Hello Group Inc. (MOMO) Q2 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2024 Hello Group Incorporated Earnings Conference Call. 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. Ashley Jing. Thank you. Please go ahead, ma'am.

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's second quarter 2024 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today, we have Mr. Tang Yan, CEO of the company; Ms. Zhang Sichuan, COO of the company; and Ms. Peng Hui, CFO of the company. 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 provision 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 and 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 this and other risks, uncertainties, and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please?

Hello, everyone. Thank you for joining our call. I will now walk you through the progress we make in the second quarter against our strategic priorities across all businesses. I will start with a over -- a brief overview of our financial performance. For the second quarter of 2024, total group revenue was RMB2.69 billion, down 14% year-over-year, but up 5% sequentially. Adjusted operating income was RMB477 million, down 33% year-over-year and 7% sequentially. Profit margin was 17.7%, down 4.9 percentage points year-over-year and 2.4 percentage points sequentially. In terms of business segments, total revenue from the Momo app and standalone new apps was RMB2.46 billion, down 30% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to the decline in revenue from the Momo app, resulting from spending softness amid the weak macroeconomy and our proactive product and operational adjustments to maintain a healthy community ecosystem since the end of last year. The sequential decrease -- increase was due to seasonality. In quarter two, standalone new apps maintained their growth momentum on both year-on-year and sequential basis, driven by our overseas business. Adjusted operating income from the Momo app and standalone new app was RMB456 million, down 33% year-over-year and 6% sequentially, mainly due to the revenue decline. Adjusted operating margin was 18.5%, down 5.5 percentage points year-over-year and 2.4 percentage points sequentially. For Tantan, total revenue for the quarter was RMB234 million, down 27% year-over-year and 3% sequentially, mainly due to the decreased number of paying users. Adjusted operating income was RMB20.6 million, compared with RMB31.9 million a year ago and RMB28.8 million a quarter ago, representing a margin of 8.8%, down 1.1 percentage point year-over-year and 3.1 percentage points sequentially. Now, I will walk you through the progress we have made against our strategic priorities for Momo, Tantan, and new endeavors since the beginning of the year. Our main goal for the Momo app this year is to maintain the productivity of the cash cow business with a healthy social ecosystem. Tantan's goal is to continue improving the core dating experience and build an efficient business model that drives profitable growth. As for our new endeavors, our goal is to further enrich the brand portfolio, push the business boundaries beyond Momo and Tantan, and build a long-term growth engine. I will now walk you through the details of our execution. First, on the product and operational front of the Momo app. In the second quarter, our product team focused on optimizing the community ecosystem, improving the female user experience, and increasing the volume of effective social interactions. To improve the experience of female users receiving greetings, our product team applied AI technology to help male users to generate greeting faces, which increased the success rate of icebreaking chats and led to the growth of two-way chats. In terms of algorithm strategy, we increased the matching rate of active female users to improve the experience for users with unmatched social needs. Our optimization of product and recommendation strategy plays a positive role in increasing both the number of matches and the number of two-way chats. In addition, for the Finding Partners or [indiscernible] a pilot program for our online to offline interest group which has been running for a year, in the second quarter, we focused on expanding the coverage of our young user base to improve Momo's social brand perception. Our efforts to further improve and make breakthroughs in products and algorithms based on brand tone, swipe, and user preferences are important foundations for Momo cash cow business to maintain the stable productivity. On the channel front, our user acquisition team continues to implement ROI-oriented strategies and work with our commercial product team to recommend interactive features to users from channels that match their spending capabilities to improve paying conversion. In order to increase the proportion of female users, we adjusted our advertising materials and channel strategies to focus on female users and worked with our product team to specifically recommend interactive female-friendly features to improve their onboarding experience on our platform. After several years of optimizing channel strategies, the room to further reduce unit acquisition cost is relatively limited. Accordingly, we have been working with KOLs to leverage new channels to bring in incremental traffic, thereby increasing brand exposure with a limited budget and controlling user acquisition costs with a -- within a reasonable range. In the second quarter, the Momo app had 7.2 million paying users, an increase of 100,000, driven by the return of long-tail VAS users after the quarter one low seasonality. Now, let's talk about the productivity of our Momo cash cow business. In the second quarter, Momo's live streaming revenue was RMB1.22 billion, down 50% year-over-year, but up 6% sequentially. The year-over-year decline was mainly due to our strategy to proactively reduce revenue-oriented large-scale competition events in order to maintain a healthy social ecosystem and spending softness amidst a weak macro economy. On the sequential basis, revenue increased after the seasonal low, but the growth rate was lower than the previous years. This was mainly due to the adjustment to our event operating policy, which resulted in lower profits for agencies and broadcasters, which in turn caused them to be less motivated. To address this issue, we have moderately increased the incentive for non-event operations and the revenue-sharing ratio has increased slightly quarter-over-quarter. Our product team also introduced specific interactive features for users at different levels, increasing daily revenue and reducing reliance on event revenue. Moreover, we have introduced products such as privilege functions and host costumes in live streaming showrooms, which do not require revenue-sharing. This not only enriches the variety of features and keeps users engaged, but it also plays a positive role in improving the profit level of live streaming. In quarter two, revenue from value-added services, excluding Tantan, totaled RMB1.21 billion, down 9% year-over-year, but up 5% sequentially. VAS revenue from the Momo app was RMB850 million, down 20% year-over-year, but up 5% sequentially. Revenue from the standalone apps was RMB355 million, up 36% year-over-year and 4% sequentially. The year-over-year decline in VAS revenue from the Momo app was mainly due to our proactive product and operational adjustments to mitigate the regulatory risks, which put pressure on a number of normal VAS paying users and ARPPU. Additionally, macro factors also weighted on consumer sentiment. The sequential growth was mainly due to seasonality. On the product operational front, we launched new gifting features in the audio and video based commercial channels to help broadcasters effectively interact with medium and long-tail users. We also tested interactive live games such as [indiscernible] and new categories such as love fortune telling in our chatroom features, which has the largest user base. Our data shows that the paying conversion of the new features was higher than the one -- existing features. Turning to Tantan, let me first talk about its user trends and financial performance. Although our cost reduction and efficiency improvement strategy implemented over the past two years has effectively driven Tantan to profitability, the continued reduction in channel investments has put significant pressure on Tantan's user base. Meanwhile, the lack of investments in branding over the years has led to a continuous decline in organic users. At the same time, we haven't been able to find an effective product-level solution that can significantly improve user retention. The combination of the above-mentioned factors has resulted in Tantan's MAU decreasing by 6% sequentially to 12.9 million in June. As of end of the second quarter, Tantan had 1 million paying users, down 100,000 sequentially. The main reason were the decline in MAU, the short-term negative impact on new user -- on new paying user conversion from the UI upgrade, and the regulatory related redesign of the new renewable page. Turning to Tantan's financials, total revenue for the quarter was RMB234 million, down 27% year-over-year and 3% sequentially, mainly due to the reduction in the number of paying users. Overall ARPPU was flat year-over-year, among which the ARPPU of the live streaming business increased significantly as a result of our strategy to emphasize live streaming, which has a lower correlation with the dating experience, while the -- while ARPPU saw a significant year-on-year increase, thanks to our efforts to promote relatively high-priced products, such as Black Gold, SVIP membership, and additional pay-as-you-go privilege for members, enabling the [facilities] (ph) of the overall ARPPU. In terms of business line, VAS revenue was RMB140 million, down 18% year-over-year and 4% sequentially, while live streaming revenue was RMB83 million, down 43% year-over-year and 5% sequentially. Now, I would like to walk you through the efforts we make on Tantan products and user acquisition front, and the challenges we face. First, on the marketing and user acquisition front. To address the issues of weak brand awareness among young users and the significant declines in organic users due to inadequate brand promotion, we conducted branding events during the quarter in cooperation with offline vendors such as bars and clubs in metropolitan cities with a high density of young people. We also leverage new media channels for online promotion to increase awareness of Tantan among young people and overall brand popularity. We believe that compared with user acquisition through channels, driving user growth by improving brand awareness is a relatively long-term initiatives that can take time to bear visible fruit. But over time, it plays a positive role in the continuous and stable growth of our organic users, especially as Tantan has gradually refocused on core -- refocused on the core dating experience by emphasizing the community-oriented and entertainment oriented experience in recent quarters. This is important for us to strengthen young people's awareness of Tantan's value for the dating through long-term brand investments and product improvements. Therefore, continuous increasing the opportunities for brand exposure with a controllable range of marketing investments will be a long-term direction for our branding strategy in the future. On the user acquisition front, factors such as the e-commerce festival in June led to fierce channel competition, resulting in a sequential increase in unit acquisition cost, which, combined with the pressure on the new user ARPU from the UI upgrade, led to sequential decrease in channel ROI. To address this, our user acquisition and membership product teams work together to recommend relatively high-end membership products to high value users from channels which help increase the user ARPU. Now, let me give you an update on the progress Tantan has made on product and operational sides. In the second quarter, we worked on an upgraded version to improve the dating experience for users. Preliminary user interviews and survey revealed two major pain points in user experience. First, uncertainty about authenticity of picture profiles and user's identity. And second, lack of response to chats after matching. Since the issue of spamming has been effectively controlled since the beginning of the year, user feedback on inauthentic experience stem primarily from issues such as incomplete profile information, lack of real person authentication, and photos that look too good to be true. The first phase of our redesign in Q2 focus on guiding users in complete their profile information and encouraging them to spend more time learning about potential matching before swiping. Early data shows that users with a richer profile content has significantly higher post-match conversation rates than those just with picture -- profile picture and basic information. However, this improvement in matching experience and differentiated interaction conflicted with our existing business model, which relied largely on users' quick swiping decisions based solely on looking at profile pictures. The negative impact of this redesign on new user paying conversion was one of the reasons for the sequential decline in Tantan's number of paying users. Nevertheless, we believe that making short-term commercial sacrifices to improve long-term user experience is a critical foundation for Tantan to ultimately achieve the strategic goals of profitable growth. We should monetize product features that improve user experience and add value to them rather than do so at the expense of user experience, which can only get us into a downward cycle. During the ongoing product upgrades and optimization, our commercial product team will continue to optimize paying experience to increase new user ARPU, which should partially offset the negative impact on revenue caused by the product upgrades. Lastly, in terms of our new endeavors, in the second quarter, total revenue of the new apps reached RMB355 million, up 36% year-over-year and 4% sequentially, mainly driven by our overseas business. With a stable channel ROI, we moderate increased channel investments, driving steady growth in MAU and paying users. On the product and operational front, our team has been accelerating the localization process of overseas business since the beginning of the year. After strengthening the localization research on virtual gifts and props, our commercial product team introduced hot-sell gifts that better match local user preferences. Meanwhile, our local operation teams refine our services for high paying users and standardized supply side collaborations and KPIs. This combined efforts led to a significant increase in number of top-tier paying users, which in turn drove the ARPPU growth. The simultaneous increase in paying users and ARPPU has laid a solid foundation for sustainable and stable growth in our overseas business. Regarding our expansion in the MENA region, we are focusing on two key tasks, regional expansion and expanding our offering from voice-based to live streaming. These initiatives are taking longer than we anticipated at the beginning of the year as we realized that both efforts require a highly localized service team as a prerequisite. We do not done enough in the past couple of years in terms of localization and we are now accelerating our efforts to make up the shortcomings. Overall, we remain confident in our growth potential in the MENA region. Compared to six months ago, we now have a clear understanding of what we must do to continue to grow, and we will continue to invest in this region. This concludes my remarks. Now, let me pass the call over to Cathy for the financial review. Cathy, please?

Thank you, Sic. Hello, everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the second quarter 2024 was RMB2.69 billion, down 14% year-on-year, but up 5% quarter-over-quarter. Non-GAAP net income attributable to the company was RMB449.2 million, compared to RMB632.1 million for the same period of 2023 and RMB59.9 million from the last quarter. In Q1, we had a one-off non-cash tax provision. Excluding this non-cash tax item, non-GAAP net income would have been RMB508.5 million for last quarter. Looking into the key revenue items for the quarter, firstly, on live broadcasting, total revenue from live broadcasting business for the second quarter of 2024 was RMB1.30 billion, down 18% year-over-year, but up 5% quarter-over-quarter. The year-over-year decrease was largely attributable to a decline in the core Momo live streaming business and, to a lesser degree, the decrease in Tantan. The sequential growth was driven by the core Momo live streaming service. In terms of segments, Momo app live broadcasting revenue totaled RMB1.22 billion for the quarter, down 15% year-over-year, but up 6% quarter-over-quarter. The year-over-year decrease was due to our proactive product and operational adjustments to deemphasize revenue-oriented competition events and weak consumer sentiment. The sequential growth was due to a rebound after negative seasonality. Tantan's live broadcasting revenue amounted to RMB83.0 million, down 43% year-over-year and 5% quarter-over-quarter. The decrease was due to our strategic decision to pivot away from the less dating-centric service. Revenue from the value-added services for the second quarter of 2024 was RMB1.35 billion, down 10% from Q2 last year, but up 4% sequentially. The Y-o-Y decrease was due to a decline in both Momo and Tantan, however, the growth of standalone new apps partially offset the downward revenue pressure. Value-added service revenue grew sequentially, driven by the recovery from Momo VAS and continued growth of new applications. Revenue from VAS on an ex-Tantan basis was RMB1.21 billion in the second quarter of 2024, down 9% from Q2 last year, but up 5% from the previous quarter. Momo app value-added service revenue decreased from Q2 last year due to our proactive product adjustments to manage regulatory risks, as well as the weak spending sentiment, and the sequential revenue growth was driven by seasonal recovery. Revenue from the standalone new apps continued to grow both on a year-on-year and quarter-over-quarter basis, driven by the steady improvement of the overseas business. Tantan's value-added service revenue amounted to RMB139.9 million, down 18% year-over-year and 4% sequentially. The decrease was due to a decline in paying users, which was in turn due to a reduction in channel investment, the UI upgrade, and the adjustments to subscription renewal policy. Now, turning to cost and expenses. Non-GAAP cost of revenue for the second quarter of 2024 was RMB1.59 billion, compared to RMB1.82 billion for the same period last year. Non-GAAP gross margin for the quarter was 40.8%, down 1.3 percentage point from the year-ago period. The year-over-year decrease was partially due to a number of different factors -- was primarily due to a number of different factors. Number one, higher payout ratio in our overseas endeavors as we expand into new regions and try to launch new video service, as well as the change in revenue mix toward higher payout businesses. Number two, de-leverage where direct personnel and infrastructure costs take up a higher percentage of revenues. Number three, payment channel costs represent a higher percentage of revenues as revenue mix shift toward overseas business. The payout ratio of the core Momo app remains stable with a slight downward trend due to the reduction in event-related bonuses. Non-GAAP R&D expenses for the second quarter was RMB179.9 million, compared to RMB200.8 million for the same period last year, or an 11% decrease year-over-year. The decrease was due to the continuous optimization in personnel and infrastructure costs. Non-GAAP R&D expenses as a percentage of revenue was 7%, compared with 6% from the year-ago period. We ended the quarter with 1,364 total employees, of which 282 are from Tantan, compared to 1,470 total employees, of which 339 from Tantan a year ago. The R&D personnel as a percentage of total employee for the group was 62%, compared with 63% Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was RMB360.6 million, or 16% of total revenue, compared to RMB349.7 million, or 11% of total revenue for the same period last year. The year-over-year increase in absolute renminbi amount was mainly due to an offline gala for Momo live streaming service, which in 2023 was held in Q1. Non-GAAP G&A expenses was RMB89.5 million for the second quarter of 2024, compared to RMB83.2 million for the same period last year, both representing a 3% of total revenue. Non-GAAP operating income was RMB476.5 million, a decrease of 33% from Q2 2023, down 7% from the previous quarter. Non-GAAP operating margin for the quarter was 17.9% -- 17.7%, down 4.9 percentage points from the same period last year and 2.4 percentage points from the previous quarter. Non-GAAP OpEx as a percentage of total revenue was 23%, an increase from 20% from Q2 2023 and up from 22% in Q1 this year. Now, briefly on income tax expenses. Total income tax expense was RMB102.6 million for the quarter, with an effective tax rate of 19%. In Q2, the company accrued withholding income tax of RMB17.3 million, which is 5% of undistributed profit generated by our ROFE. Without the withholding tax, our estimated non-GAAP effective tax rate was around 16% in the second quarter. Now, turning to balance sheet and cash flow items. As of June 30, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled RMB14.32 billion, compared to RMB13.48 billion as of December 31, 2023. In Q2, we paid an equivalent of RMB716 million cash dividend to our shareholders. In the current quarter, we bought back RMB395 million or $54 million worth of shares in the open market. Net cash provided by operating activities in the second quarter 2024 was RMB475.2 million. Lastly, on business outlook, we estimated our third quarter revenue to come in the range from RMB2.58 billion to RMB2.68 billion, representing a decrease of 15.2% to 11.9% year-over-year, or a decrease of 4.1% to 0.4% quarter-over-quarter. At segment level for Q3 2024, on a sequential basis, we expect Momo revenue to decrease mid-to-low single-digit. On the Tantan side, we expect revenue to decrease high single-digit. 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 Ashley to start Q&A. Ashley, please.

[Operator Instructions] Your first question comes from Xueqing Zhang with CICC. Please go ahead.

[Foreign Language] Thanks, management, for taking my question. My question is about core Momo. Considering current macro and regulation environment, how to build the revenue and the profit of your [Technical Difficulty] half of the year and what sales strategy for live streaming and VAS business in the next few years? Lastly, does Momo have a chance to achieve topline growth in 2025? Thank you.

[Foreign Language]

Okay. Let me translate first. At the end of last year, we adjusted our operating strategy for live streaming and audio and video-based value-added service experiences to reduce revenue-oriented competition events. The decline in competition events and related revenue in the past few quarters has indeed had a negative impact on the core Momo app revenue, but our live streaming and VAS team managed to partially offset the revenue decline by introducing new interactive gamified features. For example, as Sic just mentioned, we have introduced personalized costume props in the live streaming showrooms and also added new categories, such as love fortune telling in our value-added service chatroom experience, which have played a positive role in improving paying conversion. And overall, the impact of the operating strategy adjustment on Momo revenue is pretty much in line with our expectations, and the impact on the profit side is actually, indeed, better than our expectations for the first half of the year. Therefore, we have decided to continue the operational adjustments to the ecosystem in the second half and further deemphasize agency-dominated experiences and features, particularly various competition events. On the product front, we will leverage Momo's social attributes to introduce richer interactive gamified features for paying users at different levels. Although this will cost some short-term financial sacrifice, we believe it will create a positive ecosystem for the stable and healthy development of the cash cow business in the long run. As for whether our revenue can grow in 2025, it depends mainly on macroeconomic and regulatory changes. It's a bit too early to tell now. As for the revenue and profit guidance for the second half, I will leave that to Cathy. Cathy, please?

Okay. On the financial outlook of the cash cow business, for top line, last quarter, we said Q2 would be a good basis to think about the back half of the year. What that means is that if you take the 18% year-over-year decrease in Momo application live streaming and value-added service in Q2, you can apply that same rate for the back half of the year as well. Originally, we thought that second half might be a little bit better, because the Y-o-Y comparison could get a little bit easier as we entered into the back half of the year. However, since the cash cow over -- actually overdelivered on the bottom line for the first half, we decided that we should continue our -- we should use this opportunity to continue our operational adjustments to push the ecosystem more toward social entertainment rather than competition-driven events. That decision could dip the revenue slightly for the second half of '24. But overall, the cash cow is on track to deliver the annual profit target we internally set for it at the beginning of the year. So that's for -- that's how to think about the cash cow. Other than the cow, within Momo segment, we also have the new applications, mainly the overseas apps. This piece will continue the robust Y-o-Y growth momentum. So, that could partially offset the Y-o-Y decrease from the cow. I think for the whole year for the Momo segment revenues, we will likely to fall into the 10% to maybe 12% range in terms of Y-o-Y decrease. With regards to 2025, as Tang Yan said, it's still too early to tell, but the two biggest determining factors here are still going to be macro and regulatory environment. Profit-wise, our view remains pretty much the same as last quarter. We're still well on track to hit the same adjusted operating margin of high-teens for the year. Also, internally, we are actually trying to deliver the same annual profit target in absolute dollar amounts. We do have the flexibility and are also prepared to control the spending more tightly if topline is under a little bit of a pressure down the road. On the other hand, if things turn out to be more positive on the revenue front, we will perhaps invest a little bit more for the future. In other words, we are trying to manage the cost against the topline so we can deliver the annual profit target we set for ourselves at the beginning of the year. So, I guess, those are the colors I can give at this point on the outlook for both topline and bottom line. Other than that, I don't want to pin ourselves down too much by promising a bottom line number at this point -- at this time of the year. So, hopefully, that helps. Back to Ashley for next question, please.

Hi, operator. Ready for next question, please.

Thank you. Your next question comes from [Jenny Hwang] (ph) with UBS. Please go ahead.

[Foreign Language] So, I will translate myself. First of all, thanks for taking my question, and congrats on the solid quarter results. My question is regarding our overseas business. With good revenue growth momentum in the new apps, could the management update us with overseas progress so far? And do you have any financial outlook or guidance for this year that you can share with us? Thank you.

[Foreign Language]

As I mentioned before, we believe that the growth in our overseas business depends on three main factors. Number one, strengthen localized operation. Number two, expand product offering from voice-based to live streaming services. And number three, expand our businesses in wealthy GCC region and other countries in the Middle East. As Sic just mentioned, we have accelerated the localization process since the beginning of the year, and in the first half, we have made some good progress in feature design, refined services offering for high paying users, and supply side collaboration.

[Foreign Language]

This is certainly far not enough for a group company that pursues a global expansion. We have -- we need to continue to expand our overseas personnel pool, strengthen localized operations, and improve our cross-border personnel management practices. And improving the international awareness of our team will help us more deeply understand and better meet the social preferences and needs of users from different cultural backgrounds.

[Foreign Language]

The rollout of the live streaming experience in the first half was slightly slower than our expectations at the beginning of the year. This is mainly because it took longer to resolve localization and agency cooperation issues on the product and operational front. Recently, key members of our product and tech team at the Beijing headquarters visited several key social markets and worked with local teams to sort out user feedback and optimize the product and technical solutions. And the growth of the overseas team has laid a solid foundation for upgrading localized virtual gift design and use inter -- users' interface and speeding up testing of live streaming features to enrich gamified experiences and deepening our exploration in GCC countries and Turkish market. After this round of visit and joint work with the overseas team, we are more convinced of the revenue growth opportunity in the Middle East market and the strategy of achieving growth through enhanced localization. As for the financial part, I will leave that to Cathy. Cathy, please.

As Tang Yan mentioned, now it looks like we need to spend some time beefing up our local operations before we could pursue larger-scale revenue growth in the broader MENA area. We've been lagging behind on that front in comparison with some of our -- I mean, we've been lagging behind on localization front in comparison with some of our peers who were early into the Middle East markets. For example, the senior management paid our first visit to our major markets in MENA only last month. It was not until then did we realize that there is still some basic level of the infrastructures we need to put in place in order to take the revenue to the next level. So, I guess, we are going to spend the second half of the year playing some catch-up in those areas. The good news is that after the trip, we are even more convinced that there are still a lot of growth opportunities in MENA. So, revenue will continue to grow. But before we go full force into, for example, live streaming service, the Y-o-Y growth, we're likely to slow down a little bit from Q1 level as we spend time laying the groundwork for strong localization. In Q2, the overseas piece achieved 40-something-percent year-over-year growth. It could further slow to maybe mid-30s in the back half before our initiatives in Gulf countries and live streaming start bearing fruits. So that's the color that I can give in terms of financial outlook for the overseas business.

Okay. Operator, next question, please?

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks, management, for taking my question. My question is about Tantan. Just in the prepared remarks, management talks about the revamp of Tantan is still in progress. Can management talk about the current situation and our ultimate goal, as well as how our revenue and profitability will be impacted by this revamp? Thank you.

[Foreign Language]

Tantan has achieved good results over the past two years in terms of reducing channel investment, improving channel efficiency, and driving ARPPU growth and resulting in six consecutive quarters of profit. However, its user base has not yet stabilized and revenues have also shown a slow downward trend due to the impact of user scale. And we believe the fundamental reason for this is that Tantan has not made significant breakthroughs in the core dating experience, and we need to be bolder at the product level to find product solutions that can significantly improve retention and drive organic user growth.

[Foreign Language]

In this round of version upgrade, we aim to fully return to the user experience by adjusting the interface and optimize the user guidance strategy. For example, to enhance a sense of authenticity of users, we will encourage them to upload real pictures and text information by issuing trial membership benefits and guide users to complete real-person authentication in the chat session after matching. And another prominent issue is that in order to improve DAU, our algorithm tries to take care of the experience of some male users who don't easily get matching opportunities. As a result, a small number of high-quality female users got excessive exposure, resulting in a large number of matches that could not be converted into chat interactions. Therefore, our algorithm team will make it easier for women to make up their minds by reducing low-quality matches, thereby improving chat conversions.

[Foreign Language]

To encourage more exploration on the product side, management does not want the team to be constrained by short-term operational and financial targets during the pilot phase of the upgrade. Therefore, we are allowing some fluctuations in user scale and revenue in the short term. We believe this is the right decision for Tantan in the long run. I am very pleased to see that the team is maintaining the spirit of innovation and adoption in a challenging environment. The redesign of Tantan demonstrates not only our insight into evolving user needs but also our strong commitment to improving user experience. As for the financial part, I will leave that to Cathy.

Okay. For Tantan, I guess, there are three things worth calling out on the financial side. One is what Sic and Tang Yan pointed toward in their comments. After a long period of trial and error, we figured that the only way out for Tantan is to not worry about short-term KPI numbers and do whatever we believe is the right thing to do in order to give the users the best dating experience. So, for the coming six months or so, we are going to allow the Tantan team to put financial targets aside and set top priority on the dating experience. While I do not have full clarity at this point on where the revenue could land -- would land for the rest of the year, I guess, Q2's Y-o-Y decrease could be a good reference point to project the back half of 2024. The second point I like to call out here is, while Tantan is still not ROI-positive in terms of user acquisition, we believe we need to keep the marketing spend at the Q2 level for the coming couple of quarters so that the scale of Tantan will be maintained. And the third thing I would like to mention here is that if you put the first thing and the second thing I mentioned just now together and try to think about the bottom line for Tantan, I think the profit will likely to decrease from the first half of the year. But for the whole year 2024, our view is that Tantan is still going to be profitable. So, that's Tantan's financial outlook. Now, I'm handing back to Ashley to [Technical Difficulty] call. Ashley?

I think -- yeah, this is perfect timing. So, thank you for participating, and we'll see you next quarter.

Thank you. This does conclude our conference for today. Thank you for participating. You may now disconnect