Hello Group (MOMO) Q1 2025 Earnings Call June 05, 2025 08:00 AM ET Company Participants Ashley Jing - Director of IRSichuan Zhang - COO & DirectorCathy Peng - Chief Financial OfficerThomas Chong - Managing DirectorJennifer Huang - Director, Group Corporate Services Conference Call Participants Xueqing Zhang - AnalystLeo Chiang - Equity Research Analyst Operator Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter twenty twenty five Hello Group Inc. Earnings Conference Call. I wo ...

Hello Group (MOMO) Q1 2025 Earnings Call June 05, 2025 08:00 AM ET Speaker0 Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter twenty twenty five Hello Group Inc. Earnings Conference Call. I would now like to hand the conference over to your first speaker today, Ms. Ashley Zhang. Thank you. Please go ahead, ma'am. Speaker1 Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter twenty twenty five earnings con ...

Core Viewpoint - Hello Group Inc. reported a strong start to 2025, with solid profits from its mainland China businesses and accelerated growth in overseas markets, driven by product localization and new app monetization [4]. Financial Results - Total net revenues for Q1 2025 were RMB2,520.8 million (US$347.4 million), a decrease of 1.5% from RMB2,560.4 million in Q1 2024 [5][16]. - Value-added service revenues were RMB2,489.9 million (US$343.1 million), down 1.7% from RMB2,532.9 million in the same period of 2024, primarily due to soft consumer sentiment and a decline in paying users for Tantan [6][16]. - Other services revenues increased to RMB30.9 million (US$4.3 million) from RMB27.5 million in Q1 2024 [7]. - Net revenues from mainland China decreased to RMB2,106.2 million (US$290.2 million) from RMB2,319.2 million in Q1 2024, while overseas revenues increased by 71.9% to RMB414.6 million (US$57.1 million) [8][16]. Costs and Expenses - Total costs and expenses rose to RMB2,234.5 million (US$307.9 million), an increase of 5.4% from RMB2,120.0 million in Q1 2024, mainly due to higher revenue sharing with virtual gift recipients for overseas apps [9]. - Non-GAAP costs and expenses were RMB2,188.8 million (US$301.6 million) compared to RMB2,065.3 million in the same period of 2024 [10]. Income Metrics - Income from operations was RMB299.5 million (US$41.3 million), down from RMB460.3 million in Q1 2024 [11]. - Net income increased significantly to RMB358.5 million (US$49.4 million) from RMB5.2 million in the same period of 2024 [13][16]. - Diluted net income per ADS was RMB2.07 (US$0.29) compared to RMB0.03 in Q1 2024 [15][16]. Cash Flow and Financial Position - As of March 31, 2025, the company's cash and cash equivalents totaled RMB12,785.9 million (US$1,761.9 million), down from RMB14,728.5 million at the end of 2024 [18]. - Net cash provided by operating activities was RMB239.7 million (US$33.0 million), compared to RMB400.2 million in Q1 2024 [18]. Recent Developments - In March 2025, the board declared a special cash dividend of US$0.30 per ADS, totaling US$47.9 million [20]. - As of June 5, 2025, the company repurchased 47.8 million ADSs for US$291.3 million under its share repurchase program [21]. Business Outlook - For Q2 2025, the company expects total net revenues to be between RMB2.57 billion to RMB2.67 billion, reflecting a year-over-year decrease of 4.5% to 0.8% [22].

Group 1 - Hello Group Inc. (NASDAQ: MOMO) is focusing on high-return paying users, which may reduce the total user count but is expected to enhance future free cash flow (FCF) numbers [1] - The management anticipates that the company's international expansion will positively impact future financial performance [1]

Group 1 - Hello Group Inc. will release its unaudited financial results for Q1 2025 on June 5, 2025, before U.S. markets open [1] - An earnings conference call will be held on June 5, 2025, at 8:00 a.m. U.S. Eastern Time [1] - Participants can preregister for the conference call through a provided link and will receive dial-in details upon registration [2] Group 2 - A telephone replay of the conference call will be available until June 12, 2025, with specific dial-in details for different regions [3] - Hello Group Inc. is a leading player in Asia's online social networking space, operating applications like Momo and Tantan [4] - Momo facilitates social interactions based on location and interests, while Tantan focuses on romantic connections [4]

Core Viewpoint - Hello Group Inc. has filed its annual report for the fiscal year ended December 31, 2024, with the U.S. Securities and Exchange Commission, highlighting its position as a leading mobile social and entertainment platform in China [1]. Company Overview - Hello Group Inc. is a prominent player in Asia's online social and entertainment sector, operating applications such as Momo and Tantan to facilitate social interactions and connections among users [3]. - Momo is a mobile application designed to connect individuals based on location, interests, and various online recreational activities [3]. - Tantan, acquired in May 2018, is a leading social and dating application aimed at helping users establish romantic connections and meet new people [3]. Investor Relations - The company offers a hard copy of its annual report, including audited consolidated financial statements, free of charge to shareholders and ADS holders upon request [2]. - Requests for the annual report can be made via email or mail to the company's Investor Relations Department [2][4].

Financial Performance - Revenues contributed by the VIEs accounted for 95.7%, 93.3%, and 88.9% of total revenues for the years ended December 31, 2022, 2023, and 2024, respectively[23]. - For the year ended December 31, 2024, Hello Group reported total revenues of RMB 10,562,971,000, a significant increase from RMB 12,002,323,000 in 2023[44]. - The net income attributable to Hello Group's shareholders for 2024 was RMB 1,039,573,000, compared to RMB 1,957,581,000 in 2023, reflecting a decrease of approximately 47%[44]. - The company reported third-party revenues of RMB 9,392,080,000 for 2024, compared to RMB 11,203,950,000 in 2023, showing a decline in revenue generation[44]. - The revenue from live video services was RMB6,510.5 million, RMB6,072.9 million, and RMB5,092.9 million (US$697.7 million) in 2022, 2023, and 2024, respectively, accounting for 51.2%, 50.6%, and 48.2% of net revenues[71]. - Value-added services represented 47.3%, 47.9%, and 50.4% of net revenues in 2022, 2023, and 2024, respectively[74]. Dividends and Cash Flow - For the years ended December 31, 2022, 2023, and 2024, the company declared and distributed cash dividends of US$127.3 million, US$136.6 million, and US$98.9 million, respectively[32]. - Beijing Momo IT declared dividends of RMB3,600.0 million for 2022, RMB1,800.0 million for 2023, and RMB6,000.0 million (US$822.0 million) for 2024[33]. - In 2024, cash dividends received from subsidiaries amounted to RMB 2,020,000 thousand, while cash dividends paid to parent companies were RMB 2,020,000 thousand, indicating a balanced dividend distribution[46]. Costs and Expenses - Total costs and expenses for 2024 were RMB 9,089,204,000, which is a decrease from RMB 9,827,412,000 in 2023, indicating a cost reduction strategy[44]. - Cash and cash equivalents as of December 31, 2024, totaled RMB 4,122,659,000, a decrease from RMB 5,620,466,000 in 2023[45]. - The total assets of Hello Group as of December 31, 2024, were RMB 18,382,970,000, down from RMB 16,228,009,000 in 2023[45]. - Total liabilities for Hello Group as of December 31, 2024, were RMB 6,950,297,000, compared to RMB 4,241,219,000 in 2023, indicating an increase in financial obligations[45]. Regulatory and Compliance Risks - The company may face risks related to the enforceability of contractual arrangements with the VIEs, which could significantly affect financial performance[26]. - The PCAOB has not issued any new determination regarding its ability to inspect or investigate registered public accounting firms in Chinese mainland and Hong Kong since December 2022[30]. - The company must address evolving cybersecurity and data protection regulations, which could increase compliance costs and operational risks[78]. - The company is currently in compliance with applicable laws, regulations, and policies related to cybersecurity, privacy, data protection, and information security[82]. - The company faces risks related to handling and protecting data, with potential material adverse impacts on its business and financial condition due to noncompliance with cybersecurity and privacy laws[85]. User Engagement and Market Competition - The company faces challenges in user retention and engagement, with a declining user base for its Momo and Tantan apps[66]. - The company is dependent on the strength of its brands, "Momo" and "Tantan," for user acquisition and retention[76]. - The mobile social and dating industry in Chinese mainland is highly competitive, with low switching costs and a consistent stream of new entrants[100]. - The company faces significant competition from other providers, which may hinder its ability to attract and retain users[111]. - Future growth relies on the ability to innovate and adapt to rapidly changing technologies and user expectations[116]. Financial and Operational Challenges - The company may incur significant losses if it fails to manage costs effectively while expanding its user base and services[119]. - Negative publicity and legal actions could harm the company's reputation and brand equity, impacting user demand[106]. - The company faces uncertainties regarding the enforceability of contractual arrangements with the VIEs due to potential future actions by the Chinese mainland government[158]. - The company may incur substantial costs if it needs to enforce rights under contractual arrangements with the VIEs[164]. - The company may face significant costs and resource diversion due to defending against intellectual property infringement claims and other allegations from third parties[126]. Tax and Regulatory Compliance - The company may be classified as a "resident enterprise" under PRC tax law, potentially subjecting it to a 25% enterprise income tax on worldwide income[200]. - The company faces uncertainties regarding the tax implications of indirect transfers of equity interests by non-resident investors[210]. - The company may be subject to increased tax costs if the Chinese mainland tax authorities adjust taxable income based on the fair value of transferred equity interests[213]. - The company’s ability to distribute profits may be limited if shareholders do not comply with SAFE registration requirements[216]. - Non-compliance with SAFE regulations could result in fines or legal sanctions, affecting the company's overseas investment activities[217]. Strategic Initiatives and Future Outlook - The company plans to continue exploring new monetization models and broadening revenue sources, although there is no assurance of profitability or sustainability[61]. - The company has launched live video services and plans to continue investing significantly in this area, despite recent revenue declines[71]. - The company has entered into multi-year exclusivity agreements with popular broadcasters and talent agencies, which are crucial for its live video services[73]. - Future strategic alliances and acquisitions may pose risks, including potential negative publicity and the diversion of resources from existing operations[139]. - The company expects to incur share-based compensation expenses of RMB137.4 million, RMB99.6 million, and RMB75.2 million in 2025, 2026, and after 2026, respectively[143].

Investment Rating - The investment rating for the company has been upgraded to "Buy" [4][7][14] Core Insights - The company reported total revenue of 2.64 billion RMB for Q4 2024, a year-over-year decrease of 12.2%, slightly above Bloomberg consensus expectations of 2.60 billion RMB [1] - Non-GAAP operating profit was 280 million RMB, slightly below the consensus estimate of 302 million RMB, with a corresponding profit margin of 10.62% [1] - The company is focusing on transforming its core business while maintaining positive operating cash flow, highlighting its "cash cow" asset characteristics [1][4] - The company has a strong cash position with total cash and cash equivalents reaching 14.7 billion RMB (approximately 1.45 billion USD) at year-end [3] Revenue and User Metrics - The Momo business generated revenue of 2.423 billion RMB in Q4 2024, down 11% year-over-year, with a paid user count of 5.7 million, a decrease of 23% [2] - The company is shifting towards a profit-centered ROI-driven strategy, effectively reducing customer acquisition costs [2] - The Tantan business reported revenue of 213 million RMB in Q4 2024, down 21.6% year-over-year, with a paid user count of 900,000, a decrease of 25% [2] Financial Performance and Shareholder Returns - The company announced a special cash dividend of approximately 50 million USD to be distributed on April 30, 2025, and has a remaining stock buyback plan of 222 million USD [3] - The potential return rate from dividends and buybacks is estimated at 22.67% based on the market capitalization of approximately 1.2 billion USD as of March 17 [3] - The company has adjusted its Non-GAAP net profit forecasts for 2025, 2026, and 2027 to 1.32 billion RMB, 1.39 billion RMB, and 1.46 billion RMB respectively, reflecting a downward adjustment of 30% for 2025 and 2026 [4][12] Valuation Analysis - The target price for the company is set at 11.69 USD, based on a DCF valuation method with a WACC of 16.88% [4][14] - The current market capitalization is significantly below the book net cash, indicating potential undervaluation and room for valuation recovery [4][14]

Core Viewpoint - Hello Group Inc. is experiencing a significant decline in its domestic business, prompting a strategic pivot towards international markets to seek growth opportunities [2][4][12]. Financial Performance - The company reported a revenue of 2.6 billion yuan ($359 million) for the fourth quarter, down 12% year-over-year, marking a continued decline since 2020 [5]. - Net income for the fourth quarter fell 59% to 187.2 million yuan from 452.5 million yuan a year earlier, with a nearly 50% drop for the entire year to 1 billion yuan [6]. - Livestreaming revenue decreased by 16% year-over-year to 5.1 billion yuan in 2024, now accounting for 48% of total revenue, down from 80% in previous years [11]. User Metrics - Tantan's monthly active users decreased by 2.9 million to 10.8 million, while Momo's paying users dropped from 7.4 million to 5.7 million year-over-year [9]. - The decline in paying users is attributed to a regulatory crackdown and increased competition from other platforms [10][12]. International Expansion Strategy - The company aims for overseas revenue growth of up to 100% this year, with a focus on its Soulchill app targeting Middle Eastern markets [7][12]. - New apps launched in late 2023, including Yaahlan and AMAR, are generating stable returns despite initial marketing costs [14]. - CFO Peng Hui projects overseas revenue to grow from 1 billion yuan in 2024 to between 1.7 billion yuan and 2 billion yuan in 2025 [15]. Market Challenges - The company faces competition in the Middle East from other Chinese social media companies and must navigate potential instability in the region [16]. - Entering competitive Western markets may lead to increased marketing costs and challenges against established players [17]. Investor Sentiment - Following the earnings release, Hello Group's shares fell 8%, indicating investor skepticism regarding the sustainability of its domestic services and the capital needed for international expansion [19]. - Despite a 12% increase in stock price over the last six months, it lags behind the 45% rally of the Hang Seng China Enterprises Index, reflecting doubts about the company's turnaround strategy [20].

Investment Rating - The report maintains a neutral rating for MOMO US with a target price adjusted to $7.20, down from $7.40, indicating a potential upside of 0.4% [1][19][22]. Core Insights - The company is focusing on expanding its overseas business while maintaining stable shareholder returns. The revenue forecast for 2025 remains unchanged at RMB 10,015 million, but the adjusted net profit estimate has been reduced by 5% to RMB 1,239 million due to increased overseas product investments [1][6][24]. - The company has announced a special dividend of $0.30 per ADS, representing a payout ratio of 29% and a dividend yield of 4%. Additionally, the share repurchase program has been extended to March 31, 2027, with an increased buyback amount of $200 million [1][6]. Financial Performance - For Q4 2024, the total revenue was RMB 2,636 million, a year-on-year decrease of 12%, while the adjusted net profit was RMB 230 million, down 55% year-on-year, primarily due to a one-time film production cost of RMB 94 million [6][16]. - The adjusted gross profit margin for 2025 is expected to be 36.2%, reflecting a decline due to changes in revenue structure and increased operational costs [5][17]. - The company’s market capitalization is $1.2 billion, which is lower than its net cash of $1.4 billion as of Q4 2024 [1][4]. Revenue and Profit Forecasts - The revenue forecast for 2025 is RMB 10,015 million, with MOMO expected to contribute RMB 9,328 million and Tantan RMB 683 million. The adjusted net profit for 2025 is projected at RMB 1,239 million [5][17]. - The report anticipates a continued decline in revenue for Tantan, with a year-on-year decrease of 20% expected in Q1 2025 [6][17]. Market Position and Trends - The company is experiencing pressure on its main platform and Tantan due to reduced user engagement and a soft social consumption sentiment, leading to a decrease in paid users by 1.2 million [6][16]. - New application revenues have increased by 37% year-on-year, driven by the rapid growth of the overseas social product Soulchill [6][16].