Hello Group Inc (MOMO) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2017 Momo Inc.'s Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded today.

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

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's Third Quarter 2017 Earnings Conference Call. The company's results were released earlier today and are available on the company's IR website.

On the call today from Momo are: Mr. Tang Yan, co-Founder, Chairman and Chief Executive Officer; Mr. Wang Li, co-President and Chief Operating Officer; and Mr. Jonathan Zhang, Chief Financial Officer. Mr. Tang and Mr. Wang 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 questions during the Q&A sessions that follows.

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 filings with the U.S. 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 over to Mr. Tang. I will translate for him. Mr. Tang, please.

(foreign language)

Good morning, and good evening, everyone. Thanks for joining our conference call today. I'm happy here to deliver another solid quarter with strong financial performance and progresses in other operational areas.

(foreign language)

Total revenues hit another record high at $354 million for the third quarter 2017, up 126% on a year-over-year basis. Adjusted net income for the quarter reached $93.75 million, up 89% from the same period last year.

(foreign language)

Now a deep dive into the quarter. Firstly, our community continued to expand. Total MAUs on Momo platform reached 94.4 million for the quarter, up 22% year-over-year and representing a 3.1 million net addition from the previous quarter. On the engagement side, Q3 saw a slight sequential increase in per user time spent, driven by the enrichment in our social and entertainment content offerings.

(foreign language)

The slowdown in the quarterly net add in MAU was primarily due to the reevaluation and adjustment around our channel marketing strategy in order to pursue higher level of the efficiency and quality in user growth. I will elaborate a little bit more here.

(foreign language)

At last quarter's earnings call, I mentioned that we intend to beef up our pay channel marketing efforts and try to manage our user growth process with greater granularity. In Q3, we started to implement a new marketing scheme to drive long-term retention and better return on investment in connection with pay user acquisition efforts.

As the implementation of the new marketing plan involves the establishment of a real-time data monitoring and feedback system, testing out existing and new channel partners and respective tactics as well as getting up new policies and streamlining the working process with the channel partners, we have taken our time and led to a meaningful slowdown in new user acquisition during the third quarter.

However, we do believe that such adjustment is necessary for us to achieve higher quality of our top-of-the-funnel additions, and thus build a more solid foundation for continuous community expansion. At this point, we are progressing well with the adjustments. And a big part of our new system is already functioning well. Looking into December and further into 2018, we are optimistic about the growth prospects in our MAUs.

(foreign language)

Ladies and gentlemen, due to technical difficulties, the conference will resume shortly. Please continue to standby. Thank you for your patience.

(technical difficulty)

Okay. After the initial launch of the 8.0, a big part of our job was around the optimization of the existing product modules as well as preparing and testing out new ones.

(foreign language)

For the new social experiences introduced in the version 8.0, for example, Quick Chat and Werewolf, in Q3, we took some time to do the watch and learn. In November, we released a new Quick Chat experience called Quick Chat Plus with a discovery page where users can check out the profile pages and read the self-introductions of the different chatters before they decide whether to initiate a chat request or not. In the new experience, we also built in a monetization feature to test monetization with this new social experience. For Werewolf, recently we have added new VAS elements, such as virtual gifts and role-picking to enhance user experience and to help them -- help on the monetization side.

Moreover, in mid-August, we test-launched an audio-based live streaming service called Momo Radio. Initial beta shows that the new feature is bringing in new users to the live streaming service. We believe that audio-based streaming services, if we get the products right, can significantly bring down the barriers for users to participate in live interaction experiences. We plan to make more explorations in this area down the road.

(foreign language)

In the new version, we continue to make video the centerpiece of cross system product modules on our platform. In the third quarter, we fully rolled out the new algorithm powering our video content recommendation engine. It allows us to evaluate the quality of content on a real-time basis and in turn give higher-quality content greater level of exposure on our platform. The new algorithm also supports personalized recommendations. In addition, we further updated the short video production tool for our users, giving them more filters, face swap and background music options as well as augmented reality elements to make their video more fun.

As a result of these efforts, in Q3, we saw a 30% sequential increase in the original video creation and sharing activities and 28% in daily video views. In the month of September, short video penetration rate reached 62%, up from 49% 3 months ago. These numbers show that short video has been deeply integrated into different social experiences and become an important medium through which our users can discover and make new connections.

(foreign language)

Before turning the call over to Wang Li, I'd like to share with you some of our recent observations in the live streaming market and the strategic thinking with regards to those trends.

(foreign language)

This year, as the market consolidation accelerates, live streaming players offering homogeneous products and services are gradually exiting the market. At the same time, we are seeing bigger players with strong community ecosystems taking initiatives to upgrade their content offerings and market share shifting from amateur broadcasters to more professional ones. We believe content building as well as talent recruitment and management are becoming increasingly important as core competitive advantages in live streaming business. In that regard, we will, in the future, push harder to enhance content offerings as well as talent development.

That will translate into several new priorities of ours. Number one, we will dedicate more resources to drive quality content in verticals that are highly compatible with Momo's platform attributes. For example, singing, dancing and musical instrument performances. We are also going to drive the content diversity by exploring opportunities in some of the non-talent show areas to appeal to a broader user base.

Number two, we are working more closely with the professional agencies in talent discovery and management, optimizing our incentive plans and making them better motivated to help us improve the content quality and diversity. Moreover, we are planning to go deeper with our exploration in the area of professional entertainment content production and distribution both within and beyond the Momo platform.

Other than the direct economic value that we potentially -- we can potentially drive from it, we have 2 additional goals to achieve. Number one goal is to widen the career potentials of our top performers and thus better motivate them to improve their quality of content. The other goal is to boost Momo's brand image and bring new users to our platform.

(foreign language)

Other than the talent shows by professional performers, there are a large amount of ordinary users on Momo platform who are taking live streaming as a tool to fill their general needs in casual chatting. For these long-tail talent users, we will continue to introduce new tools and gamification based on the streaming technology and keep breaking the boundaries in terms of how our users socialize and have fun in an open environment.

(foreign language)

With that, I'm passing the call over to Mr. Wang Li, our co-President and COO, for a business review. Mr. Wang, please.

(foreign language)

Thanks. Now let me walk you through the key things that we've done as well as the future direction for our major business lines.

(foreign language)

First of all, on live streaming. Revenues achieved another record high at $303 million. The record growth of the live streaming business during the past several quarters largely benefited from the strong community atmosphere and user stickiness built upon the social infrastructure that has taken us years to build out. That includes basic social features, such as instant messenger, interest groups, posts and forums as well as the social relationships people formed on our platform over time. We believe that the strong social attribute is the most important success factor that sets us apart from other live streaming players and will remain as a long-term competitive advantage of Momo's live streaming business.

However, as Tang Yan mentioned earlier, recent industry trends have led us to set new goals and priorities for ourselves. Going forward, we will drive further growth from the live streaming business and increase our market share by expanding towards 2 direct -- 2 different directions. Number one is that for the showroom business, namely users tipping professional performers, we will be pushing harder to improve content offerings both in terms of quality and in terms of diversity. The other direction that we'll be moving toward is that for the large amount of long-tail chat room users who take live streaming simply as a better way to socialize, we will keep rolling out new form of interactions beyond broadcasting -- the broadcasting model. That is going to involve deeper and broader explorations in the areas of audio- and video-based services as well as social games.

(foreign language)

Now with respect to those 2 directions, I'm going to talk about the progresses that we've made and our next-step plans. On the content upgrade part, we held Momo Golden Song Contest season 2 in the last quarter to promote more singing talent. And we sponsored winners from last season to produce singles in professional studios, which are now released on China's top online music platforms. In addition, we are also expanding from singing to other vertical categories, such as dancing and musical instrument performance.

What we do is that we hand pick outstanding talent in those verticals and support them with additional traffic and promotional resources. The goal is to give performers with real entertaining talent bigger opportunities to stand out and build a career on our platform. On top of those efforts, we are also exploring content development opportunities in some of the non-talent show verticals in order to appeal to a broader set of users.

(foreign language)

In the third quarter, we launched an in-house-produced variety show called The Majority's Choice. Through this initial experiment, we have built up experience in entertaining content production and distribution area. At the same time, the positive data that we have seen around the show also gave us the confidence to take broader dive into this space next year. We believe that such initiative will benefit us in multiple aspects, including talent and content development, brand building as well as user acquisition.

(foreign language)

Other than these efforts, we are also working to strengthen our collaborations with professional agencies in building our talent pool and improving the content offering. Historically, agencies have a limited role in Momo's live streaming ecosystem. We have noticed since earlier this year that some quality talent agencies and MCNs are becoming increasingly mature in terms of talent management and content development.

As a result, we are adjusting our operational policies to better support the high value-added agencies in traffic and other resources as well as economic incentives. We believe that such adjustment will give the quality agencies bigger room to develop, and thus better motivate them to help us in developing talent and driving content quality and diversity. It will also allow them to grow their business in a bigger way within our ecosystem, which in turn will grow ours.

(foreign language)

Now I'm going to share a few thoughts on our plan to broaden the use cases for live streaming technology beyond the broadcasting model. Generally speaking, many new social experiences that we introduced recently, such as Quick Chat, Quick Chat Plus and Werewolf, are all different ways to utilize streaming technology in the social space. Other than these products, as Tang Yan mentioned earlier, in the third quarter, we introduce an audio-based live streaming experience called Momo Radio. At this stage, Momo Radio is still a public broadcasting product. But we do have plans to test and roll out other form of audio-based experiences for more general social purpose.

In addition, dating channels, which was introduced earlier this year, has also been performing well. We believe that this is a business with a great deal of potential for us to cultivate both on the user front and on the monetization side. We are also looking to branch out from dating to introduce other use cases for the group video chat technology. Through these new use cases, which are much lower barrier and better suited for non-showroom users to interact with each other, we can make streaming technology serve the core social demand of our users in a much broader sense, and thus unleash bigger potential from the live streaming business.

(foreign language)

Moving on to mobile marketing business. The new homepage design of 8.0 has diverted traffic from Nearby People to other product modules. At the same time, we have also reduced the number of ad units in the Nearby posts from 3 to 1. As Nearby People and Nearby posts are the 2 major carriers of the ad impressions, the 8.0-related changes have led to a significant decline in the ad inventory supply, resulting in a sequential decrease in mobile marketing revenues during the third quarter.

Nevertheless, we believe that the 8.0 upgrade and our future development plans are positive to mobile marketing business over the long run. And here is why. Firstly, the new version had led to a substantial increase in the consumption of video-centric entertaining content. As compared with Nearby People, content-based news feeds leaves bigger room to build natives and -- native ad creative, and thus can carry higher effective CPMs. Currently, the monetization level of our content-based news feeds is at a relatively low level. Therefore, we believe there is plenty of room for us to drive the growth by taking up the ad load.

Secondly, our efforts to penetrate brand marketers also started to pay off, which to some extent has offset the decrease in the performance-based ad revenue in the third quarter. As brand advertisers tend to utilize many non-fee-based ad inventories, such as loading page display, event sponsorships and product placement into video content, the growth of brand marketing dollars can improve the sell-through of non-fee-based ad inventories, and thus bring in incremental revenues. Other than that, brand advertising, if done right, can also minimize the negative impact on user experience.

Thirdly, we are currently exploring new native ad formats by leveraging the web celebrities and video content on our platform. For example, in the third quarter, we worked with some of the professional short video creators to shoot original short video ads for some brands. Because these ads appear as fresh and fun video content and are distributed over the KOLs' own networks, they create a pleasant native ad experience for both the marketers and the users. We are planning to work more closely with agencies in this area to penetrate deeper into the growing video ad budgets by leveraging such distinctive service.

(foreign language)

Overall, we expect mobile marketing revenue to bottom out in the third quarter. Looking out to next year, as the ad products get more matured and quality of ad customers and ad format improves, we will consider gradually increasing the ad loads to build mobile marketing to a new driver.

(foreign language)

Now briefly on VAS business. During the past year, we have built virtual gifting to a new driver for the VAS business line. As mentioned earlier, from Q4 onwards, we will gradually build more VAS elements into some of the new social experiences that we introduced. The monetization feature in Quick Chat Plus is an example of that. We believe that Momo users tend to have a strong willingness to pay for value-added services, driven by their mentality in an open social and entertainment environment. We will continue to explore on new paying use cases to drive growth from the VAS line.

(foreign language)

Overall speaking, I'm happy to see that we have been able to drive continuous top line and bottom line growth. Meanwhile, we have also made progresses in experimenting in new territories and further develop our road map into the future. I look forward to sharing more updates with everyone in the next quarter.

Now I'm passing the call over to our CFO, Jonathan, for the financials.

Thanks, Tang zong, Wang zong and Cathy. Hello, everyone. Thank you for joining our conference call today. We are delighted to deliver another quarter of strong financial performance with a total net revenue reaching $364.5 million, exceeding the high end of our guidance and representing a 126% and 13.5% year-over-year and sequential growth, respectively. Non-GAAP net income was $93.6 million, up 89% from the same quarter last year.

Now looking into the key revenue items. In the third quarter of 2017, revenue from live video services continued its strong growth momentum with the total revenue reaching $302.6 million, up 179% year-over-year. The fast-rising revenue was due to the strong growth in ARPPU, which amounted to RMB 521 before VAT exclusion for the third quarter, up from RMB 296 a year ago.

The number of live streaming paying users, another growth driver for the live streaming revenues, was 4.1 million for the quarter, an increase of 58% year-over-year. On a sequential basis, the revenue from live video services increased by 16.6%, which was mainly driven by growth in ARPPU, which was RMB 463 for the second quarter of 2017. The revenue for mobile marketing was $17.4 million, slightly down from $17.7 million in the third quarter 2016, an 8.3% decline sequentially.

As we previously communicated, the 8.0 version cost and ad inventory to decrease meaningfully in Q3 2017, resulting in a decrease in the fee-based or performance-based advertising revenues. However, such decrease was offset by increase of revenues from brand advertising customers. We expect such negative impact due to product upgrade is temporary plus more advertising inventory will be released, as Mr. Wang Li just mentioned earlier. Revenue from marketing services would gradually bottom out and back on the growth path in the future.

Value-added service revenue, or VAS revenue, which consists of membership subscriptions and virtual gifting services, was $26.3 million, an increase of 45% from third quarter last year and 6.6% growth from previous quarter. The growth of VAS revenues was largely driven by the increase in the number of paying users of VAS business, which was $4.8 million for the quarter, up from 42 -- up 42% from the same quarter last year and $4.5 million for last quarter. The growth of VAS paying users was powered by the rise of virtual gifting business introduced in the fourth quarter 2016.

Mobile game revenue declined 14% year-over-year to $8 million, 12.2% decrease from previous quarter. The decrease was primarily due to our strategy to be focused on jointly operated games. We expect the mobile games revenue will continue to be under pressure until any of our self-developed games generates good results in monetization. I'd like to make one quick clarification here. For our self-developed social game, Werewolf, we have introduced 2 different sets of monetization features. Revenues from virtual gifts that users send to each other while paying -- playing the games are booked under VAS revenue on gross basis with 40% payout to the gift recipient as cost. Revenues from in-game virtual item sales, in which the company keeps all the gross merchandise value, are booked under mobile game revenue.

Now a brief review on cost and expenses items. The total cost and expenses on a non-GAAP basis totaled $251.7 million, up 130% compared to $109.5 million for the same period last year due to overall business expansion. Year-over-year increase in the cost of revenue was primarily attributable to the increase in the revenue sharing with the live broadcasters, bandwidth-related costs and the payment channel fees in connection with our revenue growth. On a sequential basis, the non-GAAP cost of revenues trended up by about 2% to 50%, partially due to the revenue mix shifting toward higher percentage of live streaming revenue and to certain extent due to the additional cash incentives we provided to the top winning broadcasters during the Q3 tournament event.

As Mr. Wang Li mentioned, we are strengthening our relationships with the professional talent agencies to drive talent content management on our platform. In November, we rolled out a trial plan whereby the qualified agencies are provided with a different level of additional cash incentives if they have reached certain growth targets. Although such incentives will likely cause cost and revenue to continue to fluctuate in the future, we believe it will better motivate the agencies and individual broadcasters to invest and grow their business within our ecosystem, which in turn will grow ours. However, we will certainly manage carefully the balance of our business growth pace and the quality of revenue.

Non-GAAP sales and marketing expenses for the quarter was $54.2 million compared to $28.2 million for the same quarter last year, representing 15.3% and 17.9% of the total revenue, respectively. The year-over-year increase in sales and marketing expense was primarily due to our stepped-up efforts in branding promotion activities and direct marketing channel efforts. On a sequential basis, sales and marketing expenses decreased by 18% in Q3 as we scaled back our branding campaign from the Q2 level.

Non-GAAP R&D and G&A expenses for the third quarter 2017 were $11.1 million and $9 million, representing 3.1% and 2.5% of total net revenue, respectively, compared to $7.3 million and $7 million or 4.6% and 4.5% of the total revenue for the same quarter 2016.

As we continue to build up our talent pool, we ended the third quarter with 1,179 full-time employees compared to 800 from a year ago. Over 200 of this additional headcount are in various R&D areas during the past year. Non-GAAP operating income was $103.7 million, up 117% year-over-year from $47.7 million. Non-GAAP operating margin dropped slightly by 1% from a year ago to 29.2% despite the significant ramp-up in marketing activities as compared with last year.

Turning to the balance sheet and cash flow items. As of September 2017, Momo's cash, cash equivalents and term deposits totaled $949.7 million compared to $651.3 million as of December 31, 2016. The net cash provided by operating activities in the third quarter was $104.6 million compared to $62.9 million for the same quarter 2016.

Turning to the business outlook. We estimated the fourth quarter revenues to come in the range from $370 million to $385 million, which translate into a year-over-year growth rate from 50% to 52%. Please be mindful that this forecast represents the company's current and preliminary view on the market condition and operational conditions, which are subject to changes.

That concluded the prepared portion of our today's discussion. With that, I'd like to turn the call over to Cathy to start the Q&A session.

Yes, just one quick reminder before Q&A. For those who can speak Chinese, please ask the questions in Chinese first followed by English translation. (Operator Instructions) Operator, ready for questions. Please take the first one.

(Operator Instructions) The first question comes from the line of Jialong Shi from Nomura Securities.

(foreign language) I have 2 questions. My first question is about the paying users for your live broadcasting service. We've noticed in Q3, your paying users remained stable sequentially as it did in previous quarter. So I just wonder how do you think of the trend for this metric going forward. In addition, what was the driver for the ARPU of your live broadcasting service in Q3? My second question is about the Quick Chat service. Momo has rolled out this Quick Chat service for a few months. So I just wonder if management has seen any positive impacts from Quick Chat on your overall user engagement.

(foreign language)

Well, first of all, before answering your question, Jialong, I'd like to remind everybody about the fact that we've added many new social features powered by streaming technology. And the way that we calculate the paying users for our live streaming service and the fact that some of these paying users related to the new features that we rolled out are booked under the VAS line. And if you look at the VAS business and the live streaming business altogether holistically, the total number of paying users on the platform actually increased in the third quarter as compared with the second quarter, mainly driven by some of the newly introduced social use cases around the virtual gifting service. Next year, we are looking to roll out more of these type of paying use cases in connection with the new ways of interaction that we rolled out. For example, the video- and audio-based live chat experiences, built in one-to-one and group chatting environment, we believe that by doing that, we would be able to continue to drive the growth in the paying user as well as ARPU.

(foreign language)

Trend-wise, the number of paying user -- high paying users still grew with a very strong momentum. ARPPU also grew but at a slower pace than the number of paying user growth within that top cohort. The long-tail paying users continue to see some diverting impact from the new social use cases. And that was mainly because that the public broadcasting model sets a very high barrier for the long-tail users to participate. For them, things like Quick Chat or group video chat are perhaps better-suited use cases to participate. And the paying users for those type of services are booked under VAS line. As a result, we are seeing that the paying user for our VAS business grow from 4.5 million in the second quarter to 4.8 million in the third quarter with a stable ARPU trend. So that's why if you look at the live streaming business and the VAS business holistically, the total number of paying users still grew at a pretty healthy pace during Q3. And there is a second question about Quick Chat, which I also -- our COO, Wang Li, will be answering that question.

(foreign language)

We believe that the new form of interaction based on live- and video-based services as well as the social games represents one of the future directions that young people are moving towards in the social space. And a lot of these new functionalities that we recently rolled out are helpful in lowering the participation barrier for the live streaming service. Things like Quick Chat, Werewolf and Momo Radio, these are all our early experiments on those fronts. So of course, they are going to be helpful in improving the user engagement on our platform. However, these are early days efforts, and we still have a lot of work to do in those areas.

(foreign language)

Quick Chat Plus is another early experience that we made in one-to-one video interaction space. A lot of aspects including monetization is in very early days. For our next-step plan, we are going to continue to optimize on that experience according to the data and feedback that we receive over the past 2 months' period of time. We are looking to roll out an audio-based experience into the Quick Chat Plus experience. We believe that there is very strong demand for the one-to-one live video- and audio-based interaction experience. We are confident that we would continue to move this business forward and cultivate on bigger monetization potentials around it.

Next question comes from the line of Fan Liu from Goldman Sachs.

(foreign language) Let me translate this. So the first question is management mentioned in last quarter's results that there are 20 million users accessing Momo via other channels, which are not recognized as MAU. So what are the strategies to make this user register and use the app more regularly to be justified as MAUs? And the second question is how should we think of the total addressable user base for Momo as well as the MAU growth strategy? And the last one is in terms of the channel marketing costs, we see that for the overall industry, it seems to be rising. So we were wondering what is management's take on this and the strategy for user acquisition the following year.

(foreign language)

User growth has always been the #1 priority within our strategic plan. At the beginning of the year, I've communicated to the investor community that there are 2 pillars underpinning our user growth strategy. And they are product innovation and marketing activities. On the marketing side, obviously this year, the biggest chunk of our advertising budget went into brand advertising. And next year, we're looking to cut down on the brand advertising budget and shift toward channel marketing. At the same time, we will also be considering tying up some of our brand-building activities with the content production and distribution efforts. And the other thing is that in the past, channel marketing was not one of our key strength areas. And obviously, our job on that front left a lot of room for improvement. In the future, our focus will be on improving the efficiency of the top-of-the-funnel efforts. And that would translate into several things that we need to do. Number one is we will strengthen our collaborations with the telecom carrier -- with the cell phone makers, telecom carriers as well as some of the quality news feeds advertising platforms on the data side and utilize some of the industry-leading technologies, including targeting, retargeting and real-time optimization of channel strategies in order to increase the quality of the users that we acquired. On the other side, in the past, the material that we used to acquire users through different channels were kind of limited due to our use case. As we continue to expand our content offerings, we increasingly have larger room in devising different channel strategies. For example, nowadays it's possible for us to work with the channel partners, use their data to target certain group of users and then push them, take deep link with relevant content in order to better convert these users into our active users.

(foreign language)

On the product side, one of the key hurdles that we had in improving the long-term user retention was the fact that our core use case, which was pretty much based on Nearby People and instant messaging, was kind of limited. In the past 2-year time, we have made a lot of progresses in expanding the social use cases.

(foreign language)

Right now, one of the key trends that we're seeing is that after several adjustments within the 8.0 series, the retention rate on our platform has continued to -- has been continuing to climbing. And also the new user acquisition system are also starting to function well. And those trends give us the confidence that we would be able to drive better growth in our MAU on top of Q3's level. (foreign language)

(foreign language)

After we've rolled out the short video service, we are seeing a lot of our users are willing to share quality short video content on the platform beyond the Momo application to elsewhere on the mobile Internet. And in terms of the growth prospects for these cohort of users, as we continue to build up the content offerings and improve the quality of the short video services, we expect this cohort of users to continue to grow. And ultimately, we would be able to convert them into our MAU that we report.

Next question comes from Greg Zhu from Credit Suisse.

(foreign language) I have 2 questions. First, could management share some color on the margin trends in the next quarter and in 2018 in light of the new marketing scheme and the user acquisition strategy? And my second question is how does the management take on the competitive landscape of short videos and live broadcasting in the coming year?

This is Jonathan. Let me take the first -- your first question, and then Tang zong will address your second question. As we started from Q3, we rolled out additional incentives to individual broadcasters, and then in Q4, to the professional agencies. We do estimate that will create certain pressure on our gross profit margin. But however, as I said during my prepared remarks, because currently we are only at a testing phase, we are going to make adjustments on those additional incentive programs on an as-we-go basis. So we want to make sure our incentive plan not only drives revenue growth but also drives profitable revenue growth as well. So currently, we are -- we just kicked off our 2018 business planning and the budgeting process. It's hard for us to be sure where the margin will trend for next year. But here, I'd like to share some factors that will impact the margin in different ways. First of all, as I said, the gross margin will trend down. But however, we are confident that our gross profit will continue to grow. And then also as we continue to drive the top line growth, we are looking to achieve a certain level of leverage at the OPEX level. So our current target is to at least to come out with a stable net margin in 2018.

(foreign language)

No matter if we are talking about live video or short video spaces, obviously there have been some consolidations out there in the market. And there are also some of the changing trends that we need to adapt to. We've talked about these trends in my prepared remarks. Overall, we do think that there are still plenty of opportunities in both the live streaming and the short video spaces. And Momo has very strong social attributes as well as very unique community atmosphere in both live streaming and short video service. And those factors give us very unique competitive advantage in those 2 industries. So overall, in the future, we plan to continue to build on those competitive advantages and are confident that we would be able to continue to increase our market share in those markets through content expansion and improvement in diversity as well as the optimization of our operational efforts. And also we are seeing that many other companies, a lot of these are live streaming and short video pure plays. They are all performing well. However, each of us has our different positioning as well as user mentality and attributes. As far as Momo is concerned, our short video and live video services are all serving the users' social demand. And if you look at the ways that we design and operate our products and services as well as the way we build up our community atmosphere, they are all very different from the live streaming and short video pure plays. So overall, I think the competition is always going to be there. However, it won't be direct competition between exactly the same kind of content and service offerings.

Next question comes from the line of Tian Hou from T.H. Capital.

(foreign language) The first question is related to the R&D investment. So currently, Momo's R&D investment as a percentage -- percent of revenue is kind of low compared with other China's technology Internet company. And I wonder what's the management's plan going forward for the investment in R&D as we are going to develop a lot of new product in the social networking area. So that's number one question. Number two is related to the cohort analysis or paying user cohort information. Tang zong gave some information last quarter. I wonder if we can get the same similar color on those cohort analysis. That's it.

(foreign language)

This is a very good question. We've noted that issue internally as well. Next year, we're looking to step up our investment in research and development. In terms of the key areas for investment, that's going to be consistent with our product direction. So a lot of these will revolve around these new form of interactions and new ways to connect people. And that would involve -- that would include areas such as audio and video technologies, augmented reality, recommendation engines, algorithm, machine learning, and other newly emerging areas. In a lot of these new areas, we're going to significantly step up our investments.

(foreign language)

With regards to your question about the concentration and the trends within different layers of paying users, I think the whole live streaming industry tends to have relatively high level of concentration toward the top layer. And that is kind of determined by the tipping model itself. However, because of Momo's unique way to dispatch our traffic in order to lean toward the new talents and our strong social attributes, we believe that our level of revenue concentration should be a lot lower than our industry peers, no matter from the broadcasters and/or from the paying user end. With regards to the trends within different cohorts, I think Tang Yan mentioned in the earlier remarks already.

Next question comes from the line of Chen Wang from TF Securities.

(foreign language) I will translate myself. And my first question is regarding our user growth. In view of product operations, could management breakdown their newly added users in terms of channels or Tier 1 or Tier 2 cities as well as their demographics? How about the retention rate between the different groups? Yes, this is my first question. My second question is about the operations. In view of the new products, such as the Hani, could management give us color in view of the launch from new products in some niche market, just like our competitor?

(foreign language)

Well, with regards to the first question, currently we are not seeing a lot of changes in the demographic as the new users coming on to the platform. And one thing that I would like to add in here is that the core value proposition of the Momo application is to help the users to discover and establish new relationships on the platform and build effective interaction. Based on that kind of core user demand that we'd like to serve and the current fabric of the China mobile Internet users, our estimation of our total addressable market would fall somewhere between 200 million to 300 million. If you look at our current MAU, it's only a little bit over 90 million, so we should have plenty of penetration rate in every user -- every cohort of users in terms of different demographic and every geolocation in China. One of the key limitations that we had before was related to the narrowness of our core use case. And it's difficult to satisfy the diversifying demand of all of our users. And since the beginning of 2016, we have made a lot of progresses in expanding our core use cases. So I think one of the biggest opportunities that we are seeing in acquiring users through different channels is through effective channel partners to be able to reach these large amount of dormant users, give them richer and better social experiences and be able to retain them. And the other thing with regards to your question is that we are seeing a big trend in China mobile Internet market, where a lot of the new users into the market are going deeper into lower-tier cities. So currently, we are going to be adjusting our channel strategies in order to be able to take advantage of that bigger trend. I think that is one of the key purposes why we need this new channel marketing system to do better targeting and to manage the process with greater granularity. And with regards to the question on the retention rate, after several adjustments in the 8.0 series -- within the 8.0 series and that the new marketing system start to function well, our overall retention rate, including those of the existing users as well as the new users, continue to improve. And based on these trends, we believe that we will be able to continue to penetrate our total addressable market. We're very confident about that. And Wang Chen, can you repeat your second question on -- there's a question about new products. Can you repeat that one in Chinese?

(foreign language)

(foreign language)

On your second question about our future plans. In the future, we do have plans to potentially build stand-alone applications in order to penetrate into new demographic or to carry some of the new form of interactions. I think we're running out of time already. That would conclude our conference call today. Operator, we are ready to close this call. We'll see you next quarter.

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect the line.