why despite lower revenue, Tantan still achieves an adjusted operating income of 27.58 million RMB in the first quarter. So now I would like to walk you through the details of time-passed progress on the channel and product front. Firstly, on the marketing front, the unique acquisition cost of App Store increased sequentially in the third quarter due to the decline on its own traffic. Our team timely adjusted the proportion of investment across different channels in order to acquire more users, while controlling the increase in unit acquisition costs to low single digits, and crucially, on the product and operational front, the biggest achievement in the first quarter is that we managed to maintain spamming activity to a low level significantly, and therefore, the community returned to normal. Our product team emphasized guidance of real person authentication on the Swipe and Match homepage. The increase in real person authentication rates positively contribute to the improvement of the community ecosystem. In terms of commercial products, on top of the basic monthly membership service, we launched a variety of pay-as-you-go privileges that aim to increase exposure and improve matching efficiency. As a result, our vast app people continue to grow both on a year-over-year and a sequential basis, largely offset the impact of user decline on vast revenue. However, Due to the lack of breakthroughs in user products, our user retention unfortunately has not yet been stable, but basically improved. Additionally, the outbreak of spamming activities combined with the software spending among live streaming users led to a decline in channel ROI. Therefore, our team's execution for the rest of this year has been focusing on further reducing costs and channel investments. Relocating excess human resources to new endeavors and driving app growth through new product features on the basis of operational efficiency until ROI turns positive. Lastly, in terms of new endeavors, our goal is to enrich our product portfolio, push the boundary beyond normal and tantrum, to develop long-term growth engine. In the first quarter, total revenue of the new apps included social and games products with 302 million RMB, up 49% year-over-year and 50% sequentially. Among them was revenue of domestic and overseas social products with 295 million RMB, up 51% year-over-year and 30% sequentially. For domestic apps, Given their relatively mature stage, the operational focus on our team is to control costs and expenses while pushing harder on monetization so that profit can grow in line with revenue. Now, in terms of our overseas business, thanks to a border market space, Revenue in the first quarter continued to grow rapidly from a higher base. The introduction of new features together with our paying user-focused acquisition strategy play a pivotal role in driving revenue growth. In Turkey, which accounts for a substantial portion of oversea market revenue, significance Currency fluctuation during the quarter impacts revenue and exerts pressure on growth margins. To protect profits, our team reduced channel investments in a timely manner, resulting in continued sequential growth of operating income. At the moment, we have mitigated some of the problems affecting the profitability level of overseas business and is expected that it will deliver better sequential performance in both revenue and profit at the end of the year. So this concludes my remarks. Now I will pass the call over to Cathy for the financial review. Cathy, please.
spk14: Thank you, Sik. 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 2023 came in better than our previous expectation at 3.04 billion RMB, down 6% year-over-year and 3% quarter-over-quarter. Non-GAAP net income attributable to the company was 605.9 million RMB. up 13% year-on-year, but down 4% from the previous quarter. Net income significantly outperformed our expectation, mainly due to two factors. One, number one, better-than-expected top-line performance, and number two, our continuous cost-control efforts resulted in better-than-expected profitability for both Momo and Tantan. Net income continued to grow on a year-over-year basis despite lower revenue thanks to our effective cost optimization and efficiency improvement initiatives, which enabled us to maintain the stability of MoMo Cash Cow business, turn Tantan profitable, as well as support the development of new endeavors. Now let me walk you through the details. Looking into the key revenue line items for the quarter, Firstly, on live broadcasting, total revenue for live broadcasting business for the third quarter of 2023 was 1.53 billion RMB, down 8% year-over-year and 4% quarter-over-quarter. The decrease was mainly due to a soft consumer sentiment in the current macro environment, and to a lesser degree, Tantan pivoting away from the live streaming service, which we deem is not the priority for Tantan at this point for the dating business. Momoa app live broadcasting revenue totaled 1.41 billion RMB for the quarter, down 7% year-over-year and 2% quarter-over-quarter. Tantan's live broadcasting revenue amounted to 120.0 million RMB, down 14% from Q3 last year and 17% from the previous quarter. Revenue from value-added service for the third quarter of 2023 was 1.47 billion RMB, down 5% from Q3 last year and 2% sequentially. Revenue from value-added service on an ex-tantam basis was 1.30 billion RMB in the third quarter of 2023, down 3% the young year and 2% sequentially. The decrease in normal app value-added service was due to our proactive product adjustments as well as the impact of macroeconomy on consumer sentiment. However, the downward pressure on MoMA value-added service revenue was largely offset by the growth of standalone new apps. Tan Tan's value-added service revenue amounted to RMB 168.4 million, down 16% from Q3 last year and 1% from the previous quarter. The decrease was due to the decline in paying users which was in turn an outcome of us scaling back from the low efficiency marketing span. However, the downward pressure was partially offset by the growth in our people driven by commercial product efforts. Now turning to cost and expenses. Non-GAAP cost of revenue for the third quarter of 2023 was 1.77 billion RMB compared to 1.88 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.8%. Gross margin remained relatively stable compared to the same period last year and the previous quarter. Non-GAAP R&D expenses for the third quarter was 186.7 million RMB compared to 223.4 million RMB for the same period last year, or a 16% decrease YY. The decrease was due to the continuous optimization in personnel costs. Non-GAAP R&D expenses as a percentage of revenue were 6.1% compared with 6.9% Q3 last year. We ended the quarter with 1,410 total employees, of which 314 are from Tantan, compared to 1,750 total employees, of which 479 from Tantan a year ago. The RMB personnel as a percentage of total employee for the group was 64%, compared with 62% Q3 last year. Non-GAAP social and marketing expenses for the third quarter was 368.1 million RMB, or 12.1% of total revenue, compared to 2014. compared to 458.6 million RMB, or 14.2% of the total revenue for the same period last year. The significant year-over-year decrease, both in terms of absolute RMB amount and as a percentage of revenue, was primarily attributable to Tantan's shift in marketing strategy to control cost and focus on channel ROI, and to a lesser degree, Momo's strategy to trim low-efficiency channel marketing spans. Non-GAAP G&A expenses were 76.5 million RMB for the third quarter 2023 compared to 82.6 million RMB for the same quarter last year. G&A expenses as a percentage of total revenue remained largely stable at around 2.5% compared to Q3 last year. Non-GAAP operating income was 681.2 million RMB, up 13% from Q3 2022. but down 4% from the previous quarter. Non-GAAP operating margin for the quarter was 22.4%, up 3.7% percentage points from the same period last year, but slightly down 0.2 percentage points from the previous quarter. Non-GAAP operating expenses as a percentage of total revenue was 20.7%, a decrease from 23.6% in Q3 2022, but slightly up from 20.2% in Q2 this year. Non-GAAP expenses in absolute RMB amount decreased 17% year-over-year. This was due to reduction in sales and marketing expenses and optimization in personnel costs. Now briefly on income tax expenses. Total income tax expenses was 158.1 million RMB for the quarter, with an effective tax rate of 21%. In Q3, the company accrued withholding income tax of 47.9 million RMB, which is 10% of undistributed profit generated by our world fee. Without withholding tax, our estimated non-GAAP effective tax rate was around 15% in the third quarter. Now turning to balance sheet and cash flow items. As of September 30, 2023, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled 13.64 billion RMB compared to 13.40 billion RMB as of December 31, 2022. Net cash provided by operating activities in the third quarter of 2023 was 582.5 million RMB. Lastly, on business outlook, We estimate the group's fourth quarter revenue to come in the range from 2.9 billion renminbi to 3.0 billion renminbi, representing a decrease of 7.9% to 6.6% year-on-year or a decrease of 4.7% to 1.4% quarter-over-quarter. At segment level, for Q3 2023, on a sequential basis, we accept more and more revenue to decrease mid to low single digits. The decrease was primarily due to the pressure on value-added service from the product adjustment we made in mid Q3, which will have a full quarter impact in Q4, and to a lesser degree, the macro impact on the overall spending sentiment. Considering the external environment, we've decided to cut back on the incentives to the agency-driven year-end competition events. Therefore, revenue contribution from year-end competition events will be quite limited. On the Tantan side, we expect revenue to decrease in low teams, primarily due to us pivoting away from live streaming business in Tantan, and to a lesser extent, the product adjustments were made to comply with a new policy rolled out by MIIT, which will have some negative impact on membership renewal revenue. 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 the prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please. Thank you.
spk04: Just a quick reminder before we start taking questions, for those who can speak Chinese, please ask your questions in Chinese first and followed by English translation by yourself. Thank you. And we're ready for questions, operator.
spk06: 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 2. If you are on a speakerphone, please pick up the handset to ask your question. The first question today comes from Leo Shang with Deutsche Bank. Please go ahead.
spk01: Hi, 管理层,晚上好。谢谢接受我的提问以及恭喜这个 quarter 强劲的业绩。我的问题是关于探探的。可以请管理层分享一下 I'll translate myself. Hi, management. Thanks for taking my question. And congratulations on the strong result. My question is on Tantan's side. Can management share the outlook of Tantan's user scale and financial outlook in 2024? Thank you. 我来回答一下吧。
spk08: As mentioned in the speech, Tantan's biggest gain this year is the balance of profit-loss in the operating level under the strategy of cut-off and control. This is the result of the product's promotion of ARP, continuous improvement in the distribution efficiency of channels, ROI, and personnel, and the joint efforts of multiple teams. As for the product level, WAAS members have increased exposure, such as acceleration pairing, on the basis of the traditional music payment model. and the single-way payment special features that match the efficiency. The growth of TradeOS RP Pool has been a positive help. The channel team, while controlling the cost of single-customer goods, uses limited budget to test the goods and customer materials for payment orientation. In order to improve the channel's RP Pool and the goods and customer's ROI, we have explored new and effective ways. As for this year's SPAN outbreak, Today, a large part of the product team's efforts are focused on combating the black-and-white industry and maintaining community ecological balance. In this situation, we have transferred a portion of the technical staff to support the development and operation of new businesses, in order to improve the efficiency of the overall staff. Although the current community ecosystem has returned to its normal state, due to the decline in our live income caused by the downfall of RPPOOL, the overall channel ROI has been reversed in stages. As a result, we have cut off some of the channel budget of ROI, and the reduction of investment costs will cause some pressure on the recovery of user size. But we believe that the bottom line of profit and loss balance, the way to explore and improve user flow and income, and the amount of purchase that is not counted to achieve user growth, is a more healthy and sustainable business model. As a result, our product and channel strategy for 2024 will continue Let me translate first.
spk04: So as Sieg mentioned earlier, Tantan's biggest progress this year was to achieve a breakeven at the operational level and our effective cost optimization and efficiency improvement initiatives. This is the result of the joint efforts of several teams that delivered, among others, product-driven RP pool growth and continuous improvement in channel ROI and staff allocation efficiency. On the product front, on top of the basic pay-monthly membership subscription service, we launched a variety of pay-as-you-go privileges, such as accelerated matching, which is called 加速配对 in Chinese. So this kind of special privileges increased exposure and improved matching efficiency. thereby driving vast RP pool growth. So on the channel front, our team controlled unit acquisition cost well. At the same time, has been trying to testing paying features-oriented marketing materials with a limited budget to explore new ways to improve our pool and channel ROI. Due to the outbreak of the spamming activities this year, our product team had to devote a large part of their efforts to anti-spam and maintaining a healthy ecosystem. In this case, we have reallocated excess R&D staff to support the development and operation of new endeavors to improve the overall staff utilization efficiency. Although the community ecosystem currently has returned to normal, the decline in RP pool due to weak live streaming revenue has led to a temporary reduction in the overall channel ROI. Therefore, we cut investment in channels with negative ROI. The reduction in marketing expenses put some pressure on the recovery of the user scale. But we believe that compared with the approach of pursuing user growth regardless of cost, being able to improve user retention and vast revenue on top of breakeven is a healthier and more sustainable business model. Therefore, our product and channel strategies in 2024 will carry on with this current approach. In terms of revenue-related question, I'll leave it to Cassie.
spk14: Okay. You know, I've been very optimistic about Tantan. I continue to be so despite all the arduous journey that Tantan has been through since 2019. The reason for my optimism is quite simple. Chinese users have genuine demand for dating applications to help them discover romantic relationships, which they can bring to their real life. And that demand is currently underserved. Although Tantan is not doing as good a job as we expect it to, it's still undoubtedly the biggest and most effective and also the most relentless player in serving that demand in China market today. As long as that is still the case, we believe the revenue and profit potential remains there for us to cultivate. That's why I remain very optimistic about Tantan's long-term potential in revenue and profit. I think it's just a matter of continuing to stick to that goal and finding the right formula for the Asian user in the dating space. As far as next year is concerned, there are several things I can share at this point. First of all, we're going to refocus on the dating aspect of the applications, meaning that we're going to continue to pivot away from some of the peripheral features such as the live streaming showroom business. Live streaming currently bring in a little bit less than 1 million yuan per day in terms of daily grossing. So as we continue to downsize that service, I think top line could be pressured. However, as live streaming bears a 20-something percent gross margin and consumes a lot of operational human resources, downsizing live streaming would have minimal or even positive impact on the bottom line. However, the fact that Tantan has built a pretty sizable customer base for live streaming show business shows that Tantan's users actually have sufficient spending power to support a much higher ARPU. The biggest priority for next year for the team is to build the right product and services to unleash that ARPU potential. And unlike live streaming, the new product and services that we're going to build should contribute positively to the dating aspect of the application of the Tantan platform. If we are successful in doing so, that could push our eye from negative to positive, and the positive growth cycle will start to form on TanTan. Currently, we're working on several new features in the pipeline to be launched next year. We'll see whether any of them works as the year progresses. Meanwhile, of course, we're going to continue to optimize the key cost items, such as personnel and marketing. One thing we know for sure is that cost efficiency will continue to improve. So although we cannot pin down a revenue target now for next year, we are very optimistic that the profitability is going to continue to see improvement in 2024. So these are the things that I could share for Tantan's financial outlook next year. I'm handing back to Ashley for more questions.
spk13: Operator, next question, please.
spk05: The next question comes from Zhang Shuiqing from CICC.
spk09: Please go ahead. Thanks, management, for taking my question. Congratulations on the strong culture. My question is about our new apps. Could the management share more latest updates on the new apps? And do we have any revenue and profit guidance of new apps in 2024? Thank you. 我来回答一下。 自从2019年集团孵化器推出了几款以收入和利润为导向的独立apps以来,
spk08: These products for the vertical field and overseas social markets have continuously made visible financial contributions to the group. In 2022, under the pressure of the pandemic, in order to keep the Wax income at the group level as stable as possible, the team of new business increased the commercialization of independent apps. Therefore, the new business income in 2022 is nearly 1.5 times higher than the previous year. The increase in volume not only made up for the gap between Tantan and MoMo on Wax income, It also led the overall WASH revenue to achieve this small growth due to multiple negative factors. At the same time as users and revenue growth, we are also very good at controlling the cost. This is due to the leverage effect of revenue growth. In 2022, we achieved a three-digit continuous profit. This year, our requirements for new businesses are that revenue and profits must continue to grow. Product test by introducing new payment play methods to increase payment rate and RP pool. In the first three seasons, the group's revenue contribution to the new business increased by nearly 10% from last year's annual average, which is expected to break 2% next year. According to the growth of revenue and the changes in the channel RIA, the operating team has adjusted the costs in real time to ensure that income and profits grow together. Since the balance of profit and loss was achieved last year, the overall profit and loss level is to continue to steadily improve. For the fastest growth in revenue and profit, it is also the largest overseas business with growth potential. We plan to make some of the domestic products already confirmed for user experience and income, and start a new way of playing to replicate this overseas product. By improving the RP department, we will promote the further growth of the flow of water. In terms of channels, we focus on the rich countries and regions with wealthy and potential high-quality users. Through commercialization, we have improved the flow of this high-cost paid group. Let me translate first.
spk04: Starting from 2019, our incubator launched several revenue and profit-oriented standalone apps targeting vertical social segments and overseas markets. And these apps have begun to gradually contribute to the group financials. In 2022, for example, under the revenue pressure brought by the pandemic, we pushed a little bit harder on the monetization efforts for these new standalone apps. in order to keep the group levels of vast revenue stable. And as a result, revenue from these new endeavors in 2022 increased around one and a half times compared with the previous year. The incremental revenue not only offset the decline in vast revenue from Momo and Tantan, but also drove a slight increase in our group's vast revenue, despite several unfavorable external factors. Our team did a good job in controlling expenses while driving users and revenue growth. So we could enjoy operating leverage and achieve sustained profitability for the three small apps last year. And our goal for the new endeavors this year has been to continue to grow revenue and profit. And on the product front, we launched new paying features to increase the paying ratio and RP pool. And in the first nine months of the year, the contribution of these new endeavors to the group's top line increased to high single digits from mid-single digits last year. And we expect this contribution to be in the double digits next year. Our team adjusted various expenses based on revenue growth and channel ROI to ensure the profit will grow together with revenue. Since new endeavors collectively achieved a break-even at the beginning of last year, the profits have continued to improve steadily. In the overseas business, which is growing revenue and profit faster and has greater growth potential, we plan to replicate in this app some Gamify features that have proven to be beneficial to user experience and monetization in our domestic products and further drive revenue growth by increasing RP pool. And on the channel front, we will continue to focus on high-quality users with paying potential in the affluent markets and improve the retention of high-paying users through monetization innovation. We will slightly lower the revenue sharing ratio to improve growth margin based on a stable supply. Profit from the new endeavors is expected to grow much faster than revenue this year. Currently, there are some new apps that are being tested and have not yet generated meaningful revenues. We expect them to further support revenue growth once these product formats are stabilized. And for the specific revenue and profit guidance, I will leave it to Cassie.
spk14: Sure. That was... That was already a pretty thorough description of our strategy to the new apps and the achievement we've made under those strategies. For financial outlook, as you understand, it's a little bit too early to talk about the numbers now in December. But there are a couple of things we see happening next year, which I can share to help you understand how the new apps are going to contribute to the P&L in 2024. First of all, Sochiel, which is the social app that we run in the Middle East and North Africa area, that app is going to continue to grow pretty rapidly next year. The driver will come from three directions. One is the continuous penetration into the existing markets by beefing up local operations providing better customer service, so on. Compared with our peers, we believe we still have potential in driving further user and ARPU growth in those markets. The second direction of growth is that, as Sik and Tang-Yan mentioned just now, we are now mainly providing the peer-to-peer social entertainment on Sochio, and we expect to launch new features and services such as live streaming. That obviously can help us increase the share and ARPU as well. And thirdly, we're also looking at some other markets that we might be able to penetrate in, but as competition is already pretty intensive elsewhere in the GCC region, in the Gulf countries, this third strategy will be more of an uphill battle, but we'll see how it plays out. Overall, you know, for and also the other two smaller apps in China should continue to grow quite rapidly next year. This year, these three apps grew 50-something percent year-over-year and are on track to bring in somewhere between 1.1 to 1.2 billion yuan in top line and more than 100 million yuan at bottom line. Next year, the top line could slow down a little bit. The growth could slow down a little bit, but profit growth should be quite impressive as the operating leverage manifests itself. That's my answer to the financial outlook for the new business. Back to Ashley for her question.
spk02: In the interest of time, let's just take one last question. Operator, we're ready. Thank you.
spk06: The next question comes from Thomas Chong with Jesse. Please go ahead.
spk07: Good evening, thank you for accepting my question. My question is about Momo. Can you share with us the plan of the product in 2024 and the expected income? The second question is about the return plan of the shareholder and the consideration of the stock market. Thanks, management, for taking my questions. My first question is about Core Momo. Can management comment about the 2024 product strategies as well as the revenue outlook? And my second question is about shareholders' return. Can management comment about the force on share repurchase and dividends? Thank you.
spk08: Okay, let me answer this question. There is still a budget for the product planning of MoMo Group. Yes, let's start with the revenue expectations, including the return on equity value, which may be a suitable answer to start with. Well, the steady-scale reduction in costs and the stable output of cash flow business is currently and in the next few years. We have a strategic positioning for the mature business. Therefore, all implementation plans of user products, commercial products and channel teams will be around this strategic goal. For example, this year, the user product team added retail in the first business, The cloud-linked microphone used for distribution and the chat scene that matches the voice or text of Qiaoxiao. And the commercial product team is involved in these free scenarios. Live broadcast and chat room are the entrances to the payment method. This can not only highlight the value of the product in a timely manner, but also improve the penetration rate of the payment scene and the ability of the platform to transform. And the customer team, while clarifying the customer goal of focusing on the payment users, has strengthened the cooperation with the commercial product team. In order to improve the ability of the platform to connect with the channel users, Let me translate first.
spk04: Our goal for the mature Momo app for now and for the next few years is to keep the users and revenue scale stable and continue to optimize the cost structure and maintain the productivity of this cash cow business. Therefore, our execution plans for our products, user products, commercial products, and channel efforts are all focused on this strategic goal. For example, this year our user product team added a navigation bar for flash chat on the home page to direct users to matching-based real-time voice or text chatting experiences, such as and . And our commercial product teams embedded paying features, such as live streaming or chat room, into these experiences. This design not only highlights the timely social value of the Momo app, but also increases the penetration rate of paying features and the monetization potential of the platform. Our user acquisition team has fine-tuned its focus on paying users and has strengthened cooperation with the commercial product team to better accommodate users from the channels. And the resulting ARPU growth has supported the continued improvement in channel ROI enabling us to maintain a stable user scale and solid social fundamentals with a continuously decreasing marketing budget, which plays a positive role in improving MoMA's overall profit. In 2024, we'll continue to execute this strategy for the MoMA product and channels. In terms of financials, I'll leave it to Cassie.
spk14: Okay. After this earnings call, our job will move forward to putting together the financial plan for next year. Before that plan comes together, it's hard for me to talk about the outlook in a very quantitative way. However, same as in the past, As we approach the end of the year, there are several trends that we can talk about to help you think about how the different line items may move heading into next year. As many of the investors know, Momo is a brand that has been around for more than 12 years. In terms of monetization, being 12 years old has both advantages and disadvantages. The biggest disadvantage here, obviously, is that it's already pretty mature in terms of user penetration and also deeply monetized in terms of ARPU. That will make the business more cyclical to the macro and the regulatory environment. So next year, we continue to see macro and regulation as two biggest factors that are going to move the Momoa business either up or down. Macro-wise, I guess everybody has his or her own estimation, so I don't think I know better than investors do in this space. Regulatory front, as you can see, we've been very prudent and conservative in making sure we stay compliant. That's why in the past few quarters, if you look at our performance, we have clearly been more stable than most of our peers in the social entertainment space. I guess that will continue to be the case next year. That said... In view of the overall environment that we face today, what we need to do is to focus more on profitable user and revenue growth instead of pursuing top-line growth at all costs. During the past few quarters, we've been scaling back from some of the user and revenue endeavors that generate limited or sometimes even negative margins. For example, you can see in this year's year-end competition event, we further cut the incentive for agency-driven promotional events. These competitions are not particularly helpful in building a healthy social ecosystem and thus post regulatory risks in today's environment. In addition, although the agency-driven events would create a spike in revenue, but they usually hurt margins and sometimes even bring negative profits. So in this Q4, what you're going to see is that the incremental revenue coming from year-end competition is going to significantly shrink down. However, as the extra promotional costs and spending also substantially went down, the profit impact is actually quite limited. That's why, although we're guiding, as you can see in our guidance, we're guiding Q4 to show a mid-to-high single-digit percentage year-over-year revenue decline, for core MoMA, bottom line for the core could see a high single digit year over year improvement. Such an overall trend of focusing on bottom line will continue to be the case next year. Now, I'm going to, you know, I wanted to spend a few minutes talking about the good thing about being a 12 years old application. Over, you know, those 12 years, MoMA has built up a strong brand loyalty as the go-to place if you want to be around people, discover some new friends, and have fun and meaningful interactions with people you do not already know. And that brand loyalty allowed Momo to be able to navigate safely through the three years of pandemic and emerge on the other side with solid fundamentals and remarkable resilience. Looking into next year, I think Momo is going to continue to benefit from that stable and loyal user base. What that means as far as P&L is concerned is that we're going to be able to maintain the scale of users and revenue and at the same time continue to optimize on personnel and user acquisition costs. So that naturally leads to the question on profitability of the cash cow business. Looking out to next year, we expect gross margin to continue to be stable, as is the case throughout this year. With respect to operating expenses, for the reason that I just mentioned, we have a good opportunity to further cut the OPEX down with continuous efforts to improve cost efficiency. So if you put these different things together in a nutshell, I'm pretty optimistic that we'll be doing a decent job in maintaining the productivity of the cash cow business. There's a question on cash, okay. I guess it's really a question of how does the company utilize this cash and allocate its capital resources. I've said before that there are three priorities for the company in terms of capital allocation. Number one is, of course, to reinvest back into the business for organic growth. And the second priority is if there are good strategic investment opportunities that could help us grow beyond what we can achieve organically, we would go for those strategic opportunities and we prefer to use cash rather than, you know, through a stock deal. And the third priority is if we have excess cash as we, you know, as has been the situation in the past, we would return the excess cash to the shareholders in the form of either cash dividends or share repurchase. We have an ongoing repurchase plan of $200 million. Under that plan, I think so far we've brought back, we've bought back slightly under $90 million U.S. dollar worth of shares. So under that plan, we still have $110 million to go. We will continue to take advantage of the undervalued share price and make good use of our excess cash to enhance shareholder value. In terms of dividend, we have distributed special dividend five years in a row, starting from the year, I think, 2019. This, in a way, has proven our sincerity in sharing the fruit of our work with shareholders. Unless we have an opportunity to either reinvest our cash to drive organic business growth or through strategic investments, I think we're going to continue to return cash to shareholders in the form of cash dividends. I guess that's the end of this conference call. I'm handing back to Ashley for closing remarks.
spk02: Thank you all for your time. I think that's it for the quarter. We will see you next year. Thank you. Bye.
spk06: Thank you for participating in today's conference.
spk02: You may now disconnect.
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