Hello Group Inc. (MOMO) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter of 2019 Momo Incorporated Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. And I'd like to hand the conference over to your first speaker for 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 2019 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.

[Foreign Language] Good morning and good evening everyone. Thank you for joining our conference call today. Q3 was another robust quarter. We continue to deliver strong financial results both in terms of revenue and profitability. In addition, we are also making solid progresses with our product initiatives and start planting seeds for future growth. Now please allow my team and I to take you through the details. [Foreign Language] Firstly, an overview of the financial performance. For the third quarter 2019, total revenue reached RMB4.45 billion, up 22% year-over-year. Excluding Phanta City impact, which was a non-recurring, non-core revenue item in last year, total revenue for Q3 2019 grew 28% year-over-year. Adjusted operating income for the quarter was RMB1.2 billion, up 41% year-over-year and representing a 27% adjusted operating margin. Excluding Tantan's financial impact, core Momo's adjusted operating margin -- operating income for the quarter was RMB1.36 billion, up 38% year-over-year and representing a 33%, adjusted operating margin, up from 28% from the same period last year. The consistent and robust profit growth trends of the core Momo give us the flexibility to maintain a good balance between shareholder return and investment for the future of the Company. [Foreign Language]. Now a deeper look into the quarter. Firstly, the growth of our community. The core Momo application had 114.1 million monthly actives for the third quarter 2019, up 3% year-on-year and 600,000 net addition from the previous quarter. After the homepage suspension of the core Momo application was lifted in June, the engagement metrics have been showing a rebound trend. Total time spent in September was up high-single digit percentage from that in June. [Foreign Language]. In the third quarter 2019, Total paying users for the core Momo platform was RMB8.9 million a 300,000 net addition from last quarter. The increase was driven by a couple of different factors. One obviously being the overall improvement of the user engagements. The other contributing factor is our product and operational efforts to build richer paying features to improve the experience of the long-tail users. In the third quarter, we revamped the greeting interface on the core Momo to provide better user experience. The new greeting experience ends up giving a meaningful lift to the number of paying users sending virtual gifts to improve their chances of getting a reply. In addition, as I mentioned on our last earnings call, in Q3, we also started to roll out paying features within the parking lot experience, which was a virtual community service that has been ramping up fast in terms of usage, since the second quarter of 2019. All of these product initiatives contributed to the strong paying user growth in Q3. [Foreign Language]. Now briefly on Tantan. Tantan ended the quarter with 4.5 million paying users, up from 3.2 million a quarter ago. The increase was largely the reflection of the nice user recovery trends after the lift of download and payment suspension, as well as the team's efforts in optimizing its existing premium features to drive better conversion. Wang Yu will have more details for you later in his remarks. [Foreign Language]. Now I would like to walk you through the progresses we made in the four strategic areas we laid out at the beginning of the year. Firstly, a reminder of what these strategic priorities are. Number one, continue to grow the user base and engagements through product innovations and effective marketing approaches. Number two, drive steady and healthy growth from live broadcasting business through products and operational efforts. Number three, cultivate a paying potential from middle cohorts and long tail users through greater VAS experience. And number four, drive monetization growth from Tantan through the optimization of existing premium features and the introduction of new paying experience. [Foreign Language]. As in previous quarters, I'm going to elaborate a bit on the first priority around the product initiatives. Wang Li and Wang Yu will take over later to review the business endeavors and Tantan's specific efforts. [Foreign Language]. On the product side, we released a new version of Momo in late August. In this new version, we redesigned a homepage to focus more on the nearby experiences. The third tab of the homepage, previously the nearby broadcasters has been replaced by the nearby -- by the new nearby activities page. Instead of pushing just nearby live streamers, we now use the new page to recommend a much broader range of active users who host live social activities such as chat rooms, karaokes, live parties, talent shows or other types of live audio and video experiences. When users click into one of the feeds on this new page, we would like to drop them right into some sort of live social activities where they can immediately start to interact, have fun and get to know someone new. The redesign of the nearby newsfeeds leaves the algorithm much bigger room to improve the efficiency of matching and interactions. The previous discovery session that occupy the upper part of the homepage require the users to click several times before they can land in the social activities that they are interested in. With each additional click, we could lose part of the user engagement, which lower the overall efficiency of homepage traffic dispatching. And there is limited room for the recommendation engine to plays its role on a discovery page. The new version displays all the nearby social activities in a newsfeeds format so that the algorithm can make personalized recommendations according to different user preferences and make real-time adjustments as such preferences evolve. In addition, the new version also paves the road for the product team to roll out other optimizations into the nearby features and functionalities in the future. Nearby people, posts and activities, together with instant messaging constitute the basic social experiences on the Momo platform. Continuing to enhance the user experience around these basic social infrastructures is one of the key drivers in Momo's user growth strategy. The team are going to keep pushing hard and I believe they can deliver a better result on that front next year. [Foreign Language]. Moreover, I'm happy to see that the virtual community services continue to gain traction in terms of usage. In Q3, the two new experiences that I mentioned on the last quarter's call, the parking lot and the farm reached over 50% of the DAU penetration, up from 40% three months ago. These two experiences enable the users to easily break the ice with people they are interested in and interact non-synchronously via our mini game experiences, fitting right into the core demand and social mentality of the Momo users. In Q3, we also started to establish the task and reward system within the parking lot experience to better engage and retain the users. Such system, which is often seen in online games also gives us plenty of opportunity to build and upgrade monetization features down the road. Using mini games and gamified experience to facilitate relationship building, the enhanced social experience is one of the key ideas directing our product efforts this year. We are currently replicating it in multiple use cases, including the groups, the chat room and a few others as well. Wang Li will have more details for you in his remarks. [Foreign Language]. In addition to the progresses we made on the product side, in the third quarter, we also moved steadily forward along the priorities on the business front for live streaming the operational and product initiatives that we rolled out earlier in the year, continue to pump gas into the engine, enabling us to deliver nice revenue growth with a healthy gross margin. For VAS, although we took down some monetization experience for our product tweaking in Q3, we're still delivering impressive growth due to continuous innovation from the VAS team. Now here is Wang Li to give you a detailed review in those [Technical Issues] areas. Mr. Wang Li, please?

[Foreign Language]. Thanks. Now, let me review the Company's business results and the progress we've made across our priorities on the monetization side. Number one, drive steady and healthy growth from live broadcasting business through product innovations and operational efforts. Number two, cultivate the paying potential from middle cohort and long-tail users through greater VAS experience. Number 3, drive monetization growth of Tantan through optimization of existing premium features and the introduction of new paying experiences. Wang Yu will elaborate on the third one later in his remarks. So next, I'm going to take you through what we've done and the future plans regarding the first two priorities. [Foreign Language]. Firstly, on live broadcasting. Total revenue from live broadcasting business for the quarter was RMB3.28 billion, an increase of 18% from the same period last year. Our strategy to apply different products and operational efforts to drive spending from different cohorts of users continue to pay off in the third quarter, driving steady and healthy growth in revenues. In June, we rolled out the nobility system with the key objectives to provide better paying experience to the high paying users. In Q3 based on the initial learnings and feedback-- and the feedback from the users, we made some optimizations to the system. For example, for those who are able to maintain their titles for multiple months in a row, we would grand additional rewards and benefits. As a result, we are seeing a strong mentality among the high paying users to keep up the spending in order to level up or keep their respective titles. In addition to the nobility system, the other initiative that the team has taken was the offline music tour branded as [Foreign Language] in Chinese. This series of event aims at enhancing the experience for the top of the pyramid users and leveraging their network to expand the pool of high-paying customers. Another goal of the event is to showcase the unique fun of the live talent shows as the new form of entertainment as compared to other form of offline recreational activities. Since the first of such offline music tours was held in May this year, they have been well received by the users. In August, we held the third tour of the year in Chengdu, which contributed to the growth of the top spenders -- to the number of the top spenders in the third quarter. [Foreign Language]. Other than these initiatives targeted at the high-paying users, in Q3, we continue to push forward on providing richer and better experience for the middle cohorts. This year, one of the biggest successes we had was the launch of the interactive gifts, which was proven to be effective in enhancing the sense of participation of middle-layer paying users. In Q3, we released a number of new ones that have been tested as effective in the first half of the year. These new gifts includes the fighter jet, gold miners, and the snowball fights. These interactive gifts contributed positively to the growth of spending in the middle layers. [Foreign Language]. As a result of these multifaceted efforts, the spending from the core paying users defined as those who spend more than CNY5,000 per month grew 20% on a year-over-year basis. More importantly, the growth was driven primarily by the increase of the number of paying users in these hardcore layers, where their respective ARPUs remained almost flattish from last year. Such growth pattern was consistent with last quarter, which we consider a healthy, sustainable structure as opposed to a pure ARPU driven model. [Foreign Language]. As we understand, some of the investors are concerned about the competitive landscape in the live streaming space, mainly due to the rapid -- rapidly rising revenues from some other players with larger user base. At this point, we have not seen any meaningful competitive pressure from these players or any systemic risk to our ecosystem posted by the competitors out there in the market. The revenue and profit performance of our live broadcasting business speaks for itself. For the third quarter of 2019, our live broadcasting revenues grew 18% from last year. More importantly, as I mentioned earlier, such growth was fueled primarily by product and operational initiatives geared toward structural improvements to the ecosystem rather than simple stimulus, such as higher payout ratios. In the third quarter, the payout ratio to the talent agencies showed a slight downtick as compared to the year ago period. In addition, the number of the professional broadcasters defined as the high grossing performers who on individual basis bring in more than RMB30,000 growth in per month, continue to grow healthily by 20% year-over-year and 9% quarter-over-quarter in Q3. The number of quality agencies who have the ability to generate more than RMB2 million monthly growth -- monthly gross revenues, reached close to 100, up 67% on a year-over-year basis. And as I shared a bit earlier, the number of core paying users also grew around 20% compared to the year-ago period. The payout ratio, the number of professional broadcasters, the number of quality agencies and the number of core paying users are the key indicators that we monitor closely to gauge the competitive pressure and the healthiness of the supply and demand side structure. The positive trajectories in these data show that Momo's live broadcasting ecosystem is solid and poised for healthy and sustainable growth, even under an environment where bigger players are trying to compete with higher payout. We have been in live broadcasting business for four years now. The team has proven their execution capabilities in this space, which has always been highly competitive from day one. I'm confident that we will continue to do well with the unique position of the Momo platform. [Foreign Language]. Now turning to VAS. Revenue from Value Added Services or VAS continue to grow at a decent pace, reaching RMB1.06 billion in the third quarter of 2019, an 86% increase on a year-over-year basis. Wang Yu will talk about Tantan's business later, so I'll be focusing on the VAS business for the core Momo. Excluding Tantan, VAS business for the core Momo generated RMB755 million in revenue, an increase of 84% from the same period last year and up 14% from last quarter. Virtual gifting and identity business continue to grow with a strong momentum, offset by a slight downtick in the membership subscription business. Now, let me quickly walk you through the different drivers of the virtual gifting identity business. Chat room with the biggest growth contributor for the quarter as we continue to release more traffic into the higher revenue generated channels. While chat room is now becoming a sizable revenue driver, the team is still operating the business at a controlled pace focusing primarily on building better user experience instead of driving monetization. At this point, we still would like to see the big majority of the traffic going into the non-commercially operated channels. We are also working on a number of new chat room experiences to bring some of the popular offline party games and activities to our users. These non-commercially operated channels are also revenue generative as people send virtual games to each other in different occasions for the purpose of enhancing their social experience. But the ARPU is generally lower than that in the commercially operating channels. Moving on to other paying experiences that we have. Last quarter, I mentioned that the virtual community experiences represented by the parking lot and the farm have been ramping up rapidly in terms of usage and the team started to test paying experience in July. Now I'm happy to see that this initiative progressed well in Q3. The DAU penetration and the other engagement metrics of these two experiences continue to grow. Now, over half of our data users connect through these two virtual community experiences. Meanwhile, our early monetization efforts within the parking lot also start to bear fruits, making a meaningful contribution to the growth of VAS business in the third quarter. The value-added services currently offered in the parking lot experience, allow the users to purchase items to establish their own virtual identity or interact with other users in a playful manner. Thus, enhancing the social experience of the users. We have also started to build a task and reward system that will better motivate and engage the users. With the encouraging result of the parking lot monetization, and uptrending usage of the farm experience, we have started testing monetization within the farm experience in Q4. [Foreign Language]. In addition to the chat room and the new virtual community service, virtual gifting within traditional use cases that include interest group, greetings and IM chat also grew nicely in Q3. The growth was driven by the second The Romance Car events and the new greeting experience, which led to an increase in the number of virtual gift buyers. Quick Chat and Party remain pretty flattish over last quarter as we took down the one-to-one chatting for some products tweaking in Q3. But the steady growth of the Party experience made up for the revenue loss from the suspension of Quick Chat. We expect to gradually replace the Quick Chat experience with a new video/audio chatting experience, which we are currently testing with a small base of users. Overall, we believe that still has a lot of headroom for further growth, which will come from the optimization of existing VAS features as well as from new VAS experiences that the team will continue to roll out moving into next year. [Foreign Language]. Now briefly on other business lines. Mobile marketing revenue was RMB81.89 million, a 30% year-over-year decrease, but a 7.5% increase from last quarter due to the natural rebound after the ban of the new seat was lifted. Given the headwind in the overall ad market, mobile marketing will remain as a low priority effort for us for the remainder of this year. Mobile gaming business continue to shrink, bringing in only RMB15.79 million for the quarter. Our expectation is that the jointly operated games as a business will gradually phase out on our platform. [Foreign Language]. That's the review of the key business lines. Now, let me hand over to Mr. Wang Yu to review Tantan's product and business development. Mr. Wang, please.

Thanks. So, let me briefly review Tantan's operational and business developments in the past quarter and our next step plans. First, on user growth. The suspension of download from Android application stores was lifted around late June, early July timeframe. The download and payment services suspension for iOS was lifted in mid-July. After that, we significantly stepped up our marketing efforts and we're able to see a rapid recovery in users and engagements. Total paying users of Tantan for the third quarter of 2019 reached 4.5 million, a nice rebound from the 3.2 million in the second quarter. The 1.3 million quarterly net addition in paying users was largely due to the recovery in active users engagements and to a lesser degree, the slight improvement in conversion, which can be further attributed to the paying feature optimizations introduced in the third quarter. Now briefly on revenues. Total revenue for the third quarter was RMB310 million, up 89% year-over-year and 9% increase from the previous quarter. As we called out on our last earning call, the ban on download and payments has caused the substantial lag between total grossing and revenue recognition. As a reminder, our Q2 grossing declines 24% Q-on-Q due to the service suspension, but revenue only showed a 4% sequential decrease. It means that a large portion of the 24% grossing declined during the second quarter got pushed into the revenue lines in Q3 and beyond. That lagging effect has caused our Q3 revenue to rebound to a lesser degree than our total grossing did. On a sequential basis, the 9% growth in revenues in Q3 was based on a grossing revenue increase of more than 40%, which was largely in line with the growth in the number of paying users with our people remaining at pretty stable levels. Next, I'm going to briefly review what we've done and our future plans against our strategic priorities. Our top priority is to expand the size of Tantan community through product innovations and marketing efforts. In the third quarter, we've fully rolled out a new feature called Tantan or my Tantan in English. The new feature delivers daily update messages into your chat feeds. Usually the message contains inspirational topics that focus on relationship building, which makes an interesting and comforting read for the youngsters searching for love and new relationships. Alongside the message, we also send reports revealing interesting information about other user's activities around your profile, and you might be interested in some of them based on such information. My Tantan gives us a flexible tool to make personal connection to our users, at the same time, customize our operational efforts to drive our user engagements and monetization in the future. Other than this, new feature launch, in Q3, we also completed the testing of [Foreign Language] or flash chat in English, which is a one-on-one match plus IM chatting experience. Unlike the swipe based matching experience, it requires mutual interest before chatting. The new feature allows Tantan users to be able to immediately start interacting and thus have an opportunity to bond based on conversations and personality rather than purely on the appearance shown through the profile pictures. The matching system was powered by a recommendation engine that considers a number of different factors, indicative of how likely the two persons can bond through chatting. Initially the profile pictures for two last matching parties were blurred, so they won't be able to see what the other person looks like, only after the conversation reaches a deep enough level will the two parties unveil the photos to each other. User can also see -- can also pay to see the current party's photos before the due time. The data and feedback during the experimental period were very encouraging, both in terms of driving meaningful conversations and user engagement as well as in terms of revenue contribution. We are now in the process of rolling it out to larger scale of users and expect to reach full coverage by the end of this year. At this point, we see that the flash chat experience largely as a consumer-facing products enhances user experience and improve retention. Especially for users will limit the number of matches and thus have difficulty in building meaningful interactions. However, we believe that such consumer experience works well, it's also going to have meaningful monetization value. Currently, we're testing different ways to monetize this new product, and shall be able to provide more color by our next earnings call. The other thing worth mentioning is that after several quarters of testing and tweaks, we finally rolled out a new version of Tantan, which adopts the new user interface. The real-time UI features the bottom navigation bar with a new discovery tab. For most of the users, the tab now mainly carries the -- a point to our friends post. We are currently testing with a small base of users on other news feeds from the Discovery tab with richer content allows users to connect and bond through other means. As compared with the old version, it primarily focuses on the swiping experience as the new version gives us plenty of flexibility to explore other features and grow the opportunities in the future. Now, a quick update on our second priority, which is to drive monetization through the optimization of existing premium features and the introduction of new paying experiences. In the third quarter, we released a couple of optimizations to improve the monetization of existing premium features and saw positive impact to the conversion ratio. Meanwhile, the team has also tested other optimizations that could bring revenue improvements in the future periods. The various optimizations we make on the monetization front generally include adjustments to user interface that enable better payroll design created operational messages lever to the users change in the recommendation engine and other innovative merchandising strategy. Oftentimes a seemingly subtle change in one of these areas can make meaningful contribution in revenues. Due to concerns around business confidentialities, we prefer not to go further into the details of these optimizations. A brief update on the other important service that we've been aiming to pilot by end of this year. At this point we're going through the final stages of preparation work and tightening up the lose ends on the back-end, on the front end, we're going to build this -- into the discovery page in the new version. We've already started some related testing work. Depending on the progress we will gradually expand more open audience as we move along the process. Our team is going to proceed with extreme prudence with this new service. The goal is for to not just be a new revenue driver but also contribute positively to content position at the dating platform and our mission to connect people for romantic purposes. Lastly, quickly on our overseas development plan. In Q3, we continue to go deeper into the Asian market. In terms of users, we now have pretty established position in India and some of the markets in Southeast Asia. As we started to focus more on improving monetization, revenue also began to catch up in these markets in Q3. For the month of October overseas market already contributed more than 10% of total revenue. Our observations in the various markets so far entered also reinforce our early belief that Tantan products have universal appeal to a global user base and the revenue TAM outside of China can be as big as what we've seen in domestic market. Although we do see huge revenue potential in markets outside of China. Our overseas expansion is still at a very early stage. With the solid progress that we made in the above mentioned countries and regions, we now plan to take -- launch marketing efforts in a few new markets in the coming few quarters. Our early learnings tells us that we need to customize the marketing approaches as well as the monetization plans to better fit the local situations in different markets. We'll report our findings and progress with these efforts as we move along. With that, I'm passing the call to Mr. Jonathan Zhang for a financial review. Jon please.

Thank you. Hello, everyone, thank you for joining our conference call today. In the interest of timing, let me jump directly into the review of cost and expenses items as the overall financial highlights and revenue line items has been covered pretty comprehensively in the earlier remarks. Our non-GAAP cost and revenue for the third quarter of 2019 was RMB2.18 billion compared to RMB2.01 billion for the same period of last year. Non-GAAP cost of revenue as a percentage of total revenue was 48.9%, a decrease from 55% from Q3 2018. The non-GAAP cost of revenue for third quarter of 2018 included the production cost of Phanta City, which was RMB215 million. Excluding the Phanta City impact, the non-GAAP gross margin for Q3 2019 was up 2.5% year-on-year due to lower payout ratio from both live streaming and VAS businesses. As Wang Li mentioned, we are very proud that the team has been able to drive robust revenue growth at a substantially lower payout ratio, while many other platforms have been trying to compete with the rising payout. Such achievement is on the back of Momo's unique position as an open social platform and the management's firm commitment to profit growth. On a sequential basis, non-GAAP gross margin for the quarter remained stable. Non-GAAP R&D expenses for the quarter was RMB254 million compared to RMB197.4 million for the same period of last year, representing 5.7% and 5.4% of total revenue respectively. We ended the quarter with 2,209 total employees of which 588 are from Tantan. The R&D personnel as a percentage of total employees for the group was 54% compared to 53% in Q3 last year. Non-GAAP sales and marketing expenses for the third quarter was RMB701.7 million or 15.8% of total revenue compared to RMB502.8 million or 13.8% of total revenue for the same period of last year. On a sequential basis non-GAAP sales and marketing expenses as a percentage of revenue was up by 3.7%, the increase was due to the following factors. The biggest one was Tantan's marketing spending in domestic market to recover the user losses caused by the download and payment suspensions in Q2 2019. The second factor was the marketing cost in connection with the Tantan's overseas business development. Lastly, in Q3 2019 we also created a internet variety show called (inaudible) which was largely a branding effort to promote new performing talents of our live streaming business. Non-GAAP G&A expenses was RMB150.4 million for the third quarter of 2019 compared to RMB93.8 million for the same quarter last year, representing 3.4% and 2.6% of total net revenue respectively. Non-GAAP operating income was RMB1.2 billion, an increase of 41% from Q3 2018 representing 27% non-GAAP operating margins for the quarter up 3.6% from the same period last year. Now turning to the balance sheet and cash flow items. As of September 30 2019, Momo's cash, cash equivalents, term deposits and short-term investments totaled RMB13.7 billion compared to RMB11.3 billion as of December 31st, 2018. Net cash provided by operating activities in the third quarter was RMB1.2 billion compared to RMB346.5 million for the same quarter last year. Lastly, for the first quarter 2019 revenue guidance. We estimated our third quarter revenue to come in the range from RMB4.52 billion to RMB4.62 billion, representing an increase of 18% to 20% year-on-year. Such an estimate include the assumption that the revenue from Tantan will grow in the high '50s percentage on a year-over-year basis. Please be mindful that the 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?

Yes, just a -- as always a reminder, for those who can speak Chinese, please ask your questions in Chinese first, followed by English translation yourself. So with the limited time, I guess we'll jump right into the questions, operator please.

Thank you. Ladies and gentlemen, yes we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Jialong Shi of Nomura. Please go ahead.

Hi, good evening management. [Foreign Language]. Good evening management. Thanks for taking my questions. I have two questions. My first question is about Tantan. We saw from third-party data that Tantan, MAU and the DAU were recovering from the low in July. However the recovery speed appeared rather slow, as of October still based on the same third-party data. Tantan's DAU was still lower than the DAU recorded back in June, before the suspension happened. So I was wondering what was the trend that management monitored from your internal data, whether the trend shown by these external data was in line with the trend you have seen internally. And if the external data were correct, when do you think Tantan will be able to fully recover its DAU to previous normal level, and what are your strategies to bring back those lost users? And my second question is about the dividend. We saw several Chinese companies are buying back shares or pay cash dividend to shareholders and Momo has a lot of cash on the balance sheet and besides your business it's generating a lot of operating cash flow every quarter. So I was just -- and Momo actually paid the dividends this year, so I was wondering if the Company will consider paying a regular dividend going forward. Thank you.

Okay. This is Yu Wang. I'll answer the first question. I'm not exactly sure what third party data you're referring to. So I can't really comment on it. We do not advise investors to rely on any third-party data as indicators of our user trend, because the third-party data that we have seen is obviously not consistent with our internal metrics. We have disclosed the paying user account -- user number of Tantan, as investors can see the September paying user accounts showed a significant increase from June. That was largely a reflection of the rapid recovery in the MAU and DAU on the platform, after the download and payment restoration. It's true that our DAU and the paying user number has not yet gone back to the peak level that we saw before the suspension. That was because that we've significantly tightened up the content reviewing system and anti-spam policies. In the short-term, it certainly will post a negative impact on user growth, but longer term, we think it's going to benefit our ecosystem. Our user growth strategy consists of two key components. Enriching the product and making our marketing approach more effective. On the product side, as said earlier in the call, we've been making impressive progress with our new features and services both free ones and premium ones. We're very confident that these new initiatives on the product side will help us improve the retention of users, which is crucial for our user growth. And the fourth we'll continue to improve marketing efficiency as well. Overall we're very confident next year Tantan's users and paying users will continue to grow rapidly.

[Foreign Language] Okay, let me quickly translate. With regards to capital allocation, the company has several key priorities in consideration. Number one is to put the profit back into the business to drive organic growth and number two is that we look at whether we have any good investment opportunities with reasonable valuation in order to grow beyond what we can do organically. And number three is of course to return the cash to the shareholders in the form of dividends. Momo as a company during the past several years has been showing a consistent record of profit growth supported by strong cash flow. At the same time, what has also been pretty consistent is that we've been generating a huge amount of cash on top of what we can reinvest either organically or through M&As. Under that sort of premise, the company does have very strong intention to continue to share the prosperity with the shareholders in the form of cash dividends. Hold on a second.

Just one color to add, currently to balance the supporting the business growth needs versus dividends intentions, we'd like to keep our dividends under the special dividend form instead of a regular dividends.

Operator?

Thank you. Our next question is from the line of…

Operator, just one quick thing to add given the limited time, we would like to limit the number of questions asked by each analyst to just one, so that we have more people getting the opportunity to ask questions, please for the following person asking question, please pay attention to that limit in the number of questions. Thank you.

Thank you. Our next question is from the line of Alex Poon of Morgan Stanley. Please go ahead.

[Foreign Language]. I will translate my question. So paying for social networking services looks like an early industry in China. What do you think in a three to five years time, would this industry look like content sharing platform like the short video platforms depending on the content production or is it like online travel one-stop shop. You only stay in one platform or is it like job market you put your CV everywhere, you use every platform or you use like e-commerce. Did you go for different platform for different products based on your experience with your own user base payment behavior frequency stickiness, how many apps do you think the China market will turn out to have and market share and wallet share would this be similar to U.S. and Europe situation where Tinder dominates? Thank you very much.

[Foreign Language] Well this is a pretty long question. So I'll try to answer to try to address the question to the sense that we can. Alex, as you said, we -- Momo as a company we play in the what we call open social space. I think the competitive landscape would look pretty similar to what you're seeing in the Western market in a sense that there will be some level of monopoly that you're going to see in the space. I think what's going to happen is that the leader number one player in this space is going to have the largest market share and we'll leave a small portion for a number of different players to grab there in the market, but the difference between open social space and a closed circle social space is really is I don't think in the open social space it will be a winner-takes-all kind of market, which means that there are still going to be opportunities for other small players whereas in the closed circle kind of social space. There is usually just one biggest, biggest dominant player out there. So I think that helped -- that answers your question. [Foreign Language]. Yes, okay. For the fourth part. I guess what I would do is, I would just reiterate the strategic direction that we are moving towards, I think Momo as a Company we've always positioned ourselves in the social and broader interest payment space in China and outside of China. So I think obviously we're going to evolve somewhere down the path over the coming three to five years. But no matter how we evolve, I guess what we do and the initiatives that we are going to be taking will largely happen within that broader boundary revolving around the two keywords. One is social, the other one is entertainment. I hope that addresses your question. Operator, ready for the next.

Thank you. Our next question is from the line of Natalie Wu of CICC. Please go ahead.

Hi, good evening. Thanks for the opportunity. [Foreign Language]. I will translate myself. So my question is regarding the overseas expansion initiative by Momo. I noticed that Momo launched the overseas product Ola just recently, just wondering what's the position versus Tantan in the overseas regions. And secondly what will be the spending plan for that overseas initiative next year. And just very quickly just wondering can management give us some color on Tantan spending plan in 2020? Thank you.

[Foreign Language] Okay, let me briefly translate. In the past few months, we have done a pretty thorough research on the oversea development opportunities. One of our key observations is that in overseas market in that open social space, the user demand are actually also very diversified and fragmented. So and it's pretty common to see one user using multiple applications to date or otherwise socialize. So we do see a lot of good growth opportunities in a number of different verticals. So other than the single application is -- well of course our oversee -- overall overseas expansion plan include Tantan. But other than the single application of Tantan, I guess, we are going to make other new bets in overseas markets as well. But I think what Momo is doing and what Tantan is currently doing will be slightly different in terms of positioning and the key goal. With regards to direction and the overall spending plan, I guess, here is what we can say Momo as a -- Momo's teams forte lies in the social space. So our oversea efforts were also largely centered on the social and the interactive entertainment space. With regards to how we are going to be choosing in between and spending between different products, I guess we will be very, very focused on ROI, which means that, if there are projects, which we deem will be difficult to recover the cost within a reasonable period of time, we tend to take a very prudent kind of position towards those sort of projects. So I guess that's the overall plan that we have regarding the overseas expansion plan. I guess there is a more specific question about Tantan's spending. Wang?

Yes. So for Q4, sales marketing for the domestic business will come down meaningfully from that in Q3, and back to the levels seen before the disruption. But overseas spending will increase from the Q3 level. Overall, we should still see a decrease in sales and marketing in tens of millions from Q3.

Okay, operator, next?

Yes, thank you. Yes. We will now take our last question due to time constraint. We now have Tian Hou of TH Capital. Please go ahead.

Yes. Thanks. [Foreign Language]. So regarding the new product lease, not long ago, Momo, you know, had introduced to the market ZAO, it is a very interesting once they were introduced to the market quickly become one of the most popular app. And I wonder what's the management's plan to use this app to advance your users' growth and your monetization, what the plan? That's the first question. The second one is regarding this year's galla what are the some different points will be compared with last year. Thank you.

[Foreign Language] Yes, let me translate the first question and then Mr. Tang can answer the second questions. So after the application of Zao was launched the user data that we have been seeing far exceeded our original expectation. I think that our performance really came from the fact that the team is really pretty sensitive in how to apply the new cutting-edge technology to serve the users' entertainment demand, and it also shows that Momo team's strong capability in product innovation has been recognized by the users in a mass scale. So I think in the future we're going to continue to upgrade and extend the use cases of this applications and we are also looking to significantly improve the user stickiness around the application. And at this point all of these jobs and you know key initiatives our team has been working very hard on these different priorities for the product. I'm pretty confident that next year we'll continue to deliver surprises to our users. And more broadly at a strategic level, I think the product innovation represented by the launch of ZAO has always been the priority for Momo as a Company, and such product innovation involve the innovation around the core Momo application, but also involve the innovation regarding new standalone application and we will continue to, I think we have been working on this for quite a while and we have made some very impressive progresses and we will -- down the road we're going to continue to push hard on that front. So that's the answer to the first question. [Foreign Language]. I think one of the guiding principles for the live broadcasting team this year has been de-emphasizing the quarterly tournament event as a revenue driver and to improve the daily routine revenue from the (inaudible). So, as you know, many of the investors can see, the team has been really pretty up -- pretty controlled and disciplined in terms of driving the revenue growth from the (inaudible) event. But I think the year end galla will be a little bit different as we because that is the biggest and also the most important event of the year. So currently the team is still planning to put in active operational efforts to motivate the broadcasters and the top users to participant, but unlike the prior years, if you remember in prior years, we tend to have pretty intense pressure around how much revenue needed to come out of the year-end competition event, but this year we are not really seeing any sort of revenue pressure around the event. So I guess the good thing is not going to one of the key priorities for the year-end galla event. A lot of the, I guess, a lot of the emphasis will be placed on making the competition event a more compelling and fun to watch experience and what's going to be equally important is to discover new promising broadcasters and talent agencies who can offer a lot of potential for revenue growth next year. Bonus wise, as compare, I think we are going -- probably going to set a little bit more bonus set aside a little bit more bonus for the year-end event as compared to what we did for the first three events of the year, but our bottom line has always been that any incremental revenue needs to bring in incremental gross profit. So I guess that's the answer to all of the questions. That also concludes the call for today. Thank you for joining our conference call today. We are going to see you next quarter. Operator, we are ready to close.

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