Hello Group Turns To AI To Boost Slumping Revenue

Hello Group (MOMO) reported a 2.6% year-on-year revenue decline to 2.62 billion yuan in Q2, extending a five-year trend, and posted a surprise net loss of 139 million yuan, largely due to one-time tax expenses. Despite launching new AI-backed features aimed at boosting user engagement and retention, and strong 73% growth in its overseas business (now 17% of revenue), the company faces persistent headwinds from soft consumer sentiment and a slowing Chinese economy, which impacted its core Momo app's value-added services and paid users. The stock fell 7.3% post-earnings, reflecting market concerns over the continued revenue slide and slowing international growth, despite a low P/E ratio relative to peers.

Analysis

Hello Group Inc. (MOMO) continues to face significant fundamental headwinds, as evidenced by its Q2 results which showed a 2.6% year-on-year revenue decline to 2.62 billion yuan, extending a negative trend dating back to 2020. The core domestic business is weakening, with value-added services revenue falling 11% and paid users for the Momo app declining 15% sequentially, attributed by management to soft consumer sentiment in China. While the company posted a surprise net loss of 139 million yuan, its first since 2021, this was primarily due to a one-time tax expense. A notable bright spot remains the international business, which grew 73% YoY and now constitutes 17% of total revenue; however, management has guided for this growth to decelerate into the mid-60% range in Q3. The recent launch of AI-powered chat features, intended to improve user retention, has yet to materially impact financial results. The market's negative reaction, a 7.3% stock decline post-earnings, reflects concern over the persistent revenue erosion and slowing international growth, which overshadows a valuation that appears discounted with a P/E of 11 versus peers at 19.

Key Decisions for Investors

• Given the persistent revenue decline and a 15% sequential drop in paid users for the core Momo app, investors should remain cautious, as the turnaround story is heavily dependent on unproven AI features and a recovery in Chinese consumer spending.
• Monitor the international segment's growth rate closely, as the guided deceleration from 73% to the mid-60% range is a key risk factor for the company's primary growth engine.
• Despite the low P/E ratio of 11 compared to peers, the stock may be a value trap until there is tangible evidence that its core business has stabilized and can return to growth.
• The stock's significant underperformance relative to the broader iShares MSCI China ETF suggests company-specific issues are outweighing any positive sector sentiment, warranting a cautious stance until fundamental metrics improve.