Hello Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2025 Hello Group Inc. earnings conference call. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to your first speaker today, Ms. Ashley Zhang. Thank you. Please go ahead, ma'am.

Thank you, Afrita. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 2025 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 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 statement. Further information regarding this and other risks, uncertainties, and factors is included in the company's findings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Jiang Sichuan. Ms. Jiang, please.

Hello, everyone. Thank you for joining our call. Q1 was a solid quarter and a good start to 2025. Next, I will review our strategic priorities for the years and provide updates on execution. Before getting into the financials, investors who have reviewed our Q1 earnings will notice that we have disclosed geographical breakdowns on the revenue level. Over the past few years, with the rapid development of overseas businesses, their revenue contribution to the group is getting increasingly prominent. In Q1, overseas revenue accounted for 16% of total revenue, up from less than 10% in Q1-24. We expect this percentage to continue growing rapidly in the coming quarters. We believe that the geographical revenue breakdown helps investors better help to track our progress in our overseas development. Next, let's dive into the details of Q1. Starting with an overview of financial performance. For Q1 25, total revenue was 2.52 billion RMB. exceeding the high end of our guidance and was slightly down 1.5% year-over-year. Domestic revenue reached 2.11 billion RMB, down 9% year-over-year. Overseas revenues reached 415 million RMB, with accelerated year-over-year growth of 72%. Adjusted operating income was 350 million RMB, down 33% from Q1 last year, with a margin of 14%, down 6 percentage points from the same previous last year. On last earning call, I outlined several key priorities for 2025. For Momo, our goal is to maintain the productivity of this catch car business with a healthy social ecosystem. For Tan Tan, our goal is to improve its core dating experience and build an efficient business model that drives profitable growth. As for the new endeavors, our goal is to continue deepening our presence in overseas markets, enriching our brand portfolio, and building a long-term growth engine. Since the beginning of the year, we have made strong progress across all three fronts. Let me walk you through the details. First, on MomoApp, at the product level, we continue to optimize interactive features that facilitate users in making meaningful connections and maintaining interactions with the goal of enhancing social experience and stabilizing user base scale. As mentioned earlier, we have developed an in-house AI algorithm that generates personalized reading for male users by analyzing the historical text or image posts of female users. Data shows that the response rate for AI-generated reading is significantly higher than that of user-generated ones. Since we fully roll out this feature, the response rate to greetings has continued to rise. On the user acquisition funds to ensure stable productivity of the cash cow business, in Q1, we trimmed inefficient channels with ROI below 80% and gradually terminated cooperation with underperforming ones. The average user acquisition cost narrowed slightly from last quarter thanks to the improved channel efficiency and enhanced user onboarding and conversion capabilities. User retention remains stable despite a double-digit increase in user acquisition. A significant reduction in channel investment with a negative ROI has resulted in a substantial decline in long-term paying users. In Q1, MomoApp had 4.2 million paying users, a substantial decrease of 1.5 million. Since the long-term paying users rendered by channels has relatively low engagement and spending, the absence of this group did not have much negative impact on overall user activity and revenue. Instead, it helped a positive role in improving overall profits. The continuously improving user acquisition ROI in the past two quarters has proved that such a strategy is very effective, and we plan to continue with this effort. Now on the productivity of Momo Cash Cow Business. In Q1, Momo's value-added services, previously known as live streaming and RAS, but combined as value-added services, from this quarter. Revenue totaled 1.78 billion RMB, down less than 10% year-over-year. The decline never from last year, mainly because we completed our proactive demonetization operational adjustments by the end of 2024. We believe that the content ecosystem of the platform is now at a relatively satisfactory level. The annual decline was mainly attributed to standing witness among top paying users caused by SMACO fetish. We have introduced new operational events and gifting features tailored for meet cohort users across various audio and video scenarios. We adjusted the recommendation algorithm in Chatroom to better align with the social preferences of Meet Cohort users, driving growth in both penetration rates and user scale of the Chatroom experience. Moreover, we launched new ice-breaking paying features to boost spending among Meet Cohorts, which partially offset the revenue pressure. caused by the decline of top paying users. Increase in revenue contribution from chat rooms, which has relatively lower revenue sharing ratio, alongside a scale back of revenue-oriented live streaming operation events, has together played a positive role in stabilizing growth margin amidst revenue pressure. In recent years, The strategy of cost reduction and efficiency improvement combined with product adjustments has put sustained pressure on Tantan's user base and revenue. To maintain profitability, we further reduced Tantan's marketing spend in Q1. The decrease in channel traffic has put some pressure on the overall user scale, however, We are pleased to see that, thanks to gradual improvements in the ecosystem and product experience, organic traffic, primarily from returning users, has continued to grow steadily, largely offsetting the decreased cost by reduced marketing expense. In March, TanTan's MAU was 10.7 million, a slight decline of 1%. percent quarter over quarter. As of the end of Q1, TanTan has 800,000 paying users, a decrease of 60,000 from previous quarter. This was mainly due to the ongoing product upgrade, which is improving user experience but has a short-term negative impact on paying conversion. While we are rolling out testing features to a larger pool of users, the paying ratio declined slightly from the last quarter. Turning to time-to-time financials, revenue from the onshore business in Q1 was close to 117 million RMB, down 19% year-over-year. The decrease was due to the decline in paying user accounts. whereas our people grow by double digits, partially offsetting revenue pressure. On the product front, in Q1, we wrapped up the product upgrade launched last year with a focus on enhancing user authenticity through scale product testing, which further increased the user verification rate On the channel front, our goal was to achieve 100% ROI, namely recover all fixed and variable costs, including labor, as three abandoned channels, which that could not be fully recouped. Overall, marketing spending decreased further from last quarter, and the average user acquisition cost dropped by double digits. Combined with minor product-driven improvements in Apple, this has led to a significant sequential increase in user acquisition ROI. Currently, channel ROI has far exceeded 100%, which is the key to achieving quarterly profit growth despite revenue pressure in Q1. On the commercial product front, To mitigate the revenue pressure caused by the decline in paying users, we upgraded membership features to boost our people. At the same time, we moderately increased promotion efforts to offset the negative impact of product optimization on paying conversion. As for the overseas business, in Q1, overseas revenue reached 415 million RMB, with accelerated year-over-year growth of 72%. Overseas revenue accounted for 16.4% of total group revenue, up from 9.4% in Q124. Over the past few years, our overseas revenue has mainly come from our voice-based social products, SoChill, in the MENA market. When Xochitl has maintained rapid growth, we believe that due to the fragmented nature of the social entertainment space and the diversified and nuanced user experiences, in order to expand our market share in MENA regions more effectively and efficiently, we need other brands in addition to Xochitl. As we have accumulated more products and operation experience in MENA. We built up our local team. We have launched more independent brands in recent years to meet different user groups' online social entertainment needs. During our social success, we have developed a level of playbook for the zero-to-one development of social entertainment.