Hello Group Inc. (MOMO) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 for Momo Incorporated Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today. I would now like to hand the conference over to our 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 first quarter 2020 earnings conference call. The company's results were released earlier today and are available on the company via our 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 the 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. As you can imagine Q1 was a challenging quarter for Momo, as well as for many other companies who operate in China amidst the difficulties caused by the COVID-19 outbreak. I am proud that the team has been able to adapt well to the changing environment and navigate through these challenges with solid execution against our strategic goals. Today my team and I will walk you through the key operating and financial results. We are also going to reiterate our priorities for the year and how we are going to approach them in the coming few quarters.

[Foreign Language]

Firstly, a brief overview of the financial performance. For the first quarter 2020 total revenue was RMB 3.59 billion, down 3.5% year-over-year. Adjusted operating income for the quarter was RMB 801.0 million, representing a 22.3% profit margin. Excluding Tantan's loss, adjusted operating income for the core Momo was RMB 901.5 million or a 28.1% profit margin.

[Foreign Language]

Now, a deeper dive into other aspects of the quarter. First, on operating metrics. The core Momo app had 108 million monthly actives for the first quarter 2020, down 6% year-over-year and representing a 6.5 million net decrease from the previous quarter. As I said on our last earnings call, the COVID-19 outbreak has caused a significant portion of our users to delay their time to get back to the big cities for work. It has prolonged and amplified the negative Chinese New Year effect. In addition, the strict social distancing control and associated decline in outdoor activities have also limited the demand for using an open social app to discover new relationship. In response to such a situation, the team has quickly adjusted our strategy by redirecting the traffic from nearby people and one-to-one chatting which focused mostly on online to offline conversion, toward other social entertainment experiences. We provide broader online companionship to the users. As a result per user time spend per day continue to rise on a sequential basis reaching a new record high since the beginning of 2018.

[Foreign Language]

Due to the pressure on MAU’s number of paying users on Momo also saw a 700 paying net decrease from Q4 to 8.6 million in Q1 2020. Paying users on Tantan saw a 300k quarterly net decrease to 4.2 million in Q1 2020, also primarily due to the weak dating sentiment caused by the virus related disruptions.

[Foreign Language]

Active users and other engagement metrics on Momo have been gradually rebounding since March. As we move deeper in executing our product strategies and enhancing our user experience, we plan to step up our marketing efforts from June to drive the top of the funnel activity. Based on the current trajectory, we expect to see a full recovery on Momo within the coming few months. Tantan’s traffic has been showing initial sign for recovery since early May, as outdoor activities gradually picks up. We expected recovery to be a progressive process as the dating sentiment comes back on a graduated basis.

[Foreign Language]

Despite a rough start of the year caused by the virus related factors, we won't let these disruptions get in the way of executing our user growth strategies, which we laid out at the beginning of the year. I'd like to take a few minutes to reiterate here. First, continue to improve the social experience on our platforms so that we can better satisfy the user demand we were not able to serve well in the past. Second, penetrate into the lower tier markets more effectively through a specific product and marketing approach. Third, drive content user growth more effectively. And lastly, enrich our product metrics with new applications.

[Foreign Language]

During the past several months we've been taking solid steps on all those fronts. In Q1 one of our key focus was to optimize the chat room experience. It was particularly important during the social distancing period because chat room enables people to stay connected and have fun together when they are physically isolated. Last year, our VAS team introduced a very popular chat room experience called Lost Planet which is a moderated dating experience that emulates some of the popular TV reality shows. This year we brought in a couple of other similar moderated shows into the chat room experience. This new initiative turned out to be effective both in terms of driving engagement and in terms of revenue contribution. As a result, although the overall traffic was under pressure in Q1 the times spent in chat room ended up growing 20% on a sequential basis.

[Foreign Language]

In April we also started an experimental project called a social DNA Under this project we assign different tasks to the users that help them better express their personalities, personal image, social preferences, hobbies or other aspects that they would like other users to know about themselves. These tasks also known as social DNA on our platform are based on our big data analysis of user behavioral and profile information, as well as users own choices. We are then building these tasks into our algorithms which will make more relevant recommendations of people and content accordingly. This project is a pioneering experiment that helps us better understand how people connect and interact effectively in an open environment. It shows our commitment to improving the efficiency in helping our users discover new relationships and build meaningful interactions on mobile.

[Foreign Language]

Now in the second area of focus, penetrating into the lower tier markets through tailor-made products and marketing approaches. In Q1, we launched Momo Lite, which is a standalone version of Momo that is fully connected on the back end to the core but loads much faster and requires much less data consumption than the main application. Although Q1 was relatively slow in development due to the constraint of resources caused by the stay-at-home order, we have been getting positive data feedbacks on Momo Lite. With productivity coming back, we are now speeding up on the iterations to enhance the user experience. On the main applications, we also have started showing localised version with tailored content and activity that better appeal to the users in lower tier city. Soon we will be supporting these new product efforts with a promotion programs that are also tailor made for the lower tier market. We believe these initiatives will help us better satisfy the social demand in different geo regions and thus better seize the growth opportunities there.

[Foreign Language]

On our last earnings call I mentioned that due to the presentation of the open social space and the diversity of social preferences, we are adopting a portfolio approach to better serve the social demand of our users. This is also an important strategy for us to penetrate the market more effectively and strengthen our leadership in the open social space. During the past few months, we have made solid progresses on that front. For example, Hezi or Heard [ph] in English, an audio-based dating application we launched last year have already scaled to a level where we can start monetizing and reap profits to support its own growth. In addition, we also have a number of other projects branching out to different subsectors within the social and entertainment space. Some of these projects are starting to take shape. We look forward to sharing more information as the year progresses.

[Foreign Language]

Overall, Q1 2020 has been a tough and yet very fruitful quarter for us. I'm glad that the team has been able to stick to our goals and keep pushing forward on the strategic fronts. Although the macro economic environment is probably going to remain as a headwind for the coming few months, we are seeing plenty of growth opportunities ahead of us. We will continue to pursue these opportunities and drive value for our shareholders. Thank you for trusting Momo. With that, I'm handing over to Wang Yu for our business review. Wang Li, please.

[Foreign Language]

Thanks. Now let me take you through the progresses we made across our key business lines.

[Foreign Language]

Firstly, on live broadcasting. Total revenue from live broadcasting business for the first quarter 2020 was RMB 2.33 billion, down 13% from the same period last year. As we mentioned on the last earnings call, the pressure on live broadcasting business was due to the compound of a number of different factors, among which the two most important lines are the economic impact of the COVID-19 adversely affecting the consumer sentiment, especially among the top of the pyramid paying users and the pressure around the traffic in connection with the virus outbreak.

[Foreign Language]

In view of the challenging environment the biggest priority as a team is to strengthen the product and operational efforts to mitigate the impact on revenue. After Chinese New Year holiday the team rolled out a number of new game plays within live broadcasting to improve the paying experience. Many of these are interactive gifts similar to the Penguins which largely focus on improving the engagement and spending from the middle cohorts via [ph] mini game contests. In the second quarter, we plan to continue to step up the operational efforts to drive the engagement and spending from the middle layers of the spending pyramid. Many of the planned efforts will revolve around building mutual [ph] content experience that appeal to the middle layer and long-tail audience base.

[Foreign Language]

The other thing that we believe is critical for our driving middle [ph] cohorts and long-tail spending is to have an effective mechanism that discovers and supports new and entry level performance. This is an area where we see a lot of opportunities for optimizations and improvement. It is also a key area of focus for the team in the coming few quarters.

[Foreign Language]

For the high paying users, given that most of them are private business owners, whose financial conditions were pressured by the pandemic, we believe that our efforts should focus on keeping them engaged rather than letting them spend more. One of the key issues we had last year was that the top spenders were becoming less enthusiastic about the quarterly tournament events. So this year we rebranded the tournament experience into a new competition event that we call the producer program. The new program was created as an online version of [Foreign Language] or the offline VIP music tours which was a big success last year. It is called the producer program because we let the top spenders play important roles in the event. The guests would handpick their favorite performers to form their own task force and compete with others as a team. In early April we had the first season of the producer program, although the overall spending was lower than the prior tournament events due to the negative wealth effect [ph] in connection with the pandemic, the level of participation from the top spenders improved meaningfully as compared with what we saw in the quarterly tournaments last year. We plan to continue to optimize on it and roll out a second season somewhere in summer.

[Foreign Language]

Now coming to VAS. While we will talk about Tantan's business later, so I will be focusing on the VAS business for the core. Revenue from VAS on an ex-Tantan basis reached RMB 801 million in the first quarter of 2020, a 31% increase on a year-over-year basis. The decrease in the number of active users and engagement levels had direct impact on VAS business. However, as compared with live broadcasting VAS is still undermonetized. In addition because the paying user structure for VAS is long-tail driven, its much more resilient in a tough macro environment. Therefore in order to alleviate the stress on overall revenues in Q1 we pushed the VAS pedal a bit harder to drive revenue growth through operational events and reach [ph] paying experiences.

[Foreign Language]

As Yan Tang [ph] mentioned earlier in his remarks, in Q1 we introduced a couple of new moderated experiences in the chat rooms. These experiences are inspired by some of the popular dating reality shows and moderated by professional hosts in the commercial chat rooms. Our Momo users can not only enjoy the show as audience, but also participate and become part of the show. We see a lot of potential in expanding this content genre on Momo, because it takes upon - it makes a fun consumer experience that is compatible with our core user mentality. At the same time it also bears considerable commercial value based on a proven model. In Q1, the chat room experience shined both in terms of engagement growth and in terms of revenue contribution. We expect it to continue to act as a key driver for the VAS business for the rest of the year.

[Foreign Language]

Other than the chat room experience, we are working on a number of new projects that have the potential to become future revenue drivers. For example, as Tang Yan mentioned, Hertz, or Hz [ph] which is an audio based dating application is gaining traction within younger demographic. We have already started monetizing the applications and put the revenue back into marketing, so that we can drive a virtuous cycle to grow it into a bigger scale. In addition, Hongyang or the matchmaking experience which we started testing last year on the core Momo is also making good progress. I'm very optimistic that these new projects will bring new revenue growth opportunities down the road.

[Foreign Language]

Now briefly on other business lines. Mobile marketing revenue declined 29% year-over-year to RMB 57.16 million due to the strong macro headwinds, as well as our strategy to underweight the line in terms of resource allocation. Jointly operated game business continue to trend down in Q1 and will likely fluctuate around the current revenue level for the coming few quarters.

[Foreign Language]

That's the business review of the core Momo. Now let me handover to Mr. Wang Yu for Tantan’s product and business development. Mr. Wang, please.

Thanks. So let me briefly review Tantan’s operational and business development in the past quarter and our next development [ph] First, on user metrics. As many of you know, we had some issues around user retention, which caused a number of daily active users to be under pressure since September last year. Last December, through a series of products and algorithm optimization, we fixed the issue and push the attention back to where it was before the download suspension happened. As we stepped up the channel marketing efforts in January we saw that DAU grow rapidly during the two weeks period from late January to mid-February. However, since February 10th, as the spread of COVID-19 continued beyond Wuhan and a nationwide lockdown kept getting elevated. We have seen the dating sentiments quickly waning, creating headwinds to new registration as well active paying conversion [ph] from Tantan. In response to these situations, we scaled back our marketing spending in March due to ROI considerations. The combination of the above mentioned factors have cost the active users to trim down since mid-February, which led to a 300,000 net decrease in the number of paying users to 4.2 million at the end of Q1. With the lockdowns lifted and outdoor activity is gradually coming back, we expect to see dating sentiments start to recover gradually as well. However, we also believe this can be a progressive process as most of the people are still wearing masks in outdoors and it can take time for young people in China to completely let down the psychological barrier to meet someone they did not know well for intimate interactions. The other thing worth mentioning is that although the number of active users were under pressure during Q1, the number of active female users and their engagements gradually grew on a sequential basis. This tells us that female users are less focused on online to offline conversions, are more into building deeper level online emotional connection. It confirms our belief that by adding richer online interactive features we can make content appeal to a broader base of users. Now briefly on revenues. Total revenue for the first quarter was RMB 381.7 million, up 29% year-over-year and a slight uptick from the previous quarter. Although a number of paying users decreased pretty meaningfully, the ARPPU grew significantly due to the outstanding performance of FlashChat and revenue mix shifting more towards higher ARPPU per [ph] subscriptions. The grossing to revenue conversion is another factor for the RP to increase. Now let me give you an update on the progresses we made against our key strategic priorities. First on product and operations. Our key focus here is to enrich the product experiences in order to drive the long term user retention. In our early days, Tantan started from the metropolitan cities in China and focused on college students and people in the late teens and early 20s. The simple swipe to match experience were effective for this demographic. As Tantan’s user base grow and the demographic broadened, we need more features and experiences to better serve the increasingly diversified social preferences. In November last year, we rolled out the FlashChat experience on Tantan, which allows the often users to get immediately connected with someone for a conversation before they focus too much on profile pictures. The new feature has been well-received, driving immediate surge in the number of two way messages. It also opens up new monetization opportunities. As Quick Chat continues to gain traction among users, revenue also ramped up rapidly in Q1, now representing more than 10% of our total revenues. We believe there's still a lot of potential in this experience and we'll continue to optimize and drive growth from it. The success of FlashChat proves that adding new features the right way can indeed benefit us both in terms of engagements and in terms of financials. In Q1, we also accelerated the rollout of the new version, which features Nearby Posts to allow users to share more aspects of their lives as well as make new discoveries based on content. Up to now, the new version has already reached 100% coverage among Tantan users. Like many other social networking products, having a content community is very critical for driving meaningful interactions between users. The introduction of the Nearby Posts is an important step that we've taken to provide Tantan users richer ways to connect beyond our signature swiping experience. We will continue to optimize the new version, and enhance the community experience around it. In Q1 we also move deeper with an internal testing of an important consumer experience, the live video service. We believe this has especially important - this was especially important during the social distancing period as it provides an alternative way to connect virtually and make people feel less isolated. In mid-April we released more users into the testing group. As a number of users grow, we can now invite more quality broadcasters onto the platform and improve the quality content, which will further drive improvements in user engagements, as well as the monetization potentials. Now a brief update on monetization efforts. Obviously, the testing of live video is not just an endeavor to improve user experience, but also an effort to unlock the monetization value of the platform. We believe that Tantan users have strong willingness and motivation to pay for value added services in order to enhance their social experience. However, this huge paying potential needs to be unleashed by a combination of subscription and a la carte features. Live video is a proven monetization mechanism that drives ARPPU enrich. If done correctly - carefully and in the right way can also contribute to user engagements. We intend to continue the testing with extreme prudence and carefully monitor the data to make sure we stay on the right track with Tantan's core mission, which is helping users build romantic relationships. Other than live video, we also have a number of other priorities, which including - include optimizing the Quick Chat experience and the existing subscription features as well as testing the formula of other new revenue features. We will continue to give you guys updates as the year progresses. Those are the key things that I'd like to cover for today. Now let me pass the call over to Mr. Jonathan Zhang for financial review. Zhang, please.

Thanks. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the first quarter 2020 was RMB3.59 billion, down 3.5% year-on-year or 23% quarter-on-quarter. Exceeding the high end of our revenue guidance, non-GAAP net income attributable to Momo was RMB 736.3 million compared to RMB 910.3 million from the same period of 2019 or 19% decrease year-over-year. Let me jump into the review of cost and expenses items as revenue line items have been covered comprehensively by Wang Li and Wang Yu earlier. Our non-GAAP cost of revenue for the first quarter of 2020 was RMB 1.85 billion, same as Q1 last year. Non-GAAP cost of revenue as a percentage of total revenue was 51.5%, an increased from 49.7% from Q1 2019 and non-GAAP gross profit margin for Q1 2020 was down 1.8% year-on-year. The decrease was partially attributable to a higher payout which was primarily due to a higher revenue contribution from agency representative broadcasters. Secondly, certain fixed nature cost items such as headcounts and depreciation of fixed assets related impacted the gross margin negatively as the total revenue declined, and these items represent a higher percentage of total net revenue. Non-GAAP R&D expenses for the first quarter was RMB 217 million compared to RMB 207.4 million for the same period last year, representing 6% or – and 5.6% of total revenue respectively. The increase in R&D expenses was mainly due to the headcount increases during the year. On a sequential basis, the non-GAAP R&D expenses decreased from RMB 244.3 million Q4 last year due to the year end bonuses incurred. We ended the quarter with 2,344 total employees, of which 725 are from Tantan. The R&D personnel as a percentage of total employees for the group was 56% compared to 54% from last year. The non-GAAP sales and marketing expenses for the first quarter was RMB 645.3 million or 18% of total net revenue compared to RMB 567.5 million or 15.2% of total revenue for the same period last year. The year-on-year increase in sales and marketing expenses was mainly due to higher marketing spending from Tantan and then to a lesser degree for Momo as well. On a sequential basis, sales and marketing expenses decreased due to a less marketing spending from Tantan in response to the COVID-19 outbreak. Non-GAAP G&A expenses was RMB 105.5 million for the first quarter 2020 compared to RMB 92.9 million for the same quarter last year, representing 2.9% and 2.5% of total net revenue respectively. non-GAAP operating income was RMB 801 million, a decrease of 21% from Q1 2019,representing 22.3% non-GAAP operating margin for the quarter, down 5 percentage points from the same period last year. Now briefly on the effective tax rates. Starting from the beginning of 2020, one of our major profit making subsidiary's preferential income tax rate changed from 12.5% to 15%. As a result, our consolidated non-GAAP effective tax rate was around 19% for the first quarter, up 3 percentage points from the same period last year. Now turning to the balance sheet and cash flow items. As of March 31 2020, Momo’s cash, cash equivalents and short term deposits totaled RMB 15.47 billion compared to RMB 14.93 billion as of December 31 2019. Net cash provided by operating activities during the first quarter was RMB 543.5 million. Lastly for the second quarter of 2020 revenue guidance. We estimated our second quarter revenue come to the range from RMB 3.8 billion to RMB 3.9 billion, representing a decrease of 8.5% to 6.1% year-on-year and an increase of 5.7% to 8.5% quarter-over-quarter. 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. The other thing worth mentioning here is that up to this moment Momo has made special cash dividends for the past two consecutive years to replenish our U.S. dollar funding consumed, the company will repatriate RMB 2.2 billion in total from our WUFE [ph] China to our offshore entity before the second quarter end. In accordance with the respective taxation laws in China, the company will pay 10% or RMB 220 million withholding tax to Chinese tax authorities. The withholding tax payments will be recorded as income tax and expenses for the company in the second quarter 2020. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Cathy to start Q&A. Cathy, please.

Yeah. Just a quick reminder for those who can speak Chinese, please ask the questions in Chinese first, followed by English translation by yourself and also please try to limit the number of questions to either 1 or 2 so that more people get to ask questions. Operator we are ready for questions.

Thank you. [Operator Instructions] The first question comes from the line of Thomas Chong of Jefferies. Please ask your question.

[Foreign Language] Thanks management for taking my questions. My question is on two parts. First it's about the Q2 revenue guidance and the second half outlook. Can management share more about the core Momo live streaming and content business trends in the coming quarters? And my second question is more relating to the Tantan side. Given that you have started testing for the live streaming services, can management share about what lessons we have learned from the testing? Would that affect the dating ecosystem? And any KPI that we should expect for the live streaming revenue for the year? Thank you.

[Foreign Language]

For the first part of the - first part of the question on the Q2 guidance, the company’s Q2 is based on some of the recent trajectory that we have been seeing and also management's assumption for the coming - a couple of months. We can see it in several components. Firstly, for live broadcasting, based on some of the trends that we've seen so far into the second quarter, we believe that the macro condition, especially the economic condition of the private business owners, are going to continue to be a headwind to the dating - to the consumer sentiment, especially that among the higher paying cohorts. And the other factor that we put into the assumptions - put into the Q2 guidance is that, is the suspension of live broadcasting service during the national mourning day. That is also going to pressure the overall revenue by a couple of percentage. So you know, the rate is y-o-y decrease in the second Q for live broadcasting - for Momo’s live broadcasting. It's going to be a little bit higher than what we saw in Q1. But on a sequential basis, live broadcasting is still going to see a pretty nice rebound from the first quarter. And for VAS, I think because of the recovery of traffic the pressure around the revenue is going to ease up. At the same time, the team also has a plan to scale back on some of the very ARPPU-oriented operational efforts. But overall, we expect the y-o-y growth rate for VAS to be able to maintain the same level as we saw in Q1. Now for Tantan our expectation is that we're going to see some acceleration. The y-o-y growth rate is going to see some acceleration from Q1s level and the main driving factors would be the recovery of users, as well as the contributions from new revenue project.

[Foreign Language]

With regards to the revenue outlook for the second half of the year, truly we believe that uncertainty is at a macro level are probably going to be lingering for some time, but actually you know, we are still pretty optimistic about the revenue outlook in the second half. And here are some driving factors that we're looking at. Firstly, for live broadcasting we're going to continue to roll out product and operational efforts. We believe that these efforts will take effect on a progressive basis. For VAS, it's not as deeply monetized. So we do see plenty of headroom for the growth. At the same time, it is also going to be much more resilient in a tough macro environment. As we said on the four parts of this call, based on where we are with the chat room experience and also based on where we are with a number of new projects that we're currently running under VAS, we think that VAS revenue is going to continue to grow very rapidly as we head into the second half of the year. And thirdly, on Tantan, we have already been seeing a recovering trend in Tantan users. And as we said, the new revenue engine is also beginning to warm up. Now even based on the very initial testing data, we can see that there is indeed huge monetization potential in Tantan user base, such potential will start to get released in the second half of the year in a graduated and methodical manner. So I guess based on these driving factors, we are pretty confident that the revenues in the second half of the year is going to see a pretty meaningful growth from the first half of the year. Now here is Wang Yu.

Okay. So regarding the live video test results, the test results have been very encouraging so far. Several things are worth sharing here. What matters most to us in the testing is that we don't want to see any new monetization features adversely affecting the dating ecosystem metrics. We've been testing live video for several months now and it's clear that it does not have any negative impacts on dating. In fact, I'm happy to see several important dating metrics we follow having turning up and recently reached historical highs. For example the amount of two way messages for users, not only per user, but the total amount of two messages is at - its historical peak right now. The number of matches and the amount of the match users. So if we do it the right way, it's possible that live video can either be positive to datings. Second, after we release more users into the testing group, the different operating and revenue metrics around live video services started to ramp up very rapidly. These metrics include the paying ratio, ARPPU, time spends, et cetera. The trajectories that we are seeing confirms of belief that Tantan’s user base there are huge paying potentials to be released. What's more encouraging is that the current paying structure is extremely long-tail driven, which reflects the attributes of Tantan users. With regards to revenue outlook, we're still at the testing phase and therefore I do not want to be too prescriptive about the annual numbers. But based on the current trends, we believe that it can be a meaningful driver in the second half. Thanks.

Operator. Yeah, ready for next.

Thank you. The next question is from the line of Tian Hou of T.H. Capital. Please go ahead.

[Foreign Language]

[Foreign Language]

Thank you. Okay. Let me let me translate the first question on Momo Lite first. So far we haven't run any large scale promotion, promotional campaigns around the live version. By this point it has already built up a pretty sizable user base. However, as compared with the main version the overall user base on the Momo Lite version is still relatively small. Our plan is that starting from the third quarter we're going to step up the marketing efforts around the Momo Lite. Our expectation is that starting from the second half of the year Momo Lite will start to make some meaningful contribution to the overall user base, the core application. With regards to the monetization potential, at this point the live version only has membership and live broadcasting, but based on the live broadcasting data the willingness to pay and the paying potential on Lite is not any weaker than that - the users on the main approximately. But at this point there are just not as many you know, core paying experiences on the Lite as there are on the main version because the focus of the team is still on improving user experience and building up the scale. I think where we're going to - we're going to start to open up more monetization opportunities at a pace that we deem fit. So that’s for the Lite version. Regarding the second question on the e-commerce related live broadcasting, as management of the company, we've actually noted the rising trends and the rising popularity is the e-commerce relate to live broadcasting on some of the major e-commerce platforms. And this is indeed one of the areas that we have been closely monitoring and we are also pretty actively studying and exploring some of the potential opportunities that we can potentially seize. But at this point, we are not at the stage to share you know, any deeper information publicly yet, maybe later. So that's the answer to both of the questions. Operator, I think we're ready to take one last person and then ready to close given time.

Yes. We have next – last question from the line of Daniel Chen, JPMorgan. Please ask your question.

[Foreign Language]

My first question is on Tantan, so we do see that many on the dating market, many other companies have launched kind of various dating product, such as Soul and Yidui and Tencent also launched some new products. So could management comment on the competitive landscape and how Tantan is going to cope with the competitive – competition? Second one, second question is on the margin, could Jonathan provide some update on the second quarter and like full quarter margin trend and also the trend of the key cost items? Thank you.

So regarding competition and competitors, like you mentioned, Soul and Yidui are probably the biggest ones other than Momo and Tantan at the moment. But as far as we know, they are focused on very different areas. While we are committed to helping users build romantic relationships. And as I mentioned earlier enriching the services and features is very critical in our user growth strategy. So we will definitely be considering any more features in order to further strengthening our product offering. Thanks.

This is Jonathan. Let me address your margin questions. Let me answer that in two aspects For core Momo actually as Tang Yan mentioned you know, based on the - you know, the sequential revenue growth we are very confident that we're going to achieve the revenue sequential growth for our annual target. And at the same time we're going to maintain discipline in managing our costs and expenses to help us to achieve the annual non-GAAP operating margin you know, at 30% as I discussed last earnings conference call. So that still our targets. And also our operating gross margin will be relatively stable. The only variable factor is the payout. So you know we do see a couple of percentage pressure based on the. The higher percent of the revenue contributed by the agencies down the road. And also you know we had allocated a certain budget for promotional events. So - and then you know we're going to on a rolling basis to manage our selling, marketing expenses. The rest of the - you know, the operating expenses, R&D and G&A are relatively fixed in nature. You know, as the revenue continues to grow we will see some operating leverage. So that's for Momo. For Tantan, we do see a potential for faster growth on Tantan’s revenue and however, we believe at this stage Tantan’s priority is still - still focusing on achieving a user base recovery and then acceleration of the user base growth. So they would like to reinvest some of the additional profits generated by the new revenue driver into the selling and marketing to support that initiative. And then the rest will help to further accelerate - the acceleration - deceleration on net loss. So for the full year, the net loss on Tantan will come down sequentially on a quarterly basis.

Great. Operator, we're ready to close. Thank you. Ladies and gentlemen, that concludes the conference for today and thank you for participating. You all disconnect.+