Hello Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and fiscal year 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.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's fourth quarter and fiscal 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 expectations and current market and operating conditions. and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Jiang Sichun. Ms. Jiang, please.

Thank you. Hello, everyone. Thank you for joining our call. 2023 was a busy year. Despite many changes and challenges in the internal environment, our team makes steady progress in implementing our strategic priorities and achieve solid financial results. I will walk you through the details of our work across business line in the fourth quarter and fiscal year 2023, and then outline the strategic goals for fiscal 2024. I will start with a brief overview of our financial performance. For the fourth quarter of 2023, Total group revenue was 3 billion RMB, down 7% year-over-year and 1% sequentially, which is at the high end of our guidance. Adjusted operating income was 664 million RMB, up significantly by 33% year-over-year. The profit margin was 22.1%, a significant improvement of 6.6 percentage point year-over-year. Total revenue from the Momo Act and the San Antonio Act was 2.73 billion RMB, down 5% year-over-year, and adjusted operating income was 637 million RMB, up 24% year-over-year. with a margin of 23.3%, up 5.4 percentage points year-over-year. The year-over-year improvement in profit margin was primarily due to our team's excellent cost management and improved efficiency in resource utilization over the past year. Total revenue from Tantan came in at 272 million RMB, down 21% year-over-year. Adjusted operating income was 27.04 million RMB, with a margin of 9.9%. Compared with an operating loss of 5.17 million RMB in the same period of previous year. For fiscal 2023, total group revenue was 12 billion RMB, compared with a 12.7 billion RMB in 2022. Adjusted operating income was 2.57 billion RMB, up significantly by 27 year-over-year, with a margin of 21.4%, up significantly by 5.4 percentage points. The strong improvement in growth, profit, and margin despite lower revenue was mainly driven by our effective cost optimization and efficiency improvement initiatives across our businesses over the past year. We've supported the stable productivity of the Momo Cash Cow business and make TamTam profitable. Total revenue from the Momo app and standalone new app was 10.8 billion RMB, down 5% from 2022, mainly due to the decline in revenue from the Momo app resulting from spending softness amid the weak microeconomy and our proactive product and operational adjustments to maintain a healthy economy ecosystem. Their new app maintains rapid growth momentum driven by our overseas business. Adjusted operating income was 2.5 billion RMB, up 5% year-over-year, with a margin of 23.2%, up 2 percentage points from a year ago. At TanTan, we continue implementing costs optimization and efficiency improvement initiatives in the past year. We continue to reduce investment in low ROI channels and reallocated access to human resources. In addition, we continue to optimize the paying experience to improve our pool. As a result, with 10 times revenue declined due to significantly reduced marketing spending caused decreased more than revenue. Accordingly, we improved our cash use efficiency, delivering four consecutive quarter of profitability. For fiscal 2023, TANTA's total revenue was 1.2 billion RMB, down 30% year over year, and adjusted operating income was 101 billion RMB. compared with a loss of 330 million RMB in 2022. While we're very pleased with the team's execution in cost optimization and efficiency improvement, we must admit that we make a mistake in equal system management, which led to an outbreak of spamming activity in the first part of the year and negatively affect Tantan's user experience and retention. While the problem has been fully solved through our efforts in the second half, it has also caused our various product and operational work to lag significantly behind expectations. As a result, we were unable to make any meaningful breakthroughs in the new dating features. We remain committed to working hard towards this goal this year. which I will discuss and explain in more detail later. Now, I wrote you through the progress we make against our strategic priorities for Momo, Chantang, and the new vendors, as well as the challenges we are facing and our plans to deal with them respectively. For the Momo app, this is the main goal for 2023 to keep the user and revenue scale stable, continue to optimize core structures, and remain the productivity of this cash cow business. In the past year, despite the pressure from the macroeconomy and changes in regulatory policies, our team mitigated the external revenue pressures by continuously optimizing product operations and introducing new monetization features. Meanwhile, by improving cash humanization and staff efficiency, we increase operating profits and margins despite revenue pressures. On the channel marketing front, we have focused on improving channel ROI to pursue profitable user growth. rather than blindly pursuing unprofitable user acquisition. In fiscal year 2023, our unit acquisition cost decreased 25% year-over-year, and we acquired 20% more users while reducing channel investments by 10% year-over-year. The number of paying users remained stable in the first nine months of 2023. thanks to our product and channel efforts. However, at the end of the year, the number of active users fell temporary due to the impact of external COVID and regulatory-driven product adjustments and community ecosystem optimization, which resulted in a short-term pressure on the number of long-term paying users In the fourth quarter, the number of paying users of Momo app was 7.4 million, a decrease of 400,000 compared with the previous quarter. Now, let's go through the productivity of our Momo Cash Cow business. In the fourth quarter, Momo's live streaming revenue was 1.42 billion RMB. down 9% year-over-year. For fiscal year 2023, Momo's live streaming revenue totaled 5.57 billion RMB, down 7% year-over-year. With the pandemic over in early 2023, Momo's live streaming delivered positive year-over-year revenue growth in quarter two. a quarter earlier than we expected, thanks to the economy recovery and our product and operational efforts. However, as we enter the year's second half, the economy recovery becomes weaker than expected. At the same time, to better manage regulatory risk, our operational team proactively reduced revenue-oriented competition events resulting in a decline in revenue in the second half of the year compared with the same periods of 2022. The combination of spending softness and decreased revenue from the competition events is the main reason for the decline in Momo's live streaming revenue in 2023. On the product front, our team continues to enrich interactive game-as-I features to improve pay-in conversion and API pool of users in different cohorts. Against the backdrop of spending softness, introducing new game-as-I features not only help stabilize the engagement of live streaming users in the mid- and long-term cohort, but also plays a positive role on the supply side of live streaming. Regarding last revenue from value added services, excluding time down, total 1.26 billion RMB for the fourth quarter, flat year over year. Last revenue from the Momo app totaled 940 million RMB, down 10% year over year. Revenue from the standalone app was 320 million RMB, up 44% year-over-year. For fiscal year 2023, vast revenue, excluding content, totaled 5.09 billion RMB, down 2% year-over-year. Vast revenue from the normal app was 3.98 billion RMB, down 10% year-over-year. RAS revenue from the standalone app was 1.11 billion RMB, up 50% year-over-year. The incremental revenue contributed by standalone apps largely offset the revenue decrease from the Momo app. The rate of decline in RAS revenue from the Momo app was higher than we expected at the beginning of the year, mainly for two reasons. First, the economic recovery was weaker than expected. The user spending remained soft. Second, the product adjustments to maintain a healthy community ecosystem in the year's second half resulted in a decline in paying users. On the product front, integrating audio and video-based live experience with the non-paying features on the homepage, possibly improve the efficiency of WAP monetization. On the operational front, we focus on user-oriented operational efforts to drive organic revenue growth, resulting in 30 IP pool improvements. Now, moving to Tantan. Our strategic goal for Tantan was to achieve overall break-even for the year and develop product and monetization models that are suitable for Asian dating culture to pursue sustainable growth on the back of the positive business cycle. Driven by our efforts on both product and channel fronts, Tan Tan hit the first milestone of its strategic goals at the beginning of this year. achieving operating break-even and maintain a small profit throughout the year despite the pressure on revenue. The success of our cost optimization and efficiency improvement initiative was primarily due to our continued improvement in channel efficiency and personnel cost optimization. However, As I mentioned at the beginning, due to some missteps in execution and efficiency in narration, Tantan has yet to make breakthroughs in achieving its strategic goal of sustainable growth. As the pandemic subsided at the beginning of 2023, our user base and engagement level quickly recovered from the trough around Chinese New Year holidays. However, due to the overly aggressive adjustments to our user screening standards, our platform experienced significant spammer attacks starting at the spring. And three, impacting our user experience and leading to a decline in user retention that threatened the health of our dating ecosystem. To improve the user experience and ensure the stability of our ecosystem, our team launched Verger's six-month anti-spam campaign. However, the missteps I just mentioned, combined with our reduced investments in channels, had a significantly negative impact on our user experience and retention. putting significant pressure on our user base. With further reduction in channel spending and the impact of the COVID, our MAU in December was down 30% from December to 30.7 million. As of the end of the fourth quarter, Tantan had a 1.2 million paying users a next decrease of 200,000 sequentially. Turning to 10 times financials, total revenue for the fourth quarter was 272 million RMB, down 21% year-over-year and 8% sequentially. The decrease was solely attributed to a reduced number of paying users. For fiscal year 2023, Total revenue was 1.2 billion RMB, down 30% year-over-year. The decrease was due to the declines in paying users that resulted from reduced channel investments, the anti-spam campaign, and adjustment to subscription renewables. In terms of business line, WAC revenue was 667 million RMB, down 90% year-over-year, while live streaming revenue was 505 million RMB, down 7% year-over-year. Contents adjusted operating income for fiscal year 2023 was 101 million RMB, compared to an adjusted operating loss of 330 million RMB in 2022. Turned profitable despite the pressure on revenue. This was primarily driven by significant reduction in unproductive channel investments as part of our cost optimization strategy and staff allocation optimization. Meanwhile, the continued improvement in Apple resulted in revenue declining much less than the user count. Now I would like to walk you through the details of Timeline's progress on the channel and product front. First, on the channel front, our user acquisition team continued to reduce marketing expenses that couldn't generate positive ROI, and total channel investment declined by over 60% compared to 2022. We avoided seasonal costs caused by external competition by seasonally allocating budget ratio to different channels and effectively adjusted marketing windows. By fiscal year 2023, our unit acquisition cost was significantly reduced by 45% compared to 2022. Although cost cutting puts pressure on the user base, reducing investments in China with negative ROI is essential for Tantan to remain profitable. On the product and operational side, in 2023, Our user product team mainly focused on product adjustments and strategy upgrades to fight against the spamming activities that broke out during the spring. Our commercial product team launched a variety of premium membership products and pay-as-you-go privileges on top of the basic membership services, which combined with appropriate guidance on paying experience led to a significant sequential increase in WhatsApp people in every single quarter of 2023. To mitigate the impact of reduced user base and the Ministry of Industry and Information Technology regulations on server renewal, we improved the product experience for paying users which plays a positive role in the contingency and study increase in paying ratios and accrues throughout the year. By the end of 2023, spending activities were under control and the dating ecosystem had also recovered. Beyond the dating-centric value-added service, Since live streaming and chatroom services are not the focus on the dating cloud, we began to emphasize live streaming in the second half of the year, and we allocated access to human resources to innovative projects. Over time, the chief overall break-even In 2023, thanks to our effective cost optimization and efficiency improvement initiative, as well as the continuous improvement in Apple, we failed to achieve the strategic goals of sustainable growth on the back of the positive business cycle due to our misstep in ecosystem management and the lack of breakthrough in product innovation. Therefore, the biggest priority for Tantan in 2024 is to continue focusing on product innovation and improving the monetization experience to ultimately achieve profitable growth. Lastly, in terms of new endeavors, our goal is to enrich our product portfolio, expand beyond Momo and Tantan. and develop long-term growth engines. In the first quarter, the total revenue of the new app, including social and game products, was 328 million RMB, up 43% year-over-year. For fiscal year 2023, revenue from the Sentinel app was 1.12 billion RMB, up 42% year-over-year. Driven by rapid growth of our overseas business, standalone apps remain rapid growth momentum from a high base in 2022. As for the domestic apps, given their relatively mature life cycle, our team's operational focus on 2023 was to control costs and expenses while continuing to tap monetization potential. As a result, the profit growth rate of the domestic app was higher than the revenues due to the improved operating profit margin. Compared with domestic products, our overseas product is at the relatively early stage of its life cycle with a border market size. and the team has accumulated more experience for previous endeavors. Even though the overseas business was affected by negative factors such as the earthquakes in Turkey and the devaluations of currencies in several countries in 2023, its revenues still maintain rapid growth with the combined effort of our product and channel team. On the product front, we continue to enrich localized experience and operation for users and different cohorts. On the channel front, our team focuses on acquiring paying users, strictly adjusted channel investments according to change the revenue and ROI. As a result, our product efforts, coupled with an increase in channel investment has supported the continued improvement in IP pool and the number of paying users. Upraising profit margins significantly improved year over year thanks to operating leverage. Our overseas business profit increased significantly from a few million RMB in 2022 to close to 100 million RMB in 2023. In addition to revenue and profit-oriented products, we have also made remarkable progress in exploring new opportunities in social sectors by leveraging technological product development. In 2023, we developed InSpace, a brand new social app for Apple Vision Pro. As one of the 600 native apps, it was launched simultaneously with Appalachian Pros in February this year. The product is still in very early stage, and we will continue to enrich its use cases and gain place for social interactions and emotional connections. Let's talk about our business review. As this is the first call with our investors in 2024, I'd like to spend some time talking about management priorities for this year. First of all, our goal for the Momo app is to maintain the productivity of this cash cow business with a healthy social ecosystem. In order to maintain an excellent social ecosystem, and limit the radical monetization approaches adopted by broadcasters and agencies in order to obtain competition event-related bonuses. We plan to further reduce revenue-oriented large-scale competition events. Instead, we will leverage more social contributions to increase non-event-driven revenue through new gaming-side features and user-oriented operational activities. We will use part of the event's bonus savings to increase daily revenue sharing. As the declines in competition, event-related revenue will put some pressure on live streaming and live streaming. We will continue to look for ways to optimize our cost efficiency to mitigate the impact of lower revenue on our profits. For Tantan, our strategic goal for Tantan this year is to improve the core dating experience and on top of that, build an efficient business model that drives profitable growth. Regarding our new endeavors, We plan to continue enriching the brand's portfolio, pushing the business boundary beyond Momo and Tantan, and build a long-term growth engine. Based on our experience in the MENA region over the past three years, we believe that the social and entertainment industry still has a great room for growth in the overseas market. Hello Group has unique advantage in social space and monetization built on the social ecosystem. We know how to help users find new friends and interact effectively with each other. And we know how to build well-added services on top of that to create value for the company and our shareholders. We leverage and replicate our successful experience to explore new products. not limited to Xochitl and new markets beyond the MENA market. We believe that if we are doing a good job in localization, we can succeed in a border market with a more diversified product. In 2024, we plan to invest more resources and take a strike to explore this area. Lastly, I would like to conclude by announcing that our board has declared a special cash dividend in the amount of 0.54 US dollars per ADS, which will amount to a total cash payment of approximately 103 million USD, or one-third of adjusted net income contributable to Hello Group Inc. in 2023. This is the sixth consecutive year that the company has paid a cash dividend, and together with the device with purchase program, it demonstrates the management's confidence in the fundamentals of the business and our commitment to creating long-term value for shareholders. Thank you for your confidence and trust in us. And now I will pass the call over to Kathy for the financial review. Kathy, please.

Thanks, Tick. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the fourth quarter 2023 was 3.0 billion renminbi, down 7% young year and 1% quote-on-quarter. Non-GAAP net income attributable to the company was 514.7 million renminbi, up 5% young year but down 15% from the previous quarter. Net income continued to grow on a year-over-year basis despite lower revenue. This was mainly attributable to our effective cost optimization and efficiency improvement initiative, which supported the stable productivity of the normal cash cow business and turned Tantan profitable. Now let me walk you through the details. Looking into the key revenue line items for the quarter, firstly, on the live broadcasting. Total revenue from live broadcasting business for the fourth quarter of 2023 was 1.52 billion RMB, down 12% year-over-year, about flat quarter-over-quarter. The year-over-year decrease was mainly due to three factors. Number one, soft consumer sentiment in the current macro environment, number two, our Proactive operational adjustments to reduce competition events-related revenue in order to better manage regulatory risk. Number three, time-to-time pivoting away from the less dating-centric live streaming service. Mobile application live broadcasting revenue totaled 1.42 billion RMB for the quarter, down 9% year-over-year, but up 1% quarter-over-quarter. Tantan's live broadcasting revenue amounted to 100.2 million RMB, down 39% year-over-year and 17% quarter-over-quarter. Revenue from the value-added service for the fourth quarter of 2023 was 1.42 billion RMB, down 2% from Q4 last year and 3% sequentially. Revenue from value-added service on an ex-Tantan basis was 1.26 billion RMB in the fourth quarter of 2023, same as Q4 last year, but down 3% from the previous quarter. One more application that added service revenue decreased both on a yearly basis and a quarter-over-quarter basis. This was due to a weak spending sentiment as well as our proactive product adjustments. On the other hand, revenue from the standalone new apps continue to show strong growth momentum. partially offsetting the revenue pressure from one more value-added service. Time-to-time fast revenue amounted to $160.5 million, down 13% year-over-year and 5% sequentially. The decrease was due to a decline in paying users, which was in turn due to a reduction in channel investment, the anti-spam campaign, and the adjustments to membership subscription renewal. However, the continued improvement in ARPU resulted in revenue declining, much less than user count. Now turning to cost and expenses. Non-GAAP cost of revenue for the fourth quarter of 2023 was $1.77 billion in NBs compared to $1.91 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.1%, up 0.7 percentage points from the year-ago period, but down 0.7 percentage points from the last quarter. The year-over-year increase was due to an improvement in time-pass margin that resulted from a shift in its revenue mix. The quarter-over-quarter decline was mainly due to incremental expenses in connection with various year-end events in live streaming. However, as you can notice, the sequential decrease in GP margin in this Q4 was much less than in previous years as we de-emphasized revenue-oriented competition events to better manage regulatory risks. Non-GAAP R&D expenses for the fourth quarter was 218.1 million RMB compared to 250.5 million RMB for the same period last year, or a 13% decrease year-over-year. The decrease was due to the continuous optimization in personnel costs. Non-GAAP R&D expenses as a percentage of revenue was 7% compared with 8% from the year-ago period. We ended the quarter with 1,382 total employees, of which 301 are from Tantan, compared with 1,705 total employees, of which 459 from Tantan a year ago. The RMB personnel as a percentage of total employee for the group remained stable at 63% from Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was 296.0 million RMB or 10% of total revenue compared to 398.6 million RMB or 12% of total revenue for the same period last year. The significant year-over-year decrease, both in terms of absolute renminbi amount and as a percentage of revenue, was primarily attributable to Momo's strategy to cut lower efficiency channel marketing spend, and to a lesser degree, Tangtang continuing to control costs and focus on channel ROI. Non-GAAP GNA expenses was 87.2 million renminbi for the fourth quarter of 2023. compared to 84.9 million RMB for the same quarter last year, both representing 3% of their respective total revenues. Non-GAAP operating income was 664.2 million RMB, an increase of 33% from Q4 2022, but down 2% from the previous quarter. Non-GAAP operating margin for the quarter was 22.1%, up 6.6 percentage points from the same period last year, but slightly down 0.3 percentage points from the previous quarter. Non-GAAP operating expenses as a percentage of total revenue was 20%, a decrease from 23% from Q4 2022 and 21% from last quarter. Non-GAAP operating expenses on a year-on-year basis decreased 18%. The decrease in both absolute remuneration amount and as a percentage of revenue of OPACs was mainly due to a reduction in sales and marketing expenses and to a lesser degree, optimization in personnel costs. Non-GAAP operating expenses decreased 5% sequentially. This is attributable to the decrease in marketing expenses, which offset the increase in seasonal expenses, such as year-end bonus. Now briefly on income tax expenses. Total income tax expenses was $183.8 million RMB for the quarter, with an effective tax rate of 25%. In Q4, the company accrued withholding income tax of 53.5 million RMB, which is 10% of undistributed profits generated by our wealth fee. Without a withholding tax, our estimated non-GAAP effective tax rate was around 18% in the fourth quarter. Now turning to balance sheet and cash flow items. As of December 31, 2023, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled 13.48 billion RMB compared to 13.40 billion RMB as of December 31, 2022. Net cash provided by operating activities in the fourth quarter of 2023 was 415.9 million RMB. Lastly, on business outlook, we estimated our first quarter revenue to come in the range from 2.45 billion RMB to 2.55 billion RMB, representing a decrease of 13.1%, 9.5% year-on-year, or a decrease of 18.4% to 15.1% quarter-over-quarter. At segment level for Q1 2024, on a year-over-year basis, we expect more more revenue to decrease around 10% due to our operational plan to further reduce revenue-oriented competition events in order to better manage regulatory risks, and to a lesser degree, the continuous macro headwind. On the Tantan side, we expect revenue to decrease mid-20th due to our operational adjustment to de-emphasize less dating-centric live streaming service, and to a lesser degree, vast revenue decrease caused by decline in user base. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our preparation of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Just a quick reminder, before we take the questions, for those who can't speak Chinese, please ask your questions in Chinese first and followed by English translations. And also please limit the number of questions to maximum two. So operator, we're ready for questions.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Zhejing Jiang from CICC. Please go ahead.

谢谢管理层接受我的提问。 我的问题是关于海外业务的。 我们想请教一家公司2024年海外业务的中年规划以及未来两到三年收入和利润的预期。 谢谢。 Thanks management for taking my question and my question is about overseas business. Could management share with us your own system's key strategy and any financial guidance for the next two to three years? Thank you.

Let me answer. I think the main competitive advantage of our team is in terms of social media and the real-life services based on social media and entertainment. Our domestic team in the field of social media product innovation and commercialization

I think our team's main competitive advantage in the overseas market lies in the social space and value-added services based on social and pan-entertainment products. Our domestic team has very comprehensive capabilities in social product innovation monetization and profitability. Socio is a good example of how these capabilities can be replicated overseas.

目前Socio在深挖现有的市场商业化潜力, 增加视频类社交玩法以及拓展新区域这三个方面, 都还有可见的提升空间。 从目前的趋势来看, 今年这款产品在收入和利润增长方面都还会有不错的表现。 The growth will mainly come from the following aspects. First, the localization of our operations and services is not doing well enough. Especially compared to the same industry that has grown in the overseas entertainment industry for many years, it is still far behind. Currently, we are accelerating our localization. This is extremely important for user experience and continuous growth. Second, due to the limitations of personnel and other resources, the growth of social media has all come from voice and social media. At present, Socio still has a visible room for improvement in three aspects.

Number one, tap deeper into the monetization potentials in its existing market. Number two, add video-based social experiences. And number three, expand into new market. Based on the current trend, we believe Socio will continue to deliver decent revenue and profit growth this year. And the growth will come from several directions. First, considering we're not doing a very good job in terms of localization, especially compared to our peers who have been in the overseas pan-entertainment industry for many years, we're still far from good. Currently, we are accelerating our localization process, which is crucial for user experience and continued growth. Second, with limited staff and other resources, Socio's entire growth in the past came from audio-based social experiences. However, MoMo has strong capabilities in building video-based interactive features that can be replicated in overseas products. And we will invest more resources in this area this year. And third, we will expand our services to the GCC countries in the Middle East and other countries. And in addition to Sochio, we also launched several new products in the past year, one of which is doing quite well. We will try to ramp up its investment in the second half of this year.

In addition, we believe that dating in Asia and overseas Chinese areas also has a lot of room for growth. In the past, we have been searching for effective growth paths in this area, and we have also stepped into a lot of holes. At the same time, there is also a lack of sustainable and effective resource investment. The most important thing is that the layout of localization is almost zero. Despite this, carbon is still an important and mainstream date product in the Asian region, especially in the Chinese society. And MoMo also has considerable foundation in overseas Chinese. We should take this asset seriously.

In addition, we believe that dating services have a lot of room for growth in Asia and overseas Chinese communities. In the past, we have been trying to explore effective ways to drive growth, but encountered many pitfalls. We lacked sustained and effective resource investment and, most importantly, we didn't do much in terms of localization. Nevertheless, Tantan is still a very mainstream and important dating product in Asia, especially in the Chinese communities. And Muomo also has established a solid foundation among overseas Chinese. We should better make use of this asset to tap its growth potential. This year, We will step up our efforts in the dating space to enhance overseas user experience and increase our overseas market share.

Regarding resource allocation, for 2024, we plan to greatly tier overseas in terms of human resources and capital allocation so as to accelerate localization.

Around the end of last year, we adjusted staff in each business line and transferred some top product operations and technical talents to new endeavors in order to strengthen the support for overseas teams. And the budget allocation was also tilted towards overseas businesses. This approach will enable us to buy fruit in the Middle East market while accelerating our efforts to explore new regions and new products. As for the revenue and profit guidance, I will leave it to Kathy.

Okay. Revenue and profit expectations. I'll try to look at this both from a near-term perspective and a longer-term perspective. If you look at the near-term for 2024, as Tang Yan said, so chill. is still going to be the primary driver of our overseas revenues and profit growth. If we do a decent job in the three areas that Tanya mentioned, namely beefing up local operations, expanding to video service, and diversifying to other regions, we should be able to maintain similar growth rate as we saw in 2023 in terms of top line. Profit-wise, I think we're still going to be growing pretty meaningfully. However, because social is still at an early stage of development, and we are currently seeing a lot of growth opportunities, if ROI makes sense, we're going to be very flexible in terms of how much of the incremental revenue we would invest back to pursue higher growth. In other words, I think we're going to continue to see steady growth at bottom line, but in terms of magnitude of the profit growth in 2024, it is secondary to top line and user growth. Now for a more longer-term point of view, if we take a three-year perspective, We have an internal goal that we would like overseas revenue to take up a very sizable portion of Hello Group's top line. Obviously, to get there, Sochio needs to be able to continue to grow. That's needless to say. In addition to Sochio, we have to achieve a decent level of success in building other products and in other parts of the world. Tang Yan and SIG already laid out a few areas where we're going to be pushing very hard to grow organically. I would like to stress that over the past few years, we have also built up a very strong balance sheet. If we see good opportunities out there, we can certainly leverage our cash position to supplement the growth that we can achieve organically. So hopefully that addresses your question. With that, back to actually for the next question.

Aparita, next question, please.

Thank you. The next question is from Henry Sun from JP Morgan. Please go ahead.

Thanks, management, for taking my question. The question is about shareholder value return. We noticed that the dividend payout ratio has decreased from 50% last year to around 30% this year, despite the solid profit growth. So could management shed some light on the rationale behind the dividend payout reduction? Is there any consideration for a regular dividend plan in the future? And lastly, could management share your perspective on a buyback execution plan moving forward. Thanks a lot.

Okay, I guess that's the question. I will take that question. So first on the payout ratio question, when we think about how much profit we're going to pay out, we compare our offshore cash reserve and the potential offshore capital demand. As Tanya and Sig mentioned earlier, the biggest investment area for the coming couple of years is overseas expansion. Whether we invest organically or through M&As, it might consume more offshore cash than the past, you know, past a few years. With the foreign exchange controls, I guess it makes more sense to try to be more conservative in terms of returning cash to shareholders through dividend payments. So that's the first reason. The other factor that led to the decision to lower the payout ratio a little bit this year is that we considered our stock significantly undervalued at this point. With the stock trading below the net cash value, I believe it's more efficient to buy back versus paying cash dividends. So that's my response to to pay out a ratio. Is there a question about why not paying a regular dividend? Okay, so as for why not a regular dividend plan, we've been paying cash dividend for, I guess, the past six or seven years in a row. We've said many times that if we continue to generate more excess cash than what we can effectively deploy, we will continue to return them to the shareholders, either through dividend or share repurchase. So whether or not we have a more regular plan or not, we've already got the expectation right. At the same time, we're still seeing, like we said before, we're still seeing many growth opportunities and investment areas. And without... 100% flexibility in foreign exchange, it may not be too wise to be pinned down by a regular dividend payout ratio every year. I think I heard a question on how we plan to manage the repurchase program. I think from today's earnings release, you can see that we announced an extension of the share repurchase plan. That extension of the plan would allow us to purchase up to $200 million for the two years period from now onwards. So, you know, like I said, we consider our stock at this point significantly undervalued and it's trading at net cash value. We're going to, you know, utilize that cash and take the opportunity to, you know, create more shareholder value, that's for sure. Hopefully that answers your question. Back to Ashley.

Operator, next question, please.

Thank you. The next question is from Leo Chiang from Deutsche Bank. Please go ahead.

谢谢管理层接受我的提问。 我的问题是关于默默主战的。 可以请管理层分享一下2024年默默主战直播和VAS的业务展望。 在当前的宏观环境下对核心付费用户的影响为何? 以及最后如何看待主战利润的稳定性? Thank you, management, for taking my question. My question is about Core Mobile. Can management share the business outlook of Core Mobile on both live broadcasting and VAS in 2024? How the current macro environment has impacted the spending for core users? And lastly, how to view the profit stability of the Core Mobile in 2024? Thank you.

我来回答一下吧。 那么刚才SIG在他的发言中提到, 默默主战今年的工作重点是以健康的社交生态, 保障现金流业务稳定的产出。 那么当前在宏观环境和消费预期都不太确定的情况下, 为了保障社交用户的消费体验, 避免主播和工会为了获得更高比例的流水分层, 而采取激进的商业化手段。 运营上我们计划通过降低奖金规模, to weaken the live broadcast and WAAS scenarios, which can lead to a large-scale competitive event. This arrangement will undoubtedly cause some competitive-related water shortage, but it will certainly play an active role in the social experience and active flow of paid users with the head as the main focus. In terms of product operation, we will also make better use of the commercialization opportunities brought by MoMo's social attributes, to enrich the game play and interaction of head and waist users,

As Sik mentioned earlier, our goal for the MoMo app is to maintain the productivity of the cash cow business within a healthy social ecosystem. Given the uncertainties in the current market environment and consumer spending sentiment, in order to ensure users' social experience and prevent broadcasters and agencies from adopting a radical modernization approach, to obtain competition event-related bonuses, we plan to reduce the scale of bonuses to de-emphasize large-scale competition events in live streaming and value-added services that may lead to periodic revenue surge. Such an arrangement will undoubtedly cause decline in competition-related revenue, but we believe it will play a positive role in ensuring the social experience. engagement, and retention of paying users, especially of those high-paying users. On the product and operation front, we will better leverage monetization opportunities brought by MoMo's social attributes and enrich gamified features and interactive tools for the top and middle cohort users to drive organic revenue growth.

MoMo is a mature brand with a 12-year history, but our product team has always maintained the enthusiasm for product innovation. This has also shown outstanding stability in the past few years, both in terms of traffic and profit. Although the current external environment challenges are still very tough, we believe that as long as the team stabilizes the basic social platform and continues to build on this foundation, in the foreseeable future, MoMo will still be a healthy and stable cash flow, providing a solid foundation for the future opening and closing of the group. As for the specific financial expectations in 2024, let's start from the beginning.

Momo is a mature brand with a 12-year history, but our product team has always been passionate about product innovation. As a result, over the past few years, Momo has demonstrated outstanding stability in terms of user traffic and profitability. Although the challenges in the current external environment are still tough, we believe that as long as we stabilize our basic social fundamentals and continue to make efforts to progress with time, Momo will continue to be a healthy and stable cash cow for the foreseeable future, providing a solid foundation for the group's future expansion. As for the specific financial-related guidance for 2024, Cassie will answer that.

Okay. I guess in her prepared remarks, CIC has already spelled out the priorities on management's agenda for 2024. let me try to translate them into the impact on financials. When we say MoMoA segment, that segment actually includes the cash cow business of the old MoMoA and also the revenue generated by the new applications, mainly SoChill. For the cash cow business, one of the key themes is to this year is to significantly de-emphasize on the promotional events and the competitions for regulatory reasons. And that would involve changing the operational strategies and bonus structure for both live streaming and value added service business. And that could significantly lower the events slash competition driven tipping revenues. However, the non-event and more organic part of the revenue will increase. In the near term, though, it's difficult for the organic part to make up for the event-driven revenue that we're going to lose. So I guess the top line for the cash cow business will continue to see some pressure on a YY basis for coming through quarters because of that operational, that strategy change in operational policies. With regards to Sochiel and other new applications, we continue to see pretty strong growth momentum, which is going to partially offset the decline of the cash cow business. So if you put these different pieces together and try to, you know, try to get a more quantitative outlook, this is probably what I can say at this point. We've already given our Q1 guidance. As you can see, at midpoint, we're seeing a somewhere around 10% year-over-year decrease for MOMA segments. In it, I guess the cash cow is declining mid-teens percentage, offset by a 40-something percent YY growth from the new applications. I don't have enough visibility to pin down the rest of the year with very reliable numbers, but I guess we can use Q1 as a good basis for the projection into the rest few quarters of the year and how do we move from Q1 will heavily hinge upon several factors, namely the macro, the regulatory environment, and how well we execute our overseas strategies. So I guess that's what I can say at this point, and we'll keep you updated as the year progresses. Now back to Ashley for more questions.

Operator, just in the interest of time, let's just take one last person for today's call.

Thank you. Please go ahead. Thank you. The final question is from Rafael Chen from BOCI Research. Please go ahead.

谢谢管理层解释我的提问。 我有两个问题,首先是关于探探的。 能否先请管理层分享一下探探近期的一个用户的趋势, 以及2024年买量和商业化的策略和对应的收入和利润的指引。 第二个问题是关于发言中提到的基于Apple Vision Pro的新产品, 能否请管理层分享更多的产品细节。 I will translate myself. I have two questions. First one is regarding Tantan. Could management share the latest user trend, marketing and monetizing strategies in 2024, and any guidance on its revenue and profit this year? Secondly, could IC management mention new products related to Apple Vision Pro in the prepared mark? Could we have more insights on the product details? Also considering company plans to ramp up exploring new business opportunities, how do we evaluate the margin trend in 2024? Thank you.

Let me answer this question. In the beginning of the year, the cold weather, the cut in the channel, and the negative effects of the holiday break, the user size of Tantan continued to be suppressed. After the holiday break, with the dissolution of external factors, Tantan's new, active and new, paid two user indicators are gradually stabilizing. So this year, our requirements for Tantan are to improve the user's social dating experience and create a harmonious and efficient business model to pursue profitable growth. So the experience of improving the dating needs us to go around the core dating scene to carry out product innovation and scene exploration, provide detailed operating services for different market users, and maintain ecological health stability. The growth of profits depends on the innovation of the business model and the improvement of channel efficiency. Last year, our channel team achieved very good results in reducing the cost of unit purchase. This year, we will continue to improve our revenue capacity around the core dating scene. For example, before and after the Spring Festival, we launched a pre-heating event for a member product with a higher price than black gold, and received warm feedback from first-class high-end users. We hope that through new high-end users and products, One is to further release the existing high-end members' spending capabilities. Two is to meet the consumer needs of the first users in the live broadcast room during the date. At the same time, we will also use algorithm to improve the experience of basic members and increase the pay rate. If these efforts are not able to continue to improve, at the same time, the user experience and flow will not be affected by too much, we will be able to achieve a real commercial business cycle and achieve profitable growth by increasing investment.

At the beginning of this year, our user base continued to be under pressure from factors such as the cold wave, further reduction in channel investment, and the Chinese New Year holiday. After the holiday, as the external negative factors subsided, Tantan's new user engagement and new user paying ratio started to bottom out and stabilize. Our goal for Tantan this year is to improve the core dating experience And on top of that, build an effective and efficient business model that drives profitable growth. In order to improve the core dating experience, we need to constantly innovate use cases and explore dating scenarios around the core dating theme, provide more tailor-made services for users in different markets, and maintain a healthy, stable ecosystem. Achieving profitable growth depends on business model innovation and channel ROI improvement. Last year, we achieved good results in reducing unit acquisition costs. And this year, we'll continue to improve our monetization capability based on the core dating experience. For example, around the Chinese New Year holiday, we launched a pilot campaign for a membership product that is higher than the Black Gold membership. I received very positive feedback from the first batch of high-paying users. Through this new premium membership, we hope to, first, unleash the spending power of the existing high-end members, and second, capture the dating needs of the top cohort paying users from live streaming. Meanwhile, we will also leverage algorithm to improve the basic member experience and drive paying ratio growth. If, through these efforts, Our pool can continue to improve without compromising user experience and retention. We will truly realize a positive business cycle and achieve profitable growth by increasing marketing investment. For other financial-related questions, Cassie will answer them.

Sure. So as Sik and Tangyan mentioned, the focus of content this year can be really broad. broken down into two priorities. One is to continue to improve the coordinating experience. In the past couple of years, we tried to diversify into live streaming and more community-driven entertainment experience, such as chat room experience. Now we can conclude that although these efforts did contribute meaningfully to ARPU, they are not very compatible to dating experience at this point. And therefore, we will increasingly pivot away from these more entertainment-oriented experiences. And the other focus for Tantan this year is, of course, to continue to improve paying user experience so we can drive a higher R2. If R2 and user retention continue to improve to the point where ROI turns positive, we will definitely ramp up marketing to drive user and top-line growth That's when we're going to see what we call a profitable growth cycle. However, before we hit that tipping point, it's possible that we will continue to see top line trending either flat or slightly under a bit of a pressure as we continue to scale back from live streaming and the chat room experience. However, if we are successful in reaching that tipping point and enter into a positive business cycle, As we described, we can see growth in both top line and bottom line. At this point, I would say investors probably still need to have more patience as we work our way to get there.

This XR virtual space, the development of the hardware has broken the limit of the mobile Internet era social mode. It also gives us a new opportunity for a company that has been deep in the social field for more than ten years. InSpec users can create their own virtual image and individualized space, and invite users from all over the world to enter the party, international events, and other scenes. Our own real-time translation function can make 12 mainstream users can communicate with each other without any barriers. In the atmosphere of chatting and playing games, the familiar gathering in different places has become more warm. And it is also easier to exchange ideas in a strange environment. In the future, we plan to launch entertainment games and interactive games that are more suitable for local users in different countries and more cleverly use technical innovation to break through traditional social experiences. As for our new business investment budget and the overall profit-making trend of the group, thank you for your answer.

With the continuous iteration of XR hardware, more and more new users are joining the XR virtual space. The development of hardware has broken through the limitations of social models in the mobile Internet era and has also brought new opportunities to us who are dedicated to the social space for the past decade. In-space users can create their own avatars and personalized space and invite Apple Vision Pro users around the world to have parties, play chess, and have fun together. And InSpace built-in real-time translation function allows users of 12 major languages to communicate without barriers. Chatting over social or dinner party games makes getting together more fun for acquaintances who are thousands of miles apart, and it also helps break the ice for strangers in the open social space. We plan to roll out more use cases and gamify features based on localized users' preference in different regions and to make better use of technological innovation to break through the traditional social experience. For the investment budget for new endeavors and our overall margin trend, I will leave them to Cathy. Cathy, please.

Investment budget for new endeavors. Internally, we do have a budget for new endeavors, but at this point, we hesitate. We will probably defer until later to answer that question with a more definite number because we want to keep the budget flexible at this point in time. If we see really good opportunities, we will invest a little bit more. If the RI doesn't, you know, trend good, we will probably invest a little bit less. So it's really a quite flexible number that we're trying to put in there at the beginning of the year. On the margin question, I guess if this is a question at the whole group level, I think for growth margin, it has remained relatively stable throughout 2023, with the largest cost driver, which is the payout ratio being stable, I'm currently not seeing any factor that could potentially change that trend one way or another in a very meaningful way. But there is this one thing that I would like to call out here, which might cause the margin to fluctuate a little bit. And that is that as revenue decreases, there could be some negative leverage on revenue infrastructure costs and also the personnel costs charging to the cost of sales line, which is going to pressure the gross margin a little bit. But we do not expect that to be very significant. So that's what we're seeing on the gross margin line. Operating expenses-wise, although we plan to substantially increase our investment in the new business part of the increase will come at the expense of the old business, which won't be consuming as much resources. Now, if we try to think about the operating margin on an ex-tantan basis, last year I believe we delivered close to 23% adjusted operating margin. In Q1, the ex-tantan part is going to see a 9% to 10% year-over-year decrease at top line. And that level of top line decrease is obviously going to pressure the operating margin a little bit. But I would say from 19% to 20% is still a quite achievable range of adjusted operating margin for the ex-tentum part of the business. I do not really have a margin number for the whole year. because of that flexibility that we talk about that we would like to maintain, especially for the new business. But in terms of how the operating margin is going to trend from Q1 onwards, I would say there are several factors to consider here. One is the overall top line improvement from Q1 onwards. Of course, that is heavily dependent on the overall macro and regulatory environment. And the second factor is how aggressive we are to cut down on cost. At this point, I do see some headroom to continue to cut on the old business part. But we do want to, like I said, maintain the flexibility to move the spending to new business if we see good ROI. So basically, that's my current thought on how the margin may play out for the whole year. I think with that, heading back to Abby for closing.

I think that's it for today. Operator, we're ready to close.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.