Hello Group Inc (MOMO) 2014 Q4 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for Momo's Fourth Quarter and Full Year 2014 Earnings Conference Call. After the presentation there will be a question-and-answer session. As a reminder, today's conference call is being recorded.

I would now like to turn the meeting over to your host for today's call Mr. Rene Vanguestaine from Christensen. Please proceed, Rene.

Thank you, operator. Hello everyone and thank you for joining us today for Momo's Fourth Quarter and Full Year 2014 Earnings Conference Call. The Company's results were released earlier today and now available on the Company's IR website.

On the call today for Momo are Mr. Yan Tang, Co-Founder, Chairman and Chief Executive Officer, and Mr. Jonathan Zhang; Chief Financial Officer. Mr. Tang will discuss Momo's business operations and company highlights followed by Mr. Zhang who will go through the financials and guidance. They will all be available to answer your questions during the Q&A session that will follow.

I remind you that this call may contain forward-looking statements made under the Safe Harbor provisions 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 involved 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 these and other risks, uncertainties and factors is included in the Company's filings with the US Securities and Exchange Commission. The Company does not undertake any obligation to update any forward looking statement as a result of new information, future events or otherwise except as required under law.

I will now pass the call to Mr. Tang. Ms. Vanessa Chan, IR Manager will translate for him. Mr. Tang, please.

(interpreted) Hello everyone and welcome to our first earnings conference call as a public company. 2014 was an outstanding year for Momo. We ended a year on a high note with significant operational and financial progress.

We're making great progress in growing our user base, with MAU up 106% year-over-year to 69.3 million. During the year we invested significantly in improving our brand image and broaden our social and entertainment features and functionality particularly those that generate revenue.

As we ramp up monetization, revenue continues to grow, increasing over 700% year-over-year to $18.6 million during the quarter. We also managed to reduce our net loss significantly to $2.5 million.

Monetization increased and diversified during the year as a result of the launch of additional products and services, helping to grow our user based and increases stickiness of our platform. Membership subscription revenues increased 481% from a year ago, accounting for 64% of total revenue compared to 89% during the same period last year.

The games introduced on our platform performed beyond our expectations. We launched 11 new games during the year and built a strong new game pipeline for the coming year. We're rapidly becoming an important and significant publishing platform and developer for mobile game.

Our mobile marketing services rapidly gained momentum. On top of accelerated revenue growth in brand app services, we entered into strategic partnerships with Alibaba and 58.com in October of last year where we were cooperating on traffic. I am proud of the fact that we managed to launch these services within two months, demonstrating our ability to quickly capitalize on monetization opportunities. We believe these services will become significant revenue contributors in 2015 as we continue to extend partnership opportunities to monetize our traffic with other local services and O2O companies.

As many of you have noticed we launched a gifting service in January that enabled users to send gifts to other users by leveraging the merchants on Alibaba's marketplaces to deliver the gifts. While it is still early on its development we believe this service has significant potential to generate a new revenue stream. We will continue to develop and innovate similar social and entertainment functionality to not only benefit monetization but also increase user engagement and stickiness.

As we mentioned during the IPO process, growing our user base, optimizing our product ecosystem, enhancing the user experience and increasing monetization without affecting user experience, et cetera remain our main focus. Our achievement this past year, in particular our improving bottom-line in the fourth quarter, have increased our confidence in our ability to achieve profitability soon.

With that, I would like to turn the call over to Jonathan.

Thank you, Tang Zong. Good morning and good evening everyone. Thank you for attending our conference call today.

Let me first walk you through the major financial items from the fourth quarter of 2014. Our total net revenues grew by 702% from the same quarter a year ago to $18.6 million. At the same time our source of revenue quickly diversified as evidenced by revenue from mobile games for the fourth quarter of 2014 expanded to 23% of the total net revenue comparing to only 4% for 2013.

In the same time, revenue from membership subscription dropped from 88.6% to 64.2%. It's worth mentioning that our other revenue climbed to 12.4% of total revenue in fourth quarter 2014, majority of which was from mobile marketing services.

Cost of expenses on non-GAAP basis totaled $19.1 million, up 285% from the same period last year. On a year-on-year basis, as our operation scale is up and revenue grew at much faster pace, the benefit of our highly leverage business model resulted in $105,000 non-GAAP net loss attributable to Momo, Inc. for the fourth quarter 2014, indicating that we are a small step away from probability on a non-GAAP basis.

And lastly, our balance sheet remained extremely healthy. As of December 31, 2014, we had a cash balance of 451 million, 86% of which was deposited in two off-shore bank accounts. Currently we plan to convert the cash balance into RMB only when need arises.

Now quickly on our guidance, the expected revenue we provided for the first quarter 2015 does not include the financial impact from our newly launched gifting service because it is still at experimental phase. And the Company needs to accumulate adequate operating and transaction data before building a reasonable base for financial projection. We will provide an update on this subject when reporting first quarter 2015 earnings.

With that, I'd like to open the call for questions. Operator, go ahead.

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. (Operator instructions).

Your first question comes from the line of George Meng from Morgan Stanley. Please ask you question.

Hey, good morning Tang Zong and Jonathan. Thank you very much for taking my question. Congratulations on a very strong result in the first quarter as a public company. (Spoken in Foreign Language)

I have two questions. The first one is actually regarding your -- basically can you elaborate more on your business development especially on some of the new initiatives that you already launched recently, for example, the gift system and also the advertising? To be more specific, on the gift system, can you disclose maybe the adaption rate and also the number of gifts they delivered and initial revenue contribution? I know it's very small but any color will be very helpful.

And then on advertising side, can you disclose for example the ROI for 58.com and also Alibaba advertising? And given that the contract is just for one year for now, do you plan to renew it at some point later this year? And what's the plan going forward? And I have a follow-up question. Thanks.

George, just please allow a few seconds for Vanessa to translate your questions to Tang Zong.

Sure. Thanks.

(interpreted) So, in the end of January we launched the gifting services function on our platform and our users can use this platform to send gifts to other users. And we think it will enhance the connection between our users and increase their social value.

We also think it will be a significant revenue contributor in the future.

Right now it's also -- only be in a short period and we just went through Chinese New Year, so it's hard to predict more specifically on this.

We have a lot of confidence and we'll still continue discovering on the social essence of this service.

(Audio Gap)

We have been working well with Alibaba and 58.com, we think it has built a good foundation for our future collaboration.

Okay, thanks. Can I just quickly follow-up on the ROI? (Spoken in Foreign Language)

Okay.

Let me just quickly translate. So, he asked whether under ROI, with Alibaba and 58.com, do we have communication with them on this revenue?

(Interpreted). So, the contract, if you have reviewed, with Alibaba we do it on the cost per screen show. And we provided them our traffic but on the conversion rate we don't have the specific numbers on our site and with 58.com we charge per click -- on a click.

Right now all the parties are satisfied with the results.

Okay. Thanks. And my second question is related to your update on the user metrics, especially your interest groups because I think that's one of the directions you're pushing forward. And so can you gives us some update for example on the interest group adoption right now as well as the activeness in terms for example number of group messages per day this kind of major metrics? And also on the user side, you disclosed MAU but it will be very helpful if you can also provide like the DAU and some of the other user metrics. (Spoken in Foreign Language)

Hi, George. This is Jonathan. Let me take your question. Actually, for competitive reasons the Company decided not to disclose other than MAU operating metrics on a quarterly basis going forward. When we compare with our closest comparable companies we notice that they don't disclose other than MAU information.

So that's the set policy from the Company, but I think directional-wise what I can share with you is that all the other operating metrics has continued the growth in terms of DAU, number of interest groups and also the volume of the messages generated on the platform.

Okay, got it. And just directionally on the intergroup, what's your, basically for example, strategic plan going forward, not quantitatively but more qualitatively? Any new thoughts of the IPO especially after the brand promotions as well as the publicity of the IPO?

Yes. Definitely on a quarterly basis we're going to provide directional information, but definitely not the quantified information.

Okay, thanks. That's very helpful. Congratulations again. Thank you.

Thank you, George.

Your next question comes from the line of Yu-Heng Fan from China Renaissance. Please ask your question.

Hi, good morning. Thanks for taking my question, and congrats on a strong first quarter financial results. My first question is regarding through user growth trend for the first quarter as we are heading toward to the end of first quarter. I'd appreciate if you can share some color on the user growth trend for the first quarter, and then I'll have follow-up. Thank you.

(Interpreted) More on the strategy side or on the metrics?

On the metrics side. And also strategy, that would be also appreciate it. Thank you.

(Audio Gap)

Hi, once again this is Jonathan. Actually, it is the Company's set policy, we do not provide anything forward-looking related information in terms of operating metrics, and so I think we'll have to stick this time on this policy.

Okay, understood But let me start with my same question and then you do can provide me like a directional color on the user number as of today, that would be appreciated.

And my second question is on the online marketing service. Beyond Alibaba and 58.com do you think -- is there any possibility you will introduce a third major advertising customer to Momo's platform? And in terms of inventory and user experience, do you think there is a room for a major additional advertising customer? Thank you.

(interpreted) Right now two months have passed in the first quarter including a long period of Chinese New Year break, we're very satisfied with what we have accomplished so far, but nothing in particular what established on the user number growth strategy.

We will continue working with local service companies and O2O companies, and we have been in the process with talking with various ones and we will disclose when the results are clearer.

Thank you, that's very helpful. If I may, I will have a third follow-up to relate to your gifting service. I wonder if you can share with us the city coverage and number of merchants right now you have. And then going forward what will be your expansion plan in terms of city coverage in the merchant adoption? And also on the product -- in the merchant side, what will be your strategy for that? Thank you very much.

(interpreted) So 19 merchants and 268 gifts and we cover all the courier companies -- what they cover, we all cover, all the cities.

But right now it's still at the initial stage and we just want our users to understand the value of the product and get more used to it. That's it.

Okay. Thank you very much. That's very helpful. And congratulations again on a strong progress. Thank you.

Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi, good morning. Thanks for taking my questions.

I have two questions. The first one is about this location-based advertising or Dao Dian Tong. Any updates in terms of the merchant engagement as well as maybe some of the performance or the ROI for the merchant's brand? That would be the first question. Right, maybe I'll ask the question later. Thanks.

Hi, Dick. This is Jonathan. I think what I can color on this is that the merchants on the platform continue to grow. And also, the revenue is still on the upward trend. But, however, it's still relatively immaterial compared to our other revenue stream, so we'd prefer not to provide specific quantified information. Hence, we did not disclose that separately on the financial statement.

And in terms --

Okay.

Yes. In 2015, we're going to continue to increase our investments to promote this business.

Okay, great. Thanks, Jonathan. Then I just want to ask about some of the membership services. What is the plan for some of the premium membership or additional privileges that will be launched? And what's the kind of update on the plans? Thank you.

Yes. Currently, we're going to stick with our set business plan to launch additional value-added services starting from the second quarter of 2015. Right now, we are still targeting to achieve that product launch according to the original timetable.

Okay, thank you.

Thank you, Dick.

Your next question comes from the line of Alex Xiao from JPMorgan. Please ask your question.

Hi. Good morning everyone and congratulations on the first quarter out of the gate. (Spoken in Foreign Language)

Good morning, Tang Zong and Jonathan. What is your strategy in 2015 to drive user growth and what are the areas you want to make more investment to acquire users?

And then a related question is -- how do you view the competitive landscape in the vertical social market especially on mobile in China? Thank you.

(interpreted) Ever since our company was established three years ago, we really don't consider too much into the competition, so that's that. And also, in terms of user growth, we are focusing on product development and marketing strategies and we are expecting to make some big changes on our products.

If we'll optimize the ecosystem and benefit on our user acquisition, we have a lot of confidence on this part.

(Spoken in Foreign Language) About the user stickiness and platform engagement, is there any operational metrics you guys can share?

(interpreted) So for instance, the messages exchanged in between friends on our platform, all the metrics have been growing.

I see. The second question is about the cash. (Spoken in Foreign Language) So the question is about the use of cash. What's your latest thought on the use of more than $400 million cash on your balance sheet? Thank you.

Hey, Alex, so this is Jonathan. Let me pick up your question.

Actually, currently, as I said earlier, we had $451 million cash in our bank accounts. And we have no plan to spend all the funding in 2015. And we're going to use the cash wisely to manage carefully on our bank balance. And we're going to focus on investing in our R&D activities in terms of technology and also help develop games.

And also, we're going to -- looking for strategic target, but we don't -- right now, we do not have a focused target from upstream, downstream potential companies we'd like to form strategic equity relationships at this moment. But when opportunity comes, we're going to seriously evaluate. Also, we're going to invest in early-stage companies to position the Company well particularly in different interested verticals related to our business. And then we'll make sure that the Company reserves adequate funding to support the Company's strategic development in the future.

Can I follow up with one quick question about the direction of the M&A? (Spoken in Foreign Language) So the question is about the direction of the M&A. What kind of company are you guys thinking to make an investment? Is it the company that help you to close the -- to better reach the consumers or the company that offers service or content to the platform? Thank you.

(interpreted) Firstly, we're focusing more on content providers. The companies will drive more user engagement specifically maybe on game. Secondly, we will look at -- look into companies that will help companies with the monetization progress, including some initial stage O2O company.

(Spoken in Foreign Language) Thank you guys. It's very helpful.

Thank you, Alex.

Your next question comes from the line of Juan Lin from 86Research. Please ask your question.

Hi. Good morning, Tang Zong and Jonathan. Congratulations on a strong fourth quarter results as a public company. And thank you for taking my question.

(Spoken in Foreign Language) My first question is regarding the user mix between tier 1, 2 cities and the low-tier cities. How do you see the mix trend going forward? And how do you see the user retaining rate changing as you continue to quickly acquire users?

(interpreted) Right now, we don't have -- our user distribution on -- with a first tier city or other cities, we don't have a clear difference. This mostly synchronizes with the smart phone distribution in cities. And this pattern does not change in fourth quarter.

New user growth pattern also match pretty closely with the smart phones, but we have a better growth in second- and third-tier cities compared to the first tier. In terms of user retention rate, it also did not change much in the fourth quarter.

Thank you very much. (Spoken in Foreign Language) My second question is regarding the gaming business. You have launched a number of new games since the end of last year. So how do you judge the revenue trends and the new metric trends for the new games? What is the pipeline looking like for 2015 and the strategy for selecting games for your platform? Whether you will launch new in house games within 2015?

(interpreted) Our game business went beyond our expectation in the fourth quarter. We have a lot of games in store right now accumulated from the second half of last year. In 2015 we're leaning towards the games that combine the social essence and the game essence together. In the pipeline of games of 2015, we're hoping to reach our expectation on our self-developed game percentage in the (inaudible).

Thank you very much.

(interpreted) We had new self-developed games launched in February and the management is very happy with the results.

(Spoken in Foreign Language) Very helpful. Thank you very much.

(Spoken in Foreign Language).

Your next question comes from the line of Na You from ICBC International. Please ask your question.

Good morning, Tang and Jonathan. Congratulations on the strong quarter. Just a very quick follow-up, Tang Zong, you just mentioned that you will continue to enhance the monetization potential this year. So what is your view on pushing the monetization? Do you think it's okay -- really to be early so as to hurt the users? So what's the users' feedback?

And also, the fourth question, as I mentioned is that the user retention rate. And I also wanted to know what's the user acquisition cost currently? (Spoken in Foreign Language).

(interpreted) As we mentioned before, in 2015, we will continue our monetization process without affecting user experience. In fact, some of our products, we think, are enhancing our user experience, for example, the gifting service. Including our games and member subscription services, et cetera, we think they not only are not hurting our user experience but also enhancing their social experience. And we're also keeping close track of all the numbers including user retention rate, and it has not declined.

Thank you. Just a very quick follow-up regarding -- what's your company's growing strategies this year? (Inaudible) what's your major investment area this year? (Spoken in Foreign Language).

(interpreted) We want to focus more on the marketing and branding. We want more people to understand the real value of our product more.

Okay. Thank you.

This is Jonathan. Just to add one more color. Actually, we're going to focus on organic growth ahead of our initiatives. And in terms of user acquisition, other expenditures, actually, on top of what Tang Zong just mentioned that the marketing to empower our brand image, we do not have a significant spending plan at this moment.

Thank you.

Your final question comes from the line of Laura Zhang from Merrill Lynch. Please ask your question.

Laura Zhang, your line is open. Please ask your question.

Hello? Hi.

Hello? Go ahead, Laura.

Hey, can you hear me? Yes. I have a question regarding your mobile games. Can you share with us approximately how much of your members are playing the mobile games? (Spoken in Foreign Language).

Actually, as I said earlier during in the call, going forward on a quarterly basis, it's just the Company's policy. We do not disclose other than MAU operating metrics. And it's difficult to address your question at this moment.

That's okay. I understand.

(Spoken in Foreign Language)

As we continue to grow the mobile game business, our penetration rate against our MAU, they are the game players, against MAU, will continue to grow. And that's the trend and the target of the Company. But we cannot talk about specific quantified information.

(Spoken in Foreign Language).

(interpreted) We don't have a specific plan on the type of games. We have a good portfolio of both casual games and hardcore games. Our Xiong Xiong Xiao in the first quarter is performing really well. But in the history we also had a good performance on the Momo Craft and Tian Long Ba Bu which are all hardcore games.

So groups have a strong distribution of value on our platform. We're very happy to see people interacting and talking about games on their groups. And some groups even have specifically game discussion value.

Okay. That's very helpful. Thank you, Tang and Jonathan.

Thank you.

Ladies and gentlemen, at this time, I would now like to hand the conference back to your host for closing remarks. Thank you, Rene. And please continue.

Thank you, operator. Thank you all. In closing, on behalf of the entire Momo management team, I'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting the Company, please let us know.

Thank you for joining. This concludes our call.

Ladies and gentlemen, that does conclude our conference call for today. Thank you for your attendance.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.