Hello Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2024 Hello Group Incorporated 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 first quarter 2024 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 sessions that follow. 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 Security Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors. all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's findings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any 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. Zhang Sichuan. Ms. Zhang, please.

Hello, everyone. Thank you for joining our call. Since the beginning of the year, we have mixed study projects in implementing our strategic priorities across all business lines. I will now walk you through the details. I will start with a brief overview of our financial performance. For the first quarter of 2024, Total good revenue was 2.56 billion RMD, down 9% year-over-year and 17% sequentially, slightly exceeding the high end of our revenue guidance. Adjusted operating income was 550 million RMD, a slight decrease of 0.5% year-over-year and down 22% sequentially. Profit margin was 20.1%, up 1.8 percentage point year-over-year, but down 2 percentage points essentially. The year-over-year margin improvement despite lower revenue was primarily due to our continued efforts to improve car efficiency across all business lines, offsetting the revenue decline's impact. Specifically, we drove continued efficiency improvement in personnel and cash utilization by reducing inefficient channel investments and optimizing allocation. As a result, cost declined more than revenue. And the cost optimization initiative drove margin improvement. The sequester declining margin was, primarily due to negative operating leverage resulting from the seasonal declines in revenue. Children's revenue from the Momo app and San Antonio app was 2.32 billion RMB, down 8% year-over-year, mainly due to the declines in revenue from the Momo app, resulting from spending selfless amidst the market economy and also active product and operational adjustments to maintain a healthy community ecosystem. And a lot of new apps, especially overseas, continue to grow rapidly year over year. Adjusted operating income was 487 million RMB, down 3% year over year, with a margin of 21% upload percentage points from a year ago. For 10 times, total revenue decreased 22% year-over-year to 241 million RMB, mainly due to the reduced number of paying users. Our commercial product team continued to optimize the paying experience to improve AppyPool, which particularly mitigated the revenue pressure. Canton's adjusted operating income was 28 million RMB, up 92% year-over-year, with a margin of 11.6%, up 6.9 percentage points from a year ago. Now I will move through the progress we have made against our strategic priorities for Momo, Canton, and new endeavors since the beginning of the year. As I highlighted on the Q4 2023 Earnings Call in March, the main goal for the Normal Act this year is to maintain the productivity of this cash cow business with a healthy, equal system. The timeline's goal is to continue to improve the coordinating experience and build an efficient business model that drives profitable growth. As for our new endeavor, Our plan is to enrich the brand portfolio further, push the business boundaries beyond normal and compact, and build a long-term growth engine. I will now walk you through the details of our execution. First, on the product and operational front of the normal app. Since the beginning of the year, our product team has been focused on continuously enriching use cases, and gamified features, as well as strengthening moments of social contribute. To help users improve their interactive experience, we applied AI technology to assist with chatting and image generation features. For example, AI Greeting provides chatting assistance service for users who want to make new friends from the nearby people. In another word, AI can suggest eye-clipping topics to users by analyzing the image and text information on the potential candidate's profile page. Data from the test strip shows that this feature plays a positive role in increasing the screening response rate. Another example is AI Magic Mirror or AI Mozing. and image generation tools that allow users to synthesize photos with other users or landmarks, increasing users' social capital to provide new ways to interact. In addition, last year we piloted a Finding Partners, or South Assy, program for our online to offline interest groups in several major cities, which was well received by young users. The number of times outdoor activity groups represented by City Walk grew quite strongly in the first quarter. Product innovation and our ability to keep pace with the time in technology has abled Momo, a mature social brand with a 30-year history, to play an essential role in helping users discover new relationships, and build meaningful interactions. This has laid a solid foundation for MomoApp to maintain user and revenue scale over the long term. On the China front, about a year ago, we shifted our focus from general user growth to ROI-oriented profitable user growth. This model is more kinetic and better suited to Momo's current stage of development as well as the overall economic eco-environment. Our adjusted purchase allocation for various channels according to the traffic at the beginning of the year optimize potential channels, cut spending in channels, and add to the core ROI. and explore new ways to bring incremental traffic while further reducing user acquisition costs through collaboration with KOS. We also focused on improving paying conversions, acquiring more high-paying users, and improving our ability to better accommodate this group of people with more suitable features on our mobile app. In the first quarter, the normal app has 7.1 million paying users, a decrease of 300K during the previous quarter, mainly due to two reasons. First, our product and operational adjustment should reduce competition events resulting in declining paying users. Second, in order to improve profitability and pursue profitable growth, our channel team reduced investments in acquiring low-paying users with negative channel ROI. We're starting in a decrease in long-time paying users. Now, let's talk about the productivity of our Momo Cash How business. In the first quarter, Momo's live streaming revenue was 1.15 billion RMB, down 11% year-over-year, and 90% sequentially. The year-over-year decrease was mainly due to our strategy and practically reduced revenue-oriented large-scale competition events in order to maintain a good social ecosystem and limited and healthy monetization approaches adopted by forecasters and agencies to obtain competition events-related bonuses. funding softness amidst the weak market economy was another reason for the year-over-year decrease in revenue. The sequential revenue decrease was due to the Chinese New Year seasonality. On the product operations side, we fully leveraged Momo's social contributor to achieve the transition from revenue-oriented competition events to user-oriented, content-focused operational activities. We managed to drive non-event related, in other words, organic revenue growth by strengthening support for high-quality content and adding new game-advice features. Call savings from reduction in operational activities during Chinese New Year resulted in a slight SEQUENTIAL DECREASE IN THE REVENUE SHARING RATIO. REVENUE FROM RELATED SERVICES, EXCLUDING CONTENT, TURNED TO 1.5 BILLION RMB FOR THE FIRST QUARTER, DOWN 4% YEAR-OVER-YEAR AND 9% SEQUENTIALLY. LAST REVENUE FROM THE LONGWARD ACT WAS 806 MILLION RMB down 17% year-over-year and 14% sequentially. Revenue from the standalone app was 343 million RMB, up 52% year-over-year and 6% sequentially. The year-over-year decline in last revenue from the normal app was mainly due to our proactive product and operational adjustment to mitigate the regulatory risk as well as the spending softness amidst the market economy. But the crucial decline was due to Chinese New Year's personality. On the product front, the user scale of the audio and video-based live experience gradually recovered after the Chinese New Year, thanks to our efforts to drive the penetration rate. Our team made a smooth transition from competition event driven to non-event focused operations by enriching interaction features and upgrading core gamified play. The study increased in organic revenue partially offset the reduction in competition events. The group's revenue for the quarter was slightly better than expected. mainly due to the smooth transition of the normal app-class business, which has strong social contributors. The overall revenue sharing ratio decreased slightly compared to the previous quarter due to the seasonal cost savings. Now, moving to the countdown. First, regarding user terms and financial performance, As the cold wave at the beginning of the year and Chinese New Year holiday reduced content users demand, our team reduced channel investment and our user base fell to a low point. In March, with the gradual easing of external unfitable factors and the improvement in user experience brought about by continuously ecosystem improvement and recommendation strategy optimization, our user base and retention started to recover gradually. Tencent's MAU was 13.7 million in March. Flex sequentially. As of the end of the first quarter, Tencent had 1.1 million paying users, down 100,000 sequentially. primarily due to the redesign of the auto renewal page as required by the regulators. Our commercial product team has improved user propensity to pay by optimizing guidance on the paying experience and highlighting differentiated member experience, thereby mitigating the negative impact on paying users on the Renewal Page redesign. Turning to TimeHunt Financial. Total revenue for the first quarter was 241 million RMB, down 22% year-over-year and 11% sequentially. The year-over-year decrease was mainly due to a reduced number of paying users. The increase in the revenue contributions of relatively high-end black gold and SVIP membership products drove overall FPV growth. Particulate mitigated the revenue pressure caused by reduction in paying users. The decline was mainly due to the change in auto renewal policy as well as . which put pressure on paying users and app people. In terms of business line, last revenue was 145 million RMB, down 40% year over year and 10% sequentially, while last streaming revenue was 87.7 million RMB, down 37% year over year and 12% sequentially. The significant year-over-year decrease was mainly due to the ongoing operational strategy to exercise live streaming. Sometimes adjusted operating income for the first quarter was 28 million RMB, nearly doubling year-over-year despite lower revenue and slightly up 4% sequentially. Profit growth was mainly driven by continued improvements in channel efficiency and personal cost optimization. Now I would like to walk you through the details of TimeHouse's progress on channel and product firms. First on channel firms, over the past two years, our user acquisition team has continuously cut in efficient channel and marketing approaches and further reduce marketing investments in negative ROI, laying a solid foundation for Tantan to achieve profitable despite revenue pressures. In the first quarter, thanks to the effective control of spamming activity and continuous improvements in Apple over the past year, new user ROI meaningfully improved over the previous year. While our channel strategy optimization has yielded promising results over the past two years, the space for continuous optimization of unit acquisition cost is relatively limited. Meanwhile, a major problem facing time-time user growth model is relying too much on user acquisition. through pay channels and too little on adding users organically through brand recognition. As a result, although the overall user acquisition cost has continued to decline over the past year or so, the resolution in overall average cost of new users was quite limited due to the continuous decline in number of new organic users. To explore new growth models, and more importantly, to increase the portion of new users acquired outside paid channels, our user acquisition team plans to wrap up spending on KOI advertising, which is both ROI-focused and brand-oriented. Preliminary data in March shows that the popularity of new users acquired through offline branding activity is higher than the overall average. We believe that improving brand image will contribute to sustainable and stable organic user growth over the long term. Effectively reducing the overall user acquisition cost is the long run and helping to achieve a positive business cycle. We are now moving to content progress on product and operational sites. To achieve our strategic goals of improving the coordinating experience and building an efficient business model. Our user product team focused on two things in the first quarter. First, we continue our anti-spam campaign with an updated strategy to enhance anti-spam capabilities to improve user experience. Second, we are working on an upgraded version to improve the dating experience. Our new version focuses on guiding users to enrich their personalities by adding more information to their profile page, thereby increasing their reach and matching performance and improving the efficiency of matching and in deep interaction thereafter. Meanwhile, in terms of UI design, we have decided to emphasize the and encourage users to scroll down and check out the details of each candidate. We started testing the new version at the end of April. We are currently iterating and emphasizing the version based on our user feedback and gradually extend the testing scale. In terms of monetization, We're adding a short-term WAF membership package to lower the threshold for new paying users. In addition, we have a few paying models in and match the specifically for users with our to improve long-term retention and paying conversion of this group of users. We firmly believe that our efforts to continue to focus on product innovation and improving paying experience to drive app growth is the only effective way for Tantan to achieve the strategic goals of profitable growth in the long term. Lastly, in terms of new endeavors, in the first quarter, the total revenue of the new app included social and game products with 344 million RMB, up 51% year-over-year and 5% sequentially. The year-over-year increase was mainly driven by the rapid growth in our overseas business. On a sequential basis, Consumer sentiment in Arabic-speaking regions experienced a seasonal decline due to the impact of Ramadan. At the beginning of the year, our user acquisition team increased investment in overseas channels and enhanced collaboration with local KOLs. Resulting in a significant year-over-year, as you can see, increasing numbers of users and paying users. Launching new gifting features and rapid growth in Turkish speaking market led to a slight sequential increase in overseas revenue during the off-season, contributing in portion incremental revenue for the Cernanon new app. At present, we are accelerating the localization process of our overseas business. On the product side, we are introducing more interactive gamified features in line with local user preferences and stepping up testing of live streaming. On the operational side, we are improving customer experience and product experience specifically for high paying users. At the same time, we are strengthening collaboration with local agencies and forecasters to improve content quality. And W, making rapid progress in multiple regions in the Middle East means we will face more uncertainty and challenges due to the geo-diversification. For example, the sharp depreciation of the Egyptian pounds in March caused significant foreign exchange losses. In addition, as we gradually refurb our local operational team and start entering new markets, we could put more pressure on the profits of our overseas business in the short term. However, these upfront investments have laid a necessary foundation for future revenue and profit growth. This concludes my remarks. Now let me pass the call to Kathy for the financial review. Kathy, please.

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 first quarter of 2024 was 2.56 billion RMB, down 9% year-on-year and 15% quarter-on-quarter. Non-GAAP net income attributable to the company was 59.9 RMB compared to 471.9 million RMB for the same period of 2023. In the first quarter, we accrued a withholding income tax of $448.6 million associated with our historical undistributed earnings generated by our work fee. I will elaborate a bit later on such accounting treatment. This tax expense item is on accrued basis, meaning that it did not result in an actual cash outflow in that amount during the current quarter. In addition, it was one-off in nature and did not reflect the fundamental performance of the current quarter, nor is it indicative of future profit prospects. Excluding this special item, non-GAAP net income for the quarter would have been 508.5 million RMB, up 8% from the same quarter last year, but slightly down 1% sequentially. I'm glad to see that 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 initiatives. Now let me walk you through the details. Looking into the key revenue items for the quarter, firstly, on live broadcasting, we Total revenue from live broadcasting business for the first quarter of 2024 is $1.24 billion, down 13% year-over-year and 19% quarter-over-quarter. The year-over-year decrease was mainly due to three factors. Number one, our proactive product and operational adjustments to de-emphasize revenue-oriented competition events for the sake of maintaining a healthy ecosystem. Number two, soft consumer sentiment amid the weak macro economy. Number three, content strategically pivoting away from the less dating-centric live streaming service. The sequential decrease was due to CNY's negative seasonality. Momo app live broadcasting revenue totaled 1.15 billion RMB for the quarter, down 11% year-over-year and 19% quarter-over-quarter. Tantan's live broadcasting revenue amounted to 87.7 million RMB, down 37% year-over-year and 12% quarter-on-quarter. Revenue from value-added services for the first quarter of 2024 was 1.29 billion RMB, down 5% from Q1 last year and 9% sequentially. Revenue from value-added service on an ex-Tantan basis was 1.8 $1.5 billion in the first quarter of 2024, down 4% from Q1 last year and 9% from the previous quarter. Mobile apps' vast revenue decreased both on a year-over-year and quarter-over-quarter basis. This was due to our proactive product adjustments to manage regulatory risks, as well as a weak spending sentiment coupled with negative seasonality. On the other hand, Revenue from the standalone new apps continued to grow steadily, partially offsetting the revenue pressure from one more value added service. Time times value added service revenue amounted to 145.1 million, down 14% year-over-year and 10% sequentially. The worldwide 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 subscription renewal policy. The sequential decrease was due to the CMY seasonality, which had a negative impact on both paying users and R2. Now turning to cost and expenses, non-GAAP cost of revenue for the first quarter of 2024 was 1.50 billion RMB compared to 1.66 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.4%, up 0.4 percentage points from the year-ago period and 0.3 percentage points from last quarter. The increase was due to an improvement in Tata's margin that resulted from a shift in its revenue mix. Non-GAAP R&D expenses for the first quarter was 183.4 million RMB compared to 214.4 million RMB for the same period last year, or a 14 percent decrease year-over-year. The decrease was due to the continuous optimization in personnel and infrastructure costs, not at R&D expenses as the percentage of revenue was 7% compared with 8% from the year-ago period. We ended the quarter with 1,375 employees, of which 294 are from Tauntaun, compared with 1,533 total employees of which 374 from Tan Tan a year ago. The RMD personnel as a percentage of total employee for the group was 62% compared with 63% Q1 last year. Non-GAAP sales and marketing expenses for the first quarter was 287.3 million RMB or 11% of total revenue compared to 372.0 million RMB or 13% 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 two reasons. One, in Q1 last year, we hosted an offline year-end gala for Momo live streaming. Number two, our strategy to train inefficient channel marketing spend and focus on channel ROI. It's worth calling out that the offline annual gala for Momo live streaming is scheduled to happen in June 2024. Therefore, we expect the marketing costs in the second quarter this year to see a spike due to that event. Non-GAAP GNN expenses was 93.5 million RMB for the first quarter 2024 compared to 88.4 million RMB for the same quarter last year representing a 4% and 3% of total revenue respectively. Non-GAAP operating income was 515.0 million RMB, a slight decrease of 0.6% from Q1 2023, down 22% from the previous quarter. Non-GAAP operating margin for the quarter was 20.1% up 1.7 percentage points from the same period last year, but down 2.0 percentage points from the previous quarter. Non-GAAP OPAC as a percentage of total revenue was 22%, a decrease from 24% from Q1 2023, but up from 20% in Q4 last year. Non-GAAP operating expenses on a year-on-year basis decreased 16%. The decrease in both absolute renminbi amount and as a percentage of revenue for OPEX 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 6% sequentially. This was attributable to a decrease in year-end bonus as well as double pay. Now briefly on income tax expenses. Total income tax expense was 557.6 million RMB for the quarter. In Q1, the company repatriated 2.0 billion RMB from our world fee in China to our offshore entity in order to replenish our U.S. dollar funding. As such repatriation already partly involved our historical undistributed earnings for prior years, And since we might continue to distribute the WOFI's retained earnings to fund overseas business operations, shareholder return, and potential investments, based on the principle of conservatism, in Q1, we accrued withholding tax of 448.6 million RMB, which is 5% of the historical undistributed earnings of our WOFI. As said at the beginning of my remarks, This tax expense item is on accrual basis, meaning that it did not result in an actual cash outflow in that amount during the quarter. In addition, it was one-off in nature and did not reflect the fundamental performance of the current quarter, nor is it indicative of future profit prospects. Without the withholding tax, Our estimated non-GAAP effective tax rate was around 15% in the first quarter. Now turning to balance sheet and cash flow items. As of March 31st, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled 15.12 billion RMB compared to 13.48 billion RMB as of December 31st, 2023. Net cash provided by operating activities in the first quarter of 2024 was 400.2 million RMB. Lastly, on business outlook, we estimated our first quarter revenue to come in the range from 2.65 billion RMB to 2.75 billion RMB, representing a decrease of 15.5% to 12.4% year-on-year, or an increase of 3.5% to 7.4% quarter-on-quarter. At segment level, for Q1 2024, on a sequential basis, we expect normal revenue to increase around mid-single digits. On the top-hand side, we expect revenue to decrease mid-single digits. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please.

Thank you. Just a quick reminder before we take any questions, for those who can speak Chinese, please ask your questions in Chinese first and followed by a translation by yourself.

And Alfreda, please, we're ready for questions. Thank you. 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 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Xiuqing Zhang with CICC. Please go ahead.

Thank you for accepting my question. My question is about MoMo's initiative. Considering the reasons for the red light policy, there are further adjustments. What is the future product strategy of Mars? Thanks management for taking my question, my question about Plum Momo. Considering adjustments due to microenvironment regulation and other reasons, what's your strategy for Vaas in the future? Also, you mentioned in the prepared remarks, Momo reduced the competition events. Does it improve the revenue sharing ratio of live streaming and live? And lastly, how to view the revenue and profit of the Chrome Momo in 2024? Thank you.

In order to get more income, the public broadcasting team took a radical commercialization strategy. The operation team actively reduced the live broadcast. In the scene of the video, they arranged the competition activities with income as the guide. In the past two seasons, the income has changed in the same way. This reflects the change in the operation arrangement and the impact on MoMo's organization. Since the beginning of the year, the team has used new interactive play methods to support the positive content supply. Okay.

Given the uncertainties in the macro environment in the end of last year, our team proactively reduced the revenue-oriented competition events in the live streaming and audio and video-based AVAS experiences in order to protect user experience and limit the unhealthy monetization approaches adopted by broadcasters and agencies to obtain more revenue from competition events. The year-over-year revenue changes in the past two quarters reflected the impacts of these operational adjustments on the Momo app revenue. Since the beginning of the year, our team has introduced new interactive Gimmify features and fostered the supply of high-quality content and leveraged Momo's strong social attribute to drive organic revenue growth, partially offsetting the decrease in competition events-related revenue. I'm very pleased with the team's ability to flexibly respond to changes in the external environment and make a smooth transition from competition events-driven to non-event-focused operations. This year, we plan to further pursue this strategy of fully leveraging MoMA's core value proposition and develop more immersive interactive unified features in the audio and video-based experiences. and explore incremental revenue opportunities.

We have talked about division. In the past few years, our basic division policy has always been stable. In the past six months, due to the decrease in market activity, we have produced some savings in terms of bonus costs. But due to the adjustment of these operations, the flow of water is weak, which leads to a decrease in live broadcast income and insufficient profit. In terms of revenue sharing, our basic revenue sharing policy has remained stable over the past few years.

Due to the reduction in competition events in the past six months, we have saved some bonus costs. However, the decrease in revenue cost by these operational adjustments has resulted in lower income for broadcasters and lower profits for agencies. As a result, we believe that it makes strategic sense to use a portion of the saved bonuses to increase the revenue sharing for non-event operations and to enhance agency engagement and motivation through moderate profit concessions. And consequently, our overall revenue sharing ratio will remain basically stable compared to the previous period. And as for revenue and profit guidance, I will leave it to Cassie.

Okay. Before talking about the revenue outlook, I would like to remind the analysts and investors that the Momo segment revenue actually includes both the revenues from the core Momo application and the revenues from the new applications, including Socio, Hertz, and Duidui, et cetera. That's something you may want to bear in mind when taking our comments into your modeling. Now on the core mobile application, as in the past few quarters, future revenue trajectory will continue to hinge upon the development on two major fronts. One is macro and the other one is regulatory environment. For macro, which in turn dictates the consumer sentiment, we're seeing some positive policy changes at the top. However, how effectively and quickly those policy changes will get filtered down into the consumer behavior in general and more specifically into user spending on our platform, that at this point, I think it's still too early to tell. We'll see as the year progresses. So that's for macro. On the regulatory front, As investors can see, we have always been very disciplined and prudent in terms of managing risks and making sure our ecosystem is healthy and safe in the regulatory regard. In Q1, we undertook very important adjustments to the operational policy as described by in their remarks. The impact on the ecosystem is positive. and the financial impact so far are pretty in line with our earlier expectations as communicated in last quarter's call. So that's the core business. The overseas piece will obviously continue to grow pretty robustly and thus help mitigate the decrease from the core. Overall, if you look at our Q2 guidance, at any point I think we are seeing a 13% decrease on a year-over-year basis in MOMA segments. That YOY decrease is higher than what we saw in Q1, mainly because Q2 2023, if you remember, that was the best quarter of that year, forming a higher base for YOY comparison. As we head into the second half, the YOY comparison should get a little bit easier. But overall, because the biggest impact factor, which is the operational adjustment, that adjustment was fully in the system by Q1. And the other two elements, the macro and regulatory risk, currently seem to be pretty stable. So if you put all these together, I would say first half is a pretty good basis for us to think about the back half. While we continue to try to optimize the cost structure for the core Momo business, we're also going to put a very significant portion of the savings from the core into building the new applications. And thus, we won't have as much room to cut on operating expenses in 2024 as in the past couple of years. We're probably going to get some negative leverage from the decrease on top line. Overall, for Momo segment, we'll try to hit a range in the high pins for the adjusted operating margin, but we won't pin ourselves down to that range. that's the several points to address the question on top line and bottom line outlook. Back to Ashley for the next question.

Thank you. Your next question comes from Raphael Tin with BOCI Research. Please go ahead.

I will translate myself. Thank you for taking my question. I want to follow up on our overseas business. Could management share the latest strategy Any updates on operational metrics or the localization progress? And lastly, could we have any quantitative outlook regarding the total revenue and profit of our overseas business this year? Thank you.

刚才SIG在他的发言中已经介绍得比较充分了。 那么年初呢,中东地区业务虽然受这个灾月禁雨的影响, 环比增长的阶段性放缓, 但同比看,依旧保持了快速增长的趋势。 I think Sik has covered this topic quite comprehensively in her prepared remarks earlier. At the beginning of the year,

Our business in the Middle East temporarily slowed down sequentially due to the restrictions on entertainment activities during Ramadan. But year-on-year, it remained a rapid growth momentum. This was mainly because we have attached great strategic importance to the overseas business in recent years, and we have provided strong support to our overseas teams in terms of talent and capital allocation over the past years. On the last earnings call, I outlined three directions for overseas business growth, localization, new features, and new regions.

In terms of localization, we have set up offices in the Middle East region. This helps us to more efficiently connect local supply and demand resources, select high-quality joint partners, and reduce communication costs. In terms of products, we visited high-paying users with different languages and cultural backgrounds. We optimized the product design according to the needs of the customers and adjusted the way of operation. In order to improve the user experience and drive the overall consumer enthusiasm, in addition to upgrading the existing language and language play method, we have also increased the penetration and testing rhythm of live broadcast scenarios. As for the opening of the new market, we are gradually increasing the investment in overseas countries. It is expected that the products and operations in the Middle East region this year In terms of localization, we have set up an office in the Middle East, and this enables us to connect with and select local high-quality partners in a more efficient manner, therefore reducing communication and management costs.

And in terms of products, we have engaged with high-paying users from different language and cultural backgrounds and optimized the product design and adjusted our practice based on users' feedback and thereby improving user experience and boosting overall consumer sentiment. In addition to upgrading the existing voice-based gamified play, we also ramped up our testing of live streaming by increasing its penetration. In terms of new market expansion, we have begun to gradually increase investment in richer countries in the Gulf region. We expect our products and operations in the Middle East to improve significantly this year compared to last year, laying a solid foundation for continued growth in this region. As for financial-related matters, I will leave it to Cassie.

Okay, for revenue outlook for the overseas piece, in Q1, SoChill grew I think over 60% year-over-year. Moving deeper into the year, the YY growth may slow down a little bit due to the higher column last year. If we can move faster in implementing our product and operational strategies, the slowdown could be mitigated to a large extent. If some of the growth initiatives take time to bear fruit, then the slowdown could be more evident. We'll get more clarity as we head into the second half. Profit-wise, there is still going to be pretty impressive YY growth. But as we are still seeing many growth opportunities in the region, we'll try to strike a balance between profit growth and investment in the future, investment for the future. Back to Ashley.

Aubrey, in the interest of time, let's take our one last question.

Thank you. Thank you. Your last question is from Henry Sun with J.P. Morgan. Please go ahead. Henry Sun, your line is now live. Please proceed with your question.

Hello.

Can you hear me?

Hello, Henry. Yes, we can hear you.

Thank you for accepting my question. I have a few questions about Tantan. I'll translate myself. Thanks, management, for taking my question. I have a few questions about Tantan. management mentioning in the property market and improvement in content acquisition efficiency, does it mean we should expect an increase in marketing spend moving forward? And how much are we planning to invest in a brand marketing initiative? Does the changing strategy suggest that user numbers have bottomed out? And lastly, could management share your perspective on the user trend as well as the revenue and profit outlook this year? Thanks.

In the past two years, the continuous cost reduction strategy has effectively promoted carbon to achieve stable profits, but continuous cuts have also caused obvious pressure on the size of carbon users. We see that carbon users and revenue have not been able to achieve a stable carbon. Considering that last year's new users' R pool has been significantly improved and brought about an improvement in the ROI of new users, in the second quarter, we plan to maintain the current recovery level. and gradually increase the number of users to stabilize the user size. In addition, since 2019, we have not tried to invest in brand promotion of Tantan. This is one of the important reasons for Tantan's natural growth to continue to decline in recent years. Therefore, we plan to use more offline marketing methods to awaken brand awareness and improve brand image and user trust in March to drive download and transformation into a natural growth.

Our continuous cost reduction and efficiency improvement strategies over the past two years have effectively brought Tantan to stable profitability. However, the continued reduction in channel investment has also put significant pressure on Tantan's user base. We see that Tantan's users and revenue have not stabilized. Given the new user output has improved significantly over the past year, leading to an improvement in new user ROI. We plan to moderately increase channel investment in the second quarter while maintaining the current ROI in order to stabilize the user base. In addition, we haven't invested in Tantan's brand marketing since 2019, which is one of the key reasons for the continuous decline in organic new users in the recent years. Based on our successful test in March, we plan to adopt more offline marketing strategies to raise brand awareness, improve brand image and user trust, to drive download conversions and organic user growth.

As for the commercialization, Asik just mentioned, we are working on a new version of Tantan. The new UI design will guide users to replenish their personal data, It also encourages users to spend more time to understand the basic situation of the other party before making a decision on the card. We have had a lot of internal discussions on this design, because it involves changing the user's habits of long-term establishment, and we have established many high-level member user functions on the basis of these behavior habits. Therefore, this kind of unexpected change may have some negative effects on commercialization. However, our final conclusion is that In terms of monetization, Six just mentioned that

We are working on an upgraded version of Tantan. The new UI design will guide users to enrich their personal information and encourage users to spend more time learning about a candidate before deciding to swipe left or right. We had much debate internally about this design change because it involves changing a long-standing user behavior based on which many of our premium features are built. Thus, such change in UI will likely to have a negative impact on monetization. However, we eventually concluded that this is the right course of action for long-term improvement in user experience and worth the sacrifice in short-term monetization. Of course, our commercial product team will continue to optimize paying experience to improve new user R pool to partially offset the negative impact of regular free changes on membership renewal policy and product upgrades. And as for the financial part, I will leave that to Cassie, please.

Sure. I think there are several questions here. On the marketing stand, although the R2 of Tata has significantly improved during the past year, We have not reached the tipping point where the return on investment is high enough to drive a positive business cycle yet. That means if we pull the marketing spend too high, we could slip back to loss. So the plan for the coming couple of quarters is to moderately increase the marketing spend. ballpark probably between 10 to 20 million RMB incrementally per quarter, and most of that incremental spending will go into KOL marketing. At the same time, we will carefully monitor the ROI to make sure we get good return for the marketing investment. The goal for the Tantan team this year is Here I'm answering the question about the user plan. The goal for Kantan team this year is to keep the user base stable through effective marketing campaigns as well as product innovations to deliver better dating experiences. Whether we will be able to reach that target will depend on how efficient our product and marketing teams are. Revenue-wise, we are likely still going to see a downtick as live streaming continues to shrink, but there is quite limited impact on profit because the gross margin for live streaming is very, very low for Tantan's live broadcasting business. However, as we are investing part of the profit back to brand marketing, the bottom line this year will likely decrease from last year's level. So hopefully that addresses your question.

Thank you for today and thank you for participating and we'll see you guys next quarter. Thank you, operator. We're ready to close.

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