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.

Hi. Please hold. The conference will recommence shortly. The conference is recommenced.

Okay, I will continue. Since the beginning of 2025, we have wrapped up channel investments for new products. The ROI-oriented channel strategy has driven the revenue of new products to exceed our initial expectations. This is the main reason for the accelerated year-on-year growth of overseas revenue in Q1. Currently, the overseas revenue increment can largely offset the domestic revenue decline. In Q1, show two, which generated the highest revenue amount overseas apps bought in close to 300 million RMB, representing a year-on-year growth of nearly 40%. The growth was mainly driven by localized operation over the past years and improved cross-border collaboration between front and back-end teams, enabling Socio to achieve satisfactory results in both expansion into new markets and launch of new features. On a quality basis, Revenue growth faced pressure due to political unrest in the Middle East at the end of last year, coupled with Ramadan, during which users' spending sentiment was depressed. However, I'm pleased to see that our team was able to adjust operational strategy promptly to mitigate the negative impact of this uncertainty, which plays a positive role in stabilizing revenue. Apart from SoChill, our audio-based social game product, YaHaLand, and voice-based social product, Ama, have recently entered the monetization phase and have delivered a stable ROI since we increased marketing investment at the beginning of this year. As a result, we further increased marketing spend, which drives significant quarterly revenue growth for both products. Beyond pursuing top line growth, our team also focused on optimizing the revenue sharing model and driving high margin features revenue to improve overall growth profit. This effort lays a solid foundation for achieving operational break even. We are confident that the team will reach this goal by the year end. Our goal for the overseas market is not limited to social and entertainment products in the MENA region. HoloGroup is the operator of Asia's largest open social platform. We understand Asians' user preferences and pain points in discovering new relationships and building meaningful interactions better than other players in the market. Therefore, we are confident that we should be paying a key role in global dating markets. Currently, we have set up a team in Singapore with deep expertise in overseas dating operations and marketing. Moving forward, we expect to push harder on building a better dating experience and brands for users seeking romantic relationships. This concludes my remarks. Now let me pass the call to Kathy for the financial review. Kathy, please.

Thanks, Suk. Hello, everyone. Thank you for joining our conference call today. Before getting into the financials, let me first outline the adjustments we've made to our disclosure practice starting this quarter. Number one, we've introduced a geographical breakdown of revenues to more accurately reflect the rapidly growing and increasingly significant overseas business. Number two, given that the line between live streaming and value-added services is becoming increasingly blurred And these two are really, in subsidence, all fee-based revenues where we directly charge the users for value-added services and, in many cases, in turn share part of the revenues with content providers. We've merged the two business lines into one, which we now refer to as value-added services. Number three, given that Tonton's revenue accounts for less than 10% of the group's total revenue, we've discontinued its segment reporting. Now let me take you through the financial review. Total revenue for the first quarter of 2025 was 2.52 billion RMB, down 2% a young year and 4% quarter on quarter, exceeding the high end of our revenue guidance. Non-GAAP net income attributable to the company was 403.8 million RMB compared to 59.9 million RMB for the same period last year and 230.5 million from Q4-24. In the first and last quarter of 2024, we had some one-off tax and impairment-related expenses excluding these special items Net income for Q1 2024 and Q4 2024 would have been 508.5 million RMB and 371.1 million RMB, respectively. Looking into the key revenue items for Q1, total revenue from value-added services, the sum of revenues from former live streaming and VAS, but combined as value-added service from this quarter, was 2.49 billion RMB, down 2% year-on-year and 4% quarter-on-quarter. On the user geography basis, vast PRC mainland revenue was 2.08 billion RMB, down 9% year-over-year and 7% quarter-over-quarter. The year-over-year decrease was mainly due to the weak consumer sentiment caused by macro factors. which put pressure on MoMo business. And to a lesser extent, the decrease in tantan due to the decline in the number of paying users. The sequential decrease was due to negative seasonality. VAS overseas revenue came in at 413.1 million RMB, up 73% year-over-year and 16% quarter-over-quarter. The year-over-year growth was driven by both the rapid expansion of Sochiel and the initial monetization of a few emerging brands. Turning to costs and expenses, non-GAAP cost of revenue for the first quarter of 2025 was 1.57 billion RMB, compared to 1.50 billion for the same period last year. Non-GAAP gross margin for the quarter was 37.9%, down 3.5 percentage points from the year-ago period. The year-over-year decrease was due to a number of factors. Number one, higher payout ratio, which in turn was due to two factors. One is that overseas business contributed a larger percentage of total revenue while having a higher payout ratio, especially during the first regional expansion and initial phase of live streaming service offering. And to a lesser degree, slightly higher payout, from Momo App to incentivize the supply side, considering the downward revenue trend. Number two, optimization of personnel, which led to an increase in one-off severance payments. Number three, payment channel costs and infrastructure expenses constitute a higher percentage of revenues as the revenue mix shifts toward overseas business, where these fees as a percentage of revenues are higher compared to domestic business. Non-GAAP R&D expenses for the first quarter was 185.9 million RMB compared to 183.4 million RMB for the same period last year, representing a 1% increase year-over-year. The increase was attributed to severance payments associated with personnel optimization. Non-GAAP R&D expenses remained stable at 7% of revenue consistent with the figure from the previous year. We ended the quarter with 1,336 total employees compared to 1,375 from a year ago. The R&D personnel as a percentage of total employee for the group was 58% compared with 62% from Q1 last year. Non-GAAP sales and marketing expenses for the first quarter was 322.1 million RMB or 13% of total revenue compared to 287.3 million RMB or 11% of total revenue for the same period last year. The year-over-year increase was attributable to the increase in channel investment for the overseas apps whereas marketing spend for the PRC mainland business narrowed due to Tantan's ongoing cost control strategy. Non-GAAP G&A expenses was 114.8 million RMB for the first quarter, compared to 93.5 million RMB for the same quarter last year, representing a 5% and 4% of total revenue, respectively. Non-GAAP operating income was 345.3 million RMB with a margin of 13.7% compared with 515.0 million RMB with a margin of 20.1% from the same period last year. Non-GAAP operating expenses as a percentage of total revenue was 25%, an increase from 22% from Q1 2024. Now briefly on income tax expenses. Total income tax expenses was 70.4 million RMB for the quarter, with an effective tax rate of 16%. In Q1, the company accrued withholding income tax of 12.9 million RMB, which is 5% of undistributed profit generated by our world fee. Without the withholding tax, our estimated non-GAAP effective tax rate was around 13% in the first quarter. Now turning to balance sheet and cash flow items. As of March 31st, 2025, HoloGroup's cash, cash equivalents, short-term deposits, long-term deposits, and restricted cash totaled 12.79 billion RMB compared to 14.73 billion RMB as of December 31, 2024. The decrease in cash reserves was largely attributable to the repayment of a 1.74 billion RMB bank loan, including accrued interest. Net cash provided by operating activities in the first quarter of 2025 was 239.7 million RMB. Lastly, on business outlook. We estimated our second quarter revenue to come in the range from 2.57 billion RMB to 2.67 billion RMB, representing a decrease of 4.5% to 0.8% year-on-year. This is based on the assumption that on a year-over-year basis, PRC mainland business will decrease mid- to low-teens percentage while overseas revenue is expected to achieve more than 80% growth. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change. 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 the questions, for those who can speak Chinese, please ask your questions in Chinese first and followed by English translation by yourself. Thank you. Operator, we're ready for questions.

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 Zhuqing Zhang with CICC.

Thank you, Manager Chen. To answer my question, congratulations on the growth of your business and overseas business. 我的问题是关于Socio的。 在四季度的业绩会上,管理层介绍过Socio2024年的收入增长是高达50%的。 刚刚管理层在发言中也提到一季度Socio的同比增长可能还不到40%。 除了高基数的一个因素以外,是否还有其他原因导致收入放缓? 比如说像市场竞争、消费环境变化等等的一些问题。 Thanks, management, for taking my question. And congratulations on the strong quarter and the remarkable growth of OMC's business. My question about social. On the first quarter earnings call, the management mentioned that social achieved a 50% revenue growth in 2024. And the management mentioned just now that social's year-on-year growth in Q1 was less than 42%. Apart from the high base effect, are there any other reasons causing the slowdown in revenue, such as market competition, consumption, and environment change? What does the management think about the revenue signing for social and what's the profit guidance for the future? Thank you.

Okay, let me answer that. Indeed, last year, by strengthening localization, expanding the new market, and increasing video games, we achieved a rapid growth in revenue. Since the beginning of the year, the increase in revenue has slowed down. In addition to this high number, there is another reason. It is because of the turbulent situation in the Middle East at the end of last year, which suppressed the consumer sentiment of some users. And this sentiment has continued until the first quarter of this year. In order to relieve the world's income pressure, we have increased the purchasing power of paid users on the channel. The product level has introduced new ways to build relationships and improve the ability of users to grow. The improvement of user experience has played an active role in improving the flow. In addition, we also organized multi-sale operations during the disaster month. Therefore, compared to the previous year, the frequency of fluctuations of disaster users this year is much more stable. This also helps the rapid recovery of user activity and consumption after the disaster.

Indeed, last year, Sochi achieved rapid revenue growth by strengthening localized operations, expanding into new markets, and introducing video features. However, since the beginning of this year, the revenue growth has slowed down a little bit. This can be attributed not only to a high base effect, but also the political unrest in the Middle East at the end of last year. which dampened some users' consumption sentiments, a trend that continued into Q1 of this year. To mitigate the impact of the event-driven revenue pressure, we beefed up our efforts to acquire paying users through various channels and introduced new features designed to facilitate relationship building and improve user engagement. The enhancement in user experience has positively impacted retention. Additionally, During Ramadan, we organized several operational events, resulting in more stable user fluctuations compared to previous years. This helped in the rapid recovery of user activities and spending after the Ramadan.

至于刚才提到的竞争问题, 虽然中东地区有比较丰富的涉于产品供给, 但由于这是一个非常分散的市场, 我们至今还没有感受到明显的竞争压力。 So as for the competition concerns just mentioned,

Although the Middle East hosts a rich variety of social entertainment products, the market remains highly fragmented. That's why we haven't experienced a significant competitive pressure. Resilience can also be attributed to our extensive experience in product development and operations within this sector. Last year, Socio's revenue was close to 1 billion RMB, and we believe it still has greater growth potential. But however, to achieve this goal, we need to go beyond Socio's current market penetration and product offering. This is precisely why we must continue to expand into new markets, deepen our presence in existing regions, and drive continuous product innovation.

利润方面,过去几年Socio一直保持着良好的盈利状态, 但在收入高速增长以及不断增强市场渗透的阶段, 我们不会追求利润率的增长。 So in terms of profit, Socio has maintained solid earnings in the recent years.

However, during this phase of rapid revenue growth and ongoing efforts to enhance market penetration, we will not prioritize margin expansion. Instead, we will maintain strict control over channel ROI. As long as our use acquisition remains profitable, we will reinvest the incremental profit into use acquisition channels and strengthen localized operations. I hope that answers your question. So, operator, please take the next one. Thank you.

Your next question comes from Ria Xiang with Deutsche Bank.

Thank you. Q1 Q1 Q1 Q1 Q1 Thank you, management, for taking my question. My question is also regarding to overseas business. In Q1, overseas revenue was over $100 million, and so was close to maybe $300 million. Does that mean that the other two assets started to monetize last year has combined to exceed $100 million in quarterly revenue? Could management share the growth plan of these two products and your estimation of overseas revenue this year?

Thank you. 从收入规模的角度看,目前我们海外最大也是最成功的产品实售球。 那么另外两款面向中东的社交娱乐产品在去年年底,今年年初也取得了突破性的进展。 From a revenue perspective, SoChill is currently our largest and most successful overseas product.

Our other two social entertainment products targeting the Middle East also achieved significant breakthrough progress at the end of last year and the beginning of this year. This was mainly driven by improved user retention and channel marketing efficiency, which lead to significant improvement in user acquisition ROI. We believe that both products are well positioned for rapid scaling and are expected to maintain strong growth momentum from their Q1 levels.

除了这三款社交娱乐产品之外,我们的海外收入里边还包括探探的海外业务。 Tantan has always been a mainstream brand in the overseas Chinese market and Southeast Asian market. As Sik mentioned, we started a strong overseas product operation team in Singapore last year, which is responsible for the business of overseas dating products, including Tantan. We have always been very optimistic about dating products overseas, especially in the development prospects of developed countries. Hello Group has a very unique advantage in this regard. The dating market will be a focus in our overseas planning.

In addition to these three social entertainment products, our overseas revenue also includes Tantan's overseas business. Tantan has always been a mainstream brand among overseas Chinese communities and Southeast Asian markets. As Sik mentioned, we established a strong overseas product operation team in Singapore last year, tasked with managing international dating products, including Tantan. We have always been very bullish on the prospects of dating products in overseas markets, particularly in developed regions. Hello Group holds unique competitive advantages in this sector, and dating market will be a key focus in our international expansion strategy.

总的来说,我们对海外业务整体的表现感到非常满意。 毫无疑问,海外在集团的收入和利润占比会持续地提升。

Overall speaking, we are very satisfied with the overall performance of our overseas business. Undoubtedly, the proportion of revenue and profit from overseas operations will continue to increase, and it will soon become a true growth engine for the group. As for our revenue expectations for overseas market this year, Cassie can provide more details.

Let me take the more quantitative question on the overseas revenue outlook. This is the first quarter where we've broken out overseas versus domestic revenue, and I think it's an important milestone in understanding our global growth trajectory. I'm going to perhaps address this question from several perspectives. Firstly, if you look at where the overseas revenue comes from, in Q1 2025, overseas revenue accounted for 16% of total revenue. Within this overseas piece, Sochio remains the largest contributor, making up approximately from 60 to 70% of our overseas revenue in Q1. The second largest contributor is the overseas piece of Tantan, which is primarily a subscription-based dating product. That piece contributed around 10% of the overseas revenue. Beyond these two, we also have several emerging brands, such as Yahalan, Amar, and others that make up the remaining share. Together, this portfolio approach under the Hello Group umbrella has driven robust growth internationally. And the second point here is in terms of growth dynamics in different sectors, we see two major forces behind the over 70% year-over-year overseas revenue growth. First of all, the social entertainment market in the Middle East and North Africa, which we call MENA area, has been a major opportunity. While there are some more established players in the region, the market is large and diverse enough to support multiple platforms. Our entry to MENA market through brands such as Sochil, Yahalan, and Amar has been informed by years of product iteration and operational learning. Over the past few years, we've developed a playbook from launching all the way to scaling that we can replicate across different brands in that region. This matters because MENA, when you think about MENA, it isn't a single uniform market. It actually spans multiple countries' demographics and user behaviors. For example, What works in the Gulf countries may not work in North Africa. So having a modular, portfolio-driven kind of strategy and the operational agility to localize quickly has been a significant advantage for us. That playbook is now a real asset. Other than the social entertainment opportunities in the MENA area, our growth down the path also be increasingly driven by the overseas dating market as well. The overseas dating market, particularly through Tantan, is starting to turn a corner. Tantan's performance had been uneven in the past as we try to play balancing act between dating and more entertaining features such as live streaming and chat rooms. Such balancing act as some of you may know, a lot of times have been pretty uncomfortable for both the users and ourselves. What we've learned, especially over the last year, is that users, particularly in more developed markets, want a focused and authentic one-to-one dating experience. As a result, we've refined the product strategy to prioritize coordinating functionality and slimmed down the more peripheral entertainment features. We've also made structural changes by relocating global marketing and operations for dating to Singapore. The Singapore team brings deep experience and expertise in running international dating platforms and it's already proven effective. Combined with China's world-class engineering capabilities, especially in product iterations, we now have both the local insight and the engineering horsepower to compete globally. We believe this positions us well to scale our dating brands across the international market. I hope this elaboration gives you guys a clear backdrop against which you can better understand the reason for the rapid growth of our overseas business. Now let me give you the numbers to work with your models. As you can see, Sochil grew 38% year-over-year in Q1, but the rest of the overseas portfolio, including Tantan, Yahalan, Amar, and others, grew at a triple-digit rate. This drove total overseas revenue growth of over 70% year-on-year in Q1. Looking ahead into the coming few quarters, we expect overseas growth to see further acceleration even beyond this 70% level. This growth will increasingly be driven by non-social brands, thanks to the dual engine of social entertainment in MENA and the rebound of our dating business. We believe this combination gave us a strong momentum and diversified exposure across several high-growth segments internationally. I hope this addresses your question. And now back to Ashley for more questions.

Hi, operator. Please ask the next question.

Thank you. Your next question comes from Thomas Chong with Jefferies.

Good evening. Thank you for accepting my question. 我的問題是關於 MoMo 還有 Tantan 在去年的話都經歷了一年的改版。 今年的話我們對這兩個產品會有什麼的預期? 然後怎麼去看國內業務的二五年收入的一個表現? Thanks management for taking my question. We have seen MoMo and Tantan undergone a number of changes in 2024. How should we think about the 2025 outlook? And how should we think about the China revenue for this year?

Thank you. For MoMo and Tantan, these two mature brands, our requirement is to ensure that on the basis of profit, we try to stabilize the large-scale and active users. However, as a social brand with more than 11 years of history, it is not easy to stabilize the social basic brand. The product team has put a lot of effort into using new technology to improve user social experience. For example, SICK just mentioned AI tools that allow male users to use our own words to analyze the historical dynamics of female users and generate individualized greeting messages. This is a very practical social tool for Asian men who are not good at breaking the ice. If male users think that the content generated by AI and the graphics do not match their character and expression habits, they can also ask AI to continue to adjust For mature brands like Momo and Tantan, our goal is to stabilize user scale and engagement while ensuring profitability.

However, for social brands that have been around for over a decade, maintaining fundamental social matrix is no easy feat. So our product team has put considerable efforts into using new technologies to enhance users' social experience. For example, as Sik mentioned earlier, we provide male users with our self-developed AI tools to analyze the historical posts of female users and generate personalized greeting messages. This is a very practical social tool for Asian males who are not very adept at initiating conversations. If the male users feel that the content and phrases generated by AI do not match their personality and their style of expression, they can request the AI to continuously adjust the greeting messages until they are satisfied. We have now replicated this technology in Tantan and allowing more users who are eager to find dates but lack certain skills to benefit from it.

Since the beginning of the year, enhancement in product operations and matching algorithms

have driven year-on-year and sequential growth in several key metrics of the Momo social ecosystem. These include retention rate, two-way chats, the number of two-way chats, and female ratio, all of which reflect increased user engagement. A stable and highly engaged user base forms the cornerstone that allows our cash cow business to sustain its profitability.

Regarding Tantan, we implemented further cost efficiency measures in both China investment and personnel expenses in Q1.

The ROI improvement brought by reduced marketing spend has far exceeded our expectations, creating greater operational flexibility for continuous product experience optimization. As for this year's domestic revenue performance, I will leave Cassie to address those details.

Okay. In Q1, mainland China's revenue declined by high single-digit on a year-over-year basis. For Q2, we are guiding to a YY decline in the low teens percentage. Looking at the fall year, we expect the decline rate to remain roughly in line with the first half, which translates to a 10% plus-minus year-over-year decrease for the fall year. for the domestic piece. This represents a significant narrowing from the high teens year-over-year decrease that we saw in 2024 versus 2023, which shows continuous stabilization of the domestic business. Now, let me briefly review the primary factors that drives our domestic business trajectory so you guys can put our estimation into perspective and maybe form your own view about how things may play out in the second half of 2025. Firstly, macro sentiment remains a swing factor. Momo's revenue is heavily tied to value-added services, particularly virtual gifting, which depends on discretionary entertainment spending of higher-income users. Spending sentiment among this group is closely linked to their personal financial outlook, and that in turn tracks with macroeconomic indicators, a lot of times how the equity market is performing. In Q1, what we saw was a short-term boost around Chinese New Year. supported by some optimism in the equity markets. However, as we enter into Q2, macroeconomic and geopolitical uncertainties, such as tariffs, began to resurface. But for now, sentiment appears stable, and our Q2 guidance reflects that. That said, the outlook for the second half will still depend heavily on broader macro developments. Second big factor here is regulatory environment. On that front, we've seen meaningful improvement in the regulatory landscape over the past few quarters. With that stability, we've shifted from a defensive risk management posture back to normal product development and operational execution. Other than the macro and the regulatory drivers. The third factor that has an impact on our domestic revenue performance is the new strategy and restructuring of the domestic part of Tantan business, as explained by Sik in her prepared remarks. Starting in March 2025, we made the strategic decision to sharply reduce marketing and personnel expenses on the domestic side of Tantan, The goal here was to improve the ROI of our user acquisition and support profitability for Tantan's domestic business. Naturally, the cut in spend will have a negative impact on Tantan's top line. However, because after the cutting we are seeing significant improvement in ROI of our user acquisition efforts, that the client top line cost by cutting was pretty mild and manageable. This came as a pleasant surprise for us. For Tantan's domestic business, we also expect the YY decrease to narrow down from what we saw in 2024, and we expect the bottom line to come in much better than what we saw last year. Lastly, I would like to say a few words beyond the domestic performance at the group level. Investors should already notice that our Q1 revenue showed only a slight year-over-year decrease of a couple of percentage points, and Q2 we are guiding similar level of decrease YOY. However, with continuous stabilization of domestic business and acceleration of growth from overseas business, it's possible that we are going to see group level top line turn to positive growth in the second half of the year. If that happens, it would be a major structural turning point for us. Well, I hope this addresses your question. Maybe one given time, maybe time for one last question.

Operator, do we have any more questions? On the line, if we do, let's just take one last one before we close the call. Thank you.

Yes. Your next question comes from Jenny Wong with UBS.

Thank you for your question. First of all, congratulations on a very strong performance. My question is about our profit and loss outlook. Cathy just introduced us to a full-year income period. Could you please give us an overview of the profit and loss situation in 2025 and our specific arrangement in terms of revenue? Thank you. So let me translate myself. So thank you for taking my question. First of all, congrats on the strong fiscal results. My question is on the margin side. So Cassie worked us through the four-year renew outlook earlier. So could you please also give us some color in terms of our profit outlook for this year and how expenses are expected to be managed and allocated into the rest of the year? Thank you.

Sure. I guess that's my job. Let me take the margin and bottom line question. Maybe I'll break it down into a few key components. First of all, if you look at gross margin, our Q1 non-GAAP gross margin came in at approximately 38%, reflecting a more than three percentage point decline year-over-year from Q1 2024. The biggest driver toward such margin decline was the mixed shift toward an increasingly bigger overseas revenue contribution. Gross margins are lower for overseas business primarily because A, payment channel costs are higher and B, many overseas applications are still in the early stage of scaling. where efficiency hasn't kicked in yet. As the overseas business continue to grow as a percentage of total revenue, we expect to see similar level of YY decline for the whole year 2025, meaning in 2024, we reported a 39% non-GAAP gross margin for the full year, For 2025, we anticipate a decline of a couple of percentage points, putting us in the range between 36 to 37%. Over the longer term, though, as overseas application scale and payout ratios decline, we expect gross margin improvement and leverage gains. Turning to operating expenses. First of all, R&D and G&A expenses. With continued personnel optimization, both R&D and G&A expenses are expected to decrease slightly in absolute dollar terms in 2025 versus 2024. With regards to sales and marketing, we anticipate around 10% year-over-year increase in sales and marketing spend. This increase is driven by our rapid expansion in overseas markets where we are acquiring new users and growing market share. It's important to note that all marketing investments are ROI-driven. That means we only increase spend when data give us confidence in cost recovery over time. So if you try to put all these together and think about adjusted operating margin for the whole year, again, in 2024, our non-GAAP operating margin was, I think, somewhere around 16%. For 2025, we expect a margin in the low teens percentage, likely within the 13% to 14% range. as we absorb the near-term gross margin pressure, as well as ramp up the marketing investments in overseas markets. So that's my answer to the bottom line. Back to Ashley to wrap up the call.

Yeah, I think that's it for today, and thank you for joining us. I'll see you next quarter.

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