Hello Group Inc. (MOMO) Q4 2024 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to Fourth Quarter and Fiscal Year 2024 Hello Group Inc. Earnings Conference Call. [Operator Instructions] Please note that 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 fourth quarter and fiscal 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 are Mr. Tang Yan, CEO of the company; Ms. Sichuan Zhang, 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 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 this 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 our CEO, Mr. Tang Yan. Mr. Yan, please?

[Foreign Language] [Interpreted] Hello, everyone. Thank you for joining our call. 2024 was the year fraught with challenges and opportunities. Our team maneuvered well through external uncertainties and delivered satisfactory financial and operational results. Momo Cash cow business continues to be productive with an ecosystem that is healthier than last year. Our overseas business maintained its robust growth momentum and made more meaningful contributions to the group's financial standing. This impels us to take bolder measures to propel growth and innovation in international markets in the future. I will now pass the call over to Sichuan for more details. Sichuan, please?

Hello, everyone. Thank you for joining our call. I'll now update on our business in Q4 and fiscal 2024 and I outline our strategic goals for fiscal 2025. Starting with an overview of our financial performance. For Q4 '24, total group revenue was RMB2.64 billion, down 12% year-over-year. Adjusted operating income was RMB280 million, with a margin of 10.6%. Our Q4 costs included RMB94 million in film production related expenses. Excluding such costs, adjusted operating income would have been RMB374 million, with a margin of 14.2%. Revenue from the Momo app and standalone new app totaled RMB2.42 billion, down 11% year-over-year. The decrease was mainly due to the 18% year-over-year decline in the Momo app resulting from our proactive product adjustments and weak macroeconomy. Meanwhile, standalone new app revenue increased 37% from a year ago. Thanks to the rapid growth of our overseas business, adjusted operating income from the Momo app and standalone new apps was RMB269 million, with a margin of 11.1%. Excluding film related costs, adjusted operating income would have been RMB363 million, with a margin of 15%. As for Tantan, Q4 revenue totaled RMB213 million, down 22% year-over-year due to the decreased number of paying users. Adjusted operating income was RMB11.37 million, compared to RMB27.04 million from a year ago. For fiscal 2024, total group revenue was RMB10.6 billion, compared with RMB12 billion last year. Adjusted operating income was RMB1.173 billion with a margin of 16.3%. Revenue from the Momo app and standalone new apps totaled RMB9.7 billion, down 11% year-over-year. Momo app revenue decreased 16%, mainly due to our proactive product adjustments and macro factors. Revenue from standalone new apps grew 40%, driven by our overseas expansion. Adjusted operating income from the Momo app and standalone new app was RMB1.65 billion, with a margin of 17.1%. As for Tantan, total revenue for fiscal 2024 was RMB900 million compared with RMB1.2 billion in the previous year. The adjusted operating income was RMB75.94 million compared with RMB101 million the previous year. Now, I will now give you an update on our execution, strategic priorities for each business line in 2024, as well as the challenges we are facing and how we plan to address them. First on the Momo app. Our goal is to maintain the productivity of this cash cow business with a healthy social ecosystem. Over the past year, our proactive product adjustments combined with macro softness put a lot of pressure on revenue. However, quality of content and strong ecosystem will lay a solid foundation for the stable productivity of our cash cow business next year. First, on the product and operational front. In 2024, our product team focused on improving the female user experience and optimizing real time Soulchill use cases to drive effective interactions. We introduced an AI-assisted chat tool for male users in multiple voice and tech based chat experiences such as greetings and Soulchill (ph). The AI tool can generate greeting based on female users text and picture based profile information as well as their historical posts to improve the quality of ice breaking conversations. Thereby increasing the response rate from female users and improving the overall interactive experience. In addition, we promoted several matching based real-time voice chat features on the homepage that proves effectiveness in driving deeper user interaction and paying conversion. Thus further strengthening Momo's Soulchill attributes. On the user acquisition front, over the past few years, we have shifted from a focus on overall user growth to a more pragmatic profit focused ROI-driven growth model. And we have made good progress in optimizing the efficiency of transitional fee channels and reducing user acquisition costs. The continued improvement in ROI has allowed us to reduce overall marketing spend, while keeping traffic volatility stable. Given the significant cost optimization achieved over the last few years, the space to further reduced costs in transitional channels is limited. In 2024, we begin to explore new ways to acquire traffic through KOL, by collaborating with short video influencers on platforms such as Douyin and Red Note. We have increased brand exposure and gradually shifted our budget from high cost transitional channel to KOL channel, which help reduce unit acquisition costs. In Q4, the Momo app had 5.7 million paying users, a sequential decrease of 1.2 million, due to our cost reduction and efficiency improvement strategies. We reduced the acquisition of some extremely low paying users with a negative ROI, which benefits profitability. Now on the productivity of cash cow of Momo, the cash cow business. In Q4, Momo's live streaming revenue was RMB1.19 billion, down 16% year-over-year. The year-over-year decline was wider than the previous three quarters, mainly due to the reductions in revenue oriented competition events, which resulted in a significant decrease in incremental revenue from year end competition events compared to previous years. In fiscal 2024, live streaming revenue totaled RMB4.8 billion, down 14% year-over-year. This decrease was mainly due to our proactive operational adjustments to maintain a healthy social ecosystem, as well as spending softness among top paying users amidst the weak macroeconomy. To mitigate the revenue pressure from the decline in top paying users, we stepped up our efforts to promote live streaming on the homepage to improve its channel penetration and paying conversion. Meanwhile, we increased our product innovation efforts, targeting mid and long-tail users to stabilize the revenue scale of this group. In early stage of our operational adjustments, we found that the reduction in competition bonus resulting in insufficient profits for supply side partners and reduce their motivation to work hard on our platform. Therefore, in the year's second half, we modally adjust the incentive policy for daily events, which resulted in a slight increase in revenue sharing ratio for 2024 compared to 2023. However, the decrease -- the increase in sales of live streaming showroom, costume and PK props, which do not require revenue sharing, plays a positive role in stabilizing the profit level of our cash cow business. Now moving on to our value-added services. In Q4, revenue from VAS, excluding Tantan, totaled RMB1.2 billion, down 5% year-over-year. VAS revenue from the Momo app was RMB800 million, down 15% year-over-year. Revenue from the spend on Momo app was RMB400 million, up 24% year-over-year. For fiscal 2024, revenue from value-added services, excluding Tantan totaled RMB4.177 billion, down 6% year-over-year. VAS revenue from the Momo app was RMB3.28 billion, down 17% year-over-year. Revenue from the standalone app was RMB1.49 billion, up 35% over -- year-over-year. The incremental revenue from our new endeavors largely offset the declines in revenue from our legacy business. The declines in Momo app VAS revenue was mainly due to our proactive product and operational adjustments in audio and video-based VAS experiences over the past year to mitigate regulatory risk, where we significantly reduced the monetization level of agency dominated and heavily monetized use cases. Like, in live stream, we set up the promotion of the chat room experience on the homepage, introduced interactive gifting features for the mid and long-term users, and launched new categories such as mini-games and love fortune telling to improve chat room penetration and paying conversion, while driving organic revenue growth. Turning to Tantan. Tantan's strategic goal for the year was to improve its core dating experience to view an efficient business model that drives profitable growth. With four dating experiences suitable for agents and to drive organic user growth and retention through quality products. We initiated a product upgrade in 2024 focusing on user experience. To encourage more experimentation on the product, our management decided not to constrain the team with short-term metrics during the pilot phase, but allowed more fluctuation in user scales and revenue. By the end of the year, product adjustment has played a positive role in improving user experience. Still user retention and organic user growth have not been significantly improved. The user scale and revenue continued to show a gradual downward trend. Turning to Tantan's user trends and financials. Although, the continuous cost reduction and efficiency improvements over the past two years have bought Tantan to a breakeven. There has been no breakthrough in user retention driven by product experience or organic user growth. Meanwhile, continuous reduction in channel investments has put significant pressure on the user base. The combination of multiple factors led to a 10% sequential decline in Tantan's MAU to $10.8 million in September. As of the end of Q4, Tantan had 860,000 paying users, down 80,000 sequentially due to the decline in MAU. Turning to Tantan's financials. Q4 total revenue was RMB213 million, down 22% year-over-year, mainly due to the decreased number of paying users. For fiscal 2024, total revenue was RMB900 million, down 25% year-over-year. In terms of business line, VAS revenue was RMB550 million, down 18% year-over-year, due to the decline in number of paying users. By sub-dividing members paying features, optimizing the guidance narratives on paying experiences and stepping up promotion efforts for relatively high-priced products such as SVIP, Black Gold and additional pay-as-you-go privilege for members. We managed to drive a significant year-over-year growth in VAS ARPPU (ph), resulting in VAS revenue declining much smaller than the user numbers. Live streaming revenue was RMB313 million, down 38% year-over-year, mainly due to our strategic decision to de-emphasize live streaming, which has a low correlation with the dating experience. For fiscal 2024, Tantan's adjusted operating income was RMB75.94 million compared with RMB101 million from Q4 '23. Now moving on to our efforts on Tantan's product and user acquisition. First, on user acquisition fronts like, Momo. Tantan also implemented KOL collaborations and offline integrated campaigns in 2024. This includes promotion events at bars, music festivals, and other youth centered (ph) venues, combined with -- by targeting online campaigns across new media channels. This approach effectively optimized user acquisition costs while expanding brand influence. On the product front, at the beginning of the year, we identified the major issues affecting the user experience through interviews and surveys. In the year's second half, our product team made full attempt to address two core issues. Uncertainty about the authenticity of user identity and lack of response to chats after matching. After a year of effort, our goal to improving Tantan's core dating experience has largely been achieved, but overall user retention has not improved significantly. In 2025, we will implement more extensive cost reduction and efficiency improvement measures. Maintaining a low cost modest profit level, while continuing to explore dating products. As for our new endeavors, our goal is to enrich the brand portfolio further, push the business boundaries beyond normal and Tantan, and build a long-term growth engine. In quarter four, the total revenue of the new apps was RMB416 million, up 37% year-over-year. For fiscal 2024, the total revenue of the new apps was RMB1.67 billion, up 40% year-over-year. The rapid expansion of overseas business, especially Soulchill was the key driver behind this sustained growth, compared with our domestic businesses, which faced much macro and regulatory uncertainties. Overseas businesses offer clear growth potential and trajectory, our long-standing expertise in Soulchill products and operational gives us confidence that shifting humans and financial resources towards overseas business will yield better returns on investments for the group's revenue and profit. Since the beginning of 2024, we have been committed to localizing our overseas business and improving the operational efficiency of cross-border team collaboration. On the product front, we introduced virtual gift design and interactive features that aligned with local users' preferences in the chat rooms and began exploring the expansion from voice base to live stream. On the operational front, we refined our services for high paying users, driven growth in the number of top cohort users, which drives overall ARPPU growth. We also improved our supply side collaboration strategies, significantly increasing the number of new agencies and broadcasters. On the user acquisition front, while maintaining a stable ROI, we moderately increased our marketing efforts to deepen our presence in existing market, while expanding into new regions. The combined efforts of product, operations and channels led to increase in paying users and ARPPU, which drove rapid revenue growth. Our rapid expansion in Turkish market and live streaming business offset the temporary consumption dips in MENA, due to the potential risk at the year-end and bring Soulchill to maintain strong growth momentum for 2023 high base and continuously increase its revenue contribution to the group. Over the past two years, building on the success of Soulchill, we have launched more brands and new products in the MENA region. Among them, Yaahlan (ph) and audio-based voice social game and, AMAR, (ph) a voice based social product enter the initial marketing and monetization phase in 2024 after finalizing product officially and monetization models. By the end of the year, this two products have reached a certain revenue scale and maintained stable ROI, even as we significantly increased marketing investments. The initial success of Yaahlan and AMAR validates our strategy, assessment that MENA market can accommodate multiple brands and platforms and give us confidence that our overseas business will play an even more important role in our group's revenues and profits in the future. In 2025, we will continue to increase our investments in the Yaahlan and AMAR and strive for continuous improvements in ROI and profitability. If we are able to increase the revenue of these two apps to a certain scale and achieve profitability, we will replicate the successful experience and models in other social entertainment apps, building a more diverse product portfolio. That concludes our business review for 2024. I will now briefly outline our priorities for 2025. Essentially, we will maintain the 2024 strategies for Momo, Tantan and our overseas businesses, with adjustments based on our new developments and market dynamics. First, for the Momo app, our goal is to maintain long-term stable operation with a healthy social ecosystem to ensure the continued stable productivity [indiscernible] business at Tantan. For Tantan, the strategic goal for this year is to reduce cost and improve efficiency while maintaining profitability, with focus on continuing to explore dating experiences suitable for agents and efficient business models. Our new endeavors aim to enrich the brand portfolio further, expand the business beyond Momo and Tantan, and be a long-term growth engine. We will further increased our overseas efforts and take even bolder steps to drive growth and innovation in international markets. Lastly, I'm pleased to announce that our Board has approved a special cash dividend in the amount of $0.30 per ADS for a total cash payment of approximately $50 million or about 30% of the adjusted net income attributable to Hello Group Inc. in 2024. This is the seventh consecutive year that we have shared the fruits of our business with our shareholders through cash dividends, which is a strong testament to our commitment to creating long-term value for our shareholders. Now, let me pass the call to Cathy for the financial review. Cathy, please.

Thanks, Sichuan. (ph) Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the fourth quarter 2024 was RMB2.64 billion, down 12% year-on-year and 1% quarter-over-quarter. Non-GAAP net income attributable to the company was RMB230.5 million, compared to RMB514.7 million from the same period of 2023 and RMB493.3 million from Q3 '24. Our Q4 costs included some film production related expenses. At year end, we also conducted a thorough impairment review on certain assets on our balance sheet, including capitalized film production costs and other long-term investments, and made provisions in accordance with the principle of prudence. Excluding these costs and expenses of RMB141 million, adjusted net income for Q4 2024 would have been RMB371.1 million. Looking into the key revenue items for Q4. Firstly, our live broadcasting, total revenue from live broadcasting business for the fourth quarter of 2024 was RMB1.26 billion, down 17% year-on-year and 2% quarter-over-quarter. The year-over-year decrease was mainly due to a decline in the core mobile live streaming business and to a lesser extent, the decrease in Tantan. Momo live broadcasting revenue totaled RMB1.19 billion for the quarter, down 16% year-over-year and 3% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB75.7 million, down 12% -- down 24% year-over-year, but up 14% quarter-over-quarter. Revenue from the value-added services for the fourth quarter of 2024 was RMB1.33 billion, down 7% from Q4 last year and 2% sequentially. Revenue from value-added service on an ex-Tantan basis was RMB1.2 billion in the fourth quarter of 2024, down 5% from Q4 last year and 2% from the previous quarter. Momo app value-added service revenue decreased both on a year-over-year and quarter-over-quarter basis. This was due to a weak standing sentiment, as well as our proactive product adjustments. However, revenue from the standalone new apps continued to grow nicely partially offsetting the revenue pressure from Momo value-added services. Tantan's value-added services revenue amounted to RMB127.8 million, down 20% year-over-year and 7% sequentially. The decrease was due to a decline in paying users, which was in turn, due to a reduction in channel investment. However, the continued improvement in ARPPU resulted in revenue declining much less than user count. Now turning to cost and expenses. Non-GAAP cost of revenue for the fourth quarter of 2024 was RMB1.72 billion compared to RMB1.77 billion for the same period last year. Non-GAAP gross margin for the quarter was 34.7%, down 6.5 percentage points from the year-ago period. Cost of revenue in Q4 included RMB94 million film production costs, as well as impairment costs provided for earlier film production. Excluding these costs, gross margin -- gross profit margin would have been 38.2%, down 2.9 percentage points from Q4 last year. The year-over-year decrease was due to a number of factors. Number one, higher payout ratio, which in turn was due to two factors. One factor is that overseas business continued -- contributed a larger percentage of total revenue while having higher payout ratio, especially, during the new region expansion and initial phase of video service offerings. And to a lesser degree, higher payout from Momo cash cow business to incentivize the supply side considering the downward revenue trend. Number two, deleverage, where direct personnel and infrastructure cost takes up a higher percentage of revenue. Number three, payment channel costs represent slightly higher percentage of total revenue as revenue mix shifts towards overseas business where channel fees as a percentage of revenue are much higher than those for domestic business. Non-GAAP R&D expenses for the fourth quarter was RMB212.4 million compared to RMB218.1 million for the same period last year, or a 3% decrease year-over-year. The decrease was due to optimization in personnel costs. Non-GAAP R&D expenses as a percentage of revenue was 8% compared with 7% from the year ago period. We ended the quarter with 1,390 total employees, of which 276 are from Tantan compared to 1,382 total employees of which 301 from Tantan a year ago. The R&D personnel as a percentage of total employee for the group was 61% compared with 63% Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was RMB311.7 million or 12% of total revenue compared to RMB296.0 million or 10% of total revenue for the same period -- for the same period last year. The year-over-year increase was primarily attributable to the increase in channel investment for the overseas app, whereas marketing spend for Momo core business and Tantan was narrowed to varying degrees. Non-GAAP G&A expenses was RMB117.6 million for the fourth quarter of 2024 compared to RMB87.2 million for the same quarter last year, representing a 4% and 3% of total revenue, respectively. The year-over-year increase in G&A expenses was due to a combination of factors including provision for some pending legal matters, self-inspection on tax related matters, and due diligence related costs in connection with potential investments. Non-GAAP operating income was RMB279.9 million, with a margin of 10.6% compared with RMB264.2 million with a margin of 22.1% from the same period last year. Excluding film production related costs, as mentioned earlier, non-GAAP operating income would have been 370 -- RMB373.9 million, with a margin of 14.2%. Non-GAAP operating expenses as a percentage of total revenue was 24%, an increase from 20% for Q4 2023. Non-GAAP operating expenses as a -- on a year-over-year basis increased 7%. The increase in both absolute renminbi amount and as a percentage of revenue for operating expenses was mainly due to an increase in G&A expenses and to a lesser degree increase in sales and marketing expenses. Now briefly on income taxes. Total income tax expense was RMB89.5 million for the quarter, with an effective tax rate of 28%. In Q4, the company accrued withholding income tax as RMB19.5 million, which is 5% as part of undistributed profits generated by ROCE. In Q4 2024, as a result of our self-inspection of tax related matters, we also paid some taxes that were due, but unpaid in earlier years. Without such adjustments and withholding tax, our estimated non-GAAP effective tax rate in Q4 would have been around 17% in the fourth quarter. Now turning to balance sheet and cash flow items. As of December 31, 2024, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled RMB14.73 billion compared to RMB13.48 billion as of December 31, 2023. Net cash provided by operating activities in the fourth quarter of 2024 was RMB423.6 million. Lastly, on business outlook, we estimated our first quarter revenue to come in the range from RMB2.4 billion to RMB2.5 billion, representing a decrease of 6.3% to 2.4% year-on-year or a decrease of 9% to 5.2% quarter-over-quarter. At segment level, for Q1 2025, on a year-over-year basis, we expect Momo segment revenue to decrease around mid to low-single digits due to the continuous macro headwinds offset by the rapid growth of overseas business. On the Tantan side, we expect revenue to decrease around 20% due to value-added service revenue contraction caused by a decline in user base and to a lesser degree, our operational adjustment to deemphasize less dating centric live streaming services. 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 for today's discussion. With that, let me turn the call back to Ashley to start Q&A. Ashley, please? Thank you.

Thank you. For those who speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself. Operator, we're ready for questions, please. Thank you.

Thank you. [Operator Instructions] Your first question comes from Xueqing Zhang with CICC.

[Foreign Language] [Interpreted] Thanks management for taking my question. My question is about core Momo. In the first quarter number of paying users on core Momo crashed by 1.2 million quarter-on-quarter, which is significantly larger than the historical average. So what's the main reason for this? What's the impact on revenue and profit? Can we see the number of paying users around this year? And secondly, how does management view the adjustments to live streaming and VAS products over the past year? Are there any further adjustments this year? Lastly, how to view the revenue and profit of the core Momo in 2025? Thank you.

I will take this answer. So about the question of paying users, for the last few years, we pushed hard to get a lot of small ticket paying users because we thought we could keep improving our earnings and we spent quite a bit on different channels to acquire them, but the cost could not be recouped. Now given the tough economic and our growth to be more focused on the profit, we have decided to cut back on trying to bring in this low return paying users in the fourth quarter. And that's why we saw a big drop in long-term paying users, which is more than what we usually experience at the end -- at the end of this year -- of the year-end. So in the months ahead, we will keep reducing our efforts to acquire this low return small-ticket user. This means, we expected a number of paying users to drop more than usual even though this will lower our overall count of paying users. The users generally don't engage much or spend. So stopping our efforts to bring them in for (ph) release the platform. In fact, the shift should help us boost the profitability of our main business. Regarding the product adjustments of Momo. After a year of efforts, we think Momo's content has greatly improved. So we won't make any changes to reduce earnings right now. Instead, we're going to focus on adding fun features and ways to engage users. At the same time, we will keep looking for ways to save costs to make sure our main business continue to pull in good profits even with our revenue goes down a bit. Cathy, will share more about Momo's financial plans for this year.

Hey. This is a very extensive question, so let me try to break it down into a few key components and take them one-by-one. First of all, on revenue outlook for the cash cow business, I'd like to crack it down by considering both internal factors and external factors. Internally, if we look at Momo's fundamentals, I would say that the foundation of our business remains very solid and resilient. First of all, Momo continues to be -- the go to social platform for users looking to discover new friends and expand their circles. Our core user engagement such as number of meaningful connections and a number of interactions remain pretty strong, which give us confidence in the platform's resilience. On paying user metrics, which might have caused some concerns this quarter, I don't think investors need to really worry about it either, and here is why. It's true that extremely high spending users, which we sometimes call the whales have faced pressure in recent years due to economic challenges. Many of them, especially business owners saw their net worth shrinking during COVID and subsequent real-estate meltdown, which impacted spending. It's also true that as Sichuan (ph), mentioned earlier, the long-time users, those spending around RMB10 per month or even less have been deprioritized in our user acquisition strategy due to normalization potential and negative ROI. However, we're happy to see that mid-tier (ph) users, which we sometimes call dolphins in comparison with the whales have been the backbone of our platform. This group of dolphins has remained remarkably stable throughout the past few years. Perhaps some former whales have also transitioned into this category. Looking ahead, we expect this group of dolphin users to continue driving the business and providing a solid revenue base. Now turning to two external factors impacting revenue. First off, on regulatory environment, over the past few years, you probably know that policy changes have posted pretty serious challenges for Momo, the cash cow business. In response, we proactively adjusted our monetization strategies to reduce manage -- to reduce regulatory risk. However, since late 2024, the environment has stabilized a little bit, allowing us to focus on revenue recovery rather than risk management. So that's the regulatory factor. And on macroenvironment, I would say that consumer sentiment at this point remains a key variable on which there is not much we can do really, but to adapt. From what we've seen from how users performed so far into Q1, it looks like the very top of the pyramid users or the whales are going to continue to be very cautious in terms of spending. So live-streaming may continue to see pressure, but value-added service should be doing relatively well. And as the year progresses, if consumer sentiment continues to recover and government policies further boost consumer confidence, especially, the confidence from the business owners, we could see upside potential in user spending. But at this stage, it's still too early to make a very strong call on the macro front. So if you're looking for a more quantitative outlook, here's what I can share at this point. As reflected in our guidance, we expect some seasonality in Q1, but should see a slight rebound in Q2, where we land post the rebound, really depends on macro. For now, I would put in a low-teens revenue decline in the cash cow business for 2025 and see if macro would help us perform better as we head deeper into the year. That's for the cow, that's for the cash cow. And if you throw in overseas piece and the Tantan piece into the pod and look at the -- group level rate, the YoY decrease will likely narrow pretty substantially to low-single digits as the overseas is still gaining pretty strong traction at this point. Of course, in absolute dollar terms, this will still be a meaningful year-over-year decrease from 2024. So we are further optimizing headcount as well as improving marketing efficiency to absorb part of the top line pressure and reallocate some of the resources to overseas business as well. As a result, while revenue will decline, profitability impact will be less severe due to cost optimization for the cash cow. However, we may invest a big part of the cost savings, especially the marketing savings to grow our overseas business. So I would say that at the group level, the picture is a little bit more complicated. For the whole group, meaning combining the cow, Tantan, and the fast expanding overseas business altogether, we are targeting a non-GAAP operating margin range from 12% to 13%. However, you may want to take that range with an understanding that it is a very soft kind of guidance rather than a firm commitment because as you can understand, we are at the beginning of the year and there are still too many moving pieces that could move the bottom line margins one way or another. So this is what I can share at this point of time. Back to Ashley to take the next question.

Operator, next question, please?

Your next question comes from Thomas Chong with Jefferies.

[Foreign Language] [Interpreted] Thanks management for taking my question. My question is about our overseas application. Can management comment about the key market for Soulchill as well as its revenue and earnings? On the other hand, we also talk about the two new apps, can management share the positioning of these two application and how is it different from Soulchill? How big are these two apps in terms of revenue and spending? In 2025, how should we think about the overall overseas revenue and earnings expectation, as well as the growth potential in overseas market? Thank you.

Regarding the question about Soulchill and other apps. So in the past few years, Soulchill has become the fastest growing product in our group, both in revenue and profit. In 2024, its revenue grew by 50% from 2023, nearing RMB1 billion and also surpassing Tantan's earnings. So this growth is mainly due to improving localization strategies we started last year and focusing on three main areas. One is reaching to -- reaching the mature markets; two, expanding into new regions and also adding features like live streaming. We have also strengthened our partnerships, which has helped [indiscernible] revenue. Soulchill is doing well in Turkey, Egypt, and Gulf countries showing very strong market demand. We also launched two new apps in the MENA regions at the end of 2023. So the first one is Yaahlan and [indiscernible] game app and AMER. Similar to Soulchill, but voice focused, both products was ROI-driven from the start and has shown promising potential in revenue and user acquisitions. So in 2025, if the ROI remains promising, we plan to increase marketing for both. So the surface of Soulchill and our new products shows that the knowledge we gain in our home market works well support, especially in the MENA region, which can accommodate multiple Soulchill brands. So in 2025, we will invest more in exploring international markets since our overseas products are focused on profits, increasing investments will heavily affect the group's net profit. So Cathy will provide specific details on revenue and profit forecast.

Okay. Our overseas growth strategy for 2025 can be broken – broken down into two buckets, the good old Soulchill and the other new initiatives. For Soulchill as Sichuan mentioned earlier, we're focusing on three main drivers this year. First one is better localization; second one is geographic expansion into developed countries, where our current penetration is not as deep; and the third driver is new media services. If we make strong -- if we make good progress across all those three areas, we could reach the higher end of our growth target, if certain areas require more time, we might land in the mid to lower range of our target. In 2025, we are going to have a second growth driver for our overseas business, which are the two newer applications, Yaahlan and AMER. Both applications are gaining pretty strong traction at this point and we are significantly increasing our marketing efforts to accelerate revenue growth because the ROI is looking pretty promising. Despite stepping up the marketing dollars, ROI remains quite stable, which is a very positive sign. If we can maintain strong ROI as we continue to scale by the end of the year, the combined quarterly revenue run rate is the new overseas apps could -- meaning these two smarter apps could reach where Soulchill is today. If you annualize that, that would mean the overseas revenue contribution for 2026 will become very meaningful. However, if marketing efficiency decline as we scale, we may pause marketing expansion to focus on product improvements and operational refinance, before ramping up again. In that case, revenue growth for those two applications could come in a bit slower. So looking at the full overseas portfolio, we expect revenue from it to grow from around RMB1 billion in 2024 to a range between -- could be between RMB1.7 billion to RMB2billion in 2025, that's a pretty impressive growth for this year already. Profitability is not a priority for overseas expansion this year, as we are focused on scaling. That said, because we grow our overseas business with high level of focus on ROI, as we continue to scale bottom line for overseas business should improve over time. So that's what we have to share at this point. [Technical Difficulty]

Operator, we're ready for the next question. Thank you.

Your next question comes from Leo Chiang with Deutsche Bank. Leo Chiang from Deutsche Bank, your line is open.

[Foreign Language] [Interpreted] Let me translate myself. Thank you management for taking my question. My question is regarding to Tantan. After one year of business adjustment, we see Tantan user and revenue scale is still in a declining trend. Can management share the plan for Tantan this year in terms of product and operation? How should we think of Tantan's revenue and profit outlook in 2025? Thank you.

Okay. I'll take the Tantan question. Maybe let me spend a little bit more time to discuss Tantan's strategy for 2025 and explain why we're taking this approach. Tantan has always had two main strategies -- strategic objectives. One is, delivering a good dating experience for users in China and the broader Asia market. This remains our top priority because we obey all the up and downs in the past. We still see this as a significant underserved demand in China market and we believe we -- out of all of our peers still have the best chance of being the best player in this market. And the second objective is building a sustainable, profitable business model. So given China's highly competitive and costly user acquisition environment, there is only so much we can do to optimize on user acquisition cost. So in order to build a profitable business model, referring to the second goal that I mentioned, we in the past thought that boosting monetization was a more feasible path, that's why in the past, we focused heavily on increasing ARPPU to improve monetization. However, this approach often conflicted with user experience, forcing us into a pretty awkward balancing act, one that we've never executed successfully and sometimes even tumbled and struggled to get back on track. This year, we're taking a different path. Instead of prioritizing ARPPU growth, we're shifting our focus to reducing user acquisition cost in a pretty dramatic way. Now, how do we get there? Typically, the more aggressively we acquire users, the higher the user acquisition costs will go, which means if we want to maintain current level of user scale, it's difficult to further reduce unit acquisition cost. On the other hand, if we reduce our acquisition volume, unit costs would also decrease. This year, we will significantly cut back on user acquisition spending all the way to the point where the ROI turns positive, which is to say that every new user we acquire, we aim to fully recover their acquisition costs, including the fixed costs, meaning the personnel and other related network expenses. By making this adjustment, even at our current ARPPU levels, we can recover marketing spend and minimize acquisition loss creating a healthier business cycle. There is, of course, a trade-off with this strategy. Since we're cutting back on user acquisition cost pretty dramatically, we will likely see a faster decline in active users. However, many of these users were only being maintained at the expense of profitability. So we're willing to let go of some scale in the short-term. The upside is that this shift buys us sufficient time and space to refine user experience and retention strategies as well as experiment with new premium features that could drive sustainable monetization. If we are successful in doing that, it's going to lay the foundation for future growth where both user experience and revenue generation can scale together. And so that's the overall -- that actually marks a pretty, pretty big shift in strategies for Tantan in 2025. We will see how it plays out as the year progresses. When it comes to Tantan's revenue outlook for 2025, there are two key factors shaping the quarterly trends. One is the product and operational adjustments impacting ARPPU. Last year, we made some product and operational changes aimed at improving the dating experience. These changes were tested on a smaller group of users last year and now we are fully rolling out these adjustments across the platform in the first half of 2025. And because these changes will have a negative impact on ARPPU, a full scale rollout certainly will weigh on revenue in the near term. And the second factor that we should consider is significant reduction in marketing spend, as I mentioned in the overall strategy for Tantan in 2025. As I said, starting from Q2 2025, we will pretty drastically cut marketing expenses to ensure the user acquisition achieves a full ROI recovery. Right now, we are looking at reducing quarterly marketing spend from around RMB40 million to RMB50 million per quarter to approximately RMB20 million to RMB30 million per quarter. Naturally, this will result in a decline in active users and top line revenues. So given these moving pieces, it's difficult to provide an exact revenue forecast at this point. That said, I would put a rough estimated range between 20 -- maybe 20% to 30% revenue decline, year-over-year decline for 2025. In terms of profitability outlook and despite this top line decline because our efforts are focused on achieving better ROI, profitability will actually see improvement for domestic Tantan. Beyond optimizing marketing spend, we will also scale back personnel costs pretty significantly to align with our profitability goals. And we do expect Tantan to remain profitable for the coming couple of years, although at a lower level of platform scale. We may need to put in some investment to expand Tantan overseas, but it will be experimental and ROI driven as well. And so that's for Tantan's financial outlook. Ashley, maybe the last question.

Operator, let's see if we have any more requests on the line. If we do, let's take one last question before calling the night. Thank you.

Thank you. Your next question comes from Jenny Wang with UBS.

[Foreign Language] [Interpreted] So thanks management for taking my question. My question is regarding our capital return. As management mentioned, this is the seventh consecutive year of issuing special dividends. So looking ahead, are we planning our regular dividend policy, we note that this year's dividend point is not really small than previous years. But on the other hand, we extended and upsized our share buyback program. So does this indicate a strategic progress for share buybacks over dividends or in terms of shareholder returns going forward? Thank you.

Okay. I'm hearing several questions here. On the question as whether we are thinking about making the dividend program a regular one, simple answer is no. We don't see a strong reason to make our special dividend plan a regular one and here's why? First off, for long-term investors who have been following us, it's already well understood that management takes a disciplined approach to capital allocation. When we have excess cash, we return it to shareholders in a thoughtful and value enhancing way. Because this expectation is already while established, we don't see the need for fixed dividend policy just to formalize it. Instead, we would rather keep some flexibility in how we allocate capital. If we see compelling opportunity -- investment opportunities, we would prefer to deploy capital towards growth, either organically or through M&A, rather than commit to a rigid dividend schedule. And the second point is perhaps related to -- it's also related to your other question about how we decide between a cash dividend versus share buyback. Now even when it comes to returning capital to shareholders, we need the flexibility to decide between dividends versus share buybacks. Given that our stock is still trading a pretty significantly below cash value, buybacks currently offers a better return for shareholders compared to a fixed dividend payout. So the conclusion is a rigid dividend policy would limit our ability to optimize capital allocation, instead we prefer to keep our options open and ensure every dollar is deployed in a way that creates the most value for our shareholders. And so that's my answer to the question. And maybe with that, we would like to wrap up today's conference.

So thank you all for joining us. I will see you next quarter. Operator, we're ready to close. Thank you.

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