Hello Group Inc (MOMO) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Momo's fourth-quarter earnings conference call. The participants are on a listen-only mode. With that, I would like to pass the call over to your host today, Miss Cathy Peng, Vice President of Investor Relations. Miss Peng, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's fourth-quarter 2015 earnings conference call. The Company's results were released earlier today and are available on the Company's IR website.

Joining me today is our Chief Financial Officer, Mr. Jonathan Zhang. Mr. Zhang will discuss Momo's business operations followed by financial review.

Due to the pending going-private transaction, we will not be hosting a Q&A session following the end of the call. If you have any additional questions, please contact us at ir@immomo.com or 8610-5731-0538.

Before we begin, I would like to 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 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 these and other risks, uncertainties and factors is included in the Company's filing 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.

With that, I would like to pass the call over to Mr. Zhang, who will now go over the business and financial highlights for the quarter. Mr. Zhang, please?

Thank you, Cathy. Good morning and good evening, everyone. Thanks for joining our conference call today. In the absence of our CEO, Mr. Tang Yan, I will walk you through an operational review followed by the financial update.

The net revenues for the fourth quarter 2015 grew by 112.7% to $39.5m. And non-GAAP net income reached $11.8m, representing a 30% non-GAAP net margin.

With that, we concluded the year of 2015 with the impressive growth for both top line and bottom line. Net revenues for the whole year grew 199.4% year over year to $134m. Non-GAAP net income for the year of 2015 was $31.1m, representing a 23.2% non-GAAP net margin.

Diving deeper into the quarter, let me start with the operation metrics. Monthly active users or MAUs was 69.8m in December 2015 compared with 69.3m a year ago. The number of location-based interest groups increased to 6.1m as of the end of December, up from 5.1m a year ago.

The pressure in MAU trends we have seen since the third quarter continued into Q4. As briefly mentioned in our previous earning calls, we think there were a couple of different negative factors impacting our user growth.

First of all, the growth of new smartphone users has been slowing down substantially in 2015, inhibiting the growth of new users for many mobile social applications, including ourselves.

Secondly, on the product side, there are areas that we need to work on in order to optimize user experience and appeal to a broader user base. This challenge comes in two folds. One is to better serve the core demand of meeting new friends through optimizing of existing products and services. The other one is to create new use case for users and potential users to socialize and have fun on the platform.

We have to admit that some of the explorations during the past year have not performed up to our internal expectations. We have spent the past few months analyzing each of these factors, as well as developing and implementing our strategies in dealing with these challenges. I would like to briefly share a few high-level observations here to help investors understand the initiatives we have taken, as well as our plans to drive user growth going forward.

First of all, the foremost foundation for user growth is product optimization and innovation. We are placing equal importance on refining the core user experience and creating new use cases in order to appeal to the next cohort of users.

On the front of refining the core, we launched a number of upgrades in the fourth quarter in order to optimize our user experience. For example, we introduced a short video sharing feature enabling our users to shoot video clips of up to 30 seconds and share to message boards, to group or one-to-one communications. This feature provides an important tool for our users to better express themselves and over time could enrich the content on the platform as we build more activities around it.

In addition, during Q4 our team devoted a significant amount of time and resources to optimize the onboarding experience and break the barriers in converting downloads to active users. At the same time we continued our efforts in testing out the effectiveness of various online/offline marketing channels, such as application search optimization and pre-installations. All of these initiatives are paving roads for us to effectively drive user growth through more aggressive channel marketing programs in 2016.

Heading into 2016, we are lining up a series of upgrades, campaigns and new product releases to drive user growth. January through February 2016, we launched a themed campaign that allows our users to send red envelopes, both to nearby people and to their friends on Momo. Leveraging the unique value proposition of an open social platform, we've created a brand new experience for both the red envelope givers and recipients, allowing Momo to differentiate from other platforms running similar campaigns. We're happy to see that the campaign drove meaningful user engagements on our platform and to a certain extent offset the negative seasonality impact from Lunar Year Holiday.

In pushing our boundaries beyond the core service and user base, we also made some encouraging progress. As mentioned in our Q3 earnings call, last September we launched our interactive music service, Momo Live, which has been well received by our users. On top of that, in December we unveiled an open platform to connect more talented performers and started to build a scalable business around it.

Now our live music service is supported by two pillars. One is the Momo Live that features professional produced shows in a studio for a couple of sessions per day. The other is set on the open platform where a vast amount of performers can build and connect to their fan base on Momo by broadcasting with simple PC-based video devices or with their mobile phones.

Since the launch of the open platform in mid-December, we have been seeing a steep ramp up in nearly all key performance indicators for our music service. More importantly, we are seeing not only synergies between our core product offerings and music service, but also opportunities to bring in new users and create new ways for people to connect and to have fun on the platform.

We have more exciting product releases coming up in our road maps and are confident that this service will become a meaningful contributor to both revenues and user activities in 2016.

As said earlier, product optimization and innovations form the foundation of our user growth. On top of that, the other front that we will be pushing very hard in 2016 is our marketing. As many investors know, historically we have not been very active in paying marketing channels and instead more relying on organic growth in new registrations. As the growth of China's smartphone users gradually comes to a halt, we're going to be more aggressive in paying for both online and offline marketing channels in order to keep growing our new users at the top of the funnel. At the same time, we are also planning to step up our efforts in increasing the resurrected users through multiple approaches.

Through this concerted product and marketing effort, we are confident that we can bring the active users back on the growth track.

Now turning to the monetization. Total net revenue reached $39.5m in the fourth quarter of 2015, up 113% year over year.

Mobile marketing delivered the most impressive growth, with revenues reaching $15.3m for the fourth quarter compared with $1.6m in the same period last year. Over the past year we've built our mobile marketing business from scratch and now have established ourselves as a well-recognized mobile marketing platform for a broad range of businesses, including brand owners, local merchants, application developers, as well as other small and medium-sized businesses. In Q4 2015, mobile marketing revenue became the biggest revenue segment for Momo.

Our native in-feed marketing offerings, which is backed by our proprietary RTB system, continued to generate strong momentum as average effective CPM improved significantly. In the fourth quarter we upgraded the system with more campaign management features, as well as multidimensional data points for our customers to more effectively measure their campaigns against ROIs. At the same time, our network of distributors also continued to expand and now covers a nationwide scope.

Looking into 2016, our efforts will be focused on product development to improve the ad effectiveness, which is the underlying driver of e-CPMs. On top of that, we are also optimizing our distributor network to create stronger driving force on the demand side. We believe that native ad will continue to be the most powerful growth engine for Momo in 2016.

In the area of brand marketing, we have made outstanding achievements during the past year in building out and growing our ad customer base, especially in the auto and e-commerce sectors. We had 36 brand owners during Q4 2015 compared with only 13 names for the same period last year. That said, there is still significant room for us to further penetrate and build a much larger brand marketer based on the quarters ahead.

We are now building out our sales team in order to keep expanding our ad customer base in 2016. At the same time, we're also beefing up on the back end to offer more interactive packaged marketing services, including not just banners but also Momo Live and other native elements on our platform.

As our proprietary marketing solutions continue to gain traction, ad revenue from third party relationships such as the cooperations with Ali and 58.com has become less significant for the past quarter. However, we still believe in the value that our partners can bring to our platform. We will keep exploring potential opportunities to deepen the partnerships in the future.

Membership subscription revenues were $14.6m in the fourth quarter of 2015, an increase of 22.7% over the same period last year. Paying members totaled 2.9m as of December 31, 2015. The growth in membership subscription revenues primarily came from the increase in ARPUs, which in turn was driven by the growth in the number of SVIP members.

Going into 2016, we will focus on increasing the conversion ratio while keeping driving the ARPU higher to deliver further growth in this revenue segment. In addition, we are also working on plans to introduce more innovative value-added services other than membership subscriptions.

Mobile games revenues were $7.8m in the fourth quarter of 2015, up 79% year over year. We have 35 revenue-generative games on the platform in operation during the quarter compared to only 12 a year ago. Momo has become one of the mainstream mobile game distribution channels for mobile game developers and publishers. Overall we are confident that the growth prospects of our gaming business for the coming years.

Revenue from other services, which mainly consist of revenues from the interactive live music services and emoticons, totaled $1.8m compared to $0.7m in the fourth quarter 2014. The increase primarily came from interactive live music business, which is now growing in folds and will continue to ramp up rapidly as we move deeper into 2016. Due to the growth trajectory that we can see, we will consider breaking out the live music service from other services line as a separate revenue segment going forward.

Now turning to the costs and the expenses. For the fourth quarter 2015, our costs and expenses on a non-GAAP basis totaled $30.5m compared to $19.1m for the same period last year. The year-over-year increase in cost and expenses was primarily due to the continuing expansion of our business.

By the end of December 2015, our total number of employees reached 779 compared to 456 a year ago, making the personnel-related costs the primary cost driver on a year-over-year basis.

Part of the incremental costs were in connection with our interactive live music services, which involved in spending on content production, facilities, personnel, bandwidth, as well as promotions. As the revenue ramps up quickly in 2016, we will continue to invest in order to further expand this business.

In Q4, costs and expenses as a percentage of revenue continued to go down significantly on a year-over-year basis, reflecting the scale efficiencies of our business model, providing us a strong leverage to keep investing in building new business drivers, such as our live music businesses.

Non-GAAP net income attributable to Momo Inc. was $11.8m in the fourth quarter of 2015 compared to a non-GAAP net loss of $0.1m in the same quarter last year.

Quickly on the key balance sheet and cash flow items. As of December 31, 2015, Momo's cash, cash equivalent and time deposits totaled [$469.5m] (corrected by company after the call) compared to $451m as of December 31, 2014. Over 81% of our cash balance are deposited offshore in US dollars and thus we do not expect the volatility in foreign exchange rate to have a material negative impact on the value of our cash assets.

In the fourth quarter of 2015, we generated a strong operating cash flow of $31.7m compared to $2.5m for the same period last year.

Capital expenditures and cash used in investing activities were around $6.5m for the quarter.

To sum up, we are happy that we closed our 2015 with a strong financial result. The fourth consecutive quarter of profitability serves as a strong statement to scale efficiency of our business and our ability to drive continuous bottom-line expansion while investing in new business drivers.

Heading into 2016, user growth will continue to stay on top of our priority list. At the same time, we're going to be digging deeper into various monetization opportunities in order to deliver stronger financial results to our shareholders.

With that, I'd like to conclude our conference call today. Once again, thank you very much.

Operator?

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Thank you.