Hello Group Inc. (MOMO) CEO Wang Li on Q3 2021 Results – Earnings Call Transcript

Hello Group Inc. Q3 2021 Results Earnings Conference Call November 30, 2021 8:00 AM ET.

Company Participants

  • Ashley Jing – Head of Investor Relations
  • Wang Li – Director and Chief Executive Officer
  • Jonathan Zhang – Chief Financial Officer

Conference Call Participants

  • Thomas Chong – Jefferies
  • Daniel Chen – JPMorgan
  • Tian Hou – TH Capital

Operator

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 Hello Group Inc. earnings conference call. Please note this conference is being recorded today.

I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma’am.

Ashley Jing

Thank you operator. Good morning and good evening everyone. Thank you for joining us today for Hello Group’s third quarter 2021 earnings conference call. The company’s results were released earlier today and are available on the company’s IR website. On the call today are Mr. Wang Li, CEO of the company and Mr. Jonathan Zhang, CFO of the company. They will discuss 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.

Before we 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 that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this, 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 statements as a result of new information due to events or otherwise, except as required under law.

I will now pass the call to Mr. Wang. I will translate for him. Mr. Wang, please.

Wang Li

Good morning and good evening everyone. Thank you for joining our conference call today. Q3 was a good quarter. I am glad we delivered solid financial results while continuing to push forward with all of our strategic priorities. Now let me walk you through the details.

First of all, a brief overview of the financial performance. For the third quarter 2021, total revenue at the group level was RMB3.76 billion, flattish year-over-year and up 2% quarter-over-quarter. Adjusted operating income for the quarter was RMB637 million, representing a 17% profit margin. For the core business, total revenue was RMB3.25 billion, up 7% from Q3 last year. I am glad to see that for the first time after the pandemic struck the core was able to turn year-over-year positive on topline. On a sequential basis, revenue from the core business was up 3%, adjusted operating income for the core Momo was RMB750 million or 103% profit margin.

As I have said at previous conference calls, after Tantan’s management changes in May, the new team’s strategically shifted the focus from driving paying conversion to lowering the monetization level in order to improve user experience and retention. As a result, Tantan’s total revenue for the quarter came in at 4RMB511 million, down 30% year-over-year and 1% sequentially. Adjusting net loss for Tantan was RMB120 million for the quarter compared to RMB66.87 million for the year ago period. The revenue mix of the group remained stable and healthy with March representing 71% the size of live streaming.

Now a deeper dive into the quarter. I am going to focus on the core Momo first and move on to Tantan later. First, on key operating metrics, core Momo had 115.5 million monthly actives for the third quarter 2021, up 2% year-on-year and flattish on a sequential basis. The number of paying users for the quarter was 9.3 million compared to 9.0 million a year ago. On a sequential basis, paying user count remained flattish, which in correlation with the trend of MAUs. September is seasonally low in terms of top of the funnel activities as students go back to school after the summer holiday. The flattish quarterly user trend was a reflection of that. Despite weaker top of the funnel additions, our product efforts continue to drive better in the funnel activities in the quarter. The number of greetings and the number of messages stayed at a high level compared to the year ago period. The number of impressions of nearby people and nearby post has grown steadily since the beginning of the pandemic. These improvements show that the fundamentals of core Momo as a social platform continue to be healthy and stable.

Next, let me walk you through the progress we made in the strategic priorities I laid out at the beginning of the year. On the core Momo side, the three goals for the year are, number one, further grow the core user base with limited marketing budget and improved ROI versus last year, number two, bring the business back on to growth track and number three, continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan. On the Tantan side, the most important goal for the year is to deliver solid user growth by substantially improving the marketing efficiency and the core dating experience. Now let me walk you through the progresses that we have made as well as the challenges that we continue to face on each of these front lines.

Firstly, speaking to user growth for the core Momo platform. In order to adapt to the challenging channel environment, one of our key efforts since the beginning of the year was to optimize our user resurrection model to make the calling back effort more efficient. The unit price of resurrected users is meaningfully lower than that of the new users, while their retention ratio and paying conversion are considerably higher. Driving better ROI from the reactivations is one of the key means to achieve our first strategic goal for the year. I am glad to see that such strategy has paid off pretty well so far into the year. Based on the trajectory that we are seeing, I believe we will be able to end this year with a slight increase in the overall MAU against last year and more importantly, on an overall flattish marketing spend in comparison with the year 2020.

Momo is our core brand that has been around for more than 10 years. To make the user resurrection strategy work better, we need to move fast on product innovations. This is because users would only come back, stay longer and spend more when we have something new and something better to offer. Recently, we made a bold effort to change the user interface of our key feature nearby people list. The new interface is the recommendation engine better leverage to allocate higher exposure to a wider range of female users, especially those who could be easily ignored in the previous version. The number of responses from female users grew meaningfully, driving a significant increase in the number of core interactions, which in turn enhance the retention and engagement level. We intend to gradually roll out the new version of nearby people to the entire Momo community in Q4 so that it can contribute positively to overall user growth in the long run.

In addition to the core Momo, we continue to advance our strategic priority of enriching our product portfolio and pushing the boundaries beyond Momo and Tantan. Amongst overseas-oriented projects, Sochio, a voice-based social app targeting overseas market has been an outperformer in the recent couple of quarters, driven by ongoing product innovation and operational efforts. Sochio continues to show steady improvement in retention and monetization potential. In Q3, we stepped up our marketing efforts, targeting high-value users. As a result, Sochio generated robust revenue growth, driven by both user base and ARPPU expansion. Number of paying users increased to 50% compared to at the beginning of the year and ARPPU more than doubled over the same period of time. We believe Sochio has a strong competitive advantage in the MENA area. Our plan is to continue to invest in its marketing channels as long as it remains on target for ROI. The goal is to form a self-sustaining commercial cycle so that the product can achieve rapid growth in both users and the revenues, at the same time, not hurt the bottomline of the company.

In addition to this early success in overseas development, [indiscernible] a voice-based social app primarily serving the [indiscernible] and [indiscernible] a video matchmaking application targeting lower-tier markets continue to progress well toward ROI target. Currently, we are still seeing lots of potential in video matchmaking category, especially in the lower-tier cities. Therefore, we are going to continue to invest in these new apps to drive growth, both in terms of users and in terms of revenue and profit.

Next, let me review the progress that we have made against our priority of bringing the cash core business back on to the growth track.

Firstly, on live broadcasting. Momo core live broadcasting revenue totaled RMB1.93 billion for the third quarter, down 2% from the same period last year but up 3% from last quarter. The year-over-year decrease caused by the structural reform in August last year was largely narrowed from 22% in Q2. We have been seeing some weakness in non-event-based daily growth since September, which we believe was due to the macro headwind and consumption softness. However, the promotional events that we held in September turned out to be quite successful and were well received by the performers as well as the users. The incremental revenue contribution from the events helped us to overcome the September weakness and ended up putting a pretty strong quarter.

The softness of spending during non-event days continued into October and November and we are not currently seeing signs for macro headwinds to tail out in the near term. Given that most of our high-paying users are private business owners whose financial conditions and discretionary spending are closely tied to macro factors, we adjusted our operational plans to better adopt to the current environment. Instead of utilizing heavy stimulating measures during the quarterly tournament, in Q3, we broke down the one big event into different levels of smaller ones so that we can keep various cohorts of spenders engaged without pushing too hard to send them away.

We believe the macro factors may continue to be a headwind for the top spending in the near term. In the face of macro uncertainty, we plan to continue hosting a number of smaller events in Q4, which may involve additional investments from us in setting up bonus plans for performers and agencies. By throwing one to two percentage points of gross margin back into the system, we can keep the daily growth at a decent level and help our agencies and performers stay in a good economic condition when macro is tough.

It’s worth mentioning that, contrary to the permanent rights to payout ratio structural changes to the incentive program, such as the ones we undertook a few quarters ago, the budget we set aside for Q4 events is highly elastic with moderate gross margin impact. We can easily scale it back when sentiment gets better.

Now turning to VAS. Revenue from value added services on an ex-Tantan basis totaled RMB1.26 billion for the third quarter, up 26% year-on-year and 4% quarter-over-quarter. Core Momo VAS revenue was up 21% from the same period last year. Revenue from the new bucket of stand-alone apps grew 188% from Q3 last year.

For the core Momo application, the growth was mainly driven by the introduction of gamified features and operational events in the audio and video social entertainment experiences. At the same time, revenues from the new bucket made more meaningful contribution to the VAS topline in Q3. Collectively, revenues almost tripled from the year ago period. The growth was mainly driven by user and engagement growth because we are still keeping the modernization at low level. With gradual improvement in ROI and steady ramp-up in users, we may consider rising monetization level next year for some of the more mature apps. We expect the revenue contribution from the new bucket to continue to grow meaningfully, driven by both user and ARPPU improvement next year.

Now turning to Tantan. Firstly, on user trends and overall financials. New user structure continued to improve in Q3 with females now accounting for 50% of the newly acquired users. However, we have been a bit behind our own target in optimizing the marketing formula and thus, unit acquisition cost stayed at a relatively high level throughout Q3. Therefore, we have been maintaining a moderate approach in terms of marketing spend in order to take care of ROI. User growth in July and August tend not to be quite strong with MAU growing more than 10% from June. In September, which, as I said, is seasonally low due to the students going back to school, the user trajectory came down a bit from August and ended up with an 8% increase from the month of June.

Tantan’s paying user count came in 2.9 million end of Q3 2021, down from 3.1 million from last quarter. The 200,000 net decrease was mainly attributable to tree factors. The first one is the improvement in the female percentage in the newly acquired users as women are much less likely to pay in comparison with men with Tantan’s current product mechanism.

The second factor pertains to the demonetization process to protect user experience. For example, we removed some misleading narratives from membership subscription pages in July, resulting in a considerable decrease in both membership conversion ratio and ARPPU. In addition, in the new product upgrade released in September, we took down quite a number of pay wall and merchandising tactics that may not be helpful in improving user experience. Moreover, the new version also deemphasized live streaming in a pretty significant way. These product changes had a clear negative impact on paying conversion and ARPPU. But we believe they are necessary at this point to help us get Tantan back to the right track in terms of user experience.

Other than these two reasons, I can also see a third factor that in the near term could be negative to the paying conversion. As I said multiple times in the past, one of the key directions on the product front is to give richer alternative experiences on top of the core swipe and match mechanism. As a matter of fact, many of our product experiments today focuses on non-swiping-related features. However, over 95% of VAS are currently built up on the core swiping system. Diversifying into other experiences outside of the system certainly won’t be positive for pushing the users into VAS. I believe the long term solution here is to embed value-added service into the new experiences, which I shall say with confidence is our team’s long-standing strengths. However, somewhere in between the diversification from swiping and the catch-up of new VAS features, the paying conversion could be under a bit of pressure.

Now let me briefly review Tantan’s financial performance. Total revenue for the third quarter was RMB511 million, down 30% year-on-year and 1% quarter-on-quarter. VAS revenue decreased 7% sequentially to RMB276 million. The sequential decrease was due to the decrease in both paying user count and ARPPU, which I already explained earlier. Live streaming revenue increased 8% sequentially to RMB235 million, driven by ARPPU improvements. We expect the bulk of the revenue impact from the September product upgrade to fall into the fourth quarter. Therefore, the downward pressure on paying conversion and VAS revenue should continue into Q4. As we enter into next year, both numbers should gradually pick up.

Now moving on to the execution details of the single most important goal for Tantan this year, user growth. Q3 was indeed a difficult at Tantan where we saw both unexpected challenges as well as encouraging observations and progresses. Here are a number of things I would like to share with investors to help you understand what we was done and what remains to be done in order to reach our goals.

I will start with the problem first. One of my key priorities after management changes in May at Tantan was to put together a strong team to lead the product and user growth efforts. I originally expected to have a fully functioning leadership team by July. Unfortunately, I have underestimated the difficulties in filling in some of the key positions. It turned out that it was not until October did we fully assemble the new management and execution team at Tantan.

As a result, some of the key projects on the product and marketing front got pushed from Q3 into Q4 and the 8% user growth in Q3 came in lower than our early expectations. Our original plan was to release the bulk of the product adjustment in Q3 and subsequently step up marketing spend after Double 11 to drive faster user growth in Q4. However, now it looks like most of the new product adjustments aimed at substantially improve the user experience are going to be released only in December and early next year.

In addition, the COVID resurge in certain parts of China since October also had a clear negative impact on the dating sentiment which, in turn, would make large-scale marketing campaigns less effective. Due to these reasons, we decided to push more aggressive marketing campaigns from Q4 into next year.

Although it took us longer to put together a fully functioning team, we have been able to make some solid progress in driving the product plans we laid out earlier. One of the most important moves we made on the product front in the past few months was to remove from the system some of the aggressive paying conversion measures that hurt user experience.

Over the past couple of years, due to excessive pursuit of quarterly operating and financial metrics, Tantan has been overly aggressive in setting up pay wall and merchandising tactics. One of the key complaints that we have received from our user survey was that it increasingly seems so that it was impossible to use Tantan without paying. That is a perception that we have to change and so we did by taking some important steps back in Q3.

For example, in July, we took down some misleading narratives on membership subscription page, which were extremely effective in driving new user paying conversion that had led to a large number of customer complaints and unsubscribing as well as user change at later stages. In the September product upgrade, we further removed some excessive pay wall features such as SVIP read recipient and Flash Chat key.

We also adjusted a few merchandising tactics that have proven to be not user-friendly. In addition, we replaced the live streaming tab on the navibar with a new entertainment page, which features the chat room experience. After several months of pilot operations, we realized that chat room fits better into Tantan’s dating ecosystem than live streaming. It also generates higher level of synergy and thus has the potential to reach higher DAU penetration on Tantan than live streaming.

Those adjustments in the September version resulted in a considerable decrease in both paying conversion and ARPPU, which in turn led to a decrease in paying user count and revenues. However, we believe they are absolutely the right thing to do for Tantan to get on to the right track in terms of user experience. As a matter of fact, we started to see substantial increase in membership renewal rate over the subsequent months, alongside with meaningful improvement in next day and 7-days retention. These are solid evidence that we have been on the right path. In addition, the increase in the sub renewal rate will benefit paying user counts in the long run and will further translate into VAS revenue growth than the past.

Despite the temporary pullback, our view on Tantan’s monetization potential stays unchanged. Young people today are much more willing to pay for dating services in comparison with their prior generations and their purchasing power is also rapidly rising. To fully unleash that monetization potential, we need to go beyond the currently dominant membership subscription model and gradually add pay-per-use model. We also need to evolve our value added services as the consumer features continue to diversify beyond the swipe and match mechanism. You are going to see us testing different possibilities follow with those directions next year.

Another important aspect on the product side that has a long term impact on user experience is better addressing female user and fake users demand. Asian women generally tend to be quite passive when it comes to dating. Around 40% of female users on Tantan hardly swipe at all, resulting in them getting no matches or interactions. This explains why female users retention on Tantan is significantly lower than that of men.

Fake user on the other hand refers to those who feel reluctant to provide qualified profile photos and are therefore denied full access to the swiping system. Fake users retention is extremely low due to their inability to get matches and interact.

Our survey show that the big majority of these two kinds of users have genuine desire to use Tantan’s dating service, with now 50% of new users being female and fake users representing around one-third of average daily new registrations. If we can better retain these two groups of underserved users by offering more effective social experiences that address the demand, they can make very significant incremental contribution to Tantan’s MAU.

During the past couple of months, our product team has developed a clear roadmap to address the above mentioned issues and also undertook a few important product experiments. Some of them have shown encouraging lab results in terms of improving the retention of those two groups of users that are underserved. Our plan is to push this tested product adjustments into the system methodically through rapid iteration in the coming few months.

The other thing running in parallel at Tantan is overseas expansion. We have resumed our pursuit of opportunities beyond China market since we took over Tantan’s execution. Our goal is simple and clear, to become an indispensable part of people’s dating life in Asia and for the global Asian community. Our first step is to solidify Tantan’s leadership position in overseas Chinese communities and use that as the base camp to penetrate into Southeast Asia and MENA markets.

In the past few months, our team made a pretty successful foray back to Indonesia, which was one of the major markets that Wang Li’s core team made their footprint on back in 2019. One major issue Wang Li’s team encountered in developing countries such as Indonesia and India was that it was difficult to scale profit due to the low per capita GDP in those markets. Our new team’s answer to that issue is to leverage live streaming and eventually non-membership VAS to take advantage of the extreme disparity in personal income and spending.

So far, we have already launched live streaming in Indonesia and ROI for channel marketing has been improving steadily. And Tantan has surpassed Tinder in Indonesia in terms of app download and active user base since July. We will increase marketing spend according to ROI performance so we can drive user growth while keeping our eye on profitability level. As we progress further, overseas market will become an increasingly important part of the company’s growth strategy.

These are the things I would like to cover on this call. Now let me pass the call over to Mr. Jonathan Zhang for financial review. Jon, please.

Jonathan Zhang

Thanks. Hello everyone. Thank you for joining our conference call today.

Let me briefly take you through the financial review. Total revenue for the third quarter 2021 was RMB3.76 billion, flattish year-on-year, up 2% quarter-over-quarter and exceeded the high-end of our guidance. Non-GAAP net income attributable to Momo was RMB571.6 million compared to RMB653.8 million for the same period of 2020 or a 13% decrease year-over-year. In the interest of time, I will jump directly to cost and expenses as the revenue line items was just covered by Mr. Wang Li pretty comprehensively.

Our non-GAAP cost of revenue for the third quarter of 2021 was RMB2.16 billion compared to RMB2.00 billion for the same period last year. Non-GAAP cost of revenue as a percentage of total revenue was 57.4%, an increase from 53% from the third quarter 2020. Non-GAAP gross profit margin for the quarter was down by 4.4 percentage point from a year ago. The decrease was attributed to the following factors.

Number one, higher payout ratio for core Momo’s live broadcasting business on a year-over-year basis. Number two, our wholly-owned subsidiaries, QOOL Media and Momo Pictures produced a variety show and a film, respectively, during Q3. The vast majority of the costs were recognized in Q3, which had over 1% drag to the GP margin. Number three, Tantan accounted for a smaller percentage of the group’s total revenue as its gross margin is around 10 percentage points higher than the core Momo.

Non-GAAP R&D expenses for the third quarter was RMB231.8 million compared to RMB252.3 million for the same period last year, representing 6.2% and 6.7% of total revenues, respectively. The decrease was mainly due to the decrease in employee salary and social welfare resulting from a reduction in headcount. We ended the quarter with 2,050 total employees, of which 548 are from Tantan. The R&D personnel as a percentage of total employees for the group was 59% compared to 58% in Q3 last year.

Non-GAAP sales and marketing expenses for the third quarter was RMB637.1 million or 16.9% of total revenue compared to RMB696 million or 18.5% of total revenue for the same period last year. The year-over-year decrease in sales and marketing expenses, both in terms of RMB amount and in terms of as a percentage of revenue was primarily due to lower user acquisition investment for Tantan, a reflection of our conservative marketing approach at this stage. We believe this is a wise choice before we make further progress in improving user retention and marketing efficiency.

Non-GAAP G&A expenses was RMB114.8 million for the third quarter of 2021 compared to RMB105.8 million for the same quarter last year, representing 3.1% and 2.8% of total revenue, respectively. Non-GAAP operating income was RMB637.2 million, a decrease of 14% from Q3 2020, representing 17% non-GAAP operating margin for the quarter, down by 2.6% from the same period last year. Non-GAAP OpEx as a percentage of total revenue was 26.2%, a decrease from 28% from Q3 last year, mainly due to the decrease in selling and marketing expenses as a percentage of total revenue.

Now turning to the balance sheet and cash flow items. As of September 30, 2021, Hello Group’s cash, cash equivalents, short term deposits, long term deposits, restricted cash and long term restricted cash totaled RMB15.17 billion compared to RMB16.48 billion as of December 31, 2020. In Q3, we repurchased an equivalent of RMB557 million of company’s share from the open market. The net cash generated by operating activities in the third quarter 2021 was RMB559.9 million.

Lastly, on the business outlook. We estimated our fourth quarter revenue to come in the range from RMB3.6 billion to RMB3.75 billion, representing a decrease of 5.1% to 1.2% year-on-year or a decrease of 4.2% to 0.2% quarter-over-quarter. For the fourth quarter 2021, we expect the total revenue for core Momo to maintain a similar level of year-over-year growth momentum as in Q3. Sequential-wise, the revenue on ex-Tantan business should remain flattish or show a slight uptick versus previous quarter due to the macro weakness impact on spending from users.

On Tantan side, as Wang Li mentioned earlier, we expect a big part of the negative revenue impact from September product adjustments to fall into Q4. That would translate into a sequential decrease in Tantan’s topline in the mid-teens percentage. Please be mindful that this forecast represents the company’s current and preliminary view on the market and operational conditions, which is subject to changes.

That concluded our prepared portion of today’s discussion. With that, let me turn the call back to Ashley to start the Q&A. Ashley, please.

Ashley Jing

Just a quick reminder before we take the questions. For those who can speak Chinese, please ask your questions in Chinese first followed by English translation by yourself and also please limit the number of questions to maximum two so we could take more people to ask questions.

Operator, ready for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Thomas Chong

Thanks, management, for taking my questions. I have two questions. The first question is on Tantan. Can management comment about Q4 as well as 2022 outlook from the user, revenue and profit expectations? And how should we think about the paying users trend and when we should expect the paying users to bottom out? And my second question is on core Momo. Can management comment about how the macro should affect the live streaming and VAS business trend? Thank you.

Wang Li

Let me translate here. So due to the delay in product and marketing plans, our previous users growth target of over 20% seems to be a bit too aggressive. In Q4, we have audited similar level of marketing spend as Q3. And considering the impact of our e-commerce peak season and the pandemic resurge, it now looks like MAU in December could be flattish versus Q3.

Even though user growth came in lower than our early expectation, I am quite pleased with our product roadmap and the lab results of the product experiments. I am confident that these measures can effectively address our current user experience and retention issues. We have already started moving forward with our plans to make various product adjustments through rapid iterations. Our marketing plan for next year will be based on the results of these efforts. In addition to channel marketing, we will also invest more into branding next year to enhance Tantan’s brand equity. We will provide user growth target for the year 2022 in Q1 next year based on progress in improving product and marketing efficiency.

With regards to revenue and paying users, we expect that the monetization impact on VAS to bottom out in Q4 and both numbers should pick up next year. Here are some driving factors that we are looking at. Firstly, is the overall user growth. And secondly is the growth in Flash Chat and chat room experiences. We believe that chat room and Flash Chat fits well into Tantan’s dating ecosystem and generates high level of synergy with social interactions. So we expect both features to show decent growth next year in terms of DAU penetration and revenue. And the third factor that is going to be beneficial to paying user and revenue is the introduction of new VAS features. And in terms of live streaming, since it’s not the current product or operational focus, so it may shrink further next year.

Live streaming revenue is closely tied to the macro economy, especially the financial conditions of private business owners. Therefore, the market environment in this regard is indeed an important factor in determining the company’s revenue next year. However, we don’t think investors need to worry too much about this. Here are some key points.

Firstly, we have gone through multiple rounds of macro level fluctuations since the year 2018. Our team has plenty of experience and well-established mechanism to navigate through the challenging external environment.

Second, the supply side of Momo live streaming ecosystem has been very stable since we made the adjustments to the payout ratio at the beginning of the year.

Third, the fundamentals of core Momo as a social platform are very solid. There’s a strong synergy and complement reality between live streaming and other social use cases on Momo. Live streaming plays a unique and indispensable role in helping high-paying users accumulate social capital. It is true that we had some consumption bubbles in our live streaming business back in 2018 and 2019. We believe that after we took the initiative to squeeze out the bubbles in 2020, the remaining part of the business will continue to be solid and develop steadily as a social use case with high ARPPU.

Underlying this service should have a pretty good opportunity for continued growth next year and the growth will be coming from the following areas. First is the continuous product innovation and optimization on the core Momo. And the second area of growth will be the rapid growth from the new bucket of standalone apps, especially the overseas part, which now seems to have a strong growth momentum.

Ashley Jing

So I guess that’s the question for Thomas. Operator, let’s take another question. Thank you.

Operator

Your next question comes from the line of Daniel Chen of JPMorgan. Please ask your question.

Daniel Chen

So my question is on our non-Momo and Tantan apps. So besides Momo and Tantan, we also have several new apps like Hertz and also TuiTui, Sochio, et cetera. Could management share some color on the user growth outlook and the modernization outlook for these new apps?

Wang Li

So for the ROI oriented new apps, we mainly focused on the scale of paying users. Collectively, new app paying users count is around 5% of the core Momo’s number. And the paying user count was up 40%-ish in October compared with at the beginning of the year. We have not included new apps paying user in the company’s reported quarterly paying user number yet.

We expect ROI oriented apps such as Hudl, [indiscernible], Sochio to make meaningful incremental contribution to VAS next year. And in addition to the app we have already launched that have proven to be profitable, we have several other apps in the pipeline that we plan to roll out next year. Our goal in the coming three to five years is to have 10 or so apps that are not only can be profitable, but also can be dominant in specific niche markets in the social space.

Ashley Jing

Operator, let’s maybe take one more question.

Operator

Your last question comes from the line of Tian Hou of TH Capital. Please ask your question.

Tian Hou

So Momo has already been in the market more than 10 years and the customer 10 years ago has already become older. So how can Momo continue to evolve itself and to keep pace with the younger generation to provide services that fits to the newer need, the demand to continue your market leadership position? That’s my question. thank you.

Wang Li

Let me translate here. So we answered a similar kind of questions a few quarters ago. And Momo and Tantan have a clear advantage in the open social territory. Momo mainly focus on the online companionship via a variety of social use cases while Tantan’s core value proposition lies in connecting young people for romantic purpose and converting online relationship to offline. We believe dating is the fundamental human needs throughout the human history.

To compare with the previous generations, such as a Momo user from a decade ago, the younger generation is increasingly receptive to online dating products. So as far as Tantan’s core value proposition is concerned, which is connecting people for romantic purposes and offline relationship conversion, we don’t see any comparable products in the China market that are worthy of our attention. Tantan is clearly the biggest and the most committed as well as the most effective platform in the dating space.

So Tian, I think that’s the answer to your question.

Tian Hou

That’s good. That was very clear. Thank you. Yes.

Ashley Jing

So maybe in the interest of time, this will be the end of the call today. And thank you very much for your interest in Hello Group and look forward to talk to you guys next quarter. Rachel, we are ready to close. Thank you.

Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.

Source: Seeking Alpha

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