Q1 2022 Hello Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Hello Group, Inc. First quarter 2002, I need your earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer questions. During the session you will need to press star.
One on your telephone please.
Please note that this conference is being recorded today.
I'd now like to hand, the conference over to your first speaker today Ms. Ashley gene. Thank you. Please go ahead ma'am.
Thank you operator good.
Good evening everyone.
Joining us today for Hello, first quarter 2022 earnings conference call. The company's results were released earlier today and available on the company's IR website.
Today I'm used to want me CEO of the company and Mr. Donaldson John C F O off the company.
The company's business operations and highlights as well as the financials and guidance. They will both be available to answer your questions. During the Q&A session that follows.
People would begin I would like to remind you that this call may contain forward looking statements made under the safe Harbor provision 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 relate to events and involve known and unknown risks uncertainties.
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 these 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 undertake any obligation to update any forward looking statement as a result of new information future events or otherwise except as required under law.
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Good day, everyone. Thank you for joining our conference call today, Q1 was a very challenging quarter for numerous companies in China.
To us however, I'm pleased that our team was able to focus on a product and operational initiatives to cope with hot wings from the resurgence of COVID-19 related challenges that you can probably tell you to off to a good start in my remarks today I will begin by reviewing the key operational and business results for the first quarter followed by.
An update on the progress that we've made pertaining to the company's strategic priorities.
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I will start with a brief overview of our financial performance for the first quarter of 2022 total revenue at the group level was $3. One 5 million can be a 9% year over year and 14% quarter over quarter adjusted operating income for the quarter was 461 million with a profit margin of 15%.
On an external basis total revenue was $2 8 billion, 94% from Q1 last year and 14% from last quarter.
The year over year decrease was mainly due to the negative impact of the macro headwinds and the COVID-19 our lifestream goodness.
As revenue rose, partially offsets the decline you're live streaming among them the new bucket all standalone apps with a real outperformance this quarter and these incremental revenue contribution exceed it by a little more value added services.
Looking at our new growth engine for the lost basically flying.
Adjusted operating income on X 10, 10 basis was 619 magazine with a 22% margin.
Total revenue for the quarter came in at 349 million can be down 39% year over year and 20% quarter over quarter.
The year over year decrease was due to the demonetization process to improve user experience and retention in the second half of 2020 one as.
As well as Covid negative impact on use of data and sentiment I mean pension too painful by I.
Adjusted net loss from contact with 159 million for the quarter compared with 42.0, formularies or maybe a year ago.
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Now I will walk you through the progress we've made with our strategic priorities during the first quarter.
Many of the year I expect strategic goes for mobile and contact and the new endeavor for the mobile App I'll first go for the year 2022 is to maintain a stable user growth with limited marketing budget and seek growth on top of that.
The second Gulf of Momo is to ensure the Cashcall business remained stable with respect to 10 times the strategic goals set at the beginning of the year was to deliver solid user growth by improving marketing efficiency and what did you experience.
However, as we enter into Q2, the Covid situation continues to escalate, which resulted in a significant decline. He was the stadium sentiment and propensity to pay per box.
Our team has temporarily decided to scale back China investment for ally considerations we.
We explained this decision in more detail later.
For that reason, we have shifted our focus for the next few months from user growth to continuously improve marketing efficiency. I mean, you have called it in your in order to improve user retention.
The same time, we have lowered his marketing budget to reduce net loss amidst the escalation period after the Covid lockdown.
When you products and businesses, we aim to continue to enrich our product portfolio and push the boundaries young one one times.
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<unk> had $110 9 million monthly active for the first quarter of 2022, 3% from the previous quarter. The sequential decrease was due to Chinese new year seasonality compounded by continuous escalation of contamination containment measures in various regions across China.
However, the magnitude of the decrease was lower than the 6% seen in Q1 2020 at the beginning of the initial COVID-19 outbreak.
Negative seasonality and the Covid researchers led to a significant decrease in organic user growth was therefore stepped up our channel marketing efforts to counter this trend.
In terms of the channel strategy, our team optimized the data models and as materials and took advantage of favorable marketing windows, I mean, Chinese new year, which significantly improved overall user acquisition efficiency. This in turn resulted in an increase in traffic a quiet from channels on the back of a slight decrease in total mark.
<unk> expenses from the previous quarter.
On the product side, we upgraded the design of the cornea by features which will improve the efficiency of relationship discovery for male users.
At the same time, we continue to refine the many of us experience lunched the last year.
Our sense of companionship and content consumption to meet the needs of female users to express their feelings.
Number of paying users for the quarter was $8 6 million. The 300000 sequential decrease was mainly due to the increase you know what may use.
Conversion remains stable thanks to the success of our product and operational efforts.
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Now I'll discuss the progress we've made regarding our priority also enjoying the cashcall business remained stable.
Despite the negative impact of multiple external factors, such as micra headway and the escalation of Covid or ex tenant basis revenue was $2 8 billion 93, 6% from Q1 last year how.
How do I do service revenue represented 85% of the size of life streaming up 21 percentage points quarter over quarter.
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Well almost live streaming revenue totaled 1.48 billion and indeed for the first quarter and 13% year over year. The decrease was mainly due to two factors first consumption softness due to macro headwind second the negative impact of tax compliance scrutiny all the engagement talent agencies.
Harder to overcome this external challenges with the emphasize the revenue you can save a lot of improving profitability. During the first quarter is that all hosting one large quantity economists, we focused our small scale promotional events and optimize our live streaming ecosystem.
Allocating more resources to meet level performance and quality newcomers.
Scale back in competition events led to a decrease in bonus related revenue sharing costs almost gross profit margin in Q1 rebounded from the previous quarter.
And the agency revenue contribution mix shift from shifted from top agencies two medium sized one.
Operational indicators, reflecting the housing house of live streaming ecosystem improved from the previous quarter. The number of sections and all of that time committed by the top broadcasters remains stable.
Other revenue recovery with slow after Chinese new year due to unfavorable mark macro conditions, we believe the macro economy and regulatory environment will remain quite challenging throughout the second quarter. We plan to continue our conservative operation strategy with minimum budget related bonuses.
Stabilizing gross profit margin and driving funding from me cohort users to ensure steady improvement now ecosystem. So that revenue kind of recover as soon as the consumer sentiment and comes back.
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But your revenue from the new market of Standalone App maintained rapid growth momentum totaling 135 million and be a hungry or 40% year over year, while the net loss continues to narrow I will provide an update of our new endeavors and beat her later, but for now I'll focus on our mobile App isn't it.
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In Q1 consumption softness in connection with macro headwinds had a negative impact on some of our uses and a resurgence of COVID-19 in various regions of China likes to escalation of containment measures leading to a significant slowdown in year over year growth.
Mobile revenue.
However, compared with live streaming model is more resilient to economic cycles and difficult external conditions in the first quarter. The team focused on product innovation for long tail amico, how users taking audio and video based experiences as an example, we introduced a loft compassion contractual work yeah I felt that young feature.
In the chatroom, where users can display specific if they send out on the wall for other uses in the chat room to comment and give blessings.
It's kind of designed to address the long tail and Nico how users desire for attention seeking study well continuous product and operational innovations allowed revenue to remain stable on a sequential basis. Despite pressure from the pandemic Chinese new year seasonality and challenging macro conditions.
In addition, the overall revenue structure tilted towards me middle cohort, along how we use it as small ticket lost features.
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Since the end of last year, Colby prevention and control measures in many regions of China continued to intensify, which surprised us a social sentiment and put pressure on user growth.
That had $25 6 million monthly active for the first quarter down 5% from December last year. The decrease was greater than that of normal. This was mainly because the core value proposition of 10 times is helping users discover new relationships connect things unfold Atlantic purposes, and connecting and converting.
The relationship to offline activities.
And how to use a have a higher propensity to meet in real life I'm almost users therefore, compared with normal which has relatively diversified social use cases contact took bigger hits during the pandemic as people will often restricted from participating in outdoor activities.
How do your optimization of the product and marketing approach led to improvement in the overall retention ratio users in regions that were free of pandemic rose sequentially. However, due to the Soviet epidemic situations in many regions of the country, especially large and tends to be populated cities.
As escalation of prevention and control measures.
Organic user growth and retention of new users significantly deteriorated leading to a considerable decline in the active user base in most of the severely affected areas.
In light of the decline in the retention of new users and a decrease in ally, we lowered our China investment and are strategically focused on improving retention through product improvement to ultimately drive user growth.
The number of paying user for the quarter was $2 4.100 million sequentially. This was mainly due to the decrease in the U C.
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Now I'll briefly review financial performance total revenue for the first quarter was 349, many of them can be a 39% year over year, 20% quarter over quarter and year over year decrease was mainly due to our monetization strategy to improve the U S and retention after the change of management in the second half of last year.
For this reason, we would discuss revenue on a sequential basis.
<unk> revenue for the first quarter was 220 formulary M D I'm talking 9% year over year, and 5% quarter over quarter. The sequential decrease was mainly attributable to two factors.
The decline in paying user as a result of decreased I mean, you while our people remained relatively stable.
Second the financial impact from Demonetization efforts was not completely absorbed this was reflected in the lack of deferred revenue for the membership business.
Live streaming revenue for the first quarter was a husband targeting 500, agamede, 38% quarter over quarter, mainly due to two factors.
Q1 seasonality for the live streaming business in general second the monetization process of live streaming last year continued into this quarter.
Current product strategy is to gradually transform life streaming into our multi play a video party mode, which fits better with an open social networking analyst here. So you saw that.
It also shows so Sean is your question real quick here. So the agenda now let's move to the development of Penta late on the strategic priorities of improving marketing efficiency unquote eating experience.
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In terms of improving marketing efficiency. When she won we're mainly focused on reducing unit acquisition costs as well as optimizing the innovate and innovation as content.
Okay.
Made particular efforts to target users from our core channels more effectively this new user acquisition initiatives enabled us to more accurately reached 10 times target users, thereby improving retention.
Organic user growth in the first quarter slowed significantly amidst the pandemic, we strategically increased the number of users are quiet from channels I'm pleased to see that the total number of users acquired from channels increased while overall, China marketing expenses.
<unk> decreased from last quarter. In addition, we managed to keep the propulsion on female users and the age of new users within a favorable range.
Cameron Street preliminary get audited progress the team has made in improving user acquisition efficiency well, that's what's encouraging the market environment for user growth became more challenging in Q4 last year, mainly due to the pandemic and continuous escalation of containment measures. We believe I mean, you may continue to face challenge.
In Q2 due to the further spread of Covid and escalated control measures considering the significant decline in new user retention and a lower paying conversion ratio during the pandemic, which resulted in low ally we have adopted a conservative marketing approaching Q2, lower in China last month, and reducing the net loss for <unk>.
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Although use of irritation with challenges either pandemic. The team continues to push forward on product improvements against our original plan.
One we tried to improve the retention all female users and those without qualified photos onto from the fed.
First is to enrich user profile inflammation as well as other content that can review users personality.
More comprehensive way for example, we encourage users to upload photos truly depicting the personality and lifestyles and provide more detailed interests such as books and drama that they've recently consumed.
This gives other users more information to base their swipe decisions on the second is to expand the ways people connect and interact with one. Another for example, we launched up reaching function on post to help users break the ice based on content. These.
This provides more passive social opportunities for female users who are more reserved when it comes to dating.
In addition, we created an exclusive widening the rents for those who failed to provide qualify photos.
Our algorithm designed to prioritize users will have initiated right swipes to improve probability of matching among users without fortified photos.
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This concludes Taos domestic business update now I'll briefly discuss townhouse the overseas development kind of strategy.
Strategy in the overseas market is simple and clear to pursue profitable growth.
Our approach to achieve that goal has two important components. One is that we need to improve up apple by introducing an audio and video services and on the back of that non substance non subscription based revenue models in developing countries.
The other component is lowering marketing costs in areas that are not currently making any sense from an ROI perspective, as I mentioned in the previous quarters. After the management transition we made up for it back into the Indonesia market one of our biggest the progress made since then what's that we successfully improved our pool.
All right you know that market I leave reaching live streaming and the lung membership value added service monetization model.
We saw an increase in outflow and improvement in ally, we stopped all channel investment to drive users and revenue growth at the same time, we scaled back marketing efforts in some of the loss, making regions as the number of overseas users and the scale of live streaming business growth, we have enough leverage to low.
The payout ratio of the non subscription business.
As a result of all of the improved our people lowered marketing costs and optimize the payout structure.
Has overseas business turned a profit in Q1 on a <unk> payroll waste basis.
We will continue to execute such a strategy for the rest of the year you know overseas market.
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Lastly, I'll review the progress we made with our new endeavors.
18, we launched our brand portfolio strategy through the acquisition of Pankaj. This marks our first step in meeting the social needs of different target groups more effectively through different app talking from 2019, our incubator continue to launch new app, enabling us to reach a broader group of users and page.
To the different social preferences through our multi brand and multi platform approach. This strategy helped us quickly and effectively penetrated niche areas within the social space explore opportunities in overseas market and solidify our industry leading position.
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From the new bucket in the first quarter was 160 million it'd be about 184% year over year, and 43% quarter over quarter revenue from the new bucket includes all while reallocate social apps could segue on total revenues of which were recorded in the lifeline as well every town accumulation.
Focusing on the western market revenue all of which was recorded in the mainline for Hudson Grady the two social apps pocketing domestic market. We continue to focus on cost reduction and efficiency improvement as we did in the second half of 'twenty or 'twenty, one optimizing cost and expenses, while moderately ramping up the monetization level.
Driven by an increase in RP pool revenue rapidly increased quarter over quarter and both apps achieved a full quarter of corporate entity and made incremental contribution to the group's bottom line in Q1.
Daily video matchmaking targeting lower tier market are keenly reached the reach product and operational experience accumulated in our other projects and achieved breakeven in less than two years. After its launch in 2020.
How about that Ipass has also shown the potential to sustain topline growth and profit expansion.
Our strategy for domestic market, you mean that was easy it is to simultaneously pursue steady growth and profitability.
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Among overseas, our reality, Oh, I'll reallocate products, we ramped up efforts to drive revenue growth.
Our social App pocketing, the Mena area as a result in Q1, what was the paying user count and revenue showed rapid growth from the previous quarter. We adopted the same strategy to lower the payout ratio as users and revenues continue to scale as a result landlord significant narrowed compared with the previous quarter.
For <unk>. This year is to achieve profitable growth in its core market in the Mena region and at the same time to develop a product most suitable for the southeast Asian and South American market. This will lay the groundwork for soldiers long term user and revenue growth.
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In addition to ally our young hip products, we launched a D are you around hit product kit here after the Chinese new year get hate the word you used the social app, which mainly targets John that and doesn't offer users who prefer to share content with a few intimate friend uses kind of document their daily lives photo and video format and these calls.
Will be automatically pushed to the cellphone homepages off their predefined intimate friends on kids here.
Like <unk>, which supports more convenient realtime sharing of authentic life moments with their close friends is highly complementary to the mobile app in terms of feature and independent users.
As he accurately for fewest unique and untapped demand from Genzyme and then offer users did you deliver rapid growth inorganic uses our retention of these launch we immediately stopped all our product iteration and marketing effort.
At the moment Katy has already reached a pretty sizeable user scale and it's still showing strong growth momentum. We believe it is the app that we'll open the doors to many future opportunities. It also marks the first milestone for the company in the area of New App development.
Our large deal base with a brand new category of user demand. This is a new front and we will continue to explore in the second quarter, we have a plan to further escalate the axon.
Accelerates the product iteration and step up the marketing effort.
Around it to drive growth.
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I wanted to walk you through it.
Youll find efficiency.
Lastly, I'm pleased to announce that today, our board approved a $200 million share repurchase plan. During a 24 month period. This program will allow the company to significantly enhance shareholder value capitalizing on the undervalued share price, obviously is failing to reflect the fundamentals of the company.
This share buyback plan demonstrate our long term commitment to maximizing shareholder value as well as management's confidence in the future of the business.
So there won't be a washout.
And Jonathan with attitude hospitals, how would you model. This is what I'd like to cover today now I'll pass the call over to Mr. Donaldson, John for the financial review Donkey.
Thanks, Hello, everyone. Thank you for joining our conference call today.
Let me briefly take you through the financial review.
Total revenue for the first quarter 2022.
Three <unk>, one 5 billion.
On 9% year on year or 14%.
Quarter over quarter.
non-GAAP net income attributable to the company.
398, 5 million RMB compared to 633 7 million RMB from the same period last year.
As Ronnie has covered the revenue analysis.
A E tailers in the interest of time, our stupid and dive directly into the cost and expenses items for the quarter.
Our non-GAAP cost of revenue for the first quarter on May 22.
1.2 billion renminbi compared to 1.9.
Two.
For the same period last year.
GAAP cost of revenue as a percentage of total revenue was 58% an increase from 65% from Q1 'twenty one.
non-GAAP gross profit margin.
For the quarter was down.
Two five percentage points from a year ago.
The decrease was mainly attributed to higher payout to the content providers on a sequential basis non-GAAP profit margin.
It was up.
One eight percentage points compared to Q4 last year.
The sequential increase was due to two factors number one less revenue streaming event related cost.
Number two a positive change in revenue mix towards Vas, which bears a higher gross margin than life streaming.
Tribute it more to topline.
non-GAAP R&D expenses for the first quarter was 429 2 million compared.
Compared to $244 1 million for the same period last year.
Representing seven.
3% and 7% of total revenue respectively.
Increase was the result of optimization in personnel cost.
On a sequential basis.
R&D expenses decreased by 18% from four.
400.
$79 7 million in Q4 last year.
The year end bonus expenses.
Okay.
During Q4 of last year.
We ended the quarter with.
1936, total employees of which 563 from Kantar.
R&D personnel as a percentage of total employees for the group was 61% compared to 57%.
Q1 last year.
non-GAAP sales and marketing expenses for the first quarter was 578.
Million maybe.
Or 18, 4% of total revenue compared to $579 8 million.
Maybe or 16, 7% of total revenue for the same period last year.
Sequential basis, non-GAAP , selling and marketing expenses decreased 11% from $648 6 million in Q4 last year.
The decrease was attributable to the following factors number one lower marketing spend for new apps as a result of our focus on cost reduction and efficiency improvement.
Number two lower user acquisition investment.
As we adopted a conservative marketing approach during the pandemic resurgence.
Number three in Q4 last year or more at a quarterly specific branding expense item.
non-GAAP G&A expenses was $85 9 million or maybe for the first quarter 2022, compared to $94 2 million for the same quarter last year, representing four 7% of total net revenue came in both periods.
Same as in the R&D line.
The decrease was mainly result from optimization in personnel costs.
non-GAAP operating income was.
466 million M. B, a decrease of 30% from Q1 on your 21, representing 14, 6%.
non-GAAP operating margin for the.
Quarter.
Four 4%.
Over the same period of last year.
non-GAAP Opex as a percentage of total revenue was eight 4% an increase of 26, 5% from Q1 last year.
The increase.
Or we expect to continue to exercise cost discipline.
For the rest of the year in order to improve cost efficiencies.
Macro environment.
I'll briefly on income tax expenses.
Total income tax expense.
Was.
$158 million and maybe for the quarter.
<unk>, two $103 million or MEP.
At the same period last year.
Effective tax rate for the quarter was 27, 4%.
In Q1, the company accrued withholding income tax of $44 million.
Which is 10% of undistributed profit generated by our Wuxi.
Without that withholding income tax.
Our estimated non-GAAP effective tax rate was around 19% in the first quarter.
Now turning to your balance sheet and cash flow items.
As of March 31, 2022.
Hello groups cash cash equivalents short term deposits long term deposits and restricted cash.
15.
Point 6 billion renminbi compared to $15 seven 1 billion renminbi as of December 31, 21.
Excluding the $140 million and maybe a cash payment of Chinese.
For Chinese tax authorities to repatriate one 4 billion.
Our wuxi in China, while our offshore entities net cash provided at IHOP.
Operating activities in the first quarter 2020.
<unk> was $183 million.
It maybe compared to $502 million in the first quarter.
One.
In addition, during the first quarter of 2022, we paid a greater portion of our revenue share to the content providers of crude in.
Previous quarter.
We made such payments.
The same period in previous years.
These costs the operating cash flow from operating activities to decrease.
Greater extent on a year over year basis.
Oh.
Then the non-GAAP net income of the company in Q1.
Lastly, our business outlook, we estimated our second quarter revenue probably in the range from 3.05 billion Airbnb with 3.15 billion renminbi, representing a decrease of 16, 9% to.
14, 2% year on year or a decrease of three 1%.
Increase.
0.1% quarter over quarter.
For Q2.
You too on a sequential basis, we expect the total revenue for the core Momo also declined slightly.
Due to negative impact of live streaming business for new regulation on life streaming.
Put out in May.
Okay.
Continued macro headwinds and intensified kobe's control measures.
We expect the vast growth to partially offset the decline in life premiums.
Total revenue for content.
The decrease in mid single digits due to the increased level of pressure from Covid control content user and the membership business.
We expect content user and revenue to come back to the gross products after the large our.
Large scale last time.
<unk> and the patient sentiment improves.
Please keep in mind be mindful that this forecast represents the company's current and preliminary view on the market 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 actually please.
Just a quick reminder, before we take the questions for those who have seen Chinese. Please ask your questions in Chinese first followed by English translation by yourself.
Operator, we're ready for questions. Please.
Thank you as a reminder, ladies and gentlemen, if you wish you ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to withdraw your request. Please press the pound or hash key.
And so this question comes from the line of Daniel Chan from J P. Morgan. Please ask the question.
Oh gosh.
The key event with a damp on Daniel should knock on wood.
The Eagles Queen became quite human condition, Genco and do them in Shibuya with US how would you sort of doing it.
She couldn't youngest yoga when team I'm gonna when somebody comes in Changsha kicking in by the time she should translate for myself. Thanks management for taking my question. This is Simon speaking on behalf of Daniel Chen.
Two questions. My first one is about regulation can management share more color on the calculation of impacts on your financials and the overall China live streaming industry. The second question is about times of user trends commencement comments about it sounds like it was different this year. Thank you.
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So we changed the model three and placebo.
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With regarding with regard to congratulations.
The opinions on it.
Regulating keeping in live streaming and the strengthening of the protection of minors published in May you should annualize the requirements on ranking system as well as the PK competitions doing evening peak hours that stimulate impulsive high spending behavior among users with relatively clear implementation guidelines and need.
How rude that's a blessing for the lifestyle in the industry because it helps to level, the playing field and ensure that the industry as a whole develops in a healthy and sustainable manner in the months and the opinion was issued our team.
Some operational adjustments in the coming weeks, we will follow up with and fine tune our product plan in line with regulatory requirements.
New product plan officially took effect in early June so it impacts our revenues will mainly be reflected in the second half of the year. Our assessment of the revenue impact may not be accurate at the moment because.
Because we only have a few days of August stayed operating income from the late may.
He used to ask for reference.
According to our estimated our estimates are based on such limited data the impact of the new product plan on the full year of live streaming revenue should be less than 10%, which is within a reasonably manageable range.
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Oh, you're potentially going to Youtube.
So sometimes use a growth depends on both internal and external factors I spoke external factors as previously mentioned the new wave of COVID-19 started at the end of last year spread further since entering Q2.
Secondly related control my just continued to intensify whereby the speed of thought.
Oh and extend of the escalate nation exceeded our expectations back in March.
They tell you April show that the new user growth retention I'm paying conversion will actually be affected in major pandemic regions well.
Non controlling measures what's up here. This is very much consistent with the trend that we saw in early 2020.
Considering the decrease in retention on paying conversion, which resulted in a while I, we have decided to reduce turn times of our marketing budget in Q2 were well maintained this practice into the pandemic situation improve.
Only the pandemic in Shanghai has put in initially brought under control. Other containment measures are still relatively strict and it will take time for use of social sentiment to recover. However, we remain optimistic about the outlook in the second half I hopefully will see some substantial improvement of IBM.
Got an internal factors.
User growth is driven by both user acquisition and product efforts, we have been making steady progress on those two fronts since the beginning of the year.
That's why from a geographical perspective, I mean, you declined significantly in regions, where severe pandemic and a high level of control measures.
And Wes uses showed on the upward trend in Iris was not affected by the pandemic.
We plan to expand continuous effort in improving retention and lay a solid foundation for steady user growth in the post pandemic era.
I think answer to your question.
Operator, we're ready for the next one.
Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.
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Ohio, PPA as things, Oh, well Minto age five and there's so little Ohio, even cheap so even for the summer.
Thanks management for taking my questions. My question is really all about the overall macro and some of them.
Sure the environment in China, how should we think about the impact to live streaming.
And not be a S R as well as a force for the full year revenue and earnings.
Thank you.
Thank you Thompson.
Yeah.
This is Jonathan let me try to address your question.
First of all in terms of our revenues.
Let me begin with our live streaming business.
In contrast to our regulations.
The macro uncertainties and.
Spending softness has more severe challenges to the live streaming business.
And this situation has become clearer.
In Q2 and in Q1.
Our Q2 guidance implied at mobile App live streaming business will see a year on year decline high 20 percentage point.
Our sense of the visibility.
Of macro environment in the second half is quite low at this moment.
To be conservative I suggest investors, who use Q2 as a baseline.
Think about where to predict the situation in the second half of the year.
Strategically we take active measures to enhance user experience.
And ensure stability of the supply side content ecosystem.
In the context of a year over year decline in revenue.
Based on the situation in Q1, we are quite confident that our industry cart.
That way our live streaming business can recover as soon as the macro environment improves.
With respect to our to the Vas.
Business, Although vas has just crushing Larry.
Consumption is also being affected by the macro environment and the pandemic.
Is more resilient to economic cycles comparator with live streaming.
In addition, with the rapid growth of new apps, we expect the Vas revenue.
Ex patent this is can still achieved double digit growth targets are set at the beginning of the year.
Hum.
And there has been more severely.
Affected by the pandemic related lockdowns in the first half of the year than we expected at the beginning of the year.
With the monetization process in the second half of 'twenty, one the year on year decrease in Vas revenue in the first half of the year.
I'll be relatively big.
Somewhere between.
A high 20% to.
30% range.
Right.
<unk> supplies.
The revenue will resume its growth track as pacing sentiment comes back.
And the user numbers starts to uptick.
However, we have to wait for the situation to improve before making specific activities.
Sometimes the life streaming business is no longer our strategic focus.
To transform it into something.
That fits better with this our social atmosphere.
Lastly, I'd like to place emphasis on one crucial point in terms of our revenue structure.
With a continuous sequential growth off of Vas business.
As for the group at group level Vas are.
Our revenue will reach or even exceed.
Oh of live streaming in the second half of the year.
This is a stable and more resilient revenue structure, which will make future development of the whole groups more balanced.
It is also a safer revenue structure for our shareholders.
With respect to the gross margin.
The biggest factor, causing the margin fluctuation is a live streaming revenue sharing ratio.
The revenue sharing ratio in Q1 was two percentage points lower than that.
In Q4 last year.
Hosted a large.
Large scale competition events.
Which led to a decrease in bonus related revenue sharing cost.
On a year over year basis, the revenue sharing ratio was up.
At 2%.
As a result of our <unk>.
Smaller scale event, we hosted health agencies to navigate.
So are the challenging environment.
We continue.
To invest in this kind of events throughout the year overall impact of the revenue sharing ratio of live streaming our gross margin will.
It will be around 2% for the whole year.
However, due to the continuous increase in revenue contribution from Vas, which bears a relative a higher margin.
From the course profit off on a few of.
The shift in revenue mix is conducive.
To improve in gross margin.
Therefore for 2022 at the group level.
Most profit margin.
Client should be between 1% to 2%.
Okay.
On the cost and the expenses side, we have been optimizing mommas caution in your expenses.
On the marketing expenses for our mobile apps.
<unk>.
We will remain stable compared with last year, however, given the development of new apps, especially.
<unk> here.
Which is currently showing strong growth and momentum with outstanding performance in various indicators, including unit acquisition cost user retention and engagement.
We will step up our marketing efforts in the coming quarters.
Some of you will continue to deliver rapid growth.
Although the marketing expenses of new apps has increased.
Two cost optimization.
Mobile apps, we expect that operating margin.
<unk> and <unk>.
<unk> content basis.
Still be around high teens percent with 20%.
For <unk>, we expect net loss to be between $500 million to $600 million there maybe.
Okay, maybe in the interest of time, let's just take one last question operator. Thank you.
Our last question comes from Leo Chiang from Deutsche Bank. Please go ahead.
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Thanks management for taking my question. My question is about the new adds and turn time overseas.
These two new business gradually become our new growth drivers can management share with us the longer term potential of these two initiatives and the difference of users spending behaviors between the new initiatives and our elder business. Thanks.
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Thank you for your questions.
We have different methodologies and expectations when managing our around here in the MTA you are rounded up.
For our IOL reality apps, which includes Hudson's social I'm, sorry pounds of strategically these apps focused on profitable growth and scaling back from noncritical users and revenue growth. We plan to achieve this goal by improving our pool, reducing user acquisition cost and the revenue sharing ratio.
Total revenues from the bucket of new apps was slightly over 300 million I can even be lost it and this year revenue is expected to be somewhere between 700 to 800 million can be.
While the net loss continues to narrow.
And a profitable trend as a whole is starting to March of.
For D oriented ops hitch here or mangled ECA to deliver rapid product and user growth with no revenue plan for now.
And for 10 out overseas business, our means always to improve Aki pool in developing regions I leave reaching a non subscription.
A monetization model, while reducing user acquisition cost in order to pursue profitable growth.
Our first pilot was Indonesia market.
And so over the past six months a period of time use.
Use the scale underneath the market grow 27%.
And our people are coupled with revenue growth are quite high.
Off times.
So basically.
In order to ensure profit and avoid multi frowned operations with limited resources, we started to reduce investment in loss, making market with low ally such.
Such as Japan, and South Korea, and although revenue from these markets declined accordingly, our revenue from the overseas market as a whole will still grow and at the same time profitability has also improved substantially our strategy is to initially a replicate the Indonesian model in Asia.
And then focus our resources to develop our appearance in other regions.
I think.
This is going to be the end of the conference. So thank you guys all participating and we will see you next quarter. Thank you operator.
Thank you so with that we conclude our conference for today. Thank you for participating you may now disconnect.
Okay.
[music].