Hello Group Inc (MOMO) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Momo's first quarter 2016 earnings conference call. (Operator Instructions). I must advise you that this conference is being recorded today, Tuesday May 17, 2015.

I would now like to hand the conference over to your first speaker today, Miss Cathy Peng. Thank you ma'am, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's first quarter 2016 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 a 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 86-10-5731-0538.

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 contained 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 statements 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 update followed by the financial review.

From a very high level in Q1 2016, we recorded beyond expectation financial results with total revenues for the quarter reaching $50.9m, up 93.4% year over year and non-GAAP net income reaching $12.7m, up 34.5% year over year.

The strong financial results came together with the progress on the operational front - monthly active users, or MAUs, was back on track during the first quarter, totaling 72.3m in March. We view this as a considerable achievement for our team, especially given that Q1 tends to be the seasonally weakest quarter for user activities due to the lunar year effects.

Such achievement was on the back of a series of concerted efforts on the product development, operational side and as well on the marketing side.

Let me first talk about some of the key product initiatives that we took during the past few months. As mentioned during the last earnings call, we ran a red-envelope campaign, leveraging the unique feature sets and user mentalities in an open social platform. The campaign was successful and helped drive incremental user activities to partially offset the negative effects from the lunar year holiday.

After the Chinese New Year, we released a couple of major upgrades that we have long planned for. In early March, we introduced a new feature called Diandian, aiming to better connect people based on information not limited to physical proximity but including the compatibility of profiles as well.

Diandian appears as a small overlay at the bottom right corner of the nearby people list. When activated, the system will push potential matches to user based on certain profile and behavioral data such as interesting places the recommended user has travelled to, books he or she has read and what interest groups he or she might participate in, etc. Diandian will then enable the user to swipe left or right to show if she or she is interested in the recommendation.

Following the launch of Diandian, we also added a new feature called Marks or Yinji in Chinese, to each user's profile page. Marks pulls and summarizes the profile data and behavioral information mentioned above for our users to easily check out and discover connections between each other.

Diandian and Marks represent our ongoing efforts to add in new dimensions for people to more effectively establish new social relationships on our platform. We are happy to see that after the introduction of these two functions, there has been an increase in the number of views on personal profile pages as well as the number of greeting messages sent on a daily basis.

In addition to making it easier or more fun for users to find new friends, in Q1 we also expanded our services in video and live broadcasts which we believe are becoming an increasingly crucial part of how people communicate, share and socialize their internet.

Last December, we started to connect talented broadcasters in a large scale and have since seen all the key performance indicators growing in folds. During the past few months, the momentum kept getting stronger.

In the first quarter, live broadcasts have already surpassed mobile marketing, becoming our largest revenue source. Nowadays, live broadcasts already cover a significant portion of our monthly active users.

In early April, we released an upgraded version in which the live broadcasting service replaced discovery function as a standalone tab next to the default page nearby. This change reflects the increasing strategic importance of live broadcasting to our platforms.

Almost concurrently with that upgrade, we launched an independent application called Hani to feature the live broadcasting service. Now every individual can broadcast live music performance at any time, anywhere, either within Momo or via Hani.

With these efforts, we are hoping that our live broadcasting service will be able to race on a separate track while still leveraging some of the unique competitiveness of our Momo platform.

Now I would like to take a few seconds sharing some of the strategic thoughts about the live broadcasting service. As our CEO Tang Yan stated in our press release, we have been seeing a great deal of synergies between the core Momo business and the live broadcasting business.

First of all, Momo has tens of millions of users connected to the platform looking for fun and excitement as well as making new friends and interacting with them. This user mentality and associated social context makes a perfect formula to nurture the live broadcasting business. In turn, the live broadcasting service, as said in our previous calls, creates a brand new way for our users to socialize and to have fun on our platform.

It not only makes it possible for us to push the boundaries beyond our core use case and appeal to a new cohort of users but also gives a gateway for us to enter into other emerging sectors such as China's booming entertainment industry. We have varied initiatives built around it and plan to carry them out step by step.

On top of the product innovations, started from March 2016 we have also become more proactive in working with the paid marketing channels to acquire new users for our platform. Such marketing efforts have thus far proven effective. We will carefully monitor the cost of our channel marketing efforts and make sure those make sense in terms of ROI.

Now moving to the monetization, in Q1, revenues from live broadcasting business rocketed, reaching $15.6m and making it the largest revenue source for the quarter. Therefore, we broke it out from other revenues line as we did in the past, and started to report it as a separate revenue line from this quarter onwards.

As more and more players are tapping into the live broadcasting market, we expect the competition in this sector to get tougher heading deeper into the year. However, we remain cautiously optimistic about our growth prospects due to Momo's unique social attributes as an open social platform as well as our team's proven execution capabilities.

Revenue from mobile marketing was $12.4m, up 104.5% year over year. The growth came broadly across all segments of marketers, including brand owners, local merchants, app publishers as well as other small and medium sized businesses.

In terms of ad format, both self-serving in-feed ads and brand-oriented display ads have grown substantially on a year-over-year basis. Looking at marketing of product side, in Q1, we piloted in-feed video and units with a couple of brand owners and we received initial positive feedback.

We have also started to build out our programmic marketing solutions in order to connect more quality marketers and improve the ad effectiveness on our platform. We believe these efforts on the back end would allow us to build long-term competitive advantages for our mobile marketing business and elevate Momo further up the ladder as a leading native mobile marketing platform in China.

Membership subscription revenues for the quarter were $14.9m, up from $13m a year ago. Paying members totaled 3.2m as of March 31, 2016. The year-over-year growth in membership subscription revenue was driven largely by the growth in ARPU and to a lesser extent a slight increase in the number of paying members.

Mobile games revenues were $7.4m in the first quarter of 2016, up 21.2% year over year. Although the growth rate of our gaming revenues slowed down, we still have high convictions at the gaming business. Because it's synergetic with the Momo platform and is of a long-term strategic importance for us, we will continue to develop our expertise and explore various opportunities in this area in the quarters ahead.

Revenues from other services, which mainly consists of revenues from paid emoticons and gift mall, were $0.7m in Q1 2016, down from $1.1m a year ago. The decrease was primarily due to the fact that we are offering an increasing number of emoticons for free in order to enhance user experience. For gift mall, we are downsizing the physical gifting business and trying to explore other use cases where virtual gifts are also involved. Due to these transitions, revenue from other services could further go down in the near future.

Now turning to the costs and expenses, for the first quarter of 2016, our costs and expenses on a non-GAAP basis totaled $40.5m compared to $18.7m for the same period last year. The year-over-year increase in costs and expenses was primarily due to the continuing expansion of our business, especially the rising live broadcasting business. We book the revenues from virtual gifts sent to the broadcasters on a gross basis and report the revenues shared to them as a cost of revenue.

In Q1 2016, the revenue shared with our broadcasters made the largest cost driver as revenue from the live broadcasting business boomed. Although live broadcasting business currently is profitable, in Q1, it bore a lower margin relative to the average of our other businesses.

As the business is in such an early stage of development, its margins may fluctuate as revenue continues to ramp. Key factors that may impact the margin trend include, but not limited to, changes in shares with our broadcasters, size and timing of our marketing campaigns, etc. We will focus on optimizing the cost structure of these new businesses to balance the top-line growth and the bottom-line results.

The second-largest cost driver was still personnel-related spending. By the end of March 2016, our total number of employees was 775 compared to 547 a year ago.

Further down the list, the increased marketing spending also contributed to the year-over-year growth in costs and expenses. That was in connection with our stepped-up efforts in building the marketing channels to acquire new users.

Non-GAAP net income attributable to Momo Inc was $12.7m in the first quarter of 2016 compared to $9.4m in the same period last year.

Quickly on the balance sheet and cash flow items. As of March 31, 2016, Momo's cash, cash equivalents and time deposits totaled $466m compared to $469.5m as of December 31, 2015. Over 81.3% of our cash balance are deposited offshore in US dollars and thus we don't expect the volatility in foreign exchange rate in the future to have a material negative impact on the value of our cash assets.

In the first quarter of 2016, we generated an operating cash flow of $5.6m compared to $8.7m for the same period last year. Capital expenditures and cash used in investing activities were around $1.8m for the quarter.

In summary, we kicked off 2016 with a solid quarter in terms of user growth, business development and financial performance. We are encouraged by what we have achieved and we will continue to work hard to further unleash the potential of our platform.

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

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