Hello Group Inc. (MOMO) Q3 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2018, Momo Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [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 2018 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, President and Chief Operating Officer; Mr. Wang Yu, Founder and Chief Executive Officer of Tantan; and Mr. Jonathan Zhang, Chief Financial Officer. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor 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 statements 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.

[Interpreted] Good morning and good evening everyone. Thank you for joining our conference call today. I’m pleased that we delivered solid operational and financial results for the quarter. At the same time we continue to push forward on products and operational fronts in order to build up longer term growth drivers as we start to look beyond 2018 into next year. Now my team and I will take you through the details. Firstly, from a high level, total revenue reached $536 million for the quarter, up 51% year-on-year. Adjusted operating income for the quarter was $125.1 million, up 21% from the same period last year. Now a deep dive into the quarter. Firstly, our community continued to grow. The core Momo app had 110.5 million monthly access for the third quarter, up 17% year-on-year and representing a 2.5 million net addition from the previous quarter. During the past few quarters we have made solid progresses with our strategic priorities around product innovation and improving marketing efficiency. As a result, we've been seeing steady growth in both user base and the engagement level. However as the community evolved and the social use cases increasingly diversified, we also realized that we need to deal with the stammers in the ecosystem who also evolved as the community does. Since September we stepped up our efforts in cleaning up the spam account. These efforts involve updating the algorithm to identify more sophisticated spamming and other harmful activities, as well as implementing more stringent measures on the identified account. Although the campaign has caused some pressure on the user growth rate, we believe that’s the right thing to do, because the targeted accounts and activities were harmful to the ecosystem without creating any real value to either the users or our business. Cleaning them up will ensure the long term wellbeing of the Momo community. The other thing worth mentioning is that the user retention on an ex-spam basis in September was actually stable with a slight uptick as compared with the June quarter, which provides a very solid foundation for us to drive continuous growth of our user base in a healthier environment going forward. Total paying users for the Momo platform reached $8.9 million in Q3, 2018, representing a 22% year-over-year growth or a 400,000 net addition for the last quarter. The healthy increase in paying users shows the growth of the core commercial value of the Momo platform remains very strong. The other thing that I feel excited about, the rapid growth of the Tantan community. In Q3 Tantan reached $3.6 million in its paying subscribers, a quarterly net addition of 500,000. That number demonstrated continuous growth of Tantan’s annual base, as well as the increased paying conversion from Tantan’s new launched monetization feature. Wang Yu will have more details for you later on this call. Tantan’s success in building premium features this year speaks well to its unique value proposition in the dealing space. We are confident that its potential will be further unleashed next year as Tantan continues to innovate and bring new features that create value for the user. Now let me shift back to Momo and briefly review the product initiatives that we took in the past quarter. In Q3 we remain focused on executing against our key strategic priority, in reaching that social features, optimizing the recommendation algorithm and driving the constant quality for the video services. For example, we made a couple of key upgrades to the chart room experience that was introduced earlier this year. The karaoke function has been optimized and connected to more social module within the Momo ecosystem. The users are now able to share the KTV room either through the news feed or to their Momo friends, so that other interested users can join them and that have fun together. We also started to test the experience of creating and sharing prerecorded karaoke songs on Momo. In August, we further introduced a new interactive game called [Foreign Language] into the chat room experience. This game which used to be a popular offline party game further diversifies the form of interactions and lowers the barrier for our users to socialize and have fun in an open environment. As a result of these optimizations, the overall usage and DAU penetration for chat room continue to ramp in the third quarter and is now one of the key social use cases on the platform. Other than the chat room experience, Quick Chat after several reiterations this year also reached a steady growth stage, both in terms of usage and in terms of monetization. It is now becoming a new driver for the vast business line. The other important initiative that we have been taking since Q4 last year was to diversify the connecting elements on top of the single dimension of location, so that we can help the users more effectively discover new relationships and build meaningful interactions. We have seen this strategy working well in driving the number of interaction around the content and response rate around nearby people. In Q3 while the team continues to test and optimize different recommendation formulas around nearby function, they also started to test new recommendation strategies in the follow-up feeds. We saw early positive impacts in increasing the click through and watch through rate, as well as the number of interactions around the follow-up feeds. These changes show that the possibility that big data and algorithm changes to our users make more relevant discovery, increase their chances of getting meaningful interactions, and that’s reduced their level of frustration and make them feel less lonely and isolated. A lot of the things that we are doing in this area are early based experiments. We do see plenty of opportunities for further optimization and we'll keep exploring these opportunities going forward. On a constant side, in Q3 we are mainly focused on beefing up our content supply system through various initiatives. Wang Li will have more for you later, so I won't go into detail. To sum up what I said on today's call and on the previous calls, Momo has made impressive progresses this year in expanding the form of interaction based on audio and video technology and pushing the ways we connect people beyond physical proximity and in providing higher quality entertaining content to our users. These progresses are important to us, because they enable us to go after not only the new registration, but also the huge amount of dormant users who turn due to the limitation in the form of interaction and the ways that we connect people in the past. In addition, the new cases also increased our ability to build monetization futures and drive business growth beyond live streaming shows in the future. We see a lot of potential here, and we’ll continue to pursue this opportunity going forward. With that, I’m handing over to Wang Li for our business review.

[Interpreted] Now, let me take you through the key things that we've done, as well as the future direction for our major business likes. Firstly on live streaming, total revenues from the live broadcasting business for the quarter was $406.9 million, an increase of 34% from the same period last year. In Q3 we mainly focused on strengthening the supply end of our content ecosystem. That included a number of different initiatives to make sure that we have a constant supply of high quality, high growth and performing talents that are committed to the Momo platform. For example, during Q3 we substantially expedited the process of tying down the professional broadcasters by exclusive contracts or internally we call them Golden Broadcaster Contracts. In addition we’ve adjusted our talent inventive program to lean more towards new and entry level agencies, so they can feel more motivated and grow their business faster. As a result of these efforts, the number of professional broadcasters continues to grow rapidly by a double digit percentage point in Q3 from Q2. Moreover the number of quality agencies which we define as the agency who crossed the monthly groping threshold of RMB 1 million also increased significantly both year-over-year and quarter-over-quarter. We believe the Golden Broadcasters and the quality agencies are the core of our content supply ecosystem. Now with that core part bigger, stronger and more closely tied-up with the platfrom, we are in a much better position to drive further growth leveraging them. As many as you can see from our Q4 revenue guidance, the macro headwind and the consumption softness have slowed down the growth of our live broadcasting business. In the past, the KPIs that we set for agencies and broadcasters center around the growth in the number of professional broadcasters and the Golden Broadcaster Contract signing. Such a KPI system was established to address the content supply issue that we encountered in the second half of last year. That system needs to be adjusted when the key challenge moved from the supply side towards the demand side. Right now the team is working on a new KPI system in order to more effectively leverage the agency and the broadcasts to drive consumption from the user. At the same time we are also starting to divide the product and operational plans for the year 2019 to deal with the new macro trends that we are seeing now. With these adjustments, we remain confident about the growth prospects for live broadcasting business in the year 2019. Now turning to VAS; revenues from VAS grew 221% year-over-year to $84.2 million, driven by the continues momentum from the virtual gifting business on Momo’s core app, as well as the contributions from Tantan. Wang Yu will go through Tantan’s business later, so I’m going to be focused on the VAS business for the core Momo app. On an ex-Tantan basis, VAS revenues for the quarter totaled $60.1 million, an increase of 129% year-over-year, similar to what we saw in the past couple of quarters. The continues outperformance of VAS can be attributable to several factors. Number one, we’ve been introducing more gift features and operational efforts into the established consumer experiences, mainly the nearby people and the interest groups. Number two, the new paying use cases that we’ve been testing with some of the relatively new consumer experiences continue to ramp up steady. Among the new consumer experiences that we currently have, we are role testing the biggest contributors to the VAS business for the past few quarters. In Q3 I’m happy to see that Quick Chat also started to ramp up rapidly, more than tripling its revenues from Q2. As Quick Chat gradually moves into a stable growth phase in terms of usage, we expect it to continue to contribute to the growth of VAS business. The chat room which is by far the largest among the new use cases introduced since the second half of 2017 currently is not a revenue oriented product and has minimal revenue contribution to VAS. However, as the consumer use cases in chat room is very rich and dynamic, we do see plenty of opportunities to more proactively build value added services within this experience in the future. At this point the focus of the chat room team is still primarily on removing the friction of the product and improving the user experience. Therefore, we’d like to defer monetization until later stage. Overall, as I said many times before, we do believe that the users generally have a strong inclination to pay for value added services to enhance their social experience. So if we come up with the right type of paid feature, monetization can improve consumer experience instead of going against it. Moreover the expanding social use cases, many of which are facilitating audio and video based real-time interactions, also provide a rich canvas for us to explore more VAS features. Many of our explorations on that front involve early stage experience. We have a long runway here and also the commitment and patience to take it forward step by step. Next, our mobile marketing revenues for the quarter decreased slightly by 1% year-over-year to $17.2 million. Q3 was a tough quarter for mobile marketing business due to the regulatory headwinds in the financial and the gaming sector. The other reason is that the World Cup event also has caused some of our brand customers to shift their add budgets toward other platforms who had bigger World Cup presence. Overall, we expect the macro environment to remain challenging for our mobile marketing business. Our current strategy here is to focus on product experiments, leveraging Momo’s unique resources such as live and short video and users’ playful nature. That’s the review of the key business lines. Now, let me hand over to Mr. Wang to review Tantan’s products.

Thank you. So let me briefly review Tantan’s operational and business development in the past quarter. Firstly, on user growth. As said on last quarter’s earnings call, user growth is our most important objective this year. I'm glad that in Q3 we performed well on that front, growing our user base much faster than we did in the second quarter. Paying subscribers reached 3.6 million at the end of Q3, a net addition of 500,000 from three months ago. As platform expands its scale the commercial value also increases. In Q3 Tantan contributed RMB164 million to the company’s vast revenue line. That translated into an average monthly revenue increase of 77% from June's level, exceeding the high end of our previous expected range between 60% and 70%. Now, let me go through some of the important progresses to be made that enable us to live with robust results that we posted for the quarter. In July we launched two new paid features; See Who Likes Me, abbreviated as See and Super Exposure. These two new features, especially the See has been well received by users. I'm happy to see that they drove the increase in both the paying conversion and the average revenue per paying user and does boost the revenue significantly in Q3. As said before, the premium features that we offer such as VIP services and the See not only drive topline growth, but also enhances user experience and improves retention ratios as these premium features all aim at increasing the users chance of getting meaningful connection. That is an important principle that we are holding on to in building the monetization features on Tantan, because it’s aligned the commercial interest of the platform with our goal to drive user growth. Moving into Q4, 2018 we will continue to optimize the existing monetization features. As we do so, we expect a number of paying users and revenues to continue to grow. In addition to the optimization of the existing premium features, we are also beginning to plan for the next steps of our monetization roadmap. Currently we have a couple ideas that we are going to try to explore. We’ll update investors when any of them get to a more mature stage. On our last earnings call I mentioned that improving the algorithm is another big focus for us on the product side. We’ve built up our AI team in the second quarter and started testing new recommendation strategies; first in the city of Nanjing then in Q3 we further rolled it out to Jiangsu province. The initial results have been satisfactory, especially in driving the post-match interactions. We plan to apply these algorithm changes to larger scales down the road. Overall I'm pleased with Tantan’s achievements in the past quarter. Compared to a few quarters ago, we now have a much stronger team and richer resources to leverage in order to move faster to focus on our goals. With that, let me turn the call over to Jonathan for the company’s financial review. Jon, please.

Hello everyone! Thank you for joining in our conference call today. Let me briefly take you through the financial review. In the interest of time, I will not review the revenue line items in detail, which has been covered pretty much comprehensively by Wang Li and Wang Yu. One thing I’d like to mention here is that our total review for the third quarter 2018 was $536 million dollars, 51% year-over-year growth and 8% Q-on-Q. To mirror out the Q3 guidance provided on the last quarter earnings conference call, on a constant currency basis our total revenue for the third quarter was RMB3.65 billion, representing a 54% year-over-year growth and 16% sequential growth. The fluctuation on exchange rate during the quarter created approximately 8% negative impact, on the revenue sequential growth rate in U.S. dollar terms. Next, let me talk about our paying user matrix. The total number of paying users across Momo platform was 8.9 million for the third quarter 2018 compared to 7.3 million for the same quarter last year and 8.5 million a quarter ago or 0.4 million quarterly net additions. This number includes both live streaming and the vast paying users on Momo App, without double counting the overlap. Both live streaming and VAS contributed to the paying user growth and live streaming paying user went up slightly faster than VAS paying users. As of September 30, Tantan had 3.6 million subscribers up from 3.1 million a quarter ago or 0.5 million quarterly net additions. As we pointed out, several times before on our previous earning calls, many different social experiences on Momo platform nowadays support live audio, video chats. Some of these are put under VAS and others are under live streaming. But this audio and video experience are essentially all supported by streaming technologies. As we continue to build new social use case and test new premium features in the live interactive experiences, the line between what is live streaming and what is not has become increasingly blurry. For that reason form Q3 onwards we will no longer provide separate paying user comments for Momo’s VAS and live streaming businesses. We'll continue to disclose Tantan’s subscriber information separately on a quarterly basis. On the cost and expenses items, our non-GAAP cost of revenue as a percentage of revenue was 55%, an increase of 5% from the same quarter last year. The downward trend in gross profit margin in the past couple of quarters was mainly due to the production costs related to the Phanta City variety show, as well as the investments in strengthening the content system. More specifically, for the quarter we offered a sign-up incentive to the Golden Broadcasters in order to speed up the process of securing quality contents. In addition, we also tweaked our agency incentive plan in order to motivate more small and medium sized agencies. On a sequential basis the gross margin decreased by a less than one percentage point due to the efforts to building up the content ecosystem. Offset by the fact that the net rate impacted by Phanta City to gross profit narrowed on the quarter-over-quarter basis and to a lesser extent by Tantans’s business, which bears higher gross margin than the core Momo business. Non-GAAP sales and marketing expenses for the third quarter was $73.9 million or 13.8% of total revenue, compared to 15.3% in the third quarter 2017 and 9.8% in the previous quarter. The sequence increase was primarily due to the full quarter consolidation of Tantan who’s biggest spending area is marketing and to a lesser extent the marketing spending in connection with promotions of Phanta City shows. Non-GAAP R&D expenses for the third quarter was 29 million compared to 11.1 million for the same quarter last year, representing a 5.4% and 3.1% of total revenue respectively. The increase reflected the progress we've made throughout the year to build up our R&D talent pool, to support our various product initiatives and also the consolidation of Tantan. We ended the quarter with 2,087 total employees, of which 491 are from Tantan. The R&D personnel as a percentage of total employees for the group was 53%. Non-GAAP G&A expenses for the third quarter was $13.8 million compared to $9 million for the same quarter last year. The G&A expenses as a percentage of total net revenue remained stable. Non-GAAP operating income was $125.1 million, up 21% year-over-year from $103.7 million. The non-GAAP operating margin for the quarter was 23.3%. With the Phanta City impact behind us and Tantan’s net loss continuing to narrow down, we expect the bottom line margins will be stabilized at Q3 level in the fourth quarter. Now turning to the balance sheet and cash flow items. As of September 30, 2018 Momo’s cash, cash equivalents, term deposit and restricted cash totaled $1.48 billion compared to $1.06 billion as of December 31, 2017. Net cash provided by operating activities in the third quarter was $50.9 million compared to $104.6 million for the same quarter last year. The decrease in the operating cash flow for the quarter was because the revenue generated from Phanta City still sits as accounts receivable on the balance sheet as of the quarter end while related costs have largely been fully paid. Now turning to the fourth quarter revenue guidance, given the recent volatility and uncertainty in foreign exchange rates, we are giving the guidance in RMB terms this quarter. All of the year-on-year and quarter-on-quarter comparisons below are made on a constant currency basis. We estimated our fourth quarter revenue to come in the range from RMB3.655 billion to RMB3.755 billion, representing 43% to 47% increase year-over-year and flat to 3% increase quarter-over-quarter. As the big majority of the revenues from Phanta City fell into Q3, a much smaller portion will fall into Q4. The inclusion of Phanta City revenue will cost the quarterly revenue comparison not to properly reflect the growth prospect of our core business. On an ex-Phanta basis, we expect the total revenues in the fourth quarter of 2018 to be between RMB3.624 billion to RMB3.724 billion, an increase of 42% to 46% year-on-year and 4% to 7% quarter-over-quarter. Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Cathy to start the Q&A. Cathy.

Yeah, just a quick reminder before the Q&A session. For those who can speak Chinese, please ask the question in Chinese first followed by English translation by yourself? And also please limit the number of questions to a maximum of two to leave opportunities for other people to ask questions. Operator, ready for questions. Please take people in.

[Operator Instructions] We have the first question comes from the line of Jialong Shi from Nomura. Please go ahead.

Hi, good evening management. Thanks for taking my questions. [Foreign Language] I have two questions. My first question is about the trend for next year. I just wonder if management can provide colors for – colors on the trends for each of Momo’s business segments going into next year. In particular, I just wonder how we should assess the macro impact on each of Momo’s business segments. My second question is about the competition landscape for live broadcasting space. We saw a few new entrants into the live broadcasting space such as [inaudible] and short video app Douyin. So I just wonder if these new entrance or the – if these new entrants are raising the competition for top performers and the guilds as well as competition for audience. Thank you.

[Interpreted] Although the macro uncertainty does put some negative pressure on the growth rate for live broadcasting business, however we do see plenty of growth opportunities next year on the product side and also the operational side. For example, you know next year we will continue to introduce new product features and also more diversified constants targeting different cohorts of paying users. A lot of the new things that we are planning for at this point are targeting the medium toward a longer term paying users. We believe that within the middle cohort we still have a lot of revenue potential to cultivate the three introduction of more gamified activities into the showroom. And the other things is that the team is also working to operate the traffic end users more and more strategically to drive the conversion ratio from platform users to live streaming paying users. At the same time we are looking to revamp the ranking system of the broadcasters in order to provide greater motivation and better stimulate consumption. At this point the live streaming team has also started to put together the new product and also the operational plan for next year and we will roll them out in a methodical way as we move into the year 2019. On the other side of the business it would have Tantan and our own VAS business. As compared with live streaming, these two business lines tend to be more long held driven and there is lower ARPU. So in a tough macro environment, these two business lines should be more defensive and resilient. Tantan has started to monetize only in January this year and is at a relatively early stage of monetization. Obviously it has delivered very impressive topline growth this year and all of these give us the convection that we can build Tantan into a more important revenue driver next year. And our own VAS business has also been ramping up pretty rapidly since Q4 last year as we introduced on the call just now, we do see a lot of potential on that front as well. So overall next year we are going to push the gas pedal a little bit harder for it to drive the growth for VAS and our own Tantan business. We believe that revenue from Tantan and VAS is going to grow as a percentage of total revenue and overall driving force for the company’s top line. It’s going to diversify _ this year. And there is another thing that’s worth mentioning here. Momo’s business model gives us very strong operating leverage and also strong operating cash flow. Next year as Tantan continued to push forward with its monetization efforts, its net loss is going to continue to narrow down. At the same time on the marketing side we also have plans to scale back on some of the marketing spending that bears lower short term ROI. Through these initiatives we are pretty confident that you know as – we are pretty optimistic about the growth opportunities for top line next year and there is also a good chance that we are going to increase the bottom line margin from this year’s level. First of all Momo is a social application. Most of the users when they choose to download Momo in the app store, what they are looking for is to build new relationships and you factor the interaction. If you look at the ways that we – when we think about the way we design a product and also operate a product, we wanted to revolve around that core user demand. That’s the underline difference Momo and other applications such as a large streaming app, music app, short video or other social apps facilitating the social activities within people who already know each other. We believe that Momo’s boundaries center around that sort of core user demand is very clear. As long as their boundaries clear, the live streaming service within that boundary is pretty unlikely to have head-on competition with other applications serving other sort of user demands. Because if what a user is primarily looking for is to find someone new to interact with, it’s unlikely for that user to be closing between Momo and a short video app or a music app. We think that user is more like need to be choosing between Momo and Tantan. With regards to the second question on the specific competition for the top broadcasters, actually during the year 2018 we very significantly strengthened the constant supply which is then centered around the top broadcasters, as well as the talent agencies and that can be reflected in the fact that the number of growing broadcasters, as well as the quality agencies have all been ramping up pretty rapidly. At the same time we are also happy to see that an increasing number of broadcasters and agencies are realizing that the social attributes and the unique user base of MOMO platform means higher revenue potential for them and these are the unique advantages that we can leverage to continue to attract more quality agencies and broadcasters. At this point, we are not feeling any concrete competitive pressure coming from any competing platform out there on that front. Operator?

Sure ma’am.

Ready for the next.

We have the next question coming from the line off of Karen Chan from Jefferies. Please go ahead.

[Foreign Language] My first question is within our fourth quarter guidance, just wondering how much of a contribution from Tantan are we factoring in? Is there any subscriber target you can share with us and how should we think about the revenue outlook for Tantan in 2019? My second question is, given the combination of factors, including adjustment in the incentive policy and also narrowing the loss of Tantan, I am wondering how we should think about gross margin and operating margin trend going into next year. Thank you.

Hi Karen, this is Jonathan. Let me take your question. Firstly for the Q4 guidance, definitely we included a revenue budget from Tantan. The reason we did not provide a separate guidance in Tantan’s revenue was because for the past couple of quarters we started to consolidate Tantan’s revenue, one month’s revenue in June and then full quarter revenue for the third quarter. So we believe it's very helpful for the public to get to know the incremental increases. Since we have already completed the fourth quarter, full quarter consolidation, on a going forward basis we will now provide a separate revenue guidance on Tantan. But one thing I'd like to highlight is that Tantan only started the money division effort in January this year, and then in July launched to see the new feature. The revenue growth has been very fast. The ranking trend will continue. However in Q4 the company doesn't have new money division features to be launched on the platform. So the sequential growth rate probably will come down comparing Q3 versus Q2. So this is the you know directional color. For 2019 we believe Tantan’s revenue will continue to grow at a faster pace, not only their subscription business model. The management team will further explore money division models outside the subscription business model. But we do believe based on the Asian culture, there are a lot of potential the company can you know dig out in the future. But right now it’s still pretty premature for us to provide a detailed guidance for 2019. And the second question is for the incentive programs we launched in Q3 for the Golden Broadcaster. Actually this is only for Q3. We have already scaled back you know the sign up incentives to the Golden Broadcasters in Q4. We picked it, the overall incentive programs, focusing more the incremental revenue growth to the agencies. We reduced comparing to the fourth quarter 2017; we significantly reduce the additional rewards to the top winning broadcasters. Overall we’d like to achieve a balanced revenue growth and also they are the quality of our earnings growth. So we expect the – you know with Tantan’s revenue continue to take a bigger portion in our business portfolio. We expect that Q4 growth margins will be at least stabilized at Q3 levels, but right now because we are still in the middle of the annual tournament, you know the – you know we still have to wait and see the actual results. So for 2019 actually we haven't started it, our year end planning yet. We are going to reveal the 2018 business results and the business planning for 2019 in January. So we’ll have a better color to share with the public you know in March when we release the Q4 earnings. But however as Tang Yan mentioned earlier, given the strengthened aqua system we believe we have a much better – we’re in a much better position to grow our live streaming business in a you know healthy way into 2019 and also we are going to leverage our long tailed user base to step up our efforts, to grow the vast services revenue as live you know from Tantan as well.

Thank you very much.

Yeah, operator ready for next.

Sure ma’am. We have the next question coming from the line of Mr. Daniel Chen from JP Morgan. Please go ahead.

[Foreign Language] My first question is related to the fourth quarter guidance. So excluding the Phanta City, the 4% to 7% Q2 growth is a bit lower than the 9% Q2 growth in the fourth quarter ’17. So may we know the reason behind and also especially on the annual gala, could management share some color on the strategy for this year as compared to last year. Then the question I have is on Tantan. So first one, could management share some color on the long term user addressable market for Tantan in China. Secondly, how do we increase the total time spent and also retention after you being a social connection on Tantan. Thank you.

[Interpreted] Okay, let me translate first. Well, first of all, if you look at our Q4 guidance, on an ex-Phanta City basis, we are actually guiding for the core MOMO revenue to grow 4% to 7% on a sequential basis and on a year-over-year basis we are guiding to grow for 42% to 46%. Given where the macro condition is, we feel that you know that kind of growth is a pretty good growth rate. With regards to the question about the strategies for this year's, year-end tournament experience, as we speak now the year end tournament has just started. If you look at the earlier part of this year, we have been pretty disciplined. We have been de-emphasizing the quarterly tournament from revenue generation perspective. So as we move into the last event of the year, we do want to make it more exciting to heighten out the community atmosphere for the broadcasters, the talent agencies and also the users. However, given where the macro condition is, the total amount as bonus that we are going to put into, we are going to be put into the year-end competition that is going to be right is going to decrease from what we saw last year in the quarterly tournament event. For example, last year during the year-end tournament, we used you know very aggressive accumulators methodologies such as [Foreign Language] which means doubling the payout for the top winners in the game. This year we are not planning to use that kind of methodology again, so that's the question for the live streaming guidance and also the strategy, the yearend tournament for the question of Tantan, let me pass it over to Mr. Wang.

Okay, so in terms of the group growth for Tantan, we believe that we can grow this at least 3x; the current size within China and that’s taking into account how big the market for young people who are interested in dating. And also taking into account the total size of MOMO’s current number of both registered in our users. In China we have $300 million millennials and there's a lack of ways to meet offline. So online is the primary way to meet and we believe that the best tools for doing that is through. [Foreign Language], so that’s the first question. The second question regarding Tantan is how we plan to work on increasing the time spent on the app. I mentioned a few times that the algorithm in AI is a pretty big focus of ours in terms of product development and we have seen some very encouraging results already and we’ll continue to work on it in the coming year. We believe that it will continue to increase the time spent and post that into interactions on the products. The second part is that we are exploring some product features that go outside the scope of just swiping, matching and chatting. But we are not at the stage where we're ready to disclose those features yet.

Operator, we’ll take our last person in and after that person, please turn back to me for closing.

Sure ma'am. We have our next question coming from the line of Tian Hou from TH Capital. Please go ahead.

Good evening, management. [Foreign Language] So, two questions. The first question is regarding the activities format on the platform. We have person-to-person chat and chat room, short videos, social games. So I wonder, on the platform, users, how do they allocate their time, and also in the past, what is the change in terms of how they are using their time; increasing, decreasing or what is it? So, that is trying to understand the situation and also since you have multiple formats and I wonder is that a good thing or bad thing in terms of for the development? Multiple scenario, multiple activities may need, may require different focus and different strategy. So, will that be a stretch for us? So I would like to hear some explanation from you guys. And also the second question is related to go abroad. In China we all know a lot of regulations and you know business activities has a lot of constraints. However, overseas expansion seems like is a trend among a lot of Chinese IT companies. So I wonder what's Momo's plan, and given you have technology, you also have a lot of cash. Thank you. That's all my questions.

[Foreign Language] Your first question first. Well first of all, we currently – our data capability does not support us to very precisely breakdown the time spent among different product modules, so we are not ready to disclose that data point to the public yet. But in terms of DAU penetration, the order of ranking among different stand-alone use cases goes like this. The biggest one is still nearby people and then its live streaming end to end, interest group, and chat room. And there are two special use cases, the torpedo [ph] experience and also the nearby post, because these two functions are interconnected with other stand-alone product modules. In terms of DAU penetration, they are actually the highest, but these two are not stand-alone social experiences. For other social use cases such as Werewolf and Quick Chat, these two are relatively smaller in terms of the size of the DAU. They also have their pretty established and sizable user base. I would say that this overall diversification of social experiences has been playing a very positive kind of role in growing the user base and also the user engagement during the past period of time. But with regards to the question about whether that's an advantage or disadvantage, as long as monetization is concerned, we think that kind of diversification is more expensive and we need to diversify the visit order as well. We believe that virtual gifting is a very flexible monetization methodology and is very suitable for a platform like ours with multiple social use cases. When you connect virtual gifting with different formats of social features and products, we can actually build different paying use cases and monetization model out of that same virtual gifting service to target different cohorts of paying users. So we do see a lot of potential in building monetization opportunities around the virtual gifting service and next year we are going to continue to go deeper on that front. With regards to the question of overseas opportunities, actually we have been conducting regular research about the oversea business opportunities, but so far we don't have any definitive plan to develop, to expand into overseas market, because currently we are still seeing many bigger opportunities in the China market. However, that is indeed an area that we will keep monitoring and we will remain vigilant about any emerging opportunity in overseas markets. If we ever decide to go into overseas market, there needs to be a proven and an established business model and we also need to have the comfort ability that it is the opportunity that our team, Momo’s team specifically has the capability of seizing. So overall we will be making such kind of assessment in a very careful and prudent way. So, that's the answer to your second question.

Given time, that's going to be the last question that we take in. We thank you for the participation of our investors on this conference call. We'll see you next quarter. Operator, ready to close.

Certainly, ma'am. I would now like to hand the conference over to Ms. Peng. Please kindly take over.

Yeah, this is she. We are ready to close, operator.