Q2 2022 Hello Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to our second quarter 2022, a Little Group Inc. Earnings Conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.
Please note. This event is being recorded today I would now like to hand, the conference over to your first speaker today Ms. Ashley Ching. Thank you. Please go ahead ma'am.
Thank you all for Utah.
Good morning, and good evening, everyone. Thank you for joining us today for Hello group's second quarter two earnings conference call. The company's results were released earlier today and available on the company's IR website on the call today I mean, you still want me see off the company I mean punk week Seattle off the company.
Now I'll discuss the company business operations and highlights as well as our financials and guidance.
They will both be available to answer your questions. During the Q&A session that follows before we begin I would.
I'd 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 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.
Other information regarding these and other risks uncertainties or factors.
And in the company's filings with the U S Securities 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.
As required under law.
I'll now pass the call to Mr. Wang I'll translate for him he's the one piece.
Thank you Sanjay.
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Thank you Michael.
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All right everyone. Thank you for joining our conference call today at the beginning of the year I outlined the group's strategic priorities and our execution plan for the year. Our Kobe. We started just in the first half has brought many challenges and uncertainties for the overall market environment and our execution of these goals. However, I'm pleased to see that.
Our teams do manage to deliver good results by adjusting our product and operational initiatives and finally mallow to cope with external headwinds at the same time, we have adopted our execution plan to meet the evolving external environment.
Now I'll walk you through the Beadhouse, Archie and Kim just how without him.
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I'll start with a brief overview of our financial performance.
The second quarter of 2022 total revenue at the group level was $3 1 billion.
15% year over year, and a slight 1% decrease quarter over quarter.
Operating income was 464 million with a profit margin of 15%.
Operating income was up 1% from the previous quarter. The first sequential growth since the pandemic and the marketing Garland outage will deteriorate in the second half of 2021.
Or it's kind of on basis total revenue was 2.78.
On cost per ton year over year, or a slight 1% decrease quarter over quarter.
You'll be a decrease was mainly due to pressure on the life streaming business caused by the pandemic and regulatory factors.
Incremental revenue drops to the life business by the rapidly growing new apps, partially offsets the decline you're live streaming.
Adjusted operating income on an X 10, 10 basis was 583 million with a 21% margin.
Total revenue for the quarter came in at 331 million movie, So two 6% year over year and 5% quarter over quarter.
The year over year decrease was due to the monetization process to improve user experience and retention in the second half of 2021.
As well as the negative impact of the coli resurgence on content user growth and paying conversion.
And has the adjusted net loss was $119 million for the quarter and how is 44.52 million a year ago.
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Now I will discuss the execution of our strategic priorities in the second quarter at the beginning of the year I said strategic goes for more content in the new in Dallas for the mobile App, Oh boy used to maintain a stable user base with a limited marketing budget and see growth on top of that while enjoying the cashcall business remains stay.
Paul.
Although the consumer and regulatory environment was full of uncertainties in the first half we still did a very good job you need some more money, but she didn't bose.
This illustrates our team's strong adaptability and execution skills funding.
Sometimes stretch he did though was to deliver solid user growth by improving marketing efficiency and according to U S.
However, we encountered quite serious external challenges in meeting kind of grow scope in the first half of the year. The Polish situation continues to deteriorate, which which largely effect that users 18 sentiment and the propensity to pay for a loss, resulting in a significant decline in kind of all why.
We therefore decided to temporarily scale back I know you last men in late Q2, two nine or 10 times net loss.
This strategy in fact works pretty well as I'll explain in more details later.
You got it there are still many uncertainties surrounding the pandemic situation and the macro environment in the foreseeable future money.
Management has decided to adjust timelines, but she didn't go the focus on marrying the net loss by reducing low efficiency, China marketing spend.
At the same time, we are accelerating the effort on developing caught up and monetization models that are suitable for the Asia. They can culture in order to improve retention and often.
Three times a notable improvement we can pursue growth on the back of a positive business cycle or the other.
What we are now prioritizing growth with profit he's got off gross with pulse.
Elaborate this tragedy and our implementation plans in greater detail later.
With respect to new products and businesses, we aim to continue to enrich our product portfolio and push the boundaries beyond more Montana well.
We made encouraging progress on that front in the second quarter.
Next I will discuss the progress we made we used the aforementioned strategic priorities and areas for improvement.
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Firstly, you got them on my App user growth in key operating matrix Walmart had a hungry 11.2 million monthly actives for the second quarter of 2022 I may use remained stable from the previous quarter.
The number of paying users was $8 6 million flat from the pit.
Previous quarter.
In general, although I'm, almost and they use declined 4% from Q2 last year due to pandemic resurgence in the first half excluding the impact of external factors beyond the company's control the fundamentals off more and more as a social platform remains stable and healthy.
The improvement of channel efficiency.
And your husband off overall retention driven by product I thought.
This provided a solid foundation for our cash cow business.
So chip I'll show you all the near term based on the 20th century to the agenda.
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Now I'll discuss the progress we made regarding the priorities of ensuring the cash cow business remained stable.
In the second quarter, although multiple external factors Ralph challenges to our live streaming business at the beginning of the year.
First revenue growth, primarily generated by new apps, largely offset the overall pressure on the topline houses by the declining life screening.
X times on basis revenue was two points on the H M D slightly down 1% quarter over quarter.
Revenue ratio of life and life streaming further increased to 94%.
POS revenue was very much close to the size of life streaming.
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Almost live streaming revenue totaled $1 4 billion in India for the second quarter.
The 6% year over year, and five stars down quarter over quarter. The year over year decrease was mainly due to three factors first regulators imposed restrictions on the design of the ranking system and Teekay competition in May which had a negative impact on cost spending.
Second the negative impact of tax compliance scrutiny on the engagement of talent agencies.
And third consumption softness due to the Covid resurgence.
In response to the changes in the external environment on the operational side, we focused on optimizing our live streaming ecosystem and driving user engagement by organizing small scale you might have.
In terms of E band related incentives, we continues to maintain a conservative operation strategy with a minimum budget I'm bonuses to petrochemical revenue sharing costs.
Revenue decreased sequentially due to regulatory related product adjustments.
Gross profit margin in Q2, how steady quarter over quarter and the overall ecosystem maintained healthy unstable.
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Yeah, maybe I'll jump into that.
Joe I'm, just don't come back.
So that tells you that we all have yet so.
So really all this year would put us.
So to change the mortality loss.
With regards to loss revenue from value added services, excluding Pakistan totaled 1.32, you need in India for the second quarter up 9% year over year, and 5% quarter over quarter.
Lost revenue from the minimum up totaled $1, one volt M. D flat from Q2 last year and up 1% quarter over quarter revenue from the new apps maintained its rapid growth momentum and achieved full quarter profitability for the first time.
Actively revenue from the new apps grew at an accelerated accelerating rate up 159% year on year, 282 million and up 34% quarter over quarter, making it the main incremental revenue contributor for a laugh.
We'll provide an overall update for our new endeavors later for now I'll focus on our mobile App lost business.
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Tony your comments.
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Since Q4 last year, the Kobe resurgence continued to surprise, you said social sentiment and establish the wife use cases are getting increasingly if only monetized, resulting in a continuous slow down again year over year gross income or loss revenue.
In Q2 with differentiated various user groups and pages to their specific social preferences. Our product team brought a series of innovative features that effectively in house interactions more long tail and Nicole users and their propensity to pay roll off.
Being a slight increase in lost revenue from the previous quarter, despite the pandemic and the consumption softness coming I guess or not.
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With respect to 10 times, our cannot which uses trend and overall financials in.
In the early part of Q2 wholly control measures in numerous regions of China continues to escalate, which largely surprised to use a stadium sentiment and put pressure on organic traffic.
User retention dropped significantly and paying conversion was much lower than under normal circumstances, resulting in a substantial decrease in our T V and along that payback period for China. When you last night.
For all I considerations were temporarily adopted a conservative marketing approach to reduce turn times that net loss during the pandemic period by lower ring, China investment.
Negative impact of the pandemic, coupled with the reduction of kind of investment could pressure on kind of house unless they come to us. However.
However, due to the growth in overseas market and a rebound in domestic users since COVID-19 restrictions start to ease in June and has the overall I mean used in June.
Only 3% from March to $24 8 million.
The number of paying users for the quarter was $2 2 million and 200000 sequentially, mainly due to the decrease in 19 years and a decline in the paying conversion as the pandemic suppress that uses patented you'd pay in the domestic market.
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People want to shop, but see some movement to soften burdens, which are partly ultra itself and the Yodlee. How did you kind of run through how do you feel like maybe I'm just talking about an issue that we have so there's something going on here that this methodology, yeah, I don't have that don't yuppie pool pumps.
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Now I'll briefly review financial performance.
Total revenue was 331 million, India, and 36% year over year, and 5% quarter over quarter.
Year over year decrease was mainly due to argue monetization strategy to improve user experience since the second half of last year, let's.
The sequential decrease was mainly due to the decline in paying user for the aforementioned reasons.
The slight sequential increase in RP pool, partially offset the pressure on revenue caused by the decline in paying user count.
For the second quarter loss of revenue was 214 million M D and 4% sequentially Flashcard golf membership subscription to shift toward high end, that's bad he services, which in turn lifted 10 times overall, our people on a sequential basis.
Live streaming revenue for the second quarter was 116 million, indeed down 7% quarter over quarter.
Stripping our people continue to face pressure doing a product transition here at all as you know sometimes ourself on anything at all that you do disappear.
So when you look at almost 700 attempting to try that.
Now, let's discuss townhouse strategic priorities for the second half of the year and how this effort will help us at least 10 has long term product and commercial value.
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After the management changes last year, we determined that the key to achieve 10 has long term strategic golf user growth is to enhance user retention by improving marketing efficiency unquote eating experience through a year of channel optimization and product experiment. Our team has had some preliminary results in achieving these strategic.
However in order to cope with the Covid headwind in the second quarter, we decided to temporarily adopt a cost control strategy to scale back channel investment and narrower net loss.
This initiative.
Good results in Q2 in the meantime, you say U N was not negatively affected by the decrease in new users, we believe that cantel and use the most committed and the most effective product and connecting keep her for romantic purposes, and converting the online relationship to real life connections.
And has the current user base is far from the size you should be in addition, as far as ATM and offline conversions are concerned we are not seeing any meaningful competitors in the China market. Therefore, we are fully confident in our long can go off growing kind of user base.
However, given that there are many uncertainties in the macro environment and given where the smartphone penetration is we believe that the growth model of consumer Internet in China should be adjusted accordingly as.
As far as China is concerned the mark it makes sense to pursue profitable growth through a more efficient marketing approaches and simply pouring money into channels, regardless of unit acquisition costs. Therefore management has decided to adjust the penthouse strategic priorities for the second half of the year.
Specifically, reducing spending and low efficiency panels, you Aldo too narrow 10 has not lost at the same time, we are working hard to improve user retention and drive ARPA growth through algorithms and new membership boss products.
Once all items positive, we will realize the profit into marketing to form a self sustaining positive cycle and pursue growth on top of that.
With the reduction of the channel budget, we expect <unk> net loss in the third quarter to significantly narrow unless sequential basis from approximately 120 million women D. In Q2 to somewhere around 15 million. Indeed in Q3 and Q4, we will further scale back investment in channels with.
So while I as we do so and with the increase in op, who driven by non membership loss.
Excluding yeah and specific expenses such as annual bonuses, sometimes not most mean that loss should continue to narrow in Q4, which will lay a solid foundation for reaching breakeven and a positive business cycle next year.
We expect the reduction in China investments to cause a short term decrease in youth use of scale in the coming two to three quarters. Nonetheless, we expect that with the increase in retention ratio driven by improving efficiency and new product and experience the user space will stabilize at around 80% of the current law.
Oh yeah.
Before he enters into a growth phase that is based on our positive business cycles.
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Yeah.
I like to emphasize two points in terms of how we're going to execute the strategy to achieve the profitable growth first how exactly we're going to cut costs and at the same time ensure the improvement of user acquisition efficiency second how we're gonna improve user retention and Apple while cutting down the channel spending.
This is the key to achieving a positive business cycle.
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Sure Okay.
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Mhm, who do that.
Firstly, let's talk about how can we reduce and control marketing costs and improve efficiency.
Oh attempts to reduce China investment in late Q2 was mainly focused on channels with low efficiency.
Our team improved our marketing efficiency of premium channels through algorithms and other technical means.
In Q2, despite the seasonal increase in channel costs.
Unit acquisition cost decreased by nearly 20% compared with the previous quarter.
At the same time, new user retention showed a slight upticks and the average age of new users and need to be younger.
In last mile reduction experiment in Q2, not only effectively lowered marketing costs and narrowed the net loss also had no adverse impact on the overall dating experience. We will continue to practice, our Q2 marketing approach in the second half.
Starting from channels and that says with the lowest of our retention.
We will closely monitor the impact of adjustments on our ecosystem and youth and user retention to ensure that to ensure that declining new user registration does not cause any negative user experience on our platform and at the same time control the user age and gender ratio within a reasonable scope.
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Hey, Tony you don't pay a Pakistani apart you saw session.
Now I'll explain how do we improve retention of Apple with new product experience.
In this regard we have clarified our direction through exploration in the past few quarters, namely continued to optimize the product experience all female users and those without qualified photos to improve retention and at the same time explore an effective non membership operating model to drive ARPA growth, while improving user.
Yes.
On that front, when maytag I'm available to users who feel reluctant to show the real photos. So they can't get some initial connection with others via like real time audio experience would then encourage these users to upload photos to review their appearances in order to enhance the probability of getting offline teaching conversions.
I'm not sure product packed room allows users to send profile photo decorations or other traditional virtual gifts to the U S. The Canadian members to show their friendly gesture and alive in the atmosphere.
We would take virtual gifts as the basic monetization too and to continue to introduce interesting interactive features to cat room.
Making it a breakthrough in optimizing the U S of users with all qualified photos and improving retention and I'm paying conversion.
Based on the data seen so far we expect pet room to have a positive impact on driving a pool and monetization efficiency. Once we make it available to a wider range of kind of users what.
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Function, who bought them.
She picture that shortly I don't know how to tell me more soon.
I saw that you saw the audience with a prudent herself. So she is willing to do that.
So it sounds like you don't forget it's just become the pneumonia.
We believe the key to achieving a positive fishing cycle is to improve our pool and user retention, although the previous excessive payroll model was effective in driving off of Apple on the downside not only had a low ceiling, but also severely affected users' experience, making it challenging to improve Ottawa and retention at the same time.
The right thing to do is to drive organic user growth.
Organic growth of Apple and retention by introducing new product experiences.
Our research in the past a paucity of taught us that opinion, such new experiences depends on two key factors.
The continuous improvement of all reason second building our product model that is more suitable for Asian culture, and that's why I'm actually carries them through product innovation.
The past six months the improvement of all reason and then the initial success of the chat room experience has given us opportunities to tackle these issues.
This will be the direction, we continue to focus on going forward.
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Okay. So let's switch with you some shipyard yourself quite a superdelegate remove new funding.
Let me just Linda due to leap.
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For the living room or tell me if I'm in Chicago, So she chooses on this or that.
It sounds even though with you.
Next I will review the progress we made with our new endeavors.
As I mentioned on our previous calls we undertake different approaches to managing all I oriented and here you are young and new products.
In the second quarter. The total revenue after profit driven ally our young kids stand alone apps was 199 million M D.
184% year over year, and 24% quarter over quarter.
The product is you asked all these apps gradually stabilized we started adopting an operational strategy to reduce costs and improve efficiency in the second half of last year.
And stepped up monetization efforts to improve paint conversion on Apple.
With the continued expansion of revenue scale and brand influence, we have had enough and you've reached to lower the payout ratio, thereby improving profitability.
Our overseas social App expanded into new regions on top off depends operation and established markets.
We continue to improve user acquisition efficiency and user base expanded rapidly with a flattish budget Rev.
Revenue growth after overseas accelerated from the previous quarter, while achieving fourth quarter profitability.
In Q2, Oh, I, our youngest standalone apps as a whole have decided outage to contribute positively to the group's bottom line.
We expect these products target vertical user groups in niche markets to simultaneously pursue steady growth and ensure profitability this year.
On the product front, we will continue to explore innovative features suitable for new market to pave the way for long term growth well I should've come in July it sounds awful lot without yourself sometimes.
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Yeah.
In addition to ally oriented products I introduced our new D oriented product kit to you on our last conference call.
He is an picture and video based social App for users to interact with intimate friends and family members through documenting that 80 lives in photo and video format.
These companies automatically pushed to the mobile phone homepage after a predefined intimate friends on kitchen. So that users can think with authentic lifestyle has off their carrier friends without loading up the app.
This product accurately captures the demand of that and then also like to express their true selves enough runway with amusement amusing south east.
Such needs cannot be while satisfied on the existing large and ubiquitous social media platform, where everybody is watching and therefore, you need to worry about your perceived to image. Therefore did his organic user base grew rapidly since its launch after Chinese new year.
Following that our team.
Stepped up marketing efforts in the second quarter and use our scale increased rapidly while unit cost remains within our controllable range and retention maintained a high level.
Meanwhile, user scale has reached a very considerable point.
The growth rates and overall user scale without Kittila has delivered is an achievement rarely seen in today's consumer Internet market. This was also the first time that we have made a breakthrough in diego around his social app. After all our exploration over the past few years.
We believe this is a reward for accurately capturing the new social preferences of younger generations.
In the third quarter, our team will accelerate product iteration, two enriched features and functionalities we.
But when we introduce more no one for computers and interactive Mccann is them to your in house product experience and retention and encourage users to share their kids content on other social media apps.
By expanding our brand influence.
The initial success of CIT here shows that while in the long run your opportunities for social Mato and experience mainly depend on technology called breakthroughs Jana.
Generational transition can still bring new opportunities to the social in this industry for large do you your product before use of screen time shift from mobile to outwear.
Our strategy and long standing leadership in the social space is the advantage, we can leverage to discover new market and capture new opportunities.
Going forward, we will move in a bolder and more determined way to expand our territory and explored deeper in a vertical market.
We're supposed to do.
So on their own.
Kathy could you just sort of how would you call. This.
Well I would like to cover today now I'll pass the call over to Kathy for financial review categories.
Thanks Ashley.
Ashley Hello, everyone. Thank you for joining our conference call today now let me briefly take you through the financials with you.
Total revenue for the second quarter, 2022 was 3.11 billion renminbi down 16% year on year, and 1% quarter on quarter non-GAAP net income attributable to the company was $463 5 million renminbi compared to 551.0 million renminbi from.
The same period of 2021, or a 16% decrease year over year.
Looking into the key revenue line items for the quarter Firstly, our live broadcasting total revenue from LIBOR casting business for the second quarter 2022 was $1 five 2 billion renminbi down 28% year over year and 6% quarter on quarter.
Core Momo live broadcasting revenue totaled 90, 140 billion for the second quarter down, 26% year on year and 5% quarter over quarter.
The increase was mainly due to pressure caused by the consumption softness and regulatory changes.
Sometimes LIBOR casting revenue amounted to renminbi, $116 4 million down 46% from the Q from Q2 last year and 7% from the previous quarter.
The decrease was due to our strategic decision to do.
Emphasize flashing as a supplementary experience to dating.
A few months ago, we made a decision to reform contact live streaming business to lean more toward facilitating social interactions rather than the traditional showbiz.
Based on the data that we've seen so far such strategy is bearing fruit.
Therefore, we expect contents like screening to exit the period of decline and stabilize at the current level as we head into the second half.
Revenue from value added service reached a 1.54 billion renminbi up 2% year on year and 4% quarter over quarter.
Revenue from value added service on an ex <unk> basis reached 1.32 billion renminbi in the second quarter of 2022 nine.
A 9% increase year on year, a year over year, and a 5% increase sequentially.
The growth in theory out of service on an X 10 time basis was primarily driven by incremental revenue contributed by the fast growing new application.
Sometimes value added service revenue amounted to renminbi, $214 4 million down 28% from Q2 last year and 4% from the previous quarter.
Year on year decrease was due to the <unk> monetization process to improve user experience and retention in the latter half of 2020, one as well as the pressure on patents and they use and paying conversion caused by the COVID-19 resurgence.
The sequential decrease in pontoons value added service was largely attributable to the latter factor.
non-GAAP cost of revenue for the second quarter of 2022 was 1.79 billion indeed compared to 2.05 billion for the same period last year.
non-GAAP gross margin for the quarter was 42, 5% down one seven percentage points from a year ago.
The decrease was mainly attributable to the higher payout ratio to the content providers as we put more money back to the system to help the agencies as well as broadcasters navigate through the tough time.
The sequential basis non-GAAP gross margin remained stable with a slight uptick.
non-GAAP R&D expenses for the second quarter was $214 3 million renminbi compared to 230 to $232 9 million or an M. B for the same period last year or an 8% decrease year over year year over year, which was due to continuous optimization in person.
And al costs since the beginning of the year.
We ended the quarter with 1825 total employees of which 516 or from <unk> compared to 2092 total employees of which 617 from Kantar a year ago.
The R&D personnel as a percentage of total employees for the group was 61% compared with 57% Q2 last year.
non-GAAP sales and marketing expenses for the second quarter was 600 at a point 1 million women be compared to $619 5 million gonna be for the same period last year as Rami mentioned, improving marketing efficiency has been one of the top operational priorities of the company since the beginning.
Of the year, we think cutting down on low efficiency marketing plans across different business lines, which bears negative our eyes.
The second quarter marketing spend for Momo and <unk> decreased 74 million or 15% from the same period last year, we shifted part of the savings to promote the new application kits here. Following its initial success in Q1.
Reallocating resources from low our eye plans to hire our I once will continue to be an important strategy for us for the coming few quarters.
On a sequential basis, non-GAAP sales and marketing expenses increased 4% from 578 zero million in Q1 this year.
The increase was primarily due to a kid his marketing partially offset by the reduction in other low efficiency marketing channels.
non-GAAP G&A expenses was 82 6 million and be for the second quarter 2022, compared to $78 8 million. Indeed for the same period last year non.
non-GAAP operating income was $464 1 million renminbi, a decrease of 41% from Q2, 2021, but up 1% from the previous quarter.
non-GAAP operating margin for the quarter was 15% down six percentage points from the same same period last year non-GAAP operating expenses as a percentage of total revenue was 29% increase from 25% from Q2 2021. The increase was mainly due to the negative operating leverage resulted from the decrease in <unk>.
Revenues now.
non-GAAP operating expenses decreased 4% year over year due to the cost control we've been exercising since the beginning of the year.
We expect to continue to exercise cost discipline for the rest of the year in order to improve cost efficiency to navigate through the uncertain macro environment.
Now I'll briefly on below the line items during the second quarter, the company repurchased 161 $8 million aggregate principal amount of our convertible senior notes from certain bondholders for an aggregate purchase price of approximately $161 $6 million.
CB repurchase resulted in a gain of $666 3 million and indeed.
Now I'll briefly on income tax expenses total income tax expense was a 146.0 million going in before the quarter with an effective tax rate of 24, 5% in.
In Q2, the company accrued withholding.
Withholding income tax of $37 7 million renminbi, which is 10% of undistributed profits generated by our loyalty.
Without a withholding tax our estimated non-GAAP effective tax rate was around 18% in the second quarter.
Now turning to balance sheet and cash flow items as of June 30th 20.
2022, Hello groups cash cash equivalents short term deposits long term deposits and restricted cash totaled $13 95 billion renminbi compared to 15.71 billion renminbi as of December 31, 2021, and Q2, we paid an equivalent of 800.
And 41 million in the cash dividend to our shareholders and repurchased an equivalent of 1 billion renminbi of the company's convertible notes.
Excluding the 100 million in the cash payment to Chinese tax authorities to repay with hatch rates 1 billion renminbi from a wealthy in China for our offshore entity net cash provided by operating activities in the second quarter of 2022 was 300 million and M D.
Lastly on this outlook, we estimated our third quarter revenue to come in the range from $3 1 billion renminbi to $3 2 billion renminbi, representing a decrease of 17, 5% to 14, 9% year on year or a decrease of 0.3% to an increase of.
Two 9% quarter over quarter.
For Q3 2022 on a sequential basis, we expect the total we expect the total revenue from the core Momo to increase low single digits driven by the recovery of life shrink business. Thanks to the product and operational efforts of the team on the pumping side, we expect revenues to be flattish toward a slight decrease on a sequential basis.
Sometimes membership revenue will decrease quarter over quarter due to the temporary decline in user base as we cut down on the low efficiency marketing channels. The decrease will be offset by the sequential growth of life screening driven by the initial success in the shift of strategy as mentioned in the earlier part of my remarks.
Please be mindful that this forecast represents the company's current and preliminary view on the market are on the market our operational conditions, which are subject to changes.
At <unk> concluded our.
Prepared portion of today's discussion with that let me turn the call back to actually to start Kenny actually please.
Thanks.
Just a quick reminder, before we take the questions for those who can see Chinese. Please ask your questions in Chinese first followed by English translation by yourself. Thank you.
Operator, we're ready for questions. Please.
Thank you if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press star two if you're on a speaker phone. Please pick up the handset to ask your question.
Our first question comes from Thomas Chong from Jefferies. Please go ahead.
While Zaha Hadid, Tonguefish O U S modern eco vessels.
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Got it.
Sure.
Right.
I know a question this is Paul.
Google used to acquire.
A woman you said.
Okay, Oh wider you can parse out I guess.
Oh, Thanks management for taking my questions. My first question is on Taiwan, All can management comment about that.
And in second half as well.
<unk> related revenue as well as a bottleneck and my second question is about the development of our new App.
Overseas our strategy. Thank you.
Oh, she was in the two of them are not going to go in the future. So who knows why don't you take it depends on who comes on war, but you don't have a Youtube, but he doesn't mean you don't have something to do with younger shot at Qdoba shop that was amazing.
Who knows where the swimming pool Uh huh.
Does someone does Houston shops yoga.
Are you going to be useful.
I'm on the last conference call I mentioned that pans out to user growth depends on two factors. One is the internal factor, which is the enhancement of usually evens and the improvement of kind of efficiency driven by product offers and.
And the second factor is the external.
Reasons, namely the extent of our Kobe control policy unrelated use us offline dating sentiment.
Can you comment on Harpoon young all banks in Georgia.
Well it was a huge younger so what's your thought on that.
Okay.
So assuming sheila.
Hello, everyone. We will send you along with many other people are no longer.
So the pharma small pharma you can solve all of whom are the losing the momentum.
Oh, well I just want to Linda.
That's what internal factors, how big is the progress made after the management changes last year was that we determined that the chi enhancing user experience and improving China efficiency is to improve retention of female users and those without qualify photos and we have found our initial solution through algorithm and new product.
Features we will continue to make steady progress in this regard and I have full confidence in this aspect.
Formal rules within each of them and put them all but you're showing that it's not just the children go down.
Some people come over here.
Ooh Ooh I'm showing that heard Sheila Genco Cuomo. He saw the Australia. He told me I'm sure they'll just talks at all.
Attention to the tune of our partner.
She blowdown evolution of Houston, you saw a pool youre dealing and personable Guy who I.
I don't think so but of course I know, you're leaving in XI for somebody who's going to I don't want my Tennessean genco to come on that.
So the person who did I come up with.
Got you.
And in terms of external factors the continuous resurgence of COVID-19 in various regions in China and these related control measures has brought about quite a bit of challenges. In addition, there are still many uncertainties in the overall macro environment.
Consequently, we decided to adopt a strategy to reduce marketing investment control costs and improve efficiency.
Our plan is to reduce spending in low efficiency efficiency channels, while improving retention all female users and those without quantified photos as well as driving ARPA growth with the new talent and experience in order to turn kind has China all I positive as soon as possible. So that we can pursue profit gross profit.
Based on our positive business cycle and based on the current test data on the reduction of channel investments and the Jeremy experience. We believe we're very much likely to achieve this goal next year.
Our teachers, how we chose it because we can because of the Joseph a.
I'll leave it to Cathy for the financials.
Okay sure.
Have you guys more color on the top line and also the bottom line our kantar firstly on the on the revenues. It seems like the zero Copay policy is going to sustain for a while.
Actually the recent few days are seeing a new round of tightening lockdowns in some of the big cities due to the resurgence in confirmed cases and as you guys know a ton ton patents users are pretty concentrated in eager a wealthier cities in China.
It is obviously going to have a negative impact on the dating sentiment.
And Heng conversion, which would continue to pressure the marketing marketing our eye as Rami mentioned in earlier.
Earlier in his speech under the principal to prioritize growth with profits over growth at cost we are prepared to cut down the marketing costs in order to take care of the our eye on bottom line as we cut no efficiency channel marketing in the second half, we should expect user count to trend down as Ronnie.
Ted I think around 20% from the June level, plus minus 5% and then perhaps hit a ballast point around there.
Plus minus 5% really depends on how the Kobe factor swings in the second half of the year.
Subscription revenue should decrease as the user count does.
Probably with a time lag because of the deferrals, but it should ultimately catch up to the same magnitude of user decline. However, we do see a countering factor.
Here for content and that is that as the year progresses, which at the ramp up of non subscription revenues to materialize and offset part of the decrease in subscription as a result of the cost cutting.
So if you piece all these different pretty dynamic factors together I would say that for ton time revenue would trend down a little bit in the second half versus the first but it would be a slight trend down before it picks up again at.
The other thing I would like to sort of reiterate here a little bit is that despite the small sacrifice on the topline as we cut down the low efficiency marketing channels in the back half of the your bottom line should see pretty significant improvement from Q2 onwards for Todd I think in.
Earlier part of Oh.
Along these prepared remarks, we mentioned that we expect Q3 <unk>.
non-GAAP net loss per ton has been narrowed to within 50 million I think for Q4, excluding some of the Q4 specific expenses such as Apple pay and owners at the end of the year. We should continue to see we should continue to see a narrow down in potash net loss almost be base.
So you know that's the overall sort of financial picture of Pampa in the back half of the year, given where we are in terms of zero coffee policy and given the macro uncertainties. We believe its definitely a wise choice for kantar.
To perhaps sacrificed some topline.
Topline growth short term wise, so we can get into a positive business cycle and grow with profit down the path.
I hope that answers your question, Oh, I'm going to build them into your two part.
Question, you know what I don't have the filings in this ultra mill essentially the previous Iot and sensors on the shelf.
But the violence.
So that's just something you necessarily minerals under you sometimes you do the army has talked some about it.
A little Cecilia Leland syndrome.
I think the other gentlemen.
There you go you can sometimes you maybe rank order. So you can read them. They also know your question.
Hum.
Pretty comprehensive about the new business in my prepared remarks, yeah, I can briefly discuss Penn has overseas development.
Since we made a four way back into the overseas market about a year ago, we have adopting an ally oriented management approach and striving to achieve profitable growth, thereby overcoming the previous prediction of gross without forfeit all profit without growth.
Similar to since you wanted to focus on new and used to the unions Vishal Polycom support do you think would be the same or should all hospital sometimes.
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I know she'll do go territory, Jonathan there's not too much not only chantal who shows up.
100, digital arts that should be a ddos attack on the body, which means on the Shandong, we won't sell it from home distribution.
So it sounds like a union so boom for the shuttle don't people don't believe she's only Washington.
So how many of whom we've been showing them what Michelle Siobhan importance only panel I don't know whether you changed since when you go to Sheila.
Due to samba Sundar.
Good.
Oh execution plan consists of three parts first you've really live streaming and non membership last monetization model to significantly increase up one ally in the Indonesia market. Currently our team is working on replicating this model in other markets.
Second adopting a strategy that focuses on reducing costs and improving efficiency.
We are reducing China investments in market, such as Japan, and South Korea, with the low alloy and redeploying our limited budget to regions with higher profit potential.
Thus lowering the payout ratio to increase profit level in market with larger scale revenue.
We believe that in the second half of the year investors will see a clear growth trajectory, even pan has overseas business on the back of a positive cycle.
I hope that answers your question Tomo operator, we're ready for the next question.
Our next question comes from Daniel Chen from Jpmorgan. Please go ahead.
Since you're going to come to a show with achieving what Daniel Moore.
One is on the Chinese that's up I mean, cheap walk like coming to Florida show she tissue I'll translate myself. Thanks management for taking my question. This is Henry speaking on behalf of.
My question is about call. It one more management share more color on our second half revenue expectation for live streaming.
Thanks.
Yeah.
Sure let me take.
These two different lines one by one because they have a I think they have very different dynamics behind them for them almost like a shrinking business June and August has been tracking better than what we thought three months ago, and obviously that has been reflected in our Q3 guidance.
Generally we start Q3, which see a downtick from Q2 and now it looks like we are we can expect an upward quarter on sequential basis, one of them a live streaming.
I would say that at this point, it's still too early to call that we've exited the period, it's all certainties for live streaming.
First on what we're seeing on the macro and regulatory fronts. We have some reasons to remain cautiously optimistic about the stability of our live streaming this for the rest of the year so that for live streaming.
For value added service on an ex Towne bases.
Because we've already explained contest earlier for as a ex ton time.
We are also trying to optimize the marketing costs. So that the new applications can achieve higher quality growth, which means a higher quality growth I actually mean, a growth with higher profit margins that means.
That we May also cut down marketing spend for new applications or I have certain channels isn't good enough.
In addition, the continuing zero co pay policy and the lingering outbreaks in different Geo regions continue to weigh on the social sentiment, which could limit the growth pace of value added service on the main application as well.
Previously I think we communicated with investors that for mass on an ex <unk> basis.
We expect it to grow double digit on a year over year basis now due to the aforementioned factors one being the optimization of marketing cost for the new applications and the other one being a colgate lingering into Q4.
We would allow that previous double digit growth target. So a couple of percentage points to maybe a high single digit range, but overall I would say that value added service.
<unk> continued to be a pretty healthy growth engine for my math for the back half of the back half of the year.
And so that's separately for it for my life SRAM out of out of service.
I think in the interest of time, maybe let's just take one more question before we call today ready for the next question operator.
The next question comes from Leo Chiang from Deutsche Bank. Please go ahead.
Oh, she's had gone into and just all the queue Oh, whether it be one piece of Guangzhou called Walmart again, Linda Trisha's Southern Linda.
Momentum beyond that Shannon Sharpe and me in the Maldives E. G E D M D.
It's a good junk bonds in childhood.
To do so.
So thanks management for taking my question. My question is regarding to core margin trend in the second half what should we expect for core malls gross margin and op margin given the ongoing cost control initiatives. Thank you.
Yes, I guess instead of us.
That is reviewing for more and more maybe what I'll do is.
And just go through the cost and expenses at a company level with some more color on Momo.
Bank gross margin wise as you guys can see in the numbers that we put out earlier today, we've been able to maintain a pretty stable trend during the first half of the year for the gross margin non-GAAP gross margin line now it looks like AR for the core Momo business.
Q3 should continue to be relatively stable as the content supply system remains pretty solid Q.
Q4, Kid I don't have full visibility.
Visibility into Q4, but I think our Q2 four could dip a little bit due to the year end promotional events, but as should be a rather one off for the year and Dallas thing I would do it every year in Q4.
Potash gross margin in the second half, we'll see some decrease from first half level as the subscription revenue trends DAU and revenue from non subscription service starts ramping up.
With regards to our operating expenses, we've been optimizing the key line items, including marketing personnel and infrastructures and we'll continue to do so as we look out into Q4 and next year.
I guess the.
Biggest cost saving.
Opex in the second half will come from Kantar as we gradually caught all.
All of the low efficiency channels.
And the other thing worth calling out here for operating expenses is that cutting marketing costs doesn't necessarily mean that we're sacrificing future growth opportunities.
Sort of a defensive play in a tough macro environment. What we're really doing here is cutting down on the LOE, our eye marketing plant and reallocating part of the savings to where marketing dollars to generate much higher yields. For example are we we increased marketing spend quite substantially on kit.
Yeah in Q2, and well keep spending is retention continues to be satisfactory for this.
New a fast growing application.
Such spending will be absorbed.
Cost cutting other about cutting now other less efficient marketing plus so overall marketing well still see pretty significant decrease in the back half of the year.
So to sum up although at this point, it's sort of impossible to be very prescriptive.
About you know the.
The autumn I for the second half of the year, but I think on an ex <unk> basis 2022 is still on track to deliver our non-GAAP operating margin north of 20% and for compound due to the focus on growth with profits, we expect net loss to shrink down to.
Less than 100 million RMB for the second half of it.
A year.
Hopefully that answers your questions.
Okay. I think this is going to be the end of the Q&A session.
Q4, joining us today, and we will see you next quarter ready to close thank you operator.
Okay.
Excuse me. This concludes our conference for today. Thank you for participating you may now disconnect.
Okay.
Yeah.
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Yeah.
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