Q4 2021 Kingsoft Cloud Holdings Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and fiscal year 2021 Hello Group, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you depressed star one on your telephone if you require operator assistance. Please press star zero.
Please note that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Ashley Jing. Please go ahead.
Thank you all Brito good morning, and good evening, everyone. Thank you for joining us today for Hello group's fourth quarter and fiscal 2021 earnings conference call. The company's results were released earlier today and available on the company's IR website on the call today, Mr. Wang Me see off the company Mr. Donaldson John C. F O off the company will discuss.
The company's business operations on highlights as well as the financials and guidance they will.
It would be available to answer your questions during the Q&A session that follows.
Before we begin.
I'd like to remind you that this call may contain forward looking statements made under the Safe Harbor provisions of private Securities Litigation Reform Act of 1995, such statements are based on management's current expectations and current market and operating conditions I relate to your bonds 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 statements further information regarding this and other risks uncertainties and factors is included in the company's filings with the U S Securities and Exchange Commission. The company does not take undertake any obligation to update any forward looking statements as a result of new informing.
You can say events or otherwise, except as required under law.
I'll now pass the call to Mr. Wang I will translate for him.
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Everyone. Thank you for joining our conference call today Wednesday, 21 was a busy year for us. Despite a variety of external challenges our team was able to methodically execute our strategic priorities set at the beginning of that yet and deliver solid results in my remarks today I will begin by reviewing the key operational and business results for the fourth quarter.
Fiscal year 2021 followed by outlining our strategic priorities for FY 'twenty to 'twenty, two and our execution plan.
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I will start with a brief overview of our financial performance for the first quarter of 'twenty 'twenty. One so the revenue at the group level were 367 billion down 3% year over year and 2% quarter over quarter.
Adjusted operating income for the quarter was 507 million community, representing a 14% profit margin for the call. My business total revenue was $3 214, EGEN <unk> up 6% from Q4 last year and flattish from last quarter.
State operating income was 652 million Mindy with a 20% margin.
Total revenue for the quarter opinion, 437 million get Mindy and 41% year over year and 14% sequentially. The decrease was due to the morning, I think the monetization process to improve user experience and retention.
Net loss from compound was 113 million for the quarter compared with $8 eight 4 million for the year ago period.
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Fiscal 2021 total revenue at the group level was $14 6 million.
Pad was $15 million and maybe in 2020 the year over year revenue decrease was due to our strategic decision to lower content monetization level in the second half of the year to improve user experience and retention to drive overall user growth excluding onetime revenue for the Pall mall was slightly down 1% from last year with the SEC.
Half of 2021 back onto the year over year growth track adjusted operating income at the group level was 2.5 like getting into Mindy with 818% margin.
<unk> operating income for the core Momo was $2 92 billion with a 23% margin Augusta not lost what kind of time it was 337 million movie.
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Now a deeper dive into other aspects of the year I'm going to focus on the call mobile business and move on to the kind of later.
For the P operating matrix.
I had $114 1 million monthly active for Q4 'twenty one.
Actually from a year ago and down slightly from the previous quarter. The sequential decline was due to COVID-19 resurgence and related control measures in various regions in China. How was the end of the year. This had a clear negative impact on user social sentiment.
Edition, the peak E Commerce season drove up unit acquisition cost for China marketing as a result, we lowered our China investments for Allied considerations. The number of paying users for the quarter was $8 9 million compared with 9.0, many a year ago, although sequential basis paying user accounts decreased 400000.
This was mainly due to the decrease in the us and a couple of COVID-19, having a negative impact on pain conversion. Despite external challenges our product team managed to enhance user engagement and improving the basic social experience on the platform. The number of two way interactions grow meaningfully from the year ago period.
And the number of breaches and response rate also increased our continued to trend up or down.
Amortization together with China strategy refinement like new user retention to hit a record high since the beginning of the pandemic while the overall retention reached ratio reached yeah. Heightened Q4. This shows that the fundamentals of the call more and more as a social platform continued to remain stable.
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Firstly on call moments user from COVID-19 related control might just surprised the overall open social sentiment throughout 2021, especially in the second half of the year. Meanwhile, trying to win traffic became increasingly concentrated on a few platforms, resulting in a more intensive competition for China resources and driving up unit Aqua.
<unk> cost for new users I'll go has been to maximize all wide ICD Super Bowl marketing windows to step up user acquisition efforts, we have been subtly you're adjusting the allocation of marketing spend for new user acquisition and reactivation and I'll start on users, we offset the overall cost pressure caused by the increase in the unit price of new users.
By shifting resources to reactivate dormant users because the retention ratio and paying conversion I'll sell my users are considerably higher than that of new users and the unit price is meaningfully lower thanks to the continued improvement in China all eye on product efforts, we were able to achieve our strategic goal for call more and more users.
They live a moderate increase you know when they use at a slightly lower cost compared to last year. It has proven to be an effective way for us to maintain a stable user base in 2022 more.
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On the product side, our call normal product team made good progress in optimizing call user experience, while making continuous product innovation throughout 2021, the introduction of the many of US experienced in the first half of the year allows users to share their relationship stories and express their feelings without releasing the profile information. He played a part.
ROE even counting female users engagement and retention the revamp of the nearby people list in the second half of the year has also enhance the use of the U S. By decentralizing the distributions traffic improving the efficiency of relationship discovery within the car experiences and introducing new features that provide incremental value to previous.
The underserved users a key meaningful the product team to improve retention and ultimately drive use of steady user growth.
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Highlight here is Tokyo voice based the social app targeting the manner area, our team leveraged our reach product experience accumulated in China combined it with a so called localized operational approach with the use of retention on our gradually improving we stepped up our marketing efforts in the second half the year as a result, you will.
The scale and revenue showed rapid growth, although Sochi always still in the early stages of user and monetization.
Its monthly revenue has already caught up to the level of course unsecured combined.
Second half of the year, we launched a fair return at least me like simulation game, specifically targeting overseas female users.
As we stepped up our marketing efforts during the holiday season revenue grow rapidly in Q4, and all why continue to improve steadily.
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Could you do that those are kind of unique in addition to social cause that greatly to audio and video based social apps pocketing domestic market also made impressive progress in 'twenty 'twenty. One for these two relatively mature apps, our strategy was focused on reducing costs and improving efficiency during the second half of the year as a result.
Both apps 10 profit within Q4.
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Firstly with respect to live streaming.
Fiscal 2021 revenue from live streaming totaled 7.4, H M D and 13% compared with 2020, you mean last year, we continue to focus on the improvement of the content ecosystem by eating up the supply and revenue entered a sequential growth track after Chinese new year low seasonality and these rosemarie.
Montana was maintained and you meet two three and now even 80 gross revenue came down quite a bit in Q4 compared with the summer peak due to the increasingly challenging macro headwinds starting in September in order to overcome spending softness we hosted a series of small scale promotional events to keep various cohorts of standards and performance.
We are engaged so that we could keep 80 gross revenue at a decent level through relatively mild stimulative measures, although the related costs associated with this.
No events with some pressure on gross margin. We believe it was unnecessary expense to help our content ecosystem partners, whether tough economic conditions.
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It seems like there was some delay also definitely issue, which you saw despite the macro challenges overall content ecosystem continue to show steady improvement the new incentive program continues to take effect in enabling us to secure the supply of high gross revenue broadcasters and making us more attractive when recruiting new talent.
The amount of high quality, new talent grew 60% compared to the beginning of the year and the retention and share of revenue contribution increased significantly.
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Now turning to loss revenue from value added services, excluding Paragon totaled one 4 billion for the fourth quarter up 16% year over year and down 1% sequentially. The sequential decrease was mainly due to the pandemic induced a suppression of users' social sentiment and propensity to pay resulting in the number of long tail virtual gifting pay.
Users, particularly in the interests with declining significantly.
Of membership subscriptions also showed a slight sequential decrease.
I'm on my last revenue was $1, one 4 billion up 11% from the same period last year revenue from the new bucket all stand alone apps totaled $97 eight for many of them and be up 142% from Q4 last year, making a more meaningful contribution to our heartland.
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For fiscal 2020 , one revenue from Pos excluding <unk> totaled $4 eight 5 billion.
<unk> up 29% year over year, <unk> revenue totaled $4 5 billion gonna be up 24% year over year, a rapid rapid growth from a high base was mainly driven by the introduction of features and operational events into the audio and video social entertainment experiences for instance.
In Q2, we brought in the part of my experience in the Cat room, well H grassroot talents are concurrently available and users can send virtual gifts to request performances ranging from singing to script rating in Q3, we introduced panic panic stomach or shijiazhuang excuse me if I skipped a beat.
In the Chatroom. These features while received by users across the board. In addition to argue with your social Entertainment. The team also introduced innovations into the traditional gifting category. So even streets. This we made seem seasonal gifts available in the English group at the beginning of the year well wait you're obviously reinvented if I.
Is that effectively stimulated spending enthusiasm amongst the users.
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Now briefly about the new apps for fiscal 2021 revenue from the new bucket totaled 300, and formulate a movie almost tripled that of last year driven by both user on ARPA growth pro forma well collectively driven by socio greatly and the performance of each of these apps are.
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Now turning to <unk> I will start with user kind of on the overall financials. The Kobe researchers had a clear negative impact on People's aging sentiment, which made large scale marketing campaign less effective. We therefore took a moderate approach in terms of marketing investment user scale decreased significantly in regions, where COVID-19 containment measures.
What's the view internally, we've focused our efforts on quite a adjustments aimed at improving user experience through rapid iterations. The study product improvement led to an upward trend in user scale in regions that were free of pandemic and the control was more relaxed and that had 27 million monthly active users for the fourth.
Up 1% from September and 8% from June are lower than our media expectation kind of paying user accounts came in at $2 5 million at the end of Q4, 'twenty one down from $2 9 million last quarter, but 400000 that decrease was mainly attributable to three factors first the monetization process too.
Improve using U S and retention had a negative impact on pain conversion and RP pool.
The pandemic surprised to use us taking sentiment and inclination to pay.
Our current product efforts, mainly focus on experiences beyond the swipe and match kind of them, which diverse traffic away from the existing lapping features this.
This is obviously a negative factor to the membership paying conversion and revenues. However, it is a temporary problem, which can be addressed by introducing new features youngest swipe unmatched system.
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Now let me briefly review <unk> financial performance total revenue for the fourth quarter was 437 million and 41% of the youngest and 14% quarter over quarter loss revenue decreased 14% sequentially to 236 million in the sequential decrease was due to the decrease in both paying user count on RP pool for a reason.
As explained earlier five screening revenue decreased 14% sequentially to 201 million movie. The sequential decrease was due to the decline in paying user accounts as we substantially deemphasize live streaming in the September product upgrades.
Our people grow on a sequential basis driven by the promotional event held at the end of 2021 .
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Don't be shy about initiatives for fiscal 2021 hotel revenue per ton time was $2 3 billion in D and 14% year on year adjusting.
Net loss was 337 million compared with a net loss of 215, many arguments being in 2020 the decrease in the topline and bottom line was mainly caused by our initiatives to improve in the U S and retention, including marketing strategy adjustments to increase our female ratio of any of that yet and the demonetization.
In the second half in addition, our COVID-19 resurgence in Q4 also had a further negative impact on revenue.
Our people, we improved partially improvement partially offset the impact of a decrease in paying user count Vas revenue for fiscal 'twenty, one decreased 18% younger two one once a week later than the total revenue from Lifespring business decreased 10% to 903 million M D.
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Now I'll quickly recap penthouse execution of our strategic priorities in FY 'twenty one the single most important over time and doing they get was to deliver solid user growth by improving marketing efficiency uncalled eating experience several external and internal challenges over the past few years. That's two a decline in panels user base from its peak in the third.
First half of 2019.
External challenges mainly came from the ongoing COVID-19 pandemic since the beginning of 2020 and other factors that were out of the company's control in retrospect, we could have done much better in important areas, including core product experience panel marketing efficiency and brand building as a result, we haven't been able to take full advantage of.
The tremendous market opportunities that we were seeing in the past few years.
Our most important move in 2021 was to put content back on track by deploying a viable strategic target together with an execution plan as well as assembling.
Any competent team optical group realignment in this process, we encountered unexpected obstacles, but also achieved encouraging results now I'll go through the Beadhouse unemployed wonderful wonderful job to the whole room.
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Bill that's helpful. Let me talk about all the aspects that we didn't do well enough during the management transition our assessments about how fast we can push forward the product.
Operational reform was a bit too optimistic this compounded with the COVID-19 resurgence in Q4 have caused us to miss the user growth pocket I sat in mid 2021.
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So many of you know long G was that in Q2, showing that although user growth was lower than we originally hoped for we were pleased to see that the entire management and execution team was in place by the end of the year before that we had two quarters thoroughly reviewing townhouse product and marketing.
Our marketing strategy and funding plans.
Our large scale research surveys and in depth studies of user behavior, we identified key problems in these three areas and formulated corresponding solutions.
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On the marketing side. The most important area of progress. We've made was to adjust the increasingly unbalanced use a structure in the past few years in order to control all I am paying conversion to meet quarterly numbers and paying user accounts on revenue and can compromise the quality of new users acquired through channel marketing efforts were tilted towards male.
Users with a strong comparison to pay resulting in a gradual deterioration of the tender mix. We believe a balanced agenda ratio is crucial to the overall user experience in the dating community and the long term housing is of the ecosystem.
Vantage all female users acquired through channels increased significantly since we introduced the new adds material specifically targeting women, we managed to keep the propulsion all female users from China's within a reasonable range of 40% to 50% after several months of adjustments and trans Ova or gender ratio returns to early 'twenty.
Eating level with a stable upward trend from.
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On the product side, one of the most important areas of progress made in 2021 was that we can comment that the key to increasing user retention is to improve the U S. All female users and users without forty-five photos.
So they showed that due to the passive nature of Asian women, 40% female users on content swipe in an extremely selective way, resulting in them hobby catching any matches or interactions. In addition for those who failed to provide qualified photos and well therefore denied access to the swiping system, 60% off.
Expressed their genuine desire to use 10 times staging service her.
Currently this group I'll keep whole represents around one third of every stadium new registration the swipe and match product in Canada tends to be less effective in terms of addressing the needs of these two categories of users. That's why they their retention has always been significantly lower than the average we believe providing a reach out alternative features kind of how.
<unk> improved that dating events and retention ultimately, making I forgive me if it can be incremental contribution to our menus. While the team has yet to make a breakthrough in this aspect we have seen some encouraging test results. We will continue to explore this with rapid deterioration in 2022 that Michelle Poole I'm interested in wound up losing.
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People, who changed within that contain additional details on the product side. In addition to clarifying that the key to driving user growth is to provide reach alternative taking experience on top off the spiking Mccann is on other important initiatives that we undertook in Q.
In the Q3 product upgrade was to remove the excessive paywall features and merchandising tactics our cost of customer complaints such IP monetization process had led to decrease in commercial matrix, including paying conversion paying user count and revenue in the short run however in the months following the product upgrade.
The membership renewal rates showed a substantial inquiries and the retention ratio also improved in January and February overall paying conversion, we tended to a steady improvement track the improvement in Congress you put in your rate base.
Solid foundation for us to use a Siemens and further grow revenues.
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So but in parallel with our domestic effort our team made impressive progress in overseas expansion since taking over contract execution, where made a forward back into the Indonesia market in Q2, I introducing audio and video based real time interactive features on top of the swiping experience, we were able to really reach live streaming and the nine months.
The ship off monetization model to breakthrough the oculus eating that is often seen in developing countries. The combination of innovative consumer and monetization products, both steady improvement in channel marketing all why Meanwhile, engagement on the supply side user penetration in transplant continue to trend up as well so.
Do you see from data show that kind of the user and revenue scale in Indonesia was a height of tinder throughout the second half of the year and if the sum of our revenue was one four times that of Tinder.
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Understood.
Diligence.
The more favorable gender ratio improved a subscription renewal rates and solid progress was made in Indonesia have collectively contributed to the user growth during the latter half of FY 'twenty. One. These positive changes has given us some confidence that small yet solid steps in the right direction can be an effective way towards user growth.
The journey won't be easy, but will be an extremely rewarding one in the end along that journey commitment matters patients matters cause that ran smack us perhaps the most important of all focused on the long term matters.
So that's to me what's in your 500 wound up with them.
So I'm going to turn on our mobile <unk>. It concludes the business update now I'll move onto the most important part of my speech today, the group level strategic priorities for 2022, and how we plan to achieve them anymore.
Mobile E auction and so you saw people switching moment. Thanks Rajiv.
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20, <unk> year Ashish.
Oklahoma our goal continues to be able to maintain a stable user base with a limited marketing budget and try to see user growth on top of.
Our action plan consists of two pillars first we will continue to optimize user acquisition model and increase the proportion of online users to balance all the all ally second on the product side will continue to identify and yourself to users' needs and optimized female a reality, it's social experiences to improve retention and leverage new.
He is to push forward product innovation to meet the needs of young generation and attract new users.
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With us on the other hand, we need to continue to enrich our product portfolio and push the boundaries beyond my own content. In addition to the Atlantis hotel, but I profitability has already been proven we plan to replicate this model in other apps, although we still have a sudden unprofitable apps that can take leading positions in niche market.
In the next three to five years.
No.
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The only issue in addition to this vertical apps I'd like to share my views on something bigger.
Technology evolves, we can see a clear long term trend of people screen time shifting from mobile devices to other types of smart hardware technology called breakthrough spring new opportunities for open social experiences in terms of how people can connect and interact with each other we have been paying close attention to the development of technologies.
As three D rendering motion, capturing AI and XR devices, all of which can help enhance social experiences in multiple dimensions, and we are making bold explorations on these fronts as a leading company with over a decade of experience in aiding on open social space to help more than 100 million users.
Discover new relationships expand their social connections and get meaningful interactions on a monthly basis.
The call audio business I look forward to helping users to meet the most basic human needs through technology advancement.
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Turning to that of a traditional as well.
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How are you going to GA almost any I'm. Just curious is that some of you Tony Thompson who's sitting here talking about little less than seasonal therapy.
Well I'm on my team the third strategic goal for the year is to ensure the Cashcall business remained stable for 'twenty to 'twenty two the biggest uncertainty will arise from the impact of the macro economy and panoramic on consumer sentiment, which brings significant challenges to achieving this cyclical.
Plan is to enhance commercial product innovation, while ramping up the monetization level of new apps to drive overall growth of class.
China and India.
The government digital support legal settlement.
Yes.
We're more of a it isn't that we.
Excellent.
And on the strategic go this year remains to deliver solid user growth by improving marketing efficiency and the quality and experience.
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So both of whom would put out but you don't know that you can put your name.
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Yeah.
On the product side, we will continue to focus on improving the retention ratio all female users and those with our 45 photos. We are currently trying to resolve these two issues through offers mainly in two areas number one in reach and user profile information as well as other content that can reveal personality number two expanding the ways people connect and interact.
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Young people are tending to move up.
It depends what the pool in terms of improving marketing efficiency three key areas are crucially important for us to achieve our both optimizing unit acquisition costs, you're reaching as content hunting brand equity, our China marketing experience over the past few months made us realize that driving user growth by simply allowing.
User acquisition costs to go up is costly and inefficient on the country, improving as material and bring considerably more high quality new users. This one will be the key direction for China marketing optimization this year.
Addition, we are seeing huge potential for content to enhance these brand equity the key to creating a virtuous circle in user growth is to increase organic portion of new users as opposed to those coming from paid channels.
These goals can be achieved.
Only through continuous investment into branding, which also needs to go hand in hand with genuine improvement in product experience. This is going to be so much more efficient than simply pouring money into marketing channels. This year.
Yet we will further explore opportunities and invest in kind of spending.
Tom the branding efforts with progress answer on the product side.
So what you've Sheila maybe why this.
The conditions in much of a change.
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Now if you'll go into under the singer lastly, I would like to conclude by announcing that our board has declared a cash dividend in the amount of <unk> six four U S dollars.
Yes, which will amount to a total cash payment of approximately $127 million or 40% of adjusted net income attributable to the Hallo Group Inc. In 2021. This is the fourth consecutive year that we've shut all fruits of our work with our shareholders you demonstrate management's confidence in the fundamentals of the company.
As well as our commitment to creating and delivering shareholder value for the long term. Thank you for your faith in the Hallo group team.
What other things on their own due diligence Jonathan without yourself to Tito touting. This is what I'd like to cover today now let me pass the call over to Mr. Dunson, John for a financial review Donkey.
Thanks, Hello, everyone. Thank you for joining our conference call today now let me briefly take you through the financial review.
Total revenue for the fourth quarter 2021.
$3 6 billion renminbi.
3% year on year or 2% quarter over quarter.
non-GAAP net income attributable to Hello group was $289 million and maybe.
Compared to.
$836 4 million or maybe from the same period.
94, 6% to 6% decrease year over year.
During the fourth quarter the company accrued.
207 point.
4 million renminbi withholding tax.
Undistributed earnings generated in 2021 hour.
<unk> owned for subsea.
Angie enterprise due to our plan.
Continue to repatriate profits from the Wuxi to support our capital allocation demands, including but not limited to returning cash to our shareholders and overseas business investment et cetera.
Excluding this special item.
GAAP net income for the quarter would have been $488.3 million.
So why only has covered revenue analysis grid.
Great level of details in the interest of time, I will skip it and I've directly into the cost and expenses items for the quarter.
Our non-GAAP cost of revenue for the fourth quarter of 2021 was 4.19 billion Airbnb compared to two point.
<unk> 2 billion for.
For the same period last year.
non-GAAP cost of revenue as a percentage of total revenue.
Was 59, 6% increase.
53, 2%.
From the Q4 2020.
non-GAAP gross profit margin for the quarter was down by six three percentage points from the from a year ago.
The decrease was attributed to the following factors number one which is the biggest.
Alright.
Higher paying payout ratios.
From core Momo life broadcasting business on a year over year basis, due to our adjustments to the broadcaster and agencies.
Yes.
And number two content accounted for a smaller <unk>.
<unk> of the group's total revenue.
As if gross margin is higher than our core mobile.
Number three six nature cost items, such as headcount and IDC CDN expenses represented a higher percentage of revenue as total revenue declined.
Currently on putting aside which was due to the year.
Your monetization plan.
On a sequential basis, the non-GAAP gross profit margin for the quarter was down by two 2%.
From Q3.
Cost of revenue in Q3, 2021 included $49 million production costs.
Excluding this quarterly specific item, we would have seen a three 4% sequential decrease.
non-GAAP gross margin for the quarter, which was primarily attributable to the higher payout ratio in connection with the year and the color.
And more promotional events to help the agencies and broadcasters whether through the macro headwind.
We currently expected non-GAAP gross margin to see a rebound of our call.
Percentage point from Q1 hours due to less competition events related.
Related costs.
Positive revenue mix change as we expect Vas.
Revenue to represent a high increasingly higher percentage of total revenue.
non-GAAP R&D expenses for the fourth quarter.
$479 7 million or renminbi compared to $486 5 million.
For the same period last year, representing seven 6% and seven 5% of total revenue respectively.
The decrease was mainly due to decrease in.
Employee salaries and social welfare.
<unk> from a reduction in headcount.
Yes.
We ended the quarter with 2051 portal employees, which 552 are from Panther.
R&D personnel as a percentage of total employees for the group was 62% compared to 57% Q4 last year.
non-GAAP sales and marketing expenses for the fourth quarter was $648 6 million or.
Or 17, 7% of the total revenue compared to $654 1 million or.
Or 17, 2% of total revenue for the same period last year.
The year over year decrease in sales and marketing expense.
RMB amount was mainly due to a lower.
User acquisition investment for content.
<unk> mentioned earlier.
The decrease was.
Though partially offset by our stepped up marketing efforts to promote a recent launched.
Simulation game.
Tom in the <unk>.
Overseas market.
non-GAAP G&A expenses was $89 4 million.
<unk> for the fourth quarter on the 'twenty, one compared to 134.
$25 million and maybe for the same period last year.
Presenting two 4% and three 5% of total net revenue respectively.
It's worth mentioning here due to the fact that the group.
Fair market value as indicated by market cap.
Has been significantly below its net book value of equity for competitive.
Conservative perspective.
We recorded.
A 4.3 97 billion renminbi.
As the impairment loss during the quarter, which represented a total value of all goodwill and intangible assets.
The exception of the group's operational license and permits on the consolidated statements of operations for the year ended December 31 2021.
This impairment.
Resulted.
In a 4.02 billion renminbi.
Operating loss for the Q4 2021.
Now briefly on income tax expenses.
As I mentioned at the beginning in.
In Q4, we accrued.
Withholding income tax of.
207 $4 million.
And distributed earnings generated in the year of <unk> 21, our office.
The amount was reported as income tax expenses for the company.
In the past, we recorded withholding income taxes in connection with the repatriation of office profit whenever it's actually happened.
As we intended permanently reinvest.
Undistributed earnings from our office in China.
Starting from Q4 2021, all on distributed profit generated by <unk> will be subject to 10% withholding tax.
Tax accrual.
Based on the companies.
Repatriation of history.
Expected ongoing demand for U S dollar funding needs, including but not limited to returning cash to our shareholders as well as offshore business development.
Therefore going forward on a quarterly basis, we will approach 10% of net income from Wuxi for the quarter and report as income tax expenses.
Now turning to our balance sheet and cash flow items as of December 31.
2021, Hello groups cash cash equivalents short term deposits.
Term deposits restricted cash and long term restricted cash totaled 15 points to seven.
$1 billion.
Compared to $16 four 8 billion renminbi as of December 31st 2020.
Net cash provided by operating activities in the fourth quarter 2021 was $665 5 billion renminbi.
Lastly on the business outlook, we estimated our first quarter of 'twenty.
<unk> revenue to come in the range from $3 1 billion renminbi to $3 2 billion, representing a decrease of 10, 7% to seven 8% year on year or a decrease of $15 six.
Sent to 12, 9% quarter over quarter.
The Q1 2022 for Q1 2022 we expect total revenue for core mobile to decrease in mid single digits from Q1 last year due to macro weakness and dynamic control negatively impact users and dealer sentiment.
I'll put aside we expect our revenue to be in the trough.
In Q1, mainly due to the combination of factors, including.
Resurgence in Covid.
Lagging vas revenue impact from the <unk> monetization process last year as well as restructuring of our content to life.
Screaming business, which could translate into a similar level of year over year decrease right.
As seen in Q4, 2021 .
However, we do expect contents revenue to improve from Q1's level.
The year progresses.
Please be mindful that this forecast represents the company's current and preliminary view on the market condition and operational conditions, which are subject to changes.
That concluded our prepared portion of today's discussion with that let me turn the call back to actually to start the Q&A. Thanks. Thanks, John just.
Just a quick reminder, defined before we take in the questions for those plants to Chinese piece I'll ask your questions in Chinese first followed by English translation and also please limit the number of questions to maximum two thank you operator, we're ready for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key our first question comes from Thomas Chong with Jefferies.
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About the tenant you need to.
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And that's a new trend for boss and live streaming.
Uh huh.
The full year profitability profile and the second question is about.
Hi, Dan.
Can management comment about the user trends, our revenue as well as well.
Thank you.
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Okay. That's helpful.
So to answer your question on the call normal part.
I'll use a growth target for the call more and more in 2022 remains the same as last year, which is to remain stable user base with a flattish marketing budget and try to seek user growth on top of that and as far as the current channel marketing environment is concerned to achieve this goal we need to continue to optimize our strategy for react.
Nevada, and government users and expanding marketing channels. However.
In Q1, they experienced a decline due to the impact of the pandemic and the negative seasonality in terms of revenue outlook.
A few factors that need to be taken into consideration that first of all is the macro economy. Okay.
Guidance reflects the challenges to our live streaming business from the macro headwinds and besides changes in the external environment have had quite an impact on the engagement of agencies. So if the macro and other external conditions ease in the second half the live streaming business may vary.
While we improve otherwise the downward pressure will continue to address this we will try to make more efforts on the product and operational sites to enhance user experience and ensure stable content supply and in terms of a value added service the macro environment and pandemic have had a negative impact.
On the call mobile value added service.
On par with live streaming business model is a lot more resilient to the economic cycles. So in particular.
As the new market I'll stand alone apps is taking off so we will moderate to be ramp up monetization efforts. This year to drive overall user growth of loss, we expect value added service to grow as a whole in the double digits in 2022.
The revenue structure.
The new contribution from value added service will continue to increase while the propulsion of live streaming will further decrease at the group level, we expect live streaming revenue contribution to drop from 60%.
At the end of last year to around 50% at the end of this year.
Even the net income in Q1 will be quite low due to negative seasonality in revenue here I would like to provide a bit more color about profitability. This year in response to current pressure on revenue from macro uncertainty.
Management has a strong focus on optimizing our operating expenses, we expect opex to reduce significantly this year. Although there are some uncertainties on the revenue front, we expect profits to rebound after Q1 and excluding content. The annual profit margins for the core Momo is expected to remain.
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And I think sometimes.
Sometimes the user growth in the upcoming year will depend on both external and internal factors.
Donald factors include when the pandemic and the related control matches will ease in Q1, but probably 19 resurgence has been quite serious and related control measures well very strict as a result active user base decreased significantly in areas well probably resurgence was severe however, the study program.
And marketing improvement led to an upward trend in user scale in regions, where COVID-19 containment measures will have relatively relaxed on the whole we need to wait until the pandemic situation becomes clear out before we can make a more realistic estimate of the user growth.
The internal factors come from progress on the product side and the pace of our marketing efforts.
Last year, the target, we set at which Ah how fast are we should push forward the product and operational plans was a little bit too aggressive yet user growth has bottomed out and we tend to a growth track.
As for now we are making steady progress in various product iterations and channel marketing optimization, we expect to see a steady upward trend.
When the pandemic subsides.
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On the revenue front, we expect revenue to be in the trough in Q1, mainly due to the pandemic impact and revenue deferral. However, as revenue should gradually pick up after Q1, mainly due to the following factors.
First one is the steady recovery of I may use after the pandemic Aesop second factor is that we should benefit from a stable paying conversion with Dan with Audi monetization initiatives and paying conversion. These back on a steady growth track in Q1, Yeah I wish I had some reason developments to give you more insight on the situation.
Although COVID-19 resurgence led to a sequential decrease yeah and they use in the first couple of months after yes, and thanks to the improvement in pain conversion the number of paying users in February remained pretty much stable compared to last December .
And the third driving factor for revenue growth is the contribution of new value added service products. For example, flash chat chat room and some other new membership base paying features are very much likely to bring in incremental revenue and steady growth in overseas market will also make incremental contribution to the topline.
Although we expect revenue to be on a sequential upward trend after the trough in Q1, our total lost revenue for the year 2022 will still be lower than last year.
Due to our substantial demonetization strategy in the second half of 'twenty one.
The live streaming since he's not contents. The current business focus we expect this revenue to further decline significantly in Q1, we will shift our strategic focus to multi play L. A live video, which fits better with the overall social atmosphere on contract. So what do you think I'm not going to a woman and then when you sign the.
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In terms of cost and expenses according to our annual budget well make matches to optimize and.
We will take measures to optimize cost controls across various areas, including labor costs and expenses for IDC and CDN. However, since we will start to invest in content spending brand building as planned this year marketing expenses will go up depending on the effectiveness of the campaigns.
We'll control the annual net loss to be somewhere around 500 million. Indeed, our revenue in the first half the year will be relatively low so net loss widened from Q4 levels. However, we expect the net loss to narrow as revenue growth in the second half.
So I think I hope.
With answer to your question Thomas.
Yeah.
I think in the year's off time, we're getting quite close to market open. So maybe we're just going to wrap up here for today's call and thank you all for participating to our Q4 earnings conference call and we will see you next quarter.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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