Q1 2020 Earnings Call
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After Chinese new year holiday achieved moved out a number if you gave played with Oh, we didn't live broadcasting Dream team experience.
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Discovers and supports new an entry level performer.
This is an area, where we see a lot of opportunities for optimization and improvement.
It is also a key area focus for the team in the coming two quarters.
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What a high paying users given that most of them are probably because owners.
Financial conditions were pressured by the pandemic.
We believe that our efforts are focused on keeping then engage rather than letting them spend more.
What are the key issues, we had last year was that the top vendors score, becoming less enthusiastic about liquidity for minivan.
So this year, we rebranded the tournament experience into a new competition event that we called it the producer program.
New program, which created as an all labor jobs real quick or the offline VIP music tours, which was a big success last year.
It is college.
Producer program, because we let the top vendors play important roles in the back.
They got protest take their favorite before.
They're all task force and compete with others.
Team.
In early April we held the first season of the producer Pro rata.
Although the overall spending was lower than the prior to one of the best due to the negative walking back in connection with a pandemic the level of participation from the top vendors improved meaningfully as compared with what we saw in the quarter each women's last year.
We plan to continue to optimize Onyx, a rollout a second season somewhere in summer.
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Now turning to that.
Well talk about sometimes business later.
So I will be focusing on the vast visits for the core.
Revenue from bad on it.
It reached 801 million renminbi into first quarter of 2020.
31% increase on a year over year basis.
The decrease in a number of active users and engagement levels had direct impact on bass business.
However, that's compared with Lybrook testing that is still under monetized. In addition, because the paying users structure for batches lock her driven.
It's much more resilience in a tough macro environment.
Therefore in order to alleviate the stress on overall revenues in Q1, we push the gas how do I get harder to drive revenue growth through operational events and vitro came experiences.
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That's also mentioned earlier in his remarks in Q1, we introduced a couple of new moderated experiences into chat rooms.
These experiences are inspired by some of the popular dating reality shows and moderated by professional host.
In the commercial chart wins.
Momo users can not only enjoyed a show as audience, but also participate and become part of the show.
We see a lot of potential in extending these costs in jahner on mobile because it takes a fun. It makes a fun consumer experience that is compatible with our core yours or mentality.
At the same time. He also there's considerable commercial value based on a proven model.
In Q1, a chart wouldn't experience shine both in terms of engagement growth and in terms of revenue contribution.
We expected to continue to act as a key driver for the vast business for the rest of the year.
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[noise] other than the chart when they experience we're working on a number of new projects that have the potential to become future revenue drivers.
For example, I tell you mentioned Hertz has heard which is an audio base dating application is gaining traction within younger demographic.
We have already started monetizing the application and put the revenue back into marketing. So that we can drive a virtuous cycle to grow it into a bigger scale.
In addition, hung out or the matchmaking experience, which we started testing last year on the core mall is also making good progress.
I'm very optimistic that these new projects will bring new revenue growth opportunities down the down the road.
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Now briefly on other business line mobile marketing revenue declined 29% year over year to 57 point 16 million written in beat due to the strong macro headwinds as well as our strategy to underweight the lie in terms of resource allocation.
Currently operated game business continued to trend down into one I will likely fluctuate around the current revenue level for the for the coming few quarters.
So what grew out of your which we won't do something along we got a different kind on the computer you bought it.
Oh, that's good business review of the core mobile now let me hand over.
Mr. long before a regular [laughter] product and business development Mr. <unk>.
Thanks, So let me briefly review on both operational and business development in the past quarter Nixed The club.
First on recent metrics.
Many of you know we had some issues around user retention, which calls for a number of daily active users to the under pressure since.
September last year.
Last December is through a series of product that algorithm optimization [laughter] fix the issue.
Bush your attention back to where it was before to download suspension happen.
As we stepped up the channel marketing efforts in January.
We saw the view you grow rapidly during the two weeks periods from late January to mid February.
However, since February 10th asked the spread of Cobiz 19 continues beyond.
On a nationwide locked down.
Kept getting elevated.
I've seen the dating said sentiments quickly waning.
Creating headwinds to new registration that swelled up the paying conversions I'll call them.
In response to these situations, we scaled back our marketing spending in March due to ROI consideration.
The combination of the above mentioned factors have cost after users to trend down since mid February.
Which led to a 300000 that decrease in a number of paying users to 4.2 million.
At the end of Q1.
Wasn't locked else lifted and the outdoor activities gradually coming back we expect to see dating send them and start to recover gradually as well.
However, we also believe this can be a problem progressive process. That's most of the people are still wearing masks outdoors and it can take time for young people in China to complete the left on the psychological barrier to meet someone they didn't have no well for intimates interactions.
[noise] the other thing worth Vincent mentioning is that although the number of active users where other pressure during Q1, the number of active female users and their engagement gradually grew on a sequential basis.
This tells us that female users, let's focus on online to offline conversions are more into building the deeper level all of the emotional connection.
First our belief that by adding richer online interactive features.
We can make something to appeal to a broader based users.
Now I'll briefly on revenues.
Total revenue for first quarter was 381.7 million RMB.
Up 29% year over year, and that's the slight uptick from the previous quarter.
Although a number of paying users decrease pretty meaningfully the are people who are grew significantly due to the outstanding performance of flash up.
And revenue mix shifting more towards higher our people subscriptions.
The graph into revenue conversion is another factor a Ford RPP increase.
Now let me give you an update on the problems is we made against our key strategic priorities.
First some product that operation.
A key focus here is the enriched deprive experiences in order to drive long term users retention.
In our early days, how those started from the metropolitan cities in China and focused on college students and people into late teens and early twenties [noise].
The simple swipe, the magic Spears required to fix it for this demographic.
Sometimes user base grow and the demographic broadened we need more features and experiences to better serve increasingly diversified social purposes.
In November last year, we rolled out that chat experience on telephone.
Which allowed the often users to get immediately connected with someone for a conversation before that focus too much on football fixtures.
The new feature has been well received driving immediate surge and then number two way messages.
It also opens up new monetization opportunities.
Switch quick Quickshot continues to gain traction among users revenue also wrapped up rapidly in Q1, NOL representing more than 10% about total revenues.
We believe there's still a lot of potential in this experience and we'll continue to optimize and drive growth Roman.
Oh, that's a fifth of a flat shot proves that adding new feature is the right way can indeed benefit those both in terms of engagements and in terms of financial.
In Q1, we also accelerated the rollout of the new version, which features nearby close to allow users to share more aspects of their lives as well as big new discoveries based on causes.
Up to know the new version has already reached 100% coverage about going on users.
Like many other social networking products, having a constant communities very critical for driving meaningful interactions between users. The introduction of the nearby close is an important step that we've taken to provide sometimes users a richer ways to connect beyond our signature is like an experience.
We will continue to optimize the new version and has the committed you experience around it.
In Q1, we also move deeper where the internal testing of an important consumer is.
The live video service.
We believe this had especially important though this was especially since it's important doing the social this isn't period as it provides an alternative ways to connect virtually it make people feel less isolated in mid April we release more users is into the testing.
The number of users grow we can now invites more quality bought cut broadcasters onto the platform and improve the quality of pump.
Which will further drive improvements in user engagements as well that monetization plug for potentials.
No a brief update on monetization efforts obviously.
Testing of live video is not just with endeavor to improve user experience, but ultimately effort all optimize monetization body of the platform.
We believe there's not going to users how strong weeding, those and motivation to pay for value added services in the origin and have their social experience.
However, this huge potential needs to be unleashed by a combination of subscription and I look hard features like.
Live video is a proven monetization mechanism that drives ARPU and which if done correctly carefully in the right way can also contributes to user engagement.
We intend to continue the testing with extreme prudence and carefully monitored the data to make sure. We stay on the rights I can recall those core mission, which is helping users bill domestic relationships.
Other than live video, we also have a number other priorities, which including include optimizing the quits quickshot experience and the existing subscription features it's rolled it just seemed a formula of other new revenue features.
We will continue to give you guys updates as to your progress is.
It was sort of key things that I like to cover for today. So let me pass the call over to Mr., Jonathan John for a financial review of jumped to Oh. Thanks.
Hello, everybody refining our conference call today I'll, Let me briefly take you through the financial review.
Total revenue for the first quarter 20 to 20 was 3.59 billion RMB.
Down five 3.5% a year on year for 23% quarter on quarter.
Exceeding the high end our revenue guidance.
Non-GAAP net income I suitable to Manuel was 736.3 million RMB compare to.
910.3 million RMB from the same period.
With all the 19 for 19% decrease year over year.
Let me jump into their review all cost and expenses items as revenue line items have been covered comprehensively by body and as long as.
Our dear.
Our non-GAAP cost of revenue for the first quarter of point of your 20.
1.85 billion RMB same pets.
One last year.
Non-GAAP cost of revenue as a percentage of total revenue was 51.5%.
And increased from 49.7% from Q1 hundred 19.
Non-GAAP.
Gross profit margin for Q1, 20, Twond came was down.
1.8% year on year.
The decrease was partially attributable to higher payout.
Which was primarily due to higher revenue contribution from agency representative broadcasters.
Secondly, certain fixed nature cost items, such as headcount and depreciation of fixed assets related impacted the gross margins and actively.
Total revenue declined.
This items represent a higher percentage.
Net revenue.
Non-GAAP R&D expenses for the first quarter.
It was 217 million RMB compared to 207 point Fourmillion R&D for the same period last year.
Representing a 6% or.
And.
5.6% of total revenue respectively.
The increase in R&D expenses, mainly due to the headcount increases during the year.
On a sequential basis the noncash.
R&D expenses decreased from 244.3 meeting.
So far it off here.
Through the year end the bonus incurred.
We ended the quarter with 2344 total employees.
Of which 725.
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R&D personnel as a percentage of total employees for the group was 56% compared to 54% last year.
Non-GAAP sales and marketing expenses for the first quarter was 645 point, threemillion RMB or 18%.
Total net revenue.
Compared to 557.5 from your R&D or 15.2% total revenue for the same care to last year.
The year on year, even increase in sales and marketing expenses was mainly due to a higher marketing spending from time to time and the two or lesser degree from mobile as well.
On a sequential basis sales marketing expenses decreased due to less marketing spending.
Habitat in response to the Covance 19 offering.
Non-GAAP Gionee expenses was 105.5, I mean, they arent before the first quarter twentytwenty compared to 92.9 million. They R&D for the same quarter last year, representing 2.9% and 2.5% totaling I refer you know respect.
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Non-GAAP operating income.
Was 801 million RMB.
<unk> decreased 21% from Q1.
Plenti, United Kingdom, representing 22.3% non-GAAP operating margin for the quarter.
<unk> five percentage points from the same period last year.
Now I'll briefly on the effective tax rates.
Starting from the beginning of the 2021 up or major profit making subsidiaries.
From a preferential income tax rates changed from 12.5%.
Who 15%.
As a result.
Our consolidated non-GAAP effective tax rate, what's around 19% for the first quarter.
Three percentage point from the same cared and last year.
Now turning to the balance sheet into cash flow items.
As of March 31st 2020.
Almost cash cash equivalents and short term deposits totaled.
15 point.
For 7 billion RMB compared to.
14.
0.9, 3 billion RMB I saw December 31st 29 King.
Net cash provided by operating activities.
During the first quarter was 543.5 million and maybe.
Lastly for the second quarter of 20, Twond he'd revenue guidance.
We estimated or second quarter revenue.
Commentary.
The range from 3.8 billion RMB, two or 3.9 billion RMB, representing a decrease off.
8.5% to 621% year on year, and an increase of 5.7%.
To 8.5% quarter over quarter.
Please be mindful of that the forecast to represent the Companys current and preliminary view on the market and operational conditions, which are subject to changes.
The other thing worth mentioning here is that up to this moment.
More more has made.
Special cash dividends for the past two consecutive years.
Replenish.
Our U.S. dollar funding consume.
The company a wall repatriate 2.2 billion RMB in portal.
For more Wolfie in China for offshore entity before the second quarter and.
You know quota is what the respective tech station loss in China. The company will pay 10% or 220 million RMB withholding tax to Chinese tax authorities, but.
So we got withholding tax payments will be recorded.
Income tax expenses for the company.
In the second quarter.
With all in 20.
That concluded our prepared portion of today's discussion.
With that let me turn the call back to Kathy could start to M&A Kathy.
[noise] [noise] Oh, Yeah, just a quick reminder for.
Those.
Tends to be Chinese please ask the question the Chinese first followed by English translation by yourself.
And also please.
Try to limit the number of questions to either one or two so that more people got to ask questions. Operator, we're ready for questions.
Ladies and gentlemen, I'll begin to question it adds a session.
Yes, it is Taiwan telephone keypad, you need to be.
Cancel the request it is the.
<unk>.
Once again, it is Taiwan telephone keypad.
Questions.
First question comes in nine of Thomas Chong HM.
Two questions.
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Our friends manage windfall, taking my questions. My question is on who bought from Oh.
Revenue guidance and the second half outlook and management more about all the pool.
You mean and hobbies and that's trends.
In the coming quarters and my second question is more we didn't do that sometimes I given that you have I saw the testing for the like human side was that how much when say about that since we have been testing with that affects the beaten ecosystem and any <unk> subleasing, except for the lights, assuming weapon Neil Oh, yes.
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[noise] so the first part of the.
Part of the question on the Q2 guidance.
The company's Q2 guidance is based on some of the recent trajectory that we haven't seen and also managements assumptions for the coming a couple of months [laughter] or we can see it instead of a component.
Firstly for library, passing based on some of the trends that we've seen so far into the second quarter, we believe that the macro conditions, especially to the east.
Condition that probably business owners aren't going to continue to.
Being a headwind to the dating back to the consumer sentiment, especially that among the higher paying coke life.
The other factor that we put into the assumption.
Put into the Q2 guidance is that is the.
The fashion a vibrant testing service during the National morning day that is also going to crush or do you have already by a couple of what percentage.
You know the rate is why why decreasing the second Q4 like what kind of thing from almost elaborate passing a it's going to be a little bit higher than what we saw in Q1, but on a sequential basis like what's happening is still going to see a pretty nice way down from the first quarter.
And.
Provides I think because of the recovery of traffic the pressure around the revenue is going to Ah you thought.
At the same time. The team also has a plan to scale back on some of the very ARPU oriented operational efforts.
But overall, we expect the why why growth rate for back to.
Be able to maintain the same level as we saw in Q1 I know for top high our expectation is that we're gonna see some acceleration the why why block radius is going to see some acceleration from to watch level and the main driving factor driving factories would be the recovery of users as well as the contribution from from new revenue project.
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With regards to take the revenue outlook for the second half of the year.
Currently we believe that the uncertainties other macro level are probably going to be lingering for some time, so actually oh, yeah. We are still pretty optimistic about the revenue outlook in the second half and here are some driving factors that we're looking at.
Firstly for Leibrock happening, we're going to continue to roll out.
Product can operational efforts, we believe that these efforts will.
Taking effect on a progressive basis.
For that its not as deeply monetize so we do see plenty of headroom for for further growth at the same time. It is also going to be much more resilient in a tough macro environment as we sat on the.
What parts of this call.
Based on where we are with the chart room experience and also based on where we are with a number of new projects that we're currently running under bass, we think that vast revenue is going to continue to grow very rapidly.
As we head into the second half of the year.
30 on sometimes Oh, we have already been seen a recovering trend.
The impact of users and as we said it needs to new engine. It's also beginning to warm up now even based on the very initial testing data. We can see that there is indeed, a huge monetization potential in peptides user base.
Okay, So well start to get released in the second half of the year on you know you know.
Graduated and methodical manner.
So I guess based on the driving factors, we're very pretty confident that the revenues in the second half of the year is going to see a pretty meaningful growth from the first half of their.
Now here's one for [laughter] [noise].
Okay. So.
Regarding the live video test results.
The test results have been very encouraging so far.
Things are a hub for certain here.
Well no matter what matters most to us in a tough thing is that we don't want to see and a new monetization features adversely affecting didn't ecosystem of metrics.
We've been testing like video for several months now it's clear that it does not have any negative impact on do in fact, I'm happy to see several important dating metrics, we follow having coming up and recently reached historical highs for example, the amount of a two way messages per user or not.
Only per user but.
Total a amount of two way messages.
Thats a its historical peak right now the number of matches ER.
And the amount of matched users.
So if we do it the right way, it's it's possible that live video can either be positive to the dating.
A second.
After we release more users into the testing group the different operating and revenue metrics around I video services certain started to ramp up very rapidly.
These metrics include the paying ratio ARPU Tyson et cetera.
The trajectory that we are seeing a confirms our belief that hundreds user base there huge ping potentials to be released what's more encouraging is that the current things structure, it's extremely long tailed for them, which reflects the attributes of another users.
With regards to <unk> to revenue outlook, we're still at testing phase and therefore did up wants to be too prescriptive prescriptive about the annual numbers, but based on the current trends. We believed that it can be be a meaningful driver in the second half.
[laughter].
Okay.
Yeah ready from that.
Thank you.
Next question Islam The line Oh, a T.H. capital. Please go ahead.
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Okay. Thank you [laughter].
Oh, Okay that funny I.
I'd say the first question on more like first so far we haven't run any large scale promotion I promotional campaigns around a light version of by this point. It has already built up a pretty sizable user base.
However, as compared with the main version the overall user base on them on a like Virginia is still a relatively small our plan is that starting from the third quarter, we're going to step up the marketing efforts around them on a like.
Our expectation is that starting from the second half of the year I'm, a lightweight star to make some meaningful contribution to the overall user base.
The core application.
With regards to that meditation potential at this point <unk>. The Lightbridge only has membership and leibrock happening, but based on the Lybrook has seen data the a willingness to pay and the paying potential on a light.
There's not any weaker than that are the users on the main app, but you know at this point there are just not as many a you know a core pain score I say sounded like and there are on the main version because the focus and the team is still on improving user.
Experience I've already on the scale I think a working at we're gonna start to open up more money they shop opportunities at a pace that we didn't fit.
So that's for the light version.
Regarding the second question on.
At the ecommerce relating Lybrook has seen a as many around the company. We've actually noted the writing trend.
The writing popularity as the ecommerce where they live broadcasting on some of the major ecommerce platforms and dishes or indeed, one of the areas that we have been closely monitoring a and we are also pretty actively study and exploring some of the potential.
Opportunities that we can potentially see slide at this 0.0, we're not at this stage two a share.
Any deeper information publicly a yet maybe later.
So that yes, or no further questions operator, I I think we're ready to take won or lost a person.
And they're ready to close given time Uh huh.
How much you yes.
Our next question from that I know Daniel Chan.
[noise] JP Morgan.
Two questions.
Well it was all by as I said it isn't what it wouldn't be or once you go into supply tongue tied that took a woman took another good to go your way, sometimes usually with you know that one dog.
I'm not quite a few sounds so I saw you played all commissioning your husband's I've got hold what's how people time pictures or what's on Winchester number on somebody's home because ER Teight hundred things I'm glad you your whole vocal it depends on the way like the machines. They didn't seem to a whole what they'll do when he is a quite easily when do you just creating Jonathan.
I don't think antibody renewed at the time.
Folkways hits with others, if somebody sounds you know we've got some what you're kinda, but she says is it a which I say myself and my first question is on time time. So we do see that made me on debating market. Many other companies have launched a or a kind of a various trading products, such as solar and eat away and the tends at all.
So launch from new products. So can management comment on the competitive landscape and how tons I was going to cope with a compared to come with competition.
Second one second question is on the margin.
Dennis and provide them up they on the second quarter and the like full quarter margin trying and also the trend of the key cost items I think.
Okay. So regarding competition than competitors are like you mentioned sold and usually are probably the biggest ones. Other the moment count on at the moment, but as far as we know they're focused on very different areas.
Well, we're committed to helping users build romantic relationships.
And.
As mentioned earlier enriching the services and features.
It's a very critical in our user growth strategy. So we will definitely be considering adding more features.
In order to further strengthening our product offering.
Thanks.
[laughter], let me address your margin questions.
Let me Oh, I'll shut that into Oh aspects for core mall actually Tang Yan Oh I mentioned.
You know they sound the you know the sequential revenue growth.
We are very confident that how were going to.
Our chief of the idea that revenue a sequential growth <unk>, Oh and your target.
And.
At the same time were going to maintain disciplined in managing our costs in a expenses.
To help us to achieve.
Okay and new.
Non-GAAP operating margin.
You know at 30% I say these costs last earning conference call. So that that still our target and also you know our how creating a gross margin how will be relatively stable.
The only variable factor is the payout so.
You know we do see you know couple percentage you know pressure base on the the higher percent off the revenue contributed by the agencies are down the road.
And also you know we had allocated a surgeon.
Just for promotional events. So and then you know we're going to on a rolling basis to manage our you know selling marketing expenses.
The rest of the you know they are the operating expenses R&D and DNA are relatively fixed in nature. All you know as the revenue continues to grow all would we will see some you know operating leverage so that's for.
Well for quote Momo.
For kind of on you know, we do see a potential Paul for faster growth.
I'm kind of sensor revenue.
And all however, how we believe.
This stage a ton hasn't priority is still to it still focusing on achieving a t. a user base recovery and.
And I know acceleration off the are they going to surface growth. So how they would like to reinvest some of the additional profits generated by the the new.
Revenue driver into into the study marketing to support that initiative and then.
You know for the rest will help to further.
Accelerate the acceleration they Oh you know.
The deceleration on on that loss so for the full year net loss on 10 times, a will come down sequentially on a quarterly basis.
[laughter], operator, we're ready to [laughter] [noise].
Okay.
Thank you.
Ladies and gentlemen that simply say conference for today and thank you for participating.
Even though this can.
Thank you.
With the next quarter.
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