Hello Group - Earnings Call - Q4 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to Fourth Quarter and Fiscal Year 2024 Hello Group earnings conference call. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. 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.

Ashley Jing (Head of Investor Relations)

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; Mr. Zhang Sichuan, COO of the company; and Ms. Peng Hui, CFO of the company. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

Such statements are based on management's current expectations and current market and operating conditions, and relate to events that involve known 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 risks 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 statement 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. Tang, please.

Tang Yan (CEO)

[Foreign language]

Ashley Jing (Head of Investor Relations)

Hello everyone. Thank you for joining our call. 2024 was a 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 empowers 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.

Zhang Sichuan (COO)

Hello everyone. Thank you for joining our call. I will now give an update on our business in Q4 and fiscal 2024, and then outline our strategic goals for fiscal 2025. Starting with an overview of our financial performance. For Q4, total group revenue was RMB 2.64 billion, down 12% year over year. Adjusted operating income was RMB 280 million, with a margin of 10.6%. Our Q4 costs included RMB 94 million in few production-related expenses. Excluding such costs, adjusted operating income would have been RMB 374 million, with a margin of 14.2%. Revenue from the Momo app and standalone new app totaled RMB 2.42 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 for the rapid growth of our overseas business. Adjusted operating income from the Momo app and standalone new app was RMB 269 million, with a margin of 11.1%. Excluding few related costs, adjusted operating income would have been RMB 363 million, with a margin of 15%. As for Tantan, Q4 revenue totaled RMB 213 million, down 22% year over year due to the decreased number of paying users. Adjusted operating income was RMB 11.37 million, compared to RMB 27.04 million from a year ago. For fiscal 2024, total group revenue was RMB 10.6 billion, compared with RMB 12 billion last year. Adjusted operating income was RMB 1.173 billion, with a margin of 16.3%. Revenue from the Momo app and standalone new apps totaled RMB 9.7 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 RMB 1.65 billion, with a margin of 17.1%. As for Tantan, total revenue for fiscal 2024 was RMB 900 million, compared with RMB 1.2 billion in the previous year. The adjusted operating income was RMB 175.94 million, compared with RMB 101 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 a 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 social use cases to drive effective interactions. We introduced an AI-assisted chat tool for male users in multiple voice and text-based chat experiences, such as greetings and Chow Chow. The AI tool can generate greetings based on female users' text and picture-based profile information, as well as their historical posts, to improve the quality of eye-spoken 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 proved effective in driving deeper user interaction and paying conversion, thus further strengthening Momo's social attributes.

On the user acquisition front, over the past two 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 for the reduced costs in transitional channels is limited. In 2024, we began to explore new ways to acquire traffic through KOLs. By collaborating with short video influencers on platforms such as Douyin and Rednote, we have increased brand exposure and gradually shifted our budget from high-cost transitional channels to KOL channels, which helped 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 Momo, the cash cow business. In Q4, Momo's live streaming revenue was RMB 1.19 billion, down 16% year over year. The year-over-year decline was wider than the previous three quarters, mainly due to the reduction 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 RMB 4.8 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 amid 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-term users to stabilize the revenue scale of this group. In the early stage of our operational adjustments, we found that the reduction in competition bonus resulted in insufficient profits for supply-side partners and reduced their motivation to work hard on our platform. Therefore, in the year's second half, we monthly adjusted the incentive policy for daily events, which resulted in a slight increase in revenue sharing ratio for 2024 compared to 2023. However, the increase in sales of live streaming showroom costume and PK props, which do not require revenue sharing, played a positive role in stabilizing the profit level of our cash cow business.

Now, moving on to value-added services. In Q4, revenue from WASP, excluding Tantan, totaled RMB 1.2 billion, down 5% year over year. WASP revenue from the Momo app was RMB 800 million, down 15% year over year. Revenue from the standalone app was RMB 400 million, up 24% year over year. For fiscal 2024, revenue from value-added services, excluding Tantan, totaled RMB 4.77 billion, down 6% year over year. WASP revenue from the Momo app was RMB 3.28 billion, down 17% year over year. Revenue from the standalone app was RMB 1.49 billion, up 35% year over year. The incremental revenue from our new endeavors largely offset the declines in revenue from our legacy business.

The decline in Momo app WASP revenue was mainly due to our proactive product and operation adjustments in audio and video-based live experiences over the past year to mitigate regulatory risks, 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 talent 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 build an efficient business model that drives profitable growth, with core 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 constrict the team with short-term metrics during the pilot phase, but allowed more fluctuation in user skeleton revenue. By the end of the year, product adjustments had played a positive role in improving user experience. Still, user retention and organic user growth had 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 brought Tantan to break even, 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 RMB 213 million, down 22% year over year, mainly due to the decreased number of paying users. For fiscal 2024, total revenue was RMB 900 million, down 25% year over year. In terms of business line, WASP revenue was RMB 550 million, down 18% year over year, due to the decline in number of paying users.

By subdividing 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 WASP app pool, resulting in WASP revenue declining much smaller than the user numbers. Live streaming revenue was RMB 313 million, down 38% year over year, mainly due to our strategic decision to emphasize live streaming, which has a low correlation with the dating experience. For fiscal 2024, Tang Yan's adjusted operating income was RMB 75.94 million, compared with RMB 101 million from Q4 2023. 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-centric venues, combined with targeting online campaigns across new media channels. This approach effectively optimized user acquisition costs while expanding brand influence. On the product fronts, 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 several attempts to address two core issues: uncertainty about the authenticity of user identity and lack of response to chats after matching. After a year of efforts, 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 Momo and Tantan, and build a long-term growth engine. In Q4, the total revenue of the new app was RMB 450 million, up 37% year over year. For fiscal 2024, the total revenue of the new app was RMB 1.57 billion, up 40% year over year. The rapid expansion of overseas business, especially Soju, was the key driver behind this sustained growth. Compared with our domestic businesses, which face much macro and regulatory uncertainties, overseas businesses offer clear growth potential and trajectory. Our long-standing expertise in Soju products and operational gives us confidence that shifting human and financial resources towards overseas business will yield better returns on investment for the group's revenue and profits.

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 designs and interactive features that aligned with local user preferences in the chat rooms and began exploring the expansion from WordBase 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 app pool 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 an existing market while expanding into new regions. The combined efforts of product operations and channels led to increased paying users and app pool, which drove rapid revenue growth.

Our rapid expansion in the Turkish market and live streaming business offset the temporary consumption dips in MENA due to the potential risk at the year-end, enabling Soul to maintain strong growth momentum for its 2023 high base and continuously increase its revenue contribution to the group. Over the past two years, building on the success of Soul, we have launched more brands and new products in the MENA region. Among them, Yahha Land, an audio-based voice social game, and Amara, a voice-based social product, entered the initial marketing and monetization phase in 2024 after finalizing product positioning and monetization models. By the end of the year, those two products had reached a certain revenue scale and maintained stable ROI, even as we significantly increased marketing investments.

The initial success of Yahha Land and Amara validates our strategy, a statement that the MENA market can accommodate multiple brands and platforms and gives 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 Yahha Land and Amara 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 the market dynamics. First, for the Momo app, our goal is to maintain long-term stable operations with a healthy social ecosystem to ensure the continued stable productivity of this cash cow business for Tantan. The strategic goal for this year is to reduce costs and improve efficiency while maintaining profitability, with a 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 build a long-term growth engine. We will further increase 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 $0.3 per ADS for a total cash payment of approximately $50 million, or about 30% of the adjusted net income attributable to Hello Group 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.

Peng Hui (CFO)

Thanks, Sik. 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 of 2024 was RMB 2.64 billion, down 12% year-on-year and 1% quarter-over-quarter.

Non-GAAP net income attributable to the company was RMB 230.5 million, compared to RMB 514.7 million from the same period of 2023 and RMB 493.3 million from Q3 2024. 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 RMB 141 million, adjusted net income for Q4 2024 would have been RMB 371.1 million. Looking into the key revenue items for Q4, firstly, on live broadcasting, total revenue from live broadcasting business for the fourth quarter of 2024 was RMB 1.26 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 Momo live streaming business and, to a lesser extent, the decrease in Tantan. Momo live broadcasting revenue totaled RMB 1.19 billion for the quarter, down 16% year-over-year and 3% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB 75.7 million, down 24% year-over-year but up 14% quarter-over-quarter. Revenue from the value-added services for the fourth quarter of 2024 was RMB 1.33 billion, down 7% from Q4 last year and 2% sequentially. Revenue from value-added service on an ex-Tantan basis was RMB 1.2 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 the 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 RMB 127.8 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 RPU resulted in revenue declining much less than user count. Now, turning to costs and expenses. Non-GAAP cost of revenue for the fourth quarter of 2024 was RMB 1.72 billion, compared to RMB 1.77 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 RMB 94 million film production costs as well as impairment costs provided for earlier film productions.

Excluding these costs, 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 contributed a larger percentage of total revenue while having higher payout ratio, especially during the new region expansion and the initial phase of video service offering. To a lesser degree, higher payout from Momo cash cow business to incentivize the supply side considering the downward revenue trend. Number two, de-leverage, where direct personnel and infrastructure costs take up a higher percentage of revenue. Number three, payment channel costs represent a 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 RMB 212.4 million, compared to RMB 218.1 million for the same period last year, where 3% decreased 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 employees for the group was 61% compared with 63% Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was RMB 311.7 million, or 12% of total revenue, compared to RMB 296.0 million, or 10% of total revenue 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 RMB 117.6 million for the fourth quarter of 2024, compared to RMB 87.2 million for the same quarter last year, representing 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 RMB 279.9 million, with a margin of 10.6%, compared with RMB 264.2 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 RMB 373.9 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 on a year-over-year basis increased 7%. The increase in both absolute RMB 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, an increase in sales and marketing expenses. Now, briefly on income taxes. Total income tax expense was RMB 89.5 million for the quarter, with an effective tax rate of 28%. In Q4, the company accrued withholding income tax as RMB 19.5 million, which is 5% of undistributed profits generated by our WOFI. 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 the 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 RMB 14.73 billion, compared to RMB 13.48 billion as of December 31, 2023. Net cash provided by operating activities in the fourth quarter of 2024 was RMB 423.6 million. Lastly, on business outlook, we estimated our first quarter revenue to come in the range from RMB 2.4 billion-RMB 2.5 billion, representing a decrease of 6.3%-2.4% year-on-year, or a decrease of 9%-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 headwind 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 de-emphasize less data-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.

Ashley Jing (Head of Investor Relations)

Thank you. For those who can't speak Chinese, please ask your questions in Chinese first, followed by English translation by yourself.

Operator, we're ready for questions, please. Thank you.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Zhu Qingzang with CICC.

Zhu Qingzang (CEO and Chairman)

[Foreign language]. Thanks, Management, for taking my question. My question about Momo. In the first quarter, the number of paying users on Momo decreased by 1.2 million quarter on quarter, which is significantly larger than the historical average. What's the main reason for this? What's the impact on revenue and profit? Can we see the number of paying users rebound this year?

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 Momo in 2025? Thank you.

Ashley Jing (Head of Investor Relations)

I will take this answer. 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. 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 goal should be more focused on the profits, we have decided to cut back on trying to bring in these low-return paying users in the fourth quarter.

That is why we saw a big drop in long-tail paying users, which is more than what we usually experience at the end of the year. In the months ahead, we will keep reducing our efforts to acquire these low-return, small ticket users. This means we expect the number of paying users to drop more than usual, even though this will lower our overall count of paying users. These users generally do not engage much or spend, so stopping our efforts to bring them in will not really hurt 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 will not 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 continues to pull in good profits even when our revenue goes down a bit. Cathy will share more about Momo's financial plans for this year.

Peng Hui (CFO)

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 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 the number of meaningful connections and number of interactions, remains pretty strong, which gives us confidence in the platform's resilience. On paying user metrics, which might have caused some concerns this quarter, I do not think investors need to really worry about it either, and here is why. It is 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 Zig mentioned earlier, the long-tail users, those spending around RMB 10 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 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 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 regulatory risk.

However, since late 2024, the environment has stabilized a little bit, allowing us to focus on revenue recovery rather than risk management. That is the regulatory factor. On macro environment, 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. Live streaming may continue to see pressure, but value-added service should be doing relatively well. 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.

At this stage, it's still too early to make a very strong call on the macro front. 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.

If you throw in the overseas piece and the Tantan piece into the pot and look at the growth group level rate, the year-over-year 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. 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.

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%-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. This is what I can share at this point of time. Back to Ashley to take the next question.

Ashley Jing (Head of Investor Relations)

Operator, next question, please.

Operator (participant)

Your next question comes from Thomas Chong with Jefferies.

Thomas Chong (Regional Head of Internet & Media)

[Foreign language] Thanks, Management, for taking my question.

My question is about our overseas application. Can Management comment about the key market for Soul 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 applications and how it is different from Soul? 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 the overseas market? Thank you.

Zhang Sichuan (COO)

Regarding the question about Soul and other apps, in the past few years, Soul has become the fastest growing product in our group, both in revenue and profits. In 2024, its revenue grew by 50% from 2023, nearing CNY 1 billion and also surpassing Tantan's earnings.

This growth is mainly due to improving localization strategies we started last year and focusing on three main areas. One is 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 boost revenue. Soul is doing well in Turkey, Egypt, and Gulf countries, showing very strong market demand. We also launched two new apps in the MENA region at the end of 2023. The first one is Yahha Land, an audio social game app, and Amara, similar to Soul but more focused. Both products were ROI-driven from the start and have shown promising potential in revenue and user acquisition. In 2025, if the ROI remains promising, we plan to increase marketing for both.

The success of Social and our new product shows that the knowledge we gained in our home market works well abroad, especially in the MENA region, which can accommodate multiple social brands. In 2025, we will invest more in exploring international markets since our overseas products are focused on profits. Increasing investment won't heavily affect the group's net profit. Kathy will provide specific details on revenue and profit forecast. Okay. Our overseas growth strategy for 2025 can be broken down into two buckets: the good old Social and the other new initiatives. For Social, as Zig mentioned earlier, we're focusing on three main drivers this year. The first one is better localization. The second one is geographic expansion into both countries where our current penetration is not as deep. The third driver is new video 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, Yahha Land and Amara. Both applications are gaining pretty strong traction at this point, and we're 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 in the new overseas apps could—meaning these two smaller apps could reach where Soul is today.

If you annualize that, that would mean the overseas revenue contribution for 2026 will become very meaningful. However, if marketing efficiency declines as we scale, we may pause marketing expansion to focus on product improvements and operational refinement before ramping up again. In that case, revenue growth for those two applications could come in a bit slower. Looking at the full overseas portfolio, we expect revenue from it to grow from around RMB 1 billion in 2024 to a range between RMB 1.7 billion-RMB 2 billion in 2025. That is 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 a high level of focus on ROI, as we continue to scale, bottom line for overseas business should improve over time.

That's what I have to share at this point. Back to Ashley.

Operator (participant)

We are ready for the next question. Thank you.

Ashley Jing (Head of Investor Relations)

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

Leo Chiang (Equity Research Analyst)

future development prospects, as well as the revenue and profit outlook? Let me translate myself. Thank you, Management, for taking my question. My question is regarding Tantan. After one year of business adjustment, we see Tantan's user and revenue scale is still in a declining trend. Could 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.

Zhang Sichuan (COO)

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 strategic objectives. One is delivering a good dating experience for users in China and the broader Asian market. This remains our top priority because we obeyed all the ups and downs in the past. We still see this as a significant underserved demand in the 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. The second objective is building a sustainable, profitable business model. Given China's highly competitive and costly user acquisition environment, there is only so much we can do to optimize our user acquisition cost.

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 RPU 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 RPU growth, we're shifting our focus to reducing user acquisition costs in a pretty dramatic way. Now, how do we get there? Typically, the more aggressively we acquire users, the higher the user acquisition cost would go, which means if we want to maintain the current level of user scale, it's difficult to further reduce unit acquisition costs.

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 RPU levels, we can recover marketing spend and minimize acquisition losses, creating a healthier business cycle. There is, of course, a trade-off with this strategy. Since we're cutting back on user acquisition costs 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. That actually marks a 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 RPU. 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. Because these changes will have a negative impact on RPU, a full-scale rollout certainly will weigh on revenue in the near term. 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 RMB 40 million-RMB 50 million per quarter to approximately RMB 20 million-RMB 30 million per quarter. Naturally, this will result in a decline in active users and top-line revenues.

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%-30% revenue decline, year-over-year decline for 2025. In terms of profitability outlook, despite the 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. 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. That is for Tantan's financial outlook. Ashley, maybe the last question. Yeah.

Ashley Jing (Head of Investor Relations)

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.

Operator (participant)

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

Jenny Wang (Analyst)

[Foreign language] Thank you, 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. Looking ahead, are we planning on a Regular Dividend Policy? We note that this year's dividend payout is notably smaller than in previous years, but on the other hand, we extended and Upsized our Share Back Program. Does this indicate a strategic preference for Share Back over Dividends in terms of shareholder returns going forward? Thank you.

Zhang Sichuan (COO)

Okay. I'm hearing several questions here. On the question of whether we are thinking about making the Dividend Program a regular one, the 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 access to cash, we return it to shareholders in a thoughtful and value-enhancing way. Because this expectation is already well established, we don't see the need for a fixed dividend policy just to formalize it. Instead, we would rather keep some flexibility in how we allocate capital. If we see compelling investment opportunities, we would prefer to deploy capital toward growth, either organically or through M&As rather than commit to a rigid dividend schedule.

The second point is perhaps related to—it's also related to your other question about how we decide between 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 pretty significantly below cash value, buybacks currently offer a better return for shareholders compared to a fixed dividend payout. 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. That is my answer to the question. Maybe with that, we'd like to wrap up today's call. Thank you all for joining us. I will see you next quarter. Operator, we're ready to close.

Operator (participant)

Thank you.

Zhang Sichuan (COO)

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