Q1 2021 Momo Inc Earnings Call
Ladies and gentlemen.
Goodbye and welcome to the first quarter of 'twenty 'twenty 1 momo.
The weighted earnings conference call at this time, all participants and listen only mode and after the Speakers' presentation there'll be a question and answer session and.
Ask a question during the session who need the gross tightened and number 1 on the telephone.
Please note that this conference is being recorded the day.
And had a conference call with your first and you go today and these Kathy Tang.
Please go ahead and.
And good operator, Hello, everyone and thank you for joining us today for a more modest first quarter 'twenty 'twenty, 1 and earnings conference call. The company's results were released earlier today.
And.
And that's available on the company's IR website.
On the call today from them on our Mr. Wang <unk> CEO of the company and Mr. Dennis and Jon CFO of the company. They will discuss the company's business operations and highlights as long as the financials and guidance.
And we'll all be available to answer your questions. During the Q&A session that follows before we begin I would like to remind you that our call may contain forward looking statements made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Such statements are based on management's current expectations and current market and operating conditions and.
Related 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 these or other and other risks uncertainties and factors is included in the company's filings with the U S Securities and Exchange Commission.
Company and does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise.
As required under law.
And we'll now pass the call over 2 and Mr. Wang I will translate for him and Michelle on please.
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Good morning, and good evening, everyone. Thank you for joining our conference call. Today Q1 was a good quarter and a decent start to the year 2020.1.
On our last earnings call I outlined our strategic priorities for the year and you on both of them on sometime teams have stepped up our efforts to drive towards the strategic growth on.
On the call today I will walk you through the key operating and financial results for the quarter, and then and going to give you an update on the progresses that we've made against the company's priorities.
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First of all a brief overview on the financial performance.
For the first quarter 'twenty 'twenty, 1 total revenue was 3.47 billion renminbi down 3% year over year due to the decrease and live streaming revenue, which was further attributable to the structural reform we undertook in Q3 last year. However.
However, I'm happy to see that the reform has started bearing fruit both in terms of the user metrics and in terms of revenue trajectory.
That coupled with accelerated growth in the bass business and Q1 has significantly narrowed down to YY decreased rate from the previous quarter and it.
Same time and revenue mix continues to diversify into a more long tail and stable structure with vast reaching 74% the size of live streaming and Q1 and <unk>.
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Adjusted net income for the quarter was 634 million renminbi, representing 18% profit margin excluding contents net loss adjusted net income for the core Momo was 676 million renminbi or a 23% profit margin.
And sometimes total revenue came in 568 million and indeed for the first quarter up 49% year over year.
Adjusted net loss from 10 ton was 42.04 million renminbi and for the quarter compared to 103.2.
And 2 million renminbi for a year ago period.
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Now a deeper dive into the quarter first the growth of our community.
Core Momo I had 115.3 million monthly actives for the first quarter 2020.1 up.
7% and year on year, and growing again seasonality with a 1.5 million. Net addition from Q4 last year and proud to see that despite the negative seasonality in Q1, not only did and then you reach a record high and also some of the most important metrics, reflecting more reflecting core momo social and efficiency grew meaningfully.
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And then the number of interactions around nearby content and number of average daily 2 way interaction as well as the number of 1 to 1 messages have all reached their peak since the year 2017.
Optimization of user Resurrection model drove 30 days retention ratio for resurrected users to improved 4 percentage points versus Q1 last year, we should name on the overall retention ratio to remain stable at a high level. Despite the increase of channel investments.
Positive trajectory that we've been seeing on our core mobile both in terms of traffic and in terms of grossing can be attributable to 3 factors number 1 and the progress is that we made in improving the basic social experience. This last year.
And to the right approach is that we adopt it on the channel marketing side, both during and after Chinese new year holiday.
And number 3 the fruit that came out of the structural reform and the second half of last year.
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The number of paying user for the quarter was $9.1 million, representing a 100000 net additions from a quarter ago. The number of paying users has grown against the negative seasonality in Q1 as a result of the robust recovery trend in and they do a post lunar new year holiday.
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Now turning to patents user trend and related metrics as mentioned on our last earnings call. Sometimes da you has been under pressure since late Q3 last year.
Due to intensive competition of channel resources as well as the low efficiency in content on user acquisition efforts.
And since November last year, with lower content marketing spend and shifted the efforts towards fixing some of the technical problems and the user acquisition system and water to more effectively sees that marketing window post Chinese new year.
As a result, and the decrease in marketing and the.
And the December week user trend continued through January and hit the lowest point in early February.
And the user data started picking up after we stepped up our marketing efforts and channel competition became malodor or towards meat fat.
Furthermore, as a result of these preliminary improvement in the marketing approach, we were able to see some initial meaningful progresses and the user data for example, and new more female oriented at materials have substantially improved a generational and the newly acquired users and Rick.
Cash and ratio has also seen meaningful improvement.
Fantastic you also gradually ramped from the lowest point and need February and eventually delivered a slightly higher average day you in March and in December 2020.
More importantly, we managed to achieve that while further lowering our quarterly marketing spend from Q4. This round of test campaign shows and even some niche initial adjustments and the marketing approach could make some meaningful changes okay in terms of quality of user growth and in terms of cost efficiency.
And this has confirmed our belief that compound has plenty of headroom to grow its user base, while making better sense of IRI.
The challenges that we encountered and the second half of last year and more broadly across the past 2 years, it's very much fixable.
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And it's paying user count opinions and $3.5 million and if Q1 and 2000 and 'twenty down from $3.8 million last quarter to 300 K net decrease was due to the combination of 3 factors number 1 the week day Youll performance in January and February number 2 the increase in the female percentage in the new use.
Having a negative impact on paying conversion as women are much less likely to pay for value added services in comparison with men.
Number 3 a lingering impact of the rollout of Sci package, which had a price lifting effect and that has a negative impact on the number of paying users.
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Before I start the operational and business review of the company I would like to reiterate our strategic priorities that I set for my teens and at the beginning of the year on the core Momo side I have 3 goals for the team number 1 further grow the core user base with limit and marketing budget and and proof DIY versus last year.
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To bring the business back on to growth track and number 3 continue to enrich our product portfolio and pushed the boundaries beyond maman patents on the 10th on site. The single most important golf on the year is to deliver solid user growth I substantially improving the marketing efficiency as well as the coordinating.
And next I'm going to take you through what we've done in the past quarter regarding each of the priorities.
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First I'd like to review the progresses, we made them better serving and 1 more community and drive user growth 1 of the most important both on the product side is to keep identifying the underserved user demand and figure out ways to effectively address them.
1 obvious thing that we can do on that front is to take better care of female user social preferences with long and seeing social desire from female users on mobile however, when and social preferences can be quite different from that of men and.
And then tend to have stronger inclination to express their feelings and also it takes longer for them to open up to strangers and get acquainted with it with others, especially those of opposite sex.
And services, we offer in the past, we're clearly more mail user friendly.
Before there was a mismatch between what our female users need it and what we empower them with.
And Q1, we started some new product experiment to bridge that gap.
We test launched and audio social experience called affection F N or Qingdao and the anti and Chinese and a brand new news feed experience called the <unk>, which allows users to post that interact with content without releasing their profile information. Both of these 2 product experiments aimed at encouraging the users to share their relationships.
Stories and express their feelings, which caters to the part of the user mentality and falls on the other side of the spectrum against what is come in harmony C and on mobile.
Our objective here is to improve female users engagement and retention by better serving them with what we didn't do well before.
If we can successfully do that we can improve the engagement of the entire platform as well.
This is a very important direction for our product team to explore this year.
Joe Joe on the prudent shields, you from boots on them with all that you've done as soon as Ronald tutor agenda next let me review the progresses that we've made against our priority of bringing the cash cow business back on to the growth track.
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Our objective for live broadcasting this year is to deliver a gradual and steady improvement in both revenue and gross profit level.
Here I would like to underscore gross profit because 1 commonly seen the steps in managing lives training business is to drive top line growth at the expense of gross profit and long term health of the ecosystem. This year, where we'll be sticking to a more sustainable growth model by focusing on fostering the mid to long tail.
Content ecosystem and avoid applying strong revenue oriented operational efforts, especially those aimed at lifting RP pool for speedy recovery, which may cause centralization at a very top of the pyramid.
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And what imperative for a healthy content ecosystem is to have a vibrant pumps and supply system.
This was particularly critical after taking a big surgery last year.
As Q4 with the Gordon broadcaster contract renewal project.
We've successfully locked down the big majority of the existing high grossing broadcasters and.
February we move on to addressing another issue that we had on the supply and new talent recruitment and growth, having a constant flow of high quality, new talent and the right mechanism to make sure. They can surface from the bottom to the top is important from maintaining a good metabolic CIS.
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And as a social platform this used to be 1 of our strong area. However, during the past 2 years Momo had not providing sufficient support and motivation to this vital part of the supply system.
To address this issue we made another adjustment to our incentive program to make them more appealing to the newcomers.
These 2 rounds of adjustments of the incentive program were very well received by the new broadcasters and agencies. This can be proven by the outperformance of the year and competition as well as better than expected trajectory post the Chinese new year holiday I.
I believe our current program provides adequate incentives and motivation to all kinds of broadcasters and we consider important to our content ecosystem as expected on our last call. The 2 rounds of adjustments collectively had a 2.4% drag on the GP margin.
We believe payout ratio should remain stable from Q1 onwards and.
I'm glad that our team was able to put together a well rounded incentive program at a fairly manageable cost level flow through you showed us how would you do a little commodity showroom and doing well.
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Besides more effective financial incentives and another part of our effort to better support the entry level talent, we made adjustments to our algorithms and divert more traffic to the mid to long tail. Moreover, since the beginning of this year. We've also been holding monthly far and where we sit down with different kinds of agencies and.
And broadcasters, making sure their needs challenges and suggestions are hurt by the management do.
Due to these concerted efforts to revive the content ecosystem in Q1, we were able to see meaningful improvement in some of the important metrics that we use to gauge and we used to and we use to gauge the healthiness of the ecosystem.
These metrics include a number of in channel D. A youth retention ratio and the number of average daily paying user.
As the overall company ecosystem continues to recover the spending has also been showing steady and gradual improvement.
So far into the second quarter and 91 day stated grossing has fully come back on the trough around Chinese new year and is now back to december's level.
Is that a good foundation for the spending to continue to improve and the content ecosystem to us and the second half of the year. She said I don't view digital as a year's EPS and figure out who flow GBS hold on to the Haynesville assuming zone.
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Now turning to Vas value added services has been a real outperformer in Q1 growing against seasonality at 42% year over year, a significant acceleration from last year.
Among various experiences with and that charter and what's the biggest growth contributor for the quarter and comparison with other audio and video based social entertainment experiences chat room has a much larger user base and the paying user structure is also more long tail driven throughout last year. The team has been operating this business at a <unk>.
Controlled pace and mainly focusing on introducing innovative products and.
And that drives organic growth. This will continue to be the way we quoted business this year.
Q4, we introduced how Chile or Richmond themed seasonal gifts.
It has proven to be a very effective and.
And he has proven to be very effective in terms of driving revenue and engagement and Q1, we reinvented for Chinese new year, and Valentine's day, which enabled chat room to deliver an exceptional growth for the quarter, we maintenance give feature available and the interest group as well, which.
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In addition to the boost that we got from the team see seasonal gifts. The other thing that started to gain traction and Q1 was the matchmaking experience.
Or are we enter and carrier and Chinese matchmaking is a module weighted video dating experience. It is particularly popular among lower tier city users.
And gaining traction in terms of retention and product experience and the second half of last year.
It's revenue also began to ramp up steadily the gross trend continued into Q1, and we expect it to become a meaningful revenue contributor heading into the second half you set up on what you.
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And I'll quickly here on the new endeavors, both Hertz and day to day continue to make progress against our target okay.
Okay in terms of user retention and user scale.
And our revenues have been has been growing in line with user growth we're close.
And on track to reach our I too, which means generating enough revenue to cover both revenue sharing cost and marketing expenses.
Our goal is to hit our target for both her and gateway and the coming few months.
If we can fulfill that target, we then have plants or pushed and marketing button more aggressively and the second half of the year and sad.
On our last earnings call. This year, our main focus will remain on product and user experience that said, we do expect our revenue to trend up and contribute further into the Vas business line as we head deeper into the year.
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To put things in a nutshell for the core business.
Blackstone and business after a very bumpy journey last year is finally on a steady improving trend.
And coupled with the growth opportunities, we have and Vas gave us the confidence and the core Momo will continue to be a very productive and evolving cashcall business. This will leave us ample room to invest in new endeavors beyond mobile and pumped on water to build longer term drivers.
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Now turning to compound before I get before I get into the business and strategies at Kantar and I'd like to talk about a major change or the 10th hunting.
In April sometimes founder and CEO, along as well as C O hanging stepped down from their respective positions.
And no longer involved and patents daily execution as many of you know sometimes encountered any challenges in the past couple of years Mitchell, 1 and I have a have a consensus view that the biggest priority for kantar and needs to make sometimes product and marketing efforts more effective and execution more efficient so.
And that we can grab grab the great growth opportunities that we're seeing however in terms of what changes we need to we need in order to move things forward more effectively Mr. Why and I had some major differences that are difficult to reconcile.
Mr. Wang chose to respect my opinion and decided this is the time that patent on needs a new leadership.
And now the acting CEO of compounds and personally leading contents reforms, which is happening now as we speak.
Going forward, well why and pumped on teams will work closely together to move faster on a deeper level of collaboration.
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Some of it depends on sort of the movie Chicken wings, you've got you got you.
And the more tenants on doing good with some of the Cmos we are going to look on the new.
And on paying have been valuable partners to our company I'd like to take this opportunity to thank them for their dedication and contribute contribution to top line.
On behalf of both mobile and Pant on teams I wish them, the very best and pursuing their new endeavors.
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And I talk about the progresses, we've made against our strategic goal. Let me quickly review 10 times financial performance total revenue for the first quarter was 500, and 568 million renminbi up 49% year on year.
Growth was driven by the increase in <unk>, which was largely contributed by the live streaming service and to a lesser degree user shift toward higher price membership services.
On a sequential basis revenue had strong seasonality this year due to the live streaming service.
The big majority of contents live streaming revenue comes from long tail broadcasters, who are difficult to manage.
Total broadcasting time, and the number of active channels declined significantly during the winter holiday period.
And a deep dive in live streaming revenue and subsequent slow recovery.
As a result live streaming revenue dropped.
38% sequentially to $261 million and indeed.
<unk> revenue decreased 6% from Q4 last year to 316.
316 million and indeed, the sequential decrease was due to the weak user try and in January and February as well as the higher female ratio and the newly acquired users.
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Now turning to the most important part of my speech today.
Our strategic priorities for the year and our plan on how to drive user growth more effectively and unleash the full potential of compound going forward and we didn't really pan out and refine and to be more mud pumps and bloom will come out with what you and we kind of reshape and that's far from the constitution.
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And so early and.
The woman and Susan.
Just going on and you talked about Inc. So.
And what you show months on us ideally almost 1 and I'll go long ago, and boost ammonium and saw some each year and Johan.
And can do.
We have always believed that Panther and has the potential to grow bigger and where momo as today. This view is supported by the secular trends that we're seeing and China's dating space as well as the fact that Tata and used the most committed as well as the most effective product and connecting people for romantic purposes and offline and.
Chip conversions.
The reason why top line has not been growing as fast as they should was not because the opportunities are not there or somebody else is stronger than we are but because they are important areas, where we need to improve.
For quite a long period of time in the past, our marketing efforts and not be.
Have been ineffective and the product experience has a lot of room for improvement as well.
We've done and then we'll go to the pool.
So tell me if I'm on the lumpy force with anyone who runs and quest Sundar.
And with a good I don't want to put any.
On a sort of upon boiler Caribbean Joe from an open door 1 way you simply usually and we have got a hunter you've been shoots you don't get an approval from the following lunar suggests really like organic including opinion that moved out to us and 520, and so if I'm not going on when they're moving.
And my most important golf accounts on this year is to make sure that we deliver solid user growth by addressing the above mentioned issues.
On April till now my job has been putting together the right team to lead these efforts and moved some of my best people and Momo onto this project. So that we can hit the ground running.
He spent the past 2 months combing through the key areas of focus and now have a plan to achieve our goals for this year now let me walk you through the key steps of this plan casino on material part, which is on timing and.
So Sean but before me and for the quarter.
And typically more fluid and see what happens.
Well, Mark Ritchie and show home shopping channel Trifocal.
And on the woman and Colombia, you can go quicker cheaper and look back on the Iowa and of course.
And that's more guy bushes and should actually show you wound up from here.
Judy on Thunder Cushing via free.
Hello, guys, who are prudent and who have done that.
And the last 1.
So you could put on that automobile and you've a woman who will open and cardiovascular chew up here on Sunday.
And as usual food you go on as people Miss what you don't see Napoca phone line, but she can walk what she wants to the cohort do you walk away from Hydro <unk>.
2 wheel and mcwilliams longer on the DSO to orchestrate on the cool pool.
The tubular genco and you're pushing on Chicago, you just figure since you don't know yet cogent reveal who don't Congress going on with us.
First we need to significantly improve content marketing efficiency on that front I'm afraid we have not been doing the right things during the past 2 years.
After we took over in April we've conducted a comprehensive review of campus marketing approaches.
And with you we confirmed our belief that Panther and should have ample room for user growth by reforming its user acquisition system.
We have a standard playbook and more for the reform and thus we view it as a low hanging fruit that we can pick.
Our job in Q1 would include a building up a fully functioning marketing team resetting and restarting the data management system, and providing a new set of user acquisition programs, including targeting strategy and add materials to completely replace the old ones.
The number of DAA you were under some pressure in April and May while we decreased our marketing spend in order to focus on rebuilding the team and reworking. The system. We expect the user trend to start picking up again as the new system gains traction and moving into China and Joe.
Volume, Oh, my God willing and <unk>.
And you were doing on a deal where it's almost.
When she says munis is the only woman coupons.
And I vomited from go no go.
So on and intimates and part of it.
And the English and team on Lauder, and truthfully, we don't count on streaming home and people with other things and we all depend.
And then you can look like and Georgia.
And so it depends on the chimp items just from government awarded.
And then goes on from the Namibia entry and tissue panned out time and of course and judge.
Okay.
And do the PMI judge and you'll have to do it.
And junctions and this should honest with you and some of the conductivity and compatible so Google Who's on Mcmahon from Shiloh and acquisition.
And they're staying on the marketing side that we believe can contribute to the overall user growth is brand advertising. The hardie made any brand and branding efforts in the past 3 to 4 years. However compound at a relatively younger brand. Its brand awareness is far from the level, where it needs to be there are many people who are not using <unk>.
They have not heard of us before or yet to be fully aware of the core values at Panther and can provide or have some misconception about contacts brand and services. There is a huge opportunity for us to try to use user awareness and enhance brand equity. If we can clearly articulate a core value of compounds to those who may need our service.
We will invest more into branding when opportunity arises it should be the right timing. After we complete our next major product upgrade.
Yeah.
And there's a time and function and it's yours.
And you see them.
And so and how long will you should Congress is accountable and Rubio and sort of real because we got from him.
And how the bundling and put an alarm on glass.
Jim go on we hope you won't go near term dilution from us.
You've been somewhat but you know you'll get here the whole time, and we are a problem because you don't forget yourself.
And you go look at its income and liquid laundry and been legal and tissue Fujitsu and conduct good and 1 of them who deal with us.
Geologically if off with or going on to go on flow.
Rather put yourself in the us ideally on females that if momentum Cushing route to the wound growth I'm sure that they put me on food items and the mood had been kind of shifts.
1 of them will be also can go up and it was sort of quickly on <unk>.
And a few people hold on here and we shouldn't kind of walk with a problem to pay.
And so a lot of it bill.
And second growth driver is product innovation, we need to make townhouse product experience more appealing.
And is undoubtedly the most dedicated and effective dating app in China, we do have many opportunities to optimize so that we can do better in connecting the users for romance users for a romantic purpose on the front end and we need to make the user interface more 16, and coordinating area and more prominent.
On the back and we need to make the swipe and match system more effective.
And sitting on a goldmine and user data that we can my and the leverage to make more relevant recommendations.
This is where technology and big data mining and play very important roles, we have not been very effective and doing that during the past 3 to 4 years, we need to see real efforts made and country changes on that front as well. The goal is to improve user experience and of course like a match mechanism through more effective recommendations we need users.
To be able to fill these changes when they swipe through the cards and interact with the matches.
And so on what kind of gross inhibits here and I'm sure on.
And did you puzzled when youre, bringing on board.
Adobe and from a pool so it had on the local industrial Yahoo and Google.
So you don't see what he's on the word wall ultra.
But couldn't northern zone, while continuing to strengthen our dating related product offering. We are also going to keep exploring more diversified features.
And services to make the Tata and experienced better fit into the Asian dating culture.
And Tom will further improve user engagement and retention, which will translate into user growth and.
We're going on behind little growth led to a more modest even showing growth.
And I don't wish you, both the political junkies, and jungle and wish him and his or her ability and it all critical moment to Chicago and touch on to Dallas, Houston and solid.
Sure.
Got it.
Hello.
Doug could walk further.
Our pillar of our 10th on plan is to drive more synergies between mobile and pants on and.
And we'll continue to maintain and independent organizational and operational structure and I believe there are many areas, where contact and Walmart can work together and drive significant synergies.
This is especially true in the areas of marketing technology and data collaboration and this is.
Is an area, where we will definitely move faster and the future.
And so there was a hope on ducklings on Merrell.
And Jonathan with adapters, all Digital's housing from.
These are the things I'd like to cover on this call now let me pass the call over from Mr. Jonathan Zhang for financial review Jumpy.
Thank you.
Hi, everyone and thank you for joining our conference call today now let me briefly take you through the financial review.
Total revenue for the first quarter 'twenty 'twenty, 1 was 3.47 billion.
On a 3% year on year or 9% quarter on quarter.
Exceeding the high end of our revenue guidance.
The year on year decrease was significantly narrowed compared to Q4 last year.
To the combination of fruit coming out of the structural reform and life streaming business as well.
Accelerated growth and the core mobile Vas.
Non-GAAP net income attributable to Momo was $633.7 million.
Hum.
Compare to.
736.
<unk> 3 million and maybe from the same period on day, 20, or a 14% decrease year over year.
Okay and to the key revenue items for the quarter.
Firstly on life broadcasting.
Total revenue for live broadcasting business for the first quarter 2021 was <unk>.
1.96 billion RMB.
16% from the same period last year.
And from last quarter.
Core Momo live broadcasting revenue totaled.
1.71 billion for the first quarter and 26%.
From the same period last year and 11% from last quarter.
And our contents of life broadcasting revenue amounted to.
400.
51 million and community.
8% from previous quarter.
Year over year decrease for core.
And was due to the structural reform that we have been undertaking since August of last year.
The sequential decrease for both mobile and Pampa was due to the Chinese new year and negative seasonality.
Moving on to Vas.
Revenue from value added services reached 1.46 billion RMB.
Up on the 4% year on year.
4 and 4% quarter on quarter.
While he has revealed contents and revenue performance so I will.
Our focus on core mobile.
Revenue from Vas excluding.
$316 million from Kantar.
Reached 1.14 billion renminbi and the first quarter on day 1.
On.
A 42% increase year on year, and 7% increase sequentially.
Solid performance.
And almost core Vas business was primarily driven by the team's focus on product innovation and effective operations.
Operational efforts.
Audio and video based social entertainment experience continued to generate strong growth and momentum.
And what's the biggest revenue driver for the core Momo and <unk>.
And our new and dover's artist at gain.
Gaining traction and contributed incremental revenue with a vast line and cure.
Let me briefly review of the cost and expenses items for the quarter.
Our non-GAAP cost of revenue.
The first quarter 'twenty 'twenty, 1 was 1.92 billion renminbi compared to 185 billion for the same period last year.
Non-GAAP cost of revenue as a percentage of total revenue was 55, 2% and increased from 51, 5% from <unk>.
Q1, 2020.
Non-GAAP gross profit margin for the quarter was on.
3.7%.
From the from a year ago the day.
Decrease was attributed to the following factors.
Number 1 higher payout ratio from.
Core Momo live broadcasting business.
Lower gross margin for Tun Tun.
Life forecasting.
And this has become a sizable.
Higher payout ratio.
From core mall.
Vas business due to the robust growth coming from the audio and video based social entertainment business.
A big part of which involved.
Third party professional moderate church.
And lastly, certain fixed nature of cost.
Such as head counts.
Impacted gross margin and actively as total revenue declined and this items represented a higher percentage of total net revenue.
On a sequential basis and non-GAAP gross margin was down 2.
And 2 percentage points compared to Q4 last year.
Which fell into the.
Optimistic and of our original expectation.
I mentioned on our last call, we had expected the new broadcaster oriented incentive program adjustments.
To have 2 to 3 percentage.
Adverse impact on gross margin from Q1 hours and.
I'm glad.
Team was able to put together a well rounded incentive program that.
That is well received by the new broadcasters and agencies at the same time managed to control the cost structure at <unk>.
At a reasonable level we.
We believe the current incentive programs and provides.
<unk> provides.
Sufficient motivation to all kinds of broadcasters and we.
Deem important to maintain a vibrant ecosystem.
We expect the payout ratio to remit.
From maintained stable.
Stable level from Q1 hours.
Non-GAAP R&D expenses for the first quarter was $244.1 million and maybe compare it to 2.
217.
And.
And maybe for the same period last year, representing 7% and 6.4% 6% of total net revenue.
And respectively.
And on a sequential basis and then.
GAAP R&D expenses decreased 15%.
<unk>.
$486.5 million.
In Q4 last year.
The year and the bonus expenses accrued at the year end.
We.
And it.
The quarter with the 2.
<unk> thousand 333, total employees of which 800 on the.
Pete.
And from Cantor.
R&D personnel as a percentage of total employees for the group was 57%.
Compared to 56% and chew.
Q1 last year.
Non-GAAP sales and marketing expenses for the first quarter was 579.8 million.
Or 16, 7% of total revenue compared to $645.3 million and maybe or 18% of total.
Total revenue for the same period of last year.
The year over year decrease in sales and marketing expenses.
Both in terms of.
RMB amount and in terms of as a percentage total revenue was primarily due to less spending.
From core mobile and so.
We postponed our life streaming year and gala event.
As a proportion of precautions against the pandemic.
And lower user acquisition and investment from contacts and the first half of the quarter.
To avoid channel competition.
While focusing on fixing the broken pieces in there.
This user acquisition system.
Non-GAAP G&A expenses was 90 to $94.2 million RMB for the first quarter.
On your 21 compared to 105 point.
And <unk> million and maybe for the same quarter last year representing.
<unk>, 7% and top line, 9% of total net revenue respectively.
Non-GAAP operating income was.
661.2 million renminbi.
A decrease of 17% from Q1, 2020, representing 19.1% non-GAAP operating margin for the first quarter on.
And 3.2%.
And from the same period last year.
Non-GAAP Opex as a percentage of total revenue was 46 point.
5%, a slight decrease from 26, 9% from Q1, 2020.
And I'll briefly.
Income tax expenses.
For Q1, the company received a tax refund, which was resulted from additional expense reduction related to previous years.
Without that 1 off a refund.
Our estimated and.
Non-GAAP effective tax rate was around 19% for the first quarter.
Now turning to the balance sheet and cash flow items as of March 31, 2020.1.
Most cash cash equivalents.
Short term deposit long term deposit.
And restricted cash totaled 16 point 96, and in RMB compared to 16 point.
4.8 billion renminbi as of December 31st on in 'twenty.
Net cash provided by operating hub active.
Activities and the first quarter 2020, 1 was 502 million renminbi compared to.
543 million and maybe in the same quarter last year.
Lastly on the business outlook, we estimated our second quarter revenue comedy and the range from.
$3.6 billion Renminbi 2 of 3.7 billion renminbi, representing a decrease of 6.9% to 4.3% year on year.
An increase of 3.7% to 4.6.6% quarter over quarter.
For Q2 of 'twenty or 'twenty, 1 on a sequential basis, we expected total revenue from core Momo to increase in the high single percent.
The total revenue from content is expected to decrease around 10% due to the following factors.
Number 1 the decrease in paying users, especially.
In April and May.
Due to the weak the AUR performance cost.
The by temporary a temporary.
Disruption during the management transition period.
Number 2 changes in gender ratio.
And the increase in female percentage in new user acquired in recent periods adversely impacted paying conversion.
Women are much less.
Likely to pay for value added services and comparison.
With the man.
Number 3.
And off of.
Too early stage businesses, which will have a slight negative impact on.
The number of paying users as well as wise.
Total revenue.
But business involved.
Or loss, making at the point.
Okay.
Spinoff and generated immature revenues in comparison with it and that's part.
Revenue.
We will recognize 1 months revenue from businesses and Q2 is the transition was completed in early may.
The spinoff will have a full quarter impact on the <unk>.
Top line in Q3.
Please be mindful that this forecast represents the company's current preliminary view on the market and operational conditions.
Which are subject to changes.
And the other thing I'll worth mentioning here is that up to this moment, we have paid a special cash dividends for the third.
Third year.
And our role to replenish our U S dollar funding are consumed.
And he has repatriated $1.3 billion renminbi and portal from our Wuxi in China, while our offshore entity or in the second quarter.
In accordance of weather records out.
Respective taxation law, and China company has paid 10% or 130 million and M D withholding tax.
Chinese textile therapies.
The Texas.
Withholding tax payments and will be recorded as income tax expense.
For the company's second quarter.
On that front you on.
That concluded our prepared portion of today's discussion with that.
Let me turn the call back to Kathy from startup Q&A Cathy please.
Yes.
From a miner for those who can speak Chinese can you. Please.
Ask the question on Chinese first followed by English translation by yourself and also if I could leave.
Limit the number of questions to 2 and.
Max.
And operator ready for questions.
Thank you.
To ask a question you did the first time day number 1 on your telephone to withdraw your question. Please press the pound of cash P.
And please standby.
<unk>.
Once again for your questions. Please press star and the number 1.
And then.
First question comes from the line of Momo.
MS Chong of Jefferies. Your line is open and scholarship.
Well on somehow like I said, 1 day, it's all wallets you and.
And Golden Eagle and issued 1 you had from Canada.
And I will mention the order book on each hold a management change a whole lot woman Sop on me and are engaged more on woman.
And <unk>.
I yell at doses, so we bought on the small.
And then they can and Sheila so you can back up and it's not December.
Sure.
The team in there and you've got the dumping now the kpis see because I didnt pursue the Thunder couldn't even sung and you saw that woman.
Cisco and include won't be on.
Sales and marketing.
And that budget, Janine and Ctrip Baganda Deco avoiding something about.
On net neenah, and they get and neither.
You'll hear about the Eagle deal.
And tissue Guangzhou core mobile and avian Global's is on when you saw that momentum what kind of snap on and make our lifestream acne and that's 1.
Thanks management for taking my questions.
2 questions. The first 1 is about.
10 minutes from in Australia about our strategies on.
On the user and the revenue trend in the second half on after the management change.
In addition, if from a focus on user growth. This year, how we should think about the trend in sales and marketing expenses as well as our thoughts on patents on profitability in 2021.
My second question is about our core Momo.
Can management comment about the life streaming outlook in the second half on thank you.
Yeah.
And so as you heard needle and she's a woman on the in autoimmune disorders and on a coupon Glenn ETE will does.
And does it put on non owner has a functional from book.
And on July 17th so she assured on them.
And do you think that assumed on Colombia on homeowners and soon.
<unk>, Okay and go talk to the phone call.
And channel.
I don't believe Shandong and moving through for you on the tumor 92, or 1 or 2 point assumed and also need a surgeon children's holiday.
No wonder soon could only on it is showing that somehow guide and indeed the channel.
Michelle kind of mutually hold on that I'm, not sure, where we transition going on and they'll show up I went on to that Ive and.
And essentially been.
Moving on the show and we are still on bulk shinko geometry, incubation and legal component.
And then I believe on your sugar and gelatin on them.
Okay, Let me translate the first 0.1st.
And we fully taken over content user and user acquisition effort for about a month during that process. We've identified many broken windows that we need to fix that actually has given us a lot of confidence in the future growth prospects of ton time, because any past problems if addressed with the <unk>.
Right approaches could be turning into future opportunities.
And more on the problems that we've identified many of them are actually and <unk>.
Nickel errors that are not difficult to fix so our plan is to use the coming.
Couple of 2 to 3 months' time to get all the problems fixed doing that alone should be able to bring and pretty considerable increase in the new registrations as well as improvement to the dating ecosystem. That's all that I have here is to see.
Meaningful increase in the and the user base currently we are targeting a range between 20% to 35% growth and more importantly, we also need to see Inc.
A substantial improvement in the quality of new user that we acquire for example, we obviously need more younger users and we also need a more balanced gender ratio in the new users.
And when we use our Sudarsono, Paris Hilton and Hilton.
This is on something you should see some on people do it under the normal flow insurance, you can listen to them and to move from more kokoda, Fujian and the audience and on the balancing pool and took.
Moving down the lunch on 102 tier Egypt Gulfport has told you the fleet, but the whole hesitancy and what do you assume that junior Shlomo pressure, depending on who.
And the second point on the user front is that when we get ready we're going to start disclosing townhouse user data because.
And right now and <unk> seen pretty significant underestimate of contact to use our scale by some of the third party data monitoring platform.
No a lot of you guys are relying on on these.
Third party to gauge content to user performance I think we need to give investors more reliable and accurate data to do so.
So the plan is that after we have a fully functional data team and finishing.
Combing through and integrating the back and data.
System, we're going to start getting prepared for the disclosure I think investors can expect to have contact and self disclosed user data sometime later this year.
Foolish if on me, Judy and judge Isa and use are arguably under Joe generally and see where that you don't want to sort of the ancillary.
And so on the symptoms of these suits will also mean zone.
And so the local credit loans on the Trulia, we're shutting them down.
And on we should do new shop, and me and $3. So Julien.
On the revenue side here are some points for you to sort form some preliminary expectation about the second half first point is.
The the <unk>.
Transition and the second quarter did cause some temporary disruption on the user acquisition front.
Which has led to a decrease and the number of new users, particularly in the months of April and May.
And that is going to have some negative impact on revenues.
But as user number starts picking up in the second half revenue and it's going to grow as well I do think that user growth is going to be the biggest revenue driver and the second half of the year I'll argue on the suites MTN and it'll go to non bema fashion flow cheetos.
Available and who.
And we actually will go through them buildups and dynamic.
Vehicle through which I'm sure the funding and the Hudson day shift that tissue at the repurchase units, where Youll group you simple little.
And so you could see a hotel until there are some hurdles and believe the share.
And if we buy you should remove which ear consumer foods on the centene and sort of a bunch of them.
And so you get it from Asia.
The Chancellor.
On to the system.
And the second point is that while we combed through the problems that we had on the user front on the product front, what we found out was that during the past.
Quite long period of time.
Water and need some of the short term targets in the number of paying users as.
As well as the quarterly revenue target contact has made some very short term oriented revenue efforts that were positives and dragging up the payout.
Paying conversion ratio.
And could cause harm on the.
And our user experience and the healthiness of the day.
The data ecosystem.
For example, we acquired.
Way more male.
Male users and female users and the.
<unk> also designed and bid more aggressively and we probably should have sort of line is that as we head into the second half of the year, we're going to remove some of the extremely short term oriented efforts in order to take care of user experience and the dating ecosystem and is going to have some negative.
Impact on the pain.
Pain conversion, but long term wise, we think this is definitely the right thing to do.
And so going and put them into a truly personalized history suddenly jump Ddos solutions here.
On the more congrats on to me either bolt on Covid.
It depends on liquidity and have you ever said between Russia, and the European units, moving and redouble, our CFO who'll be talking June are Brazil, and woman aliens you call.
And on into tangible Thunderbolt Europeans and hot horses.
Good day muted sales to know what kind of percentage debacle, and where you compete on bench and the shell counting on it.
And on Jupiter School issue tissue balk students sharp coda approaches on how computing moving.
Do you see yourself, but doesn't really come and choose you tell me who should result in growth.
The other point that is relevant and for me.
The revenue expectation is on.
And our view about campus life shrinking the way I think about 10 months, what's your knees that ultimately is going to be.
Only a supplementary.
Experience that has a <unk>.
Relatively lower Diego penetration. This is in comparison with more months Ive screening which is.
Fairly mainstream sort of use case with a high level of penetration.
That's the.
The difference in paint and penetration ratio you said.
It's 1 thing different about patents like shrinking the other unique net uniqueness about contract lives from me is that the average paying capably of content to users.
Is actually pretty high and it's much more evenly distributed.
And as opposed to more months situation, where there's a wide disparity between the top and the bottom in terms of how much each individually is paying on the platform. So Tom hands on live streaming is able to maintain pretty flattish structure.
And at the same time, a very high level of RP pool. So my view is that ultimately 10 times live streaming is going to be a very profitable small use case within the application and our strategy is to.
Keep it small keep it flattish by not putting in very our people oriented revenue efforts and at the same time, we are going to be heavily leaning toward a core dating experience and further deemphasize life shrinking in terms of product design.
To me.
700, and wound up with us from Chicago.
And even some unusual and I'll show you what are some of them and youll commercial and operational.
And I know you would and tolling volume.
And we'll talk some zoomed on Sox optical zoom question on Atwood.
She and the final cash home a vocal simply on the bus young woman comes on and you can show production and also launching and Cmos who's on a defined and appreciated 1 quickly on attrition.
And as you can see doom and gloom bunch and tangible Cushings syndrome.
And on above where suddenly and work with visual line.
Neither is on could you talk to the tumor.
He took on mobile.
And are you willing junior Chevron and the simple clean.
And when you usually on the phone to somebody and increasing automobile and attention to this and so even if we don't do that.
Good day.
Okay.
And all these different pieces together.
We believe that as we move into the second half the revenue on punch line is going to growth, primarily driven by user growth and because of some of the factors that I mentioned.
We are going to take a few steps back in terms of how deep we monetize on time.
After we.
Got to get to a satisfactory level in terms of product experience and.
Get the users onto a stable and rapid growth track, we're going to reactivate.
You know the monetization projects that we have been running including the.
And <unk> vast future that we've been testing.
Overall, we have full confidence in context, the ability to bringing revenue to bromine.
Bring in revenues and ultimately make a lot of profit I don't think investors really needs to have any doubt on that front for the coming few quarter, we're going to be solely a fully focused on coordinating experience and doing the right thing on the user growth front.
Any other stuff, including monetization and the pursuit of profit will be subservient to that main goal.
Such strategy.
Well have some negative impact on.
Both the topline and bottom line and the second half.
And therefore, we have to forgo.
We need a temporary forgo our previous target to reach breakeven point and the second half of the year, but.
I believe for longer term. Good. This is definitely the right thing to do at this point and time.
Continuing with from 1 or 2.
And she said and now here's Jonathan to talk about the bottom line.
Okay.
Hi, everyone.
Let me just zone.
Let me provide some specific color on what.
What 1 he just free.
And.
And on the revenue side to be specific we currently.
As we scale back.
Many.
Monetization efforts on content platform.
<unk>.
We still target to go.
To achieve our.
Revenue growth sequentially from Q2 level.
And the second half of the year. However.
For the full year.
The lowered our revenue target.
And we currently.
C.
And we'll be most likely to be on a high single percent percentage point from last year's level.
For the full year.
And <unk>.
And also as we intended to continue to invest.
In the market and channels.
To even better support the use of growth.
We expect and non-GAAP net loss.
We will widen and sequentially.
So the total loss for the year could reach to 350 million and B to 415 million renminbi.
Which is the higher than.
Oh.
What we previously communicated less than $100 million and maybe net loss for the year target.
We set at the beginning of the year.
So that's the free.
Sure.
On time.
Okay.
Okay.
Second question.
On the launch and the horse zone, now Youtube and highways and John Bullock, our Tox issue not a normal cohorts and she really and this will be on C. On the Homewood woman and Blue chip when she looked at from placebo for a moment.
And it goes into the challenge and the recent interview.
Uh huh.
On the on the revenue side of the core Momo and this is as a second question on and on the revenue side of the core Momo.
I actually shared a lot in the previous section maybe I'll just try to sum up a little bit the revenue performance.
The revenue performance on the on the core during the past few months has.
We exceeded our expectation either and the.
And beginning of the year, which has given us full confidence to say that the core is still a very strong and productive cash cow business.
On a tribute and go home and so sometimes you bill.
And as usual from EIOPA, those and single them and Christian will not book.
And with digital and engage and lunch and so on a dollar a phone and BD example, today, you're going to give up on that.
If you look at the live streaming business from different aspects, whether it's the health of the pattern supply system.
And ecosystem situation on the supply and or demand side is on a stable recovery trend.
From all those different aspects. In addition, we've also fully completed the adjustments that we need and in order to have a satisfactory and effective incentive program to the agency and broadcasters. So payout ratio is going to stay at a stable level as well.
And that's forming and pundits have you ended up with and if you go on to accrete them, a benefit and so couldn't get them done.
And if you kind of someone yet on more the Hershey and Goodyear last year was from Chilean iphones and sensor that can be done a zone.
And some job all about simple hill, and do a Toyota woman sales yourself really cheap.
And bush on that last point.
Please somebody WOMAC, which sit on claims come from.
And with acuity from the time it yourself.
On a b and a hometown.
On the bad side.
And the team's ability to continue to innovate on the product side is pushing the headroom for further revenue growth for Bath higher and higher.
Have you guys can see that on the core.
Has accelerated from 30 something percent.
Y O Y growth last year to 40 something percent Y O Y growth during the first half of this year and has also exceeded our earlier expectation.
But actually I I do not think we need to pursue the rate of growth that aggressively.
On Vas.
And in the second half I am hoping that the team can.
Maybe control the pace of growth a little bit and shift part of the focus onto the product.
<unk> itself and the goal here is to build along a longer runway.
For the future growth of Vas business well on them.
Okay.
How many more coatings, which can be booked at all.
And I'm sure you do pay on somebody who was on that but on the <unk>.
And that kind of on how they play out and phone.
Again, if you put all these different pieces together it looks like that it's very possible that a core water and wildlife positive.
Of course revenue, what's on YY positives in the second half of the year and hoping that in the fourth quarter, we could reach double digit Y O Y growth and now it looks like a pretty easy target to reach.
In the interest of time, Inc. This is going to be the.
And the end of the Q&A session.
Operator, we're ready to close.
Thank you for joining our conference call, we'll see you next quarter.
Thank you.
Today's conference call. Thank you for participating.
You may now disconnect.
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And.
Sure.
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