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Momo Inc. (MOMO) Q3 2020 Earnings Name Transcript

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Momo Inc. (NASDAQ:MOMO)
Q3 2020 Earnings Name
Dec 1, 2020, 8:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Women and gents, thanks for standing by and welcome to Third Quarter 2020 Momo Integrated Earnings Convention Name. [Operator Instructions] And please notice, this convention is being recorded right this moment.

I’d now like at hand the convention over to your first speaker for right this moment, Ms. Cathy Peng. Thanks. Please go forward.

Cathy PengDirector, Investor Relations

Thanks, operator. Good day, everybody, and thanks for becoming a member of us right this moment for Momo’s third quarter 2020 earnings convention name. The Firm’s outcomes have been launched earlier right this moment and can be found on the Firm’s IR web site. On the decision right this moment from Momo are Mr. Tang Yan, Chief — Govt Chairman of the Board; Mr. Wang Li, Chief Govt Officer of Momo; Mr. Wang Yu, Founder and Chief Govt Officer of Tantan; and Mr. Jonathan Zhang, Chief Monetary Officer. They are going to focus on the Firm’s enterprise operations and highlights, in addition to the financials and steering. They are going to be all — they are going to all be out there to reply your questions throughout the Q&A session that follows.

Earlier than we start, I want to remind you that this name could comprise forward-looking statements made below the protected harbor provisions of the Personal Securities Litigation Reform Act of 1995. Such statements are based mostly on administration’s present expectations and present market and working situations and relate to the occasions that contain recognized or unknown dangers, uncertainties and different components, all of that are tough to foretell and plenty of of that are past the Firm’s management, which can trigger the Firm’s precise outcomes, efficiency, or achievements to vary materially from these within the forward-looking statements. Additional info relating to these and different dangers, uncertainties, and components is included within the Firm’s filings with the US Securities and Change Fee. The Firm doesn’t undertake any obligation to replace any forward-looking assertion on account of new info, future occasions or in any other case, besides as required below legislation.

I’ll now go the decision over to Mr. Tang. I’ll translate for him. Mr. Tang, please.

Yan TangGovt Chairman

[Foreign Speech] Good morning, and good night, everybody. Thanks for becoming a member of our convention name right this moment. As lots of , I’ve already resigned because the Chief Govt Officer of the Firm and stay because the Govt Chairman of the Board. Going ahead, until I’ve something particular to say, I most likely will not take part in common earnings calls on common — on a quarterly foundation. The roles can be handed on to the longtime deputy, additionally essentially the most trusted enterprise accomplice of mine and now the brand new Chief Govt Officer of the Firm, Mr. Wang Li.

[Foreign Speech] Though, I am not the CEO, I am nonetheless going to deeply — be deeply concerned in setting the strategic priorities and directing new product and enterprise initiatives for the Firm that I constructed and nonetheless deeply dedicated to. As I am not going to speak with the investor group as typically sooner or later as earlier than, I want to take this chance to share my views on what has taken Momo this far and the place it’s heading towards within the coming few years.

[Foreign Speech] 9 years in the past, I began Momo with an concept to assist individuals uncover new relationships, increase their social connections and construct significant interactions. This can be a fundamental human demand that everyone wants no matter geolocation and cultural background. However that is additionally one thing that we, Chinese language individuals, significantly want due to the distinctiveness now we have right here in China from economics, societal and cultural perspective.

As we speak, looking back, I am glad to say that, in so many various respects, the mission has been achieved. Each month, greater than 100 million persons are connecting, interacting and constructing romantic or in any other case significant relationships on our household of apps. On the similar time, there was and all the time can be alternatives for enhancements in higher satisfying consumer calls for. That, clearly, is the last word driving drive for the Firm to develop. If we will preserve doing a greater job in addressing the demand that we weren’t capable of serve properly previously, and on the similar time, preserve evolving ourselves because the customers do, we’ll develop.

When the close by individuals can’t meet all of the consumer demand that we noticed, we introduced them curiosity teams and Close by Posts. When textual content and picture-based info didn’t fulfill all of the consumer demand that we noticed, we gave them reside streaming, brief movies, feast video games and even digital karaokes. When some individuals wished a very completely different social context and product mechanism, we added content material to our household of apps. That is how, over the previous 9 years, we remodeled Momo from a easy, single-function utility to a multi-billion greenback firm. This relentless deal with innovation inspired to always reinvent and remodel ourselves will proceed to be the best way we drive the Firm ahead sooner or later. Thanks for trusting Momo staff and for being a part of the journey.

Now, let me hand the decision over to our Chief Govt Officer, Wang Li. Mr. Wang Li?

Li WangDirector and Chief Govt Officer

[Foreign Speech] Good morning, and good night, everybody. Thanks for becoming a member of our convention name right this moment. That is my first earnings name because the Chief Govt Officer of the Firm. I will spend the primary a part of my speech on reviewing the operational and enterprise replace. After that, I would prefer to share a number of the priorities that I set for my groups for the approaching few quarters.

[Foreign Speech] Firstly, a quick overview of the monetary efficiency. For the third quarter of 2020, whole income was RMB3.77 billion, down 15% year-over-year. The year-over-year lower was primarily as a consequence of structural reform that we’re at the moment endeavor inside Momo core’s reside video enterprise, in addition to the truth that the monetary situation of a few of our high-paying customers deteriorated versus 2019 because of the lingering affect from COVID. After all, the stress from these two components have been partially offset by the sturdy development from Tantan.

Adjusted web earnings for the quarter was RMB654 million, representing a 17% revenue margin. Excluding Tantan’s web loss, adjusted web earnings — adjusted earnings for the core Momo was RMB721 million, or a 24% revenue margin. In Q3, Tantan continued its robust momentum with whole income reaching RMB729 million, up 135% on a year-over-year foundation, pushed by the expansion momentum from its reside streaming enterprise, in addition to the gradual restoration of its membership enterprise. Though, Tantan stepped up its advertising spending in Q3 to capitalize on the post-COVID restoration, the robust prime line development nonetheless enabled us to slim down the loss on the underside line.

Adjusted web loss from Tantan was RMB66.87 million for the quarter, in comparison with RMB160 million for the year-ago interval and RMB70.79 million from final quarter.

[Foreign Speech] Now, a deeper dive into different points of the quarter. First, on working metrics. Variety of MAU grew 2.1 million throughout the quarter to 113.6 million in September. The continual post-COVID restoration development, along with our product and operational efforts, have been the first driving forces for the quarterly web add-on Momo. Complete variety of paying customers throughout Momo reached 9 million for the quarter, representing a 100,000 web addition from the quarter in the past.

[Foreign Speech] Now, turning to Tantan. Tantan’s paying customers for the third quarter totaled 4.1 million, a 200,000 enhance from the earlier quarter. The online addition was a normal reflection of the post-COVID restoration in consumer engagement, partially offset by the gradual rollout of SVIP in mid-September timeframe. The merchandising technique we adopted has resulted in a slight raise in common subscription worth for the SVIP, as in contrast with the earlier, See Who Likes Me and Flash Chat, which have been packaged into SVIP and costs to be provided as separate value-added providers after the introductions of SVIP bundle. Such a method was designed and examined to optimize for whole income, however have been unfavorable to the variety of paying customers when examined and initially launched, because of the pricing checklist factor in it. With out the launch of SVIP, the paying consumer depend might have already exceeded the 4.2 million seen in Q1 2020. Wang Yu can have extra particulars for you later in his remarks.

[Foreign Speech] It is price calling out that since mid-Q3, we have been seeing an elevating traits in consumer acquisition prices, particularly with the paid advertising channels, on account of aggressive advertising funding from a number of the on-line training corporations and sport publishers. It has precipitated the online addition in MAU and paying customers to be extra moderated in Q3 versus Q2 for Momo. And in Tantan’s case, slowed down the restoration course of from late August. Now, it appears to be like like that the consumer acquisition atmosphere may stay aggressive in This autumn, with e-commerce gamers becoming a member of the battle. Our short-term tactic right here is to deal with ROI and attempt to be opportunistic in how we method the advertising campaigns in This autumn. If the competitors for advertising channels stay difficult in December, the consumer and paying consumer development on Momo could proceed to be average in This autumn. Tantan’s paying consumer may very well be below some stress as a result of it additionally has the continual impact from bigger scale as SVIP rollout in This autumn.

[Foreign Speech] Regardless of the short-term challenges on the consumer acquisition aspect, we nonetheless see loads of alternatives to drive development by means of varied product and operational efforts throughout our household of apps. This stays the highest precedence of the Firm within the foreseeable future. I’ll elaborate extra on our views and plans on this space in latter a part of my speech.

[Foreign Speech] Now, turning to a fast evaluate throughout our key enterprise traces. Firstly, on reside broadcasting: whole income from reside broadcasting enterprise for the third quarter 2020 was RMB2.37 billion, down 27% from the identical interval final yr and 9% from final quarter. The sequential lower was largely because of the structural reform that we have been endeavor in Momo core’s reside streaming enterprise, partially offset by the speedy development from Tantan’s reside streaming service. Wang Yu will share extra particulars in his remarks later, so I can be primarily specializing in the core Momo.

[Foreign Speech] Momo core’s reside streaming revenues totaled RMB1.98 billion for the third quarter, down 40% from the identical interval final yr and 18% from final quarter. As lots of , since early August, now we have been implementing a collection of measures to be able to revise the lengthy tail — mid- to long-tail content material ecosystem and to make it possible for reside streaming will proceed to develop steadily, healthily, and in a sustainable method within the new exterior atmosphere.

The brand new structural — the structural reform includes a collection of product and operational efforts, touching many various areas inside the reside streaming enterprise. In Q3, we’re primarily centered the efforts on three areas: first, making changes to sure interactive options and associated operational insurance policies that may be a robust stimulator for prime [Phonetic] spending, however will not be useful for the content material ecosystem; second, holding a collection of promotional occasions to revise the mid- to long-tail content material ecosystem; and third, redesigning the KPI system for businesses and broadcasters, in addition to reinventing the competitors occasions with the aim to focus much less on assembly income targets, however extra on content material and supporting new skills.

[Foreign Speech] The product adjustment was made in early August. As we known as out within the final earnings name, such adjustment was anticipated to trigger extreme short-term ache in revenues, however it’s vital in eliminating the dangerous apples which are dangerous for the long-term healthiness of the enterprise. Income, as anticipated, skilled a reasonably important decline throughout early August. In direction of mid-August, we have been capable of see stabilization and a step-up in income from the very backside, which signifies that the worst of the short-term unfavorable affect from the reform was behind us.

Extra importantly, throughout the previous few months, now we have been seeing some optimistic indicators for enchancment in content material ecosystem, similar to a lower in focus stage and an upward development within the variety of inside DAU and their respective viewing time, in addition to the entire broadcasting time of the skilled performers. These are vital metrics for us to gauge the healthiness of the ecosystem. Because the content material ecosystem step by step improved, the — in mid-November, we have been capable of see one other significant step-up in day by day income throughout the non-event days. It gave us the boldness that our reside streaming enterprise has entered right into a virtuous cycle of gradual income restoration, supported by a sustainable content material ecosystem.

[Foreign Speech] The opposite essential job of ours in current couple of months is to ensure now we have a secured provide of high-growth in broadcasters. For the mid- to high-grossing performers and the performers with excessive potential to turn out to be future stars, the platform normally safe these core performers with unique contracts known as Golden broadcaster contracts. These Golden broadcasters characterize 70% of Momo’s reside broadcasting revenues, making them the important thing to make sure the stableness of our content material provide.

In mid-September, we kicked off the Golden broadcasters contract renewal course of. The purpose is to lock down the massive majority of Golden broadcasters whose contracts are to run out inside one to 2 years by providing a brand new incentive program. As much as final week, we have already secured an enormous majority of the focused performers by a number of yr unique contracts. On the similar time, I am comfortable that the staff are capable of optimize the fee construction, in order that the incremental value of the brand new program is kind of manageable. Zhang can have extra particulars about this in his remarks.

[Foreign Speech] General, we’re properly poised for steady content material enchancment in This autumn. Our purpose is to really this yr with strong progress in reshaping the long-tail content material ecosystem, in order that we will deal with driving income development subsequent yr and take the reside streaming enterprise again to the expansion observe in 2021.

[Foreign Speech] Now, turning to VAS. Income from value-added providers reached RMB1.33 billion, up 25% year-over-year. Once more, I will be specializing in Momo’s VAS enterprise and depart Tantan’s half to Wang Yu a bit later. Income from VAS on an ex-Tantan foundation reached RMB999 million for the third quarter of 2020, up 32% year-on-year. On a sequential foundation, VAS revenues on the core grew 14%, pushed by the continual restoration of consumer engagements, in addition to the expansion momentum from a number of the key paying experiences inside VAS.

[Foreign Speech] In the course of the third quarter, the audio and video social leisure experiences continued to generate sturdy development for VAS, pushed by progressive product and operational concepts from the staff. The brand new expertise we introduced into the chatroom final quarter, similar to Associates Commerce, continued to generate momentum. On the similar time, we’re additionally grew exceptionally properly after we revamped the expertise final quarter, making it the largest sequential development driver for Q3.

[Foreign Speech] As the general visitors and consumer engagement continues to get well, in Q3, we additionally launched a bunch of latest gifting experiences into the normal gifting classes, similar to curiosity teams and greetings. In consequence, revenues from this bucket grew fairly robustly as properly. The expansion that we had with Werewolf and curiosity teams exhibits that even for a number of the very mature and established use circumstances, so long as we proceed to innovate on client and paying experiences, there’s all the time going to be alternative to drive development. We’ll proceed to go down this path in This autumn.

[Foreign Speech] Now, shortly on the brand new bucket. In Q3, individual [Phonetic] matchmaking proceed to see gradual enchancment, each by way of consumer engagement and income. As well as, we’re additionally engaged on a variety of different new experiences for the initiatives within the new bucket. For the initiatives within the new bucket, the near-term focus can be on enhancing consumer expertise and retention, we’ll push the income button at some later stage after we deem match.

[Foreign Speech] Now, briefly on different enterprise traces. Cellular advertising income was RMB50.42 million, down from RMB81.89 million the identical interval final yr. The lower was a mirrored image of each macro situation and our technique to underweight the road by way of useful resource allocation this yr. Cellular gaming enterprise continued to development down in Q3 as a consequence of its immateriality, we cannot be commenting an excessive amount of on it till now we have something new right here.

[Foreign Speech] These are the enterprise updates. Now, I would like to shut my speech right this moment by laying out three priorities for the Firm within the coming few quarters.

[Foreign Speech] My largest precedence is to take the core enterprise again on to the expansion observe. I’ve full confidence right here due to the basics of Momo as a social platform are very strong, as you possibly can see from the regular tempo of consumer and paying consumer development after COVID. The strong fundamentals of the platform present a agency basis for steady income development on prime of it. The wholesome and regular development of VAS enterprise stands because the proof of that. The challenges that we have been seeing this yr was largely because of the lingering financial affect from COVID, in addition to the structural reform inside reside streaming enterprise. So the worst affect from these two components are already behind us. This autumn will nonetheless be a transition interval the place we largely deal with the reform.

Subsequent yr, we will be totally geared towards income development. One of many key instructions right here is to extra strategically handle the visitors allocation throughout completely different monetization efforts on the core. In late Q3, we did a reorganization by placing reside streaming enterprise below business product staff, who’s now overseeing all of the monetization efforts of the Firm, together with reside streaming, VAS, cellular advertising and gaming. Such an adjustment paves the street for us to maximise the effectivity in monetizing the visitors throughout the assorted enterprise traces. We’ll break the barrier between reside streaming and VAS and be recommending completely different experiences to customers purely based mostly on the person desire, which is able to result in greater propensity to pay and higher ROI in using the visitors for monetization.

[Foreign Speech] My subsequent precedence is to drive greater stage of collaborations between Momo and Tantan, particularly on the advertising entrance. [Technical Issues] nonetheless an excessive amount of alternatives to enhance the highest of the funnel efforts, in addition to the conversion methodologies. I am seeing a whole lot of synergies that we will drive by enabling nearer collaborations between the core and Tantan. Seeing outcomes right here is the highest precedence for me within the coming few quarters.

[Foreign Speech] Third space of focus is to construct new drivers for the following 5 to 10 years. It is now very clear that Momo goes to be a wholesome and regular rising money cow enterprise for the Firm. As — Tantan with income turning into more and more sizable and backside line persevering with to enhance, it should be the brand new engine for the approaching three to 5 years. Nonetheless, past Momo and Tantan, we’re nonetheless seeing alternatives within the social area that, if captured, will turn out to be future drivers for a longer-term horizon. Innovation is deeply rooted in Momo’s DNA. Over the previous two years, now we have realized classes, but in addition accrued some precious expertise in constructing new purposes. That is an space the place I would prefer to see us transfer a little bit bit sooner within the coming few years.

[Foreign Speech] These are the issues I would prefer to cowl on this name. Now, right here is Wang Yu to speak about Tantan’s product and enterprise improvement. Mr. Wang, please.

Wang YuFounder and Chief Govt Officer of Tantan

Thanks. So, let me briefly evaluate Tantan’s operational and enterprise improvement previously quarter and our subsequent plans. First, on consumer traits and associated metrics. Complete paying customers reached 4.1 million for the quarter, that is 200,000 web addition from 3.9 million for the earlier quarter. The rise within the variety of paying customers was a normal reflection of the restoration in Tantan’s home DAUs and consumer engagements, partially offset by the introduction of SVIP, which is a brand new subscription bundle that was getting step by step rolled out in the course of September. I will elaborate a bit extra about this new monetization endeavor and the way the dynamics could affect short-term and long-term paying subscribers in numerous methods a bit later in my remarks. With out the launch of SVIP in mid-September, the variety of paying customers would have already exceeded Q1’s stage.

Now, I would prefer to echo the early feedback from Wang Li about a number of the current traits that we have been seeing by way of consumer acquisition. In direction of late August, we began seeing a major enhance in consumer acquisition prices, on account of aggressive advertising spending from a number of the training corporations and cellular sport publishers. As our advertising technique focuses closely on ROI, we want to not purchase customers when it is closely overpriced. Our present view is that, the consumer acquisition unit worth may stay excessive in This autumn. If that seems to be the case, our short-term technique is to time the advertising campaigns opportunistically to keep away from unreasonable enhance in consumer acquisition prices. On account of this short-term technique, we anticipate This autumn’s advertising value to see a significant lower from Q3’s stage. And to some extent, that would additionally have an effect on the tempo of sequential income development in This autumn. We imagine the present excessive pricing within the channel market is basically as a consequence of the truth that training and gaming corporations have been extraordinarily aggressive in seizing the post-COVID market surge. However we expect issues will ease up after Chinese language New 12 months. We’re planning to make use of that window [Phonetic] alternative to push the advertising button in a much bigger method. In the meantime, we’re working to enhance our advertising effectivity and we’re assured that we’ll see strong outcomes by Chinese language New 12 months.

Now, briefly on abroad improvement. As beforehand talked about, now we have adopted a method to briefly pull again from the creating international locations in Asia and shift the main target to greater ARPU markets. Abroad revenues have been seeing a gentle enhance for the reason that starting of this yr as a consequence of development of a number of the greater ARPU areas that now we have entered. Nonetheless, the variety of paying customers has trended down as we reduce the spend in creating international locations, the place customers are huge, however ARPU is extraordinarily low. Wanting past Q3, we could delay a few of our abroad advertising plans because of the conditions across the world pandemic. However abroad growth stays a vital a part of our development plan over the longer run.

Now, briefly on revenues. Complete revenues for the third quarter reached RMB728.9 million, up 135% year-on-year and 41% quarter-on-quarter, pushed by the continual momentum from the reside broadcasting enterprise, and to a lesser diploma, the post-COVID restoration of the membership of the enterprise. Common income per paying customers, or ARPPU, reached RMB178 in Q3, in comparison with RMB69 for a similar interval final yr, and RMB133 final quarter. The substantial enhance in ARPPU was once more, primarily pushed by the expansion of the reside streaming enterprise. As mentioned many instances earlier than, we imagine Tantan nonetheless has an excessive amount of potential in driving ARPU development. Nonetheless, within the near-term, ramping up the ARPPU too quick will not be wholesome for the relationship ecosystem. Subsequently, we prefer to handle the tempo of development a little bit bit within the coming couple of quarters.

Now, let me provide you with an replace on the progresses that we made on a variety of different strategic fronts in Q3. To start with, enhancing product expertise. Within the third quarter, we continued to push ahead on two strategic fronts: one, enhancing the core relationship expertise; and two, enabling the customers to attach and work together in new methods on prime of the core swipe and match system. In the course of the quarter, we revamped the core swiping expertise with an enhanced card show format. We additionally redesigned the clicked in profile web page, making profile image and different private info extra distinguished. As well as, offering a protected and reliable atmosphere for customers to this point, all the time stays on prime of our agenda. Verifying the authenticity of the consumer info is a vital step on that entrance.

Final yr, our actual picture verification effort has performed a really optimistic position in enhancing the relationship ecosystem, and preserving spammers away. This quarter, we took the verification effort an enormous step ahead by starting to supply actual title verification service to the customers. Customers who’ve been verified with ID info can be prioritized in our suggestion engine. The initiatives have been properly acquired by the customers, so we plan to maintain pushing on it to extend the adoption price.

On the entrance of enriching the product experiences, we have now begun a really small scale testing of a video, audio relationship expertise. Whereas it is nonetheless at an early experimental part at this level, it represents an essential path that we’re shifting towards. After all, perfecting reside streaming service is one other essential endeavor on that entrance as properly. I will elaborate a little bit bit extra in my evaluate of the monetization efforts.

Now, turning to enterprise updates. In mid-September, we started to step by step rollout the brand new subscription bundle known as SVIP. The brand new bundle contains a number of the fashionable current value-added providers gadgets similar to See Who Likes Me, Flash Chat, and limitless proper swipes, in addition to model new premium options that, in response to check outcomes, can add significant worth to customers. For instance, one among these new options give customers entry to a sophisticated filter that may very well be set to get extra fascinating suggestions. One other new function permits the customers to customise the privateness setting to deal with the privateness demand that we’re seeing from the customers. We additionally give the SVIP subscribers one alternative per day to immediately message somebody they’re fascinated by with out being matched.

On the pricing aspect, we adopted a dynamic pricing mechanism that a few of our friends began adopting very long time in the past. After the rollout of SVIP, we ceased to supply See Who Likes Me and Flash Chat as separate value-added service gadgets. Such a substitute on this [Indecipherable] technique collectively led to a de facto worth price impact, which was properly anticipated based mostly on testing outcomes. Worth price have an effect on will value SVIP when launched to be unfavorable to the variety of paying customers. In consequence, we anticipate This autumn’s paying customers lower from Q3’s stage as we rollout SVIP to bigger scale. Our technique is to by means of testing, make it possible for the preliminary launch is optimistic to the grossing. And for the customers to decide on to not migrate from the earlier subscription to SVIP, we will use completely different pricing wall techniques, in addition to new added worth providers to board them again over time. Such a method might really increase fairly than restrict the headroom for us to develop the paying consumer base sooner or later.

Now, turning to reside broadcasting enterprise. In Q3, we centered on optimizing the services inside the reside broadcasting enterprise. One other precedence is to make it possible for the brand new service integrates properly with the relationship ecosystem with out inflicting any undesirable outcomes. Up to now, we’re progressing properly on all of these priorities.

Now, Tantan has been roughly 9 months into reside streaming. So it is most likely time to share a few of my early ideas about what position it’s enjoying and the way I want to steer this service and enterprise going ahead. Reside streaming for Tantan is, after all, a strong monetization device. It permits the Firm to extend ARPU and make the monetary mannequin work, so now we have greater leverage and develop the consumer scale and preserve investing for future drivers. On the similar time, reside streaming can be a client expertise. In that respect, our important purpose is to make reside streaming a complementary service to the core relationship expertise, and contribute positively to consumer engagements. The important thing to that purpose is to stay to the social attributes of this client expertise. In an effort to obtain that purpose, we have to fastidiously place its improvement on the monetization function to keep away from going top-heavy too quick.

Tantan’s paying construction proper now remains to be very lengthy tail-driven. Showrooms are small, however studying interactive, which is vital in making reside streaming a gratifying consumer social expertise. We want to preserve it that method to be able to greatest leverage benefit of Tantan as a social platform.

These are the important thing issues that I would prefer to cowl for right this moment.

Now, let me go the decision over to Mr. Jonathan Zhang for a monetary evaluate. Jon, please?

Jonathan Xiaosong ZhangZhang Chief Monetary Officer

Thanks. Hello, everybody. Thanks for becoming a member of our convention name right this moment. Let me briefly take you thru the monetary evaluate. Complete income for the third quarter of 2020 was RMB3.77 billion, down 15% year-on-year, or 3% quarter-over-quarter. Non-GAAP web earnings attributable to Momo was RMB653.Eight million, in contrast RMB1.09 billion from the identical interval 2019, or a 40% lower year-over-year.

Because the income traces have been coated comprehensively by Wang Li and Wang Yu earlier, let me simply soar into the fee and bills gadgets immediately. Our non-GAAP value of income for the third quarter of 2020 was RMB2.Zero billion, in comparison with RMB2.18 billion for a similar interval final yr. The non-GAAP value of income as a proportion of whole income was 53%, a rise from 49% from Q3 final yr.

Non-GAAP gross revenue margin for the quarter was down Four proportion factors from a yr in the past. The lower was attributable to the next 4 components within the order of magnitude of their respective affect: primary, greater payout ratio from reside streaming enterprise because of the promotional occasions that we held to revive mid- to long-tail content material ecosystem, the inducement program that we provided to Golden broadcasters to stabilize our content material provide, and better income contribution from company’s consultant broadcasters; quantity two, greater payout ratio from VAS providers, because of the robust momentum coming from the audio and video social leisure enterprise, an enormous a part of which concerned third-party skilled moderators; quantity three, decrease gross margin from Tantan, as its reside broadcasting enterprise is turning into more and more sizable; and quantity 4, sure fastened nature value gadgets, similar to headcount and depreciation of fastened property associated impacted the gross margin negatively as the entire income declined, and these things characterize a better proportion of whole web income.

On a sequential foundation, the non-GAAP gross margin dipped by 1 proportion level, higher than we initially anticipated. One factor price mentioning right here is that, as Mr. Wang Li mentioned, in September, we began a program to resume the unique multi-year contracts of Golden broadcasters by providing a further incentive to income sharing. The incremental value incurred was partially offset by a discount of subsidies for operational occasions in Q3. We anticipate the continuing gross margin affect from the contract renewal program to be from 1 proportion level to 2 proportion level. Along with a bonus now we have budgeted for the year-end gala, the gross margin in This autumn is anticipated to be down a pair proportion factors from Q3 stage.

Non-GAAP R&D bills for the third quarter was RMB252.Three million, comparatively flat in comparison with RMB254 million for a similar interval final yr, representing 6.7% and 5.7% of whole income, respectively. The rise in R&D bills as a proportion of income was primarily because of the lower in income. We ended the quarter with 2,396 whole staff, of which 760 are from Tantan. The R&D personnel as a proportion of whole staff for the Group was 58%, in contrast with 54% of Q3 final yr.

Non-GAAP gross sales and advertising bills for the third quarter was RMB696 million, or 18.5% of whole income, in comparison with RMB701.7 million, or 15.8% of whole income for a similar interval final yr. The year-over-year lower in gross sales and advertising bills was primarily because of the decrease advertising spending from Momo, which was partially offset by greater spending from Tantan. On a sequential foundation, the non-GAAP gross sales and advertising bills as a proportion of income was up 3.2%. The rise was attributable to our step-up consumer acquisition efforts from Momo and Tantan to capitalize the post-COVID restoration.

Non-GAAP G&A bills was RMB105.Eight million for the third quarter 2020, in comparison with RMB150.Four million for a similar quarter final yr, representing 2.8% and three.4% of whole web income, respectively. The year-on-year lower in G&A bills was primarily because of the discount of service prices associated to our experimental venture DAU launched final yr and fewer bonus accruals throughout the third quarter of 2020.

Non-GAAP working earnings was RMB737.6 million, a lower of 38% from Q3 2019, representing 19.6% non-GAAP working margin for the quarter, down 7 proportion factors from the identical interval final yr.

For the curiosity of timing, lastly, let me discuss concerning the enterprise outlook. We estimated our fourth quarter income to come back within the vary of RMB3.65 billion to 7.75 — RMB3.75 billion, representing a lower of 22.1% to 20% year-on-year and a lower of three.1% to 0.4% quarter-over-quarter. Such estimation is predicated on the assumptions that Momo core income can be barely down from Q3 stage. There are two issues price mentioning right here. Firstly, though the day by day grossing throughout the non-event days have been stabilized and meaningfully improved from the underside seen in early August, July, as a pre-restructuring month, set a excessive base for This autumn.

Secondly, This autumn remains to be a transition interval the place the main target remains to be on the content material ecosystem. In consequence, we’re adopting a conservative precept for operating the year-end competitors occasions by not setting KPIs for the staff by way of income that comes out of it. Subsequently, we anticipate the incremental revenues from the upcoming year-end gala to be a lot much less evaluating to that within the earlier yr. Given these two components, we anticipate Momo’s reside broadcasting income to lower barely from Q3 stage. Clearly, it’ll be partially offset by the continual development from our VAS providers.

We additionally anticipate Tantan’s income development can be impacted by the next two components. Primary, as talked about earlier, the short-term intense competitors within the advertising channels has put some stress on new consumer acquisition and paying consumer development. Quantity two, Tantan staff is purposely managing the cadence of our individuals growth in reside streaming providers at present stage to be able to ensure there’s nothing unfavorable that affect the relationship ecosystem.

Please be aware that the forecast represents the Firm’s present and the preliminary view available on the market and operational situations, that are topic to vary. That concludes our ready portion of right this moment’s dialogue.

With that, let me flip the decision again to Cathy for Q&A. Cathy, please.

Cathy PengDirector, Investor Relations

Really, only a fast reminder. For individuals who can converse Chinese language, please ask the query in Chinese language first, adopted by English translation. And in addition, please restrict the variety of questions to 1 or two.

With that, operator, we’re prepared for questions.

Questions and Solutions:

Operator

Thanks. [Operator Instructions] First query comes from the road of Thomas Chong of Jefferies. Please go forward.

Thomas ChongJefferies — Analyst

[Foreign Speech] I’ve two questions. Thanks administration for taking my questions. I’ve two questions. My first query is concerning the replace on ARPU to be [Phonetic] a few huge development among the many excessive paying customers as much as November and the way we must always take into consideration the preliminary income outlook in 2021?

And my second query is on Tantan. Can administration additionally remark concerning the reside streaming income versus the membership traits in 2021? Thanks.

Li WangDirector and Chief Govt Officer

[Foreign Speech] Okay. Let me translate the primary half first. The structural reform that we’re at the moment implementing inside the reside streaming enterprise on the very starting certainly had some unfavorable affect on the spending from the excessive paying customers. We hope that by taking this short-term ache, we might take away a number of the dangerous stuff from the system that’s going to be dangerous for the content material ecosystem over the long-term. On the similar time, step by step altering a really top-heavy form of mannequin can be going to extend the security stage of our total enterprise construction within the new coverage atmosphere, and that is to make it possible for Momo’s reside broadcasting enterprise goes to develop healthily and steadily sooner or later a number of years.

When you take a look at the info over the previous a number of months, we will say with confidence that we’re progressing very properly in executing that purpose, due to administration’s dedication and the persistence from the staff, we have efficiently eradicated the dangerous apples from the system. And the opposite factor is that, should you take a look at the metrics reflecting the healthiness of the content material ecosystem, issues like DAU, their respective time spent and in addition their respective viewing time and in addition the entire broadcasting time of the skilled performers, as we entered into November, all of those metrics have been exhibiting very optimistic traits. On the similar time, to date, the staff has largely accomplished the contract renewal course of with the Golden broadcasters with a reasonably manageable incremental value. We have efficiently locked down the massive, huge majority of the broadcasters whose contracts are set to run out within the coming couple of years. And the renewed contracts are going to cowl one other, no less than three years. This can be a very, very vital step in solidifying the content material ecosystem, which supplies a strong basis for — which supplies a strong basis on the provision and for Momo’s reside streaming enterprise to develop healthily and steadily over the longer term a number of years.

[Foreign Speech] Now, on the issues that you just guys are most likely most involved about, the income restoration. When you take a look at the typical day by day grossing on non-event days and evaluate that information with what we noticed in early August when issues have been on the backside, we’re seeing a reasonably secure RMB3 million to RMB4 million per day enhance between the 2 time slots, and the rise got here in two separate step ups: one seen in mid-August timeframe, and the opposite one seen in mid-November timeframe. That is a mirrored image of gradual restoration within the content material ecosystem. We at the moment anticipate that the typical grossing throughout non-event days to form of stay at that stage, after all, the year-end competitors occasions goes to herald some incremental revenues. However as I mentioned, the main target for the entire staff in This autumn goes to be on the content material after taking that huge surgical procedure on the product aspect. Income is definitely not one of many issues on the precedence checklist. And that very same precept additionally applies in operating the competitors — year-end competitors occasions, in that we’re not setting inflexible KPIs for the staff and that conservative technique has additionally been mirrored within the steering.

[Foreign Speech] For Momo’s reside –. Now, it is a little bit bit too early to speak concerning the outlook for 2021, however huge picture-wise, listed below are some traits that I can share. For Momo’s reside broadcasting enterprise, I feel we’re going to full an entire transition interval in reference to the structural reform by the tip of this yr. So subsequent yr, we will be shifting the main target extra towards rising the revenues. I feel apart from the normal seasonal fluctuations that we will see in Q1, I am assured that income will see a gentle enchancment from This autumn’s stage.

[Foreign Speech] For Momo’s VAS enterprise, I feel this yr, total, the staff has been fairly disciplined in operating completely different operational efforts to drive income. At this level, we’re additionally seeing very regular development alternatives on the chatroom expertise, and we’re additionally testing a couple of new paying experiences as properly. So, I feel subsequent yr, that is going to be an space the place we will see a reasonably strong steady development.

[Foreign Speech] For Tantan, as you guys can see, since Q2 this yr, Tantan’s income has been rising very strongly. The short-term slowdown in This autumn is especially as a consequence of two components: one is, as a consequence of issues round preserving the content material ecosystem protected. The staff purposely needs to regulate the tempo of monetization a little bit bit, particularly the ramp up of ARPU. And the opposite issue is that, the intensive competitors within the consumer acquisition market in This autumn, particularly the high-pricing within the per consumer acquisition value is certainly placing some stress on the expansion of latest registrations, in addition to the paying consumer — the expansion of the paying customers. Nonetheless, should you take a year-over-year form of perspective, in This autumn, Tantan will nonetheless be rising at 90%-something versus similar interval final yr. That form of development price is a reasonably passable stage, given the present stage of improvement of Tantan, and that’s additionally a protected and prudent form of development price in preserving the relationship ecosystem wholesome.

As we transfer into subsequent yr, there isn’t any doubt that Tantan going to proceed to develop its consumer base and enhance its ARPU. So I feel income remains to be going to see very speedy development, as in contrast with the yr 2020, and Tantan remains to be going to be an important income engine for — income development engine for the entire Group.

[Foreign Speech] And lastly from me, now we have one other key goal for subsequent yr, which can be going to be a long-term development that we will see occurring on the core — on the Firm’s stage, and that’s the VAS to reside streaming income ratio goes to see a steady enhance in a reasonably significant method. I feel that ratio within the yr 2019 was someplace round 30%. This yr, relying on which quarter, it should be 40% to 50%. At this level, we’re positively seeing extra development potential in providing richer value-added providers within the social area versus within the reside streaming area. My purpose is that, in 2021, the VAS to reside broadcasting income ratio ought to develop to above 60% to nearer to 70%. That method, the general income — the general enterprise construction of the Firm goes to succeed in a reasonably protected and secure state, and that’s additionally going to be extra resilient and defensive towards the exterior dangers, and that’s additionally the precise form of income construction for Momo as a social firm.

I feel there’s a second query concerning the income outlook for Tantan, particularly between reside streaming and VAS [Indecipherable], Wang.

Wang YuFounder and Chief Govt Officer of Tantan

So relating to the income outlook. We’ve not began the budgeting course of for the interval past This autumn but. So it is too early to share something too particular. However listed below are a number of the drivers that we’re . To start with, the customers are going to proceed to develop versus this yr, and that can translate into paying consumer development. We don’t information on consumer and paying consumer development, however I am assured that it is going to be significant towards this yr, as COVID will get behind, and with the efforts in enhancing the product and advertising effectivity.

Second, subsequent yr on the VAS aspect, we will proceed to optimize SVIP. At present, we even have a couple of different membership options that we’re testing and focused to launch subsequent yr. One factor about subsequent yr is that, we want to construct a brand new monetization function round video relationship experiences, and that we’re at the moment testing. The brand new monetization can be a la carte mannequin. So if we’re profitable, it may be a significant ARPU driver as properly.

Thirdly, on reside streaming, within the second half of this yr, we largely centered on enhancing the product expertise. At present, I really feel that we nonetheless have a whole lot of areas that should be improved. We sampled [Phonetic] the advice engine, the in-channel expertise and the best way reside video is related to core merchandise. So, we have been holding again on the ARPPU-driven efforts since September. As we enhance the general consumer expertise with reside video, we’re sure on [Phonetic] going to tug a few of these income levers subsequent yr. So total, I feel each paying customers and our individuals will see very significant development in 2021. Thanks.

Cathy PengDirector, Investor Relations

Operator, please get to the following query.

Operator

Sure, thanks. Subsequent query is from the road of Tian Hou of TH Capital. Please go forward.

Tian HouTH Capital — Analyst

[Foreign Speech] So, a lot of guys evaluate Momo with Match Group or Tinder. Nonetheless, if we take a look at how they develop throughout the COVID, looks as if there’s a huge diversion. So I ponder in China — within the Chinese language tradition atmosphere, what’s one of the best ways to develop the relationship and social networking enterprise? And what’s the ceiling [Phonetic], how huge the market might be? Additionally, what is the Firm’s technique for the following 5 to 10 years? Are you guys going to proceed to function within the relationship market? Or are you going to deliver the reside broadcasting to the brand new areas, similar to e-commerce, like a whole lot of different reside broadcasting distributors are doing? Additionally, associated to the following a number of years technique, you guys have a whole lot of web money. How are you going to make use of the money to advance your technique? Thanks. That is all my query. [Foreign Speech]

Li WangDirector and Chief Govt Officer

[Foreign Speech] To start with, we imagine there are nonetheless big development potential in China’s open social area and the overall relationship market. Based on some official statistics that I’ve seen, in China now we have from 200 million to 300 million single grownup inhabitants. Proper now, we’re additionally seeing some new and rising traits. For instance, the late time for marriage, the rising divorce charges and in addition the truth that the youthful technology have gotten more and more receptive towards the concept of on-line relationship, and we’re additionally really seeing growing dependence on the web relationship providers. All of those will result in a steady growth in our addressable market.

With the present standing of China’s financial improvement and the general consumption energy of China’s Web — cellular Web inhabitants, I feel open social enterprise and the relationship enterprise ought to have big potential for monetization and profitability. Momo and Tantan, we’re all enjoying in that open social area with completely different however very complementary positioning. So we’re all going to be benefiting from that rising demand. Apart from Momo and Tantan, we’re additionally actively pursuing the expansion alternatives by way of new purposes within the social and leisure area. Momo’s staff has confirmed capabilities in product innovation. So, total, I am extraordinarily assured within the long-term development potential for such product portfolio method.

[Foreign Speech] Extra particularly concerning the development outlook for the Momo utility, I feel by means of how shortly the visitors of Momo get well from the COVID, we will really see that the basics of the social platform is, they’re very strong, however on the similar time, Momo can be a long-standing and mature — a comparatively mature social model. So after we discuss consumer development, we have to search development alternatives and attempt to construct development on prime of fairly secure consumer base. At this level, we’re nonetheless seeing fairly evident development alternatives in penetrating into lower-tier cities. However sadly, this yr, a whole lot of our plans on that entrance received caught within the system as a consequence of restrictions in numerous geolocations to maintain the virus below management. However subsequent yr, I feel we will proceed to push laborious on — push ahead on that entrance. So apart from consumer development, the staff can be going to proceed to push tougher and go deeper on the monetization aspect. I really, am seeing — nonetheless seeing an excessive amount of potential on that entrance for Momo for the core, particularly in higher using the business visitors.

I feel what we have to do right here is to be doing issues extra strategically and attempt to construct a holistic visitors administration system that goes throughout completely different enterprise traces, together with VAS and reside streaming. Beforehand due to the organizational construction that we had previously, typically we may very well be placing in synthetic obstacles between VAS and reside streaming that blocked visitors from flowing from one line to a different, that really led to important decrease — considerably decrease ROI using the business visitors. And subsequent yr, with the brand new work construction, we will break that form of system and be adopting a pure ROI-driven method to allocate the business visitors in between completely different traces. We imagine that Momo goes to proceed to develop steadily and might be — can be very strong long-term contributor to the underside line and to the money circulation of the Group.

[Foreign Speech] Tantan is — its model title is way youthful and its product mechanism can be extra geared towards younger individuals in China. So we do imagine that, as in contrast with Momo, Tantan is dealing with higher development alternatives in rising its consumer base. We imagine that in China alone, Tantan ought to have the ability to, no less than double the scale of its consumer base from the place it’s proper now, the place it may be probably a lot greater than that. Past China, Tantan can be dealing with an excellent income timing within the abroad market however, after all, the staff must be working very laborious towards these targets. We’re assured that by means of enhancements on the product aspect and enhancements on the consumer acquisition aspect, we will proceed to method these targets. So that is the solutions to the primary query. [Foreign Speech]

[Foreign Speech] You’re proper in saying that now we have a whole lot of money. At present, the Firm has, I feel, near 16, RMB1-6 billion in money sitting on the steadiness sheet, and that quantity remains to be quickly rising. Apart from returning money to the shareholders within the type of dividends and share buybacks, by way of capital allocation, one of many different issues that we’re contemplating is, after all, the M&A alternatives that may strengthen the Firm’s management and construct future drivers. I’d say that, on the M&A entrance, the Firm’s method are usually pretty prudent in consider — in analyzing and evaluating any potential targets. But when we do see alternatives as promising as Tantan, we’re going to go in very aggressively with out hesitation.

Tian HouTH Capital — Analyst

Thanks. Thanks, Wang. Thanks, Cathy.

Cathy PengDirector, Investor Relations

Okay. Okay. It looks as if this name has overrun fairly considerably. Operator, within the curiosity of time, I feel that is going to be the tip of this convention name. Thanks, guys, for taking part. And thanks for the curiosity in Momo and Tantan. We’ll see you subsequent quarter. Thanks. Bye-bye.

Operator

[Operator Closing Remarks]

Length: 87 minutes

Name contributors:

Cathy PengDirector, Investor Relations

Yan TangGovt Chairman

Li WangDirector and Chief Govt Officer

Wang YuFounder and Chief Govt Officer of Tantan

Jonathan Xiaosong ZhangZhang Chief Monetary Officer

Thomas ChongJefferies — Analyst

Tian HouTH Capital — Analyst

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