Earnings call transcript: Hello Group sees overseas growth in Q1 2025

Hello Group (MOMO) reported Q1 2025 earnings showing a 2% year-over-year revenue decline to RMB 2.52 billion, primarily impacted by a 9% decrease in domestic revenue. This was significantly counterbalanced by a 72% surge in overseas revenue, now comprising 16.4% of total revenue, reflecting the company's strategic pivot towards international expansion in MENA and global dating markets. Despite an anticipated Q2 operating margin compression to 13-14% due to increased overseas marketing investment, the company projects accelerating overseas growth (80%+ in Q2) and potential group-level positive revenue growth in the second half of 2025, with InvestingPro noting strong financial health and undervaluation.

Analysis

Hello Group's (MOMO) first-quarter 2025 results underscore a critical strategic pivot, where a 72% year-over-year surge in overseas revenue is now substantially counterbalancing domestic weakness. The international business, primarily driven by expansion in the MENA region and a renewed focus on global dating, now constitutes 16.4% of total revenue, up from 9.4% a year prior. This aggressive international push partially mitigated a 9% decline in domestic revenue, resulting in a modest 2% total revenue contraction to RMB 2.52 billion. Management guidance signals an acceleration of this trend, forecasting over 80% overseas revenue growth in Q2 and projecting a potential return to positive group-level revenue growth in the second half of 2025. This growth, however, comes with a near-term cost, as increased marketing investments and less favorable payout ratios in nascent overseas markets are expected to compress the full-year non-GAAP operating margin to a 13-14% range, down from 16% in 2024. The domestic strategy has shifted to stabilization and efficiency, using AI tools to maintain engagement while controlling costs, particularly for the Tantan app.

Key Decisions for Investors

• Investors should monitor for the key inflection point in the second half of 2025, where accelerating overseas growth is guided to potentially deliver the first positive group-level revenue growth in recent periods.
• Be prepared to accept near-term operating margin compression to the 13-14% range as a necessary strategic investment to capture long-term growth and market share in overseas social and dating markets.
• Focus on the execution of the international strategy by tracking the revenue contribution and ROI from emerging brands beyond 'Sochio' and the Tantan overseas dating app, as diversification is crucial for sustaining the high growth rate.
• Given the strategic pivot and management's optimistic outlook for a growth re-acceleration, the current valuation, which InvestingPro suggests is undervalued, should be weighed against the execution risks of this significant international expansion.