Earnings Call Transcript
Hello Group Inc. (MOMO)
Earnings Call Transcript - MOMO Q4 2020
Operator, Operator
Thank you for joining us for the Fourth Quarter and Full Year of 2020 Momo Incorporated Earnings Conference Call. This conference is being recorded today. I will now turn the call over to Ms. Cathey Peng. Please proceed.
Cathey Peng, Moderator
Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's fourth quarter and fiscal 2020 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today from Momo are Mr. Wang Li, CEO of the company. Mr. Wang Yu, Founder and CEO of Tantan; and Mr. Jonathan Zhang, CFO of the company. They will discuss the company's business operations and highlights, as well as the financials and guidance. We will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this call may contain forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under law. I will now pass the call over to Mr. Wang. I will translate for him. Mr. Wang, please.
Wang Li, CEO
Good morning and good evening, everyone. Thank you for joining our conference call today. 2020 was a tough year for all of us. I’m proud that my teams were able to navigate through the many challenges with relentless focus on our core mission, which is to help users discover new relationships and build meaningful interactions. The commitment to that core mission also enabled us to make the right decisions in the past year for the long-term well-being of the company and our community. Getting through that bumpy journey was also a valuable growth experience for my team. I’m happy to see that we have finally come out of those temporary drawbacks, stronger and better poised to seize the growth opportunities ahead of us. My speech today consists of two sections. In the first part, I'm going to review the key operating and business results for the fourth quarter and fiscal 2020. And then I'm going to run through our strategic priorities for the year 2021. And perhaps more importantly, how these near-term strategic priorities fit into our ambitions over the longer-term horizon. First of all, a brief overview of the financial performance. For the fourth quarter 2020, total revenue was RMB3.80 billion, down 19% year-over-year, but up from RMB3.77 billion last quarter. Q4 revenue came in better than our original expectation mainly because of the outperformance from Momo's almost live streaming business in the year-end competition event. Adjusted net income for the quarter was RMB836 million, representing a 22% profit margin. Excluding Tantan's net loss, adjusted net income for core Momo was RMB845 million or a 28% profit margin. Tantan's total revenue came in at RMB341 million for the fourth quarter, up 100% year-over-year. Adjusted net loss of Tantan further narrowed down to RMB8.84 million as a result of strong top-line growth as well as temporary scale backs of marketing investment in the fourth quarter. For fiscal 2020, total revenues for the whole group were RMB15.0 billion compared to RMB17.0 billion last year. Adjusted net income was RMB2.9 billion compared to RMB4.49 billion last year. The year-over-year decrease at top-line and bottom-line levels were mainly caused by the COVID-19 impacts during the first half and the structural reform in the second half of the year. Now a deeper dive into other aspects of the year. First, on key operating metrics. Momo core ended the year with 113.8 million MAUs, slightly better than last quarter, but still below the peak level in 2019 primarily due to us optimistically lowering marketing spend in November and December for ROI considerations. As we expected on our last earnings call, the acquisition cost per user was at a hyper level due to heavy spending from the education e-commerce and, to some extent, gaming companies. We, therefore, would rather defer part of our marketing spend to after Chinese New Year when the marketing costs came down. Paying user accounts, which have been pretty much in correlation with MAUs, ended at 9.0 million for core Momo, flattish over last quarter. The post-Chinese New Year user recovery has been pretty encouraging, which can be attributed to our successful campaigns during and after Chinese New Year as well as the team's efforts to improve the basic social experience, which I'd like to elaborate on a little bit later. Tantan's paying user account came in at 3.8 million at the end of 2020, down from 4.1 million from the previous quarter. The net decrease was attributable to two factors. Number one, the continuous rollout of the SVIP premium package, which had a positive impact on ARPPU but a negative impact on the number of paying users due to its price-lifting effect. The second factor pertains to the pressure on MAU as we substantially lowered Tantan's investment in the paid marketing channels due to the same ROI considerations as mentioned earlier. The user acquisition costs came down during the Chinese New Year holiday. So we stepped up our marketing efforts then to capture the window opportunities. At the same time, we believe that the biggest priority for Tantan this year is to reshape its user acquisition system and more broadly, its marketing approaches, so that we can see substantial improvement in its marketing efficiency. This is an area where the Momo team has extensive expertise and experience to learn. Momo undertook the same reform in 2017 and has made significant improvements in user acquisition and subsequent conversions since then. We're going to implement the same playbook on the marketing front at Tantan this year. Our marketing team has already started some initial work since the beginning of the year. These early works confirmed our belief that Tantan still has significant headroom to grow its user base by optimizing its marketing and conversion approaches. Our February campaign shows that even the initial change in the marketing approach could make a difference. For example, the initial adjustment to the marketing materials and the data management system brought in a substantial increase in the female percentage in the new users. At the same time, we were also able to see some initial improvement in managing the unit acquisition cost as well as the user retention ratio. Of course, we still have a lot of hard work ahead of us, and making this one of my biggest priorities for the year. Now let me switch gears a little bit to review the key things that we did last year to better serve our users and communities. I'm going to break this part down by the core Tantan and then the newer buckets within our product portfolio. First of all, on the core Momo side, the biggest focus of the team last year was to improve the basic social infrastructures and user experience on the platform, including the nearby people, nearby posts, optimizing our onboarding experience, and making initial upgrades to the user resurrection model. As a result of these products and operational efforts, in Q4 2020, we were able to see meaningful improvement in some of the most important metrics reflecting the social efficiency on Momo. Among them, the number of impressions of the user profile page, the number of two-way conversations, and the number of interactions around nearby content has reached their peak since the beginning of 2018. At the same time, the 30 days retention ratio for resurrected users improved 3 percentage points versus the beginning of the year. The 30 days retention ratio for complete new registrations reached its peak level since the beginning of 2019. These improvements in engagement metrics show that even amid the tremendous external challenges of the year, the fundamentals of core Momo as a social platform to build new relationships are strengthening. That constitutes a solid foundation for Momo to pursue further growth opportunities in the year 2021. Now turning to Tantan, I'll be brief here and leave the details to Wang Yu later in his speech. If I were to name only one most impressive progress Tantan made in the year 2020, it would have to be that we've taken a few concrete steps toward enriching the peripheral social experience around the core swipe and match system. We will further accelerate Tantan's product efforts this year, aiming at taking the core dating experience to the next level and making it a better fit into Asian dating culture. In addition to the Momo core and Tantan, in the year 2020, we have made solid progress with endeavors to build new applications. For example, Hertz, a voice-based dating application primarily serving Gen Z in lower-tier cities; and a video and voice-based matchmaking application serving users seeking more serious relationships have all hit their respective retention and ROI targets for the first date. This year, we're moving these two applications into the second phase, where we are going to demand the growth of users as well as the fulfillment of ROI too, which means having enough revenue generation power to recover the revenue share and the marketing costs. This is an important milestone metric in our new project management system because once the new application reaches that stage, it is rolling into a self-sustaining cycle and has the ability to contribute to the bottom line. Other than these ROI focused new applications, we are also working on a couple of projects that aim at establishing new touch points in the social as well as the payment industry. As compared to the year 2019, we now have a much more mature system that effectively evaluates and manages different types of new projects at different stages. Now turning to a quick review across our key business lines. I'm going to focus on the core Momo and leave Tantan's part to Wang Yu. Firstly, live broadcasting. 2020 was a challenging year for the live streaming team at the core. During the first half, the business, especially the top spending, was struck hard by the COVID impact. In August, we undertook a structural reform to the live stream business in order to revive the long tail content ecosystem and to ensure this cash cow business continues to grow healthy in the new external environment. The wave was touched in many different areas on the product and operational sides. Although the initial product adjustment in August caused significant negative impact on revenues, it was a critical step in eradicating the undesirable practices that were harmful for the long-term health of the business. After several months of hard work, we have started seeing positive signs of improvement in the content ecosystem. Revenues have also shown stabilization and a gradual improvement from the bottom seen in August. It's also worth mentioning that by the end of last year, with a new incentive plan, we have successfully achieved our goal in the golden broadcasters contract renewal project, securing the vast majority of the high grossing performers by multiple years of exclusive contracts. It will provide a solid base for us to drive continuous improvement in the live stream business at the core. The new incentive plan also gave a morale boost to the new performers and agencies. The outperformance of the year-end competition was a good example of that. We had quite a few new agencies and performers emerging from the competition as hardworking and dedicated, value-adding partners for the Momo platform. Moreover, we were able to manage the cost structure well enough to fully absorb the impact of the increase in the payout at a gross margin level, which remained flattish versus Q3. This was a much better outcome than we originally expected, demonstrating our focus and ability to grow the business at a gross profit and cash flow level rather than purely at the revenue level. Our plan in 2021 is to continuously support newcomers by diverting more traffic toward the mid to long tail. We also have plans to enrich the content verticals and to promote content that emphasizes emotional companionship in particular, in order to further cultivate the social attributes of the Momo platform. Now turning to back on the core. I’m quite satisfied with the team's execution on the VAS front during the past year. In a tough external environment, we've managed to not only deliver robust growth but also successfully control the pace of growth to make sure it plays a positive role in the overall social ecosystem. Last year, the growth of VAS was primarily driven by innovative product and operational ideas. For example, we continue to introduce new moderated shows into the chat room experience. In addition, we also brought in interactive gifts into the audio and video social entertainment experiences. This has proven to be a sustainable lever that we can pull to drive revenue and engagements in the chat rooms. In the second half of the year, we revamped the Werewolf experience and introduced a bunch of new gifting experiences into the interest group, both of which subsequently showed impressive growth. This proves that even for very mature use cases, as long as we continue to innovate on consumer and paying experiences, there are always going to be opportunities for us to drive further growth in VAS. I'm also pleased that the VAS team focused not only on the quarterly revenues but also on building future drivers for the long term. Throughout 2020, Hertz and the video matchmaking experience continue to show gradual improvement both in terms of retention and user scale. We now have established a clear roadmap and a standard playbook for monetizing these experiences. As said in the early part of my speech, 2021 will still be a year focused on product. But we do expect Hertz and the video matchmaking experience to contribute more meaningfully to the VAS line relative to last year. We also believe that they have the potential to become a longer-term driver for both the top line and bottom line. Those are the business updates. Now moving to the most important part of my speech today, our strategic priorities for the year 2021, and how these midterm priorities fit into our ambitions over the long-term horizon. Again, I’m breaking this section down by the core, Tantan, and the new endeavors. For the core, I have two goals for the team. Number one, further grow the core user base with limited marketing budget and improved ROI versus last year. Our action plan to achieve this goal consists of three key tasks. A: build new social experiences within the core to better serve underserved user demand. For example, we are clearly seeing the social desire from female users on Momo for the product and services we currently have on the core working much better for men than for women. This is an area where we should and can do much better than before. B: penetrate deeper into lower-tier markets with Momo Lite. This was a key product project for last year. We made good progress on the product side in the second half of 2020, but the marketing plans got stuck due to the measures in different regions to keep the virus under control. As COVID risk continues to tail out this year, we still have good opportunities to push the plans forward and see substantially refined user resurrection model; complete new registrations are increasingly becoming a scarce and expensive resource for every social media operator. That makes it crucially important to cultivate the value with the existing users as well as the dormant users. This is an area where Momo has lots of edges because we have a large pool of dormant users and can leverage new social experiences to call them back. The focus this year is to improve our current resurrection model so that we can do much more effective targeting and conversion and drive better ROI from the reactivation. The second goal for the core, of course, is to get the business on to the growth track. We need the cash cow to remain productive, not just at the revenue level, but at the gross profit level as well. Compared to the user goal, this one is easier to fulfill because from the trends we've been seeing so far into March, it seems that we have already completed the most arduous part of the journey and got the live streaming business on track for recovery. VAS, having been growing robustly for the past two years, still has plenty of growth opportunities both in terms of traffic and in terms of new revenue features. As a social platform, 70% plus of our DAU and 80% plus of total time spent are not related to live streaming at all. Having VAS as a main revenue source will eventually prove to the investor community our potential and advantage as a social networking product as opposed to a live streaming product. That's an important role I’ve set for the team for 2021 and beyond. Now moving on to Tantan. Our goal for the year is to deliver solid user growth by substantially improving the marketing efficiency and the core dating experience. As I said on the previous call, Tantan has huge room to grow its user base and engagement due to the secular trends that we're seeing in China. Currently, we can say with full confidence that in China, Tantan is clearly the most committed as well as the most effective dating product focused on connecting people for romantic purposes and offline relationship conversions. This is a fundamental demand proven throughout human history. I see no reason why Tantan cannot be as large as Momo today in terms of user scale. As a matter of fact, it should be much bigger than that as we see how today's young people evolve as it relates to dating culture. Now the question really is why we are not growing as fast as we should be? The answer is not because the opportunities are not there, or somebody else is stronger than we are in serving that demand, but because there are important areas where we need to improve. We should make our product and marketing efforts more effective and execution more efficient, so that we hit the nail right on its head to pin down the growth opportunities that we're seeing. The two teams will need to work more closely together in order to push forward faster. This year, you would see the collaboration between Momo and Tantan moving to a deeper level. Now turning to the plans beyond Momo and Tantan. This, of course, involves the new applications that we're working on, about which I've already talked a lot in the previous sections. But there is something more to it. Many of you would agree with me that the coming 10 years will see continuous boom in China's private consumption, gearing up from a goods-driven mode toward a service and new consumption-driven model. The coming decade will also see phenomenal changes and advancements in communication technology and hardware devices. Moreover, with rising personal income at an education level, the world's highest level of digitalization, and increasing focus on individuality, today's younger generations are becoming increasingly open toward the idea of online dating and broader social products and services providing emotional companionship. It's quite possible that we will see the cultural reflection or inflection point in the dating and social space within the coming decade. As a company that focuses on helping people build new relationships, we stand at the cross-section of all those trends. That's why I'm extremely excited about the growth opportunities that we have ahead of us. In order to capture these opportunities, we need to: a, drill down deeper in our strong areas, namely the open social space; and b, push the boundaries and expand the footprint in other adjacent areas along the value chain. And last but not least, stick to our long-term mission and have sufficient patience and tenacity to push through. Lastly, I'd like to finish my speech today by announcing that our Board has declared a cash dividend in the amount of US$0.64 per ADS, which will amount to a total cash payment of approximately US$132 million, or 30% of our adjusted net income attributable to Momo Inc in 2020. This is the third consecutive year that we've shared the fruits of our operation with the shareholders. It demonstrates management's confidence in the fundamentals of the company as well as our commitment to creating and delivering shareholder value for the long term. Thank you for trusting Momo team. These are the things I like to cover on this call. Now here's Wang Yu to talk about Tantan's product and business development. Mr. Wang, please.
Wang Yu, CEO of Tantan
Thanks. So let me briefly review Tantan's operational and business developments in the past quarter and our next step plans. First, a quick review of the user trends and related metrics. Total paying users were impacted by the COVID outbreak in early 2020. By May, the pandemic in China got under control, and we subsequently saw decent user recovery from May to early August. Since mid-August, the user acquisition cost has started to rise dramatically due to the aggressive marketing investments for medication and online gaming companies, and in Q4, joined by eCommerce players as well. For ROI considerations, we scaled back our spending in the paid marketing channels in Q4, which put some pressure on the user trend. During Q4, our team fully focused on improving the marketing efficiency and lowering the unit acquisition cost. The team conducted a thorough walkthrough of the system to identify potential areas of improvement and optimization. We realized that marketing and top-of-the-funnel conversion is indeed an area where we need to make increased improvements in order to get more efficient in driving user growth. There's actually a great deal of essential we can cultivate here. In Q4 and January 2021, we quickly put two things in place for Chinese New Year's campaign. Number one, building up the backend infrastructure to enhance our data tracking capability so that we can provide more effective feedback to our channel partners. Number two, beefing up ad materials to make it more appealing to our target users. We stepped up our marketing efforts when the competition became milder towards mid-February. We were able to see some initial positive results on the cost side. The new ad materials and channel strategy are also bringing in a significantly higher percentage of women in the new users. At the same time, the retention ratio in users also improved meaningfully. Overall, we're on track to deliver a better March DAU than last December. More importantly, we should be able to achieve that while further lowering marketing costs from Q4, which was already a step down from Q3. All of this gave us the confidence that this is the right path to go down. From March onwards, we are going to take bigger steps to refine our marketing approaches. I'll give more details later. Now turning to paying users. Paying users for the fourth quarter of Tantan totaled 3.8 million, down from 4.1 million last quarter. The 300,000 net decrease was due to the combination of the full-scale rollout of the SVIP package as well as the pressure on the users due to the decreased marketing spending in Q4. Now briefly on revenues. Total revenues for the fourth quarter reached RMB740.5 million, up 100% year-on-year. The growth was driven by the increase in average revenue per user, which is contributed by the live streaming service as well as the user's continuous shift towards higher-priced membership services. For fiscal year 2020, total revenue was RMB2.37 billion, up 88% from last year. Live streaming contributed the vast majority of the incremental revenue, which amounted to RMB999 million. Despite the decrease in the number of paying users, VAS revenue still grew 9% on a year-over-year basis driven by the ARPPU increase. Next, let me give you an update on the progress that we made against our other strategic priorities. First, enriching the product experiences. One of our biggest focus for 2020 was to build supplementary features and services around the core dating experience. So we can offer a richer canvas for users to discover and establish new romantic relationships. In the first half of the year, we introduced a brand new version of Tantan with a discovery page and nearby posts and activities, which paved the road for further diversification of our offerings. This is particularly helpful for users who found it less effective to connect and interact based on the swipe and match mechanism. Providing Tantan users with richer ways to connect beyond our signature swiping experience is an important step that we've taken to enhance user engagement, retention, and time spent. Towards the end of last year, we have also begun a limited scale testing on a new voice dating experience, which, based on the early data we have been seeing, could be a positive engagement and revenue driver in the coming few quarters. Another achievement for 2020 was the successful introduction of live video service, which has clearly helped us further optimize the monetization value of the platform. This was particularly helpful when our membership business was under COVID-related pressure. At the same time, we have also been extremely careful in monitoring and pacing the growth of live streaming service to make sure that we place a complimentary role in the core dating experience and that it does no harm to the overall dating ecosystem. So far, live streaming has been fitting well into the dating ecosystem without showing any significant undesirable results. In comparison with core mobile live streaming, Tantan's paying user structure and performance revenue contributions are much more decentralized and long tail driven. Tantan's showrooms are relatively small with fewer concurrent users, but very interactive. The smaller showrooms, you do not have to pay a huge amount in order to get a quality interaction. So the relatively added distribution structure is very helpful in enhancing the social attributes for the live streaming experience of Tantan. Our intention is to keep our live video channels that way this year. For that reason, we're going to continue to control the pace in adding revenue-oriented operational reports, especially those that aim at increasing the ARPPU, or otherwise cost centralization. In late Q3, we also started rolling out the new SVIP membership package. The new package includes some existing popular membership privileges as well as a number of new premium features added to the package. The goal of introducing the SVIP is of course to offer new valued-added services to the dating community. However, we do have a rationale on the business front as well. During the past couple of years, we have consistently observed a key trend that young people in China are demonstrating strong willingness and rising consumption power to pay for dating services. I believe that such trend is going to continue or even accelerate in the coming decade. Long-term wise, the best way to take advantage of such secondary trend is certainly to supplement the subscription base model with a good non-subscription-based value-added service mechanism. This is indeed one of our key priorities in the coming few years. But for the time being, within the subscription model, we also need a mechanism whereby we can adjust the average selling price, which is by nature more rigid within the subscription model. SVIP is our attempted solution here. So far, such solution has been working pretty well both in terms of how the users received it and in terms of hitting the goals we are trying to achieve on the business side. After the rollout of SVIP, we ceased offering some previously accessible features such as separate VAS items. Our general principle in making price efficient is to maximize revenue. The combination of merchandise replacement and the price strategy led to a de facto priceless effect, which caused the number of subscribers to decline, while ARPPU rose. As we expected, Q4 VAS revenue indicates that full-scale launch of SVIP is positive to the overall revenue. For the users who churned from the previous package but yet subscribed to SVIP, we plan to onboard them back over time via payroll strategy or new VAS features. Therefore, this approach actually leaves bigger room for us to drive paying user expansion as well as revenue growth in the future. Those are the key updates about the year 2020. Now that we've started the New Year, I'd like to briefly talk about the key things on our agenda for 2021. As Wang Li mentioned, our growth is the top priority for Tantan this year. Two areas that are crucially important for us to achieve this goal are: first, significantly improve marketing efficiency; second, make the coordinating experience more appealing. On the marketing side, there are a number of things we need to do. Number one, we're going to further optimize our user acquisition system. Although we have made some initial progress in beefing up our channel marketing approach, we still have a lot of work ahead of us. These efforts range from making fundamental changes to the backend infrastructure, such as enhancing our data tracking capability and feedback system, to improving the ad materials and adjusting them based on the outcome of the campaign. Number two, optimize our use of the conversion model so we can drive better ROI for user acquisition. Number three, enhance our brand awareness. Tantan is a relatively young brand; there are still many people who are not using Tantan because they have not heard of us before. We're yet to be fully aware of the core value of Tantan performability. We will invest more to empower our brand equity and drive user awareness this year. The second area we need to improve is to enhance the coordinating experience. While Tantan is undoubtedly the most dedicated and effective dating app in China, we do have many opportunities to optimize so we can do better in connecting the users for romantic purposes. The most near-term priority is to make our swipe and match system more effective. Our efforts include upgrading the use of the tagging system to generate better portraits of each of Tantan's users. And based on the tagging and other aspects of big data mining, optimizing the recommendation engine to make more relevant searches. We want the users to genuinely feel that Tantan understands what they're looking for on the platform. While continuing to strengthen our dating-related product offerings, we're also going to keep exploring more diversified features and services to make Tantan's experience better fit for Asian dating culture. This, in turn, will further improve user engagement and retention, which will translate to user growth. Those are the key things that I'd like to cover for today. So let me pass the call over to Mr. Jonathan Zhang for a financial review. Jon, please.
Jonathan Zhang, CFO
Thank you. Hello, everyone. Thank you for joining our conference call today. Let me briefly take you through the financial review. Total revenue for the fourth quarter 2020 was RMB3.8 billion, down 19% year-on-year, up 1% quarter-on-quarter, exceeding the high end of our revenue guidance, primarily due to the better-than-expected outcome from the year-end competition event in the live streaming business. Non-GAAP net income attributable to Momo was RMB836.4 million compared to RMB1.25 billion for the same period of 2019, or a 33% decrease year-over-year. Total revenue for the fiscal year 2020 was RMB15.02 billion compared to RMB17.02 billion for 2019, down 12% year-on-year. Non-GAAP net income attributable to Momo for 2020 was RMB2.9 billion compared to RMB4.49 billion for 2019, a decrease of 36% year-over-year. The year-over-year decrease in top-line and bottom-line was due to the impact from the pandemic during the first half of the year and the structural reform in the second half in 2020, partially offset by Tantan's rapid growth in revenue and narrowing losses. Looking to the key revenue line items for the quarter. Firstly, on live broadcasting. The total revenue for the live broadcasting business for the fourth quarter of 2020 was RMB4.33 billion, down 31% from the same period last year, and 2% from last quarter. Core Momo's live broadcasting revenue totaled RMB1.92 billion for the fourth quarter, down 43% from the same period last year, and 3% from last quarter, while Tantan's live broadcasting revenue amounted to RMB404 million, 2% up from the previous quarter. Moving on to VAS revenue, revenue from the value-added services reached RMB1.4 billion, up 18% year-on-year, and 5% quarter-over-quarter. Revenue from VAS, excluding RMB336 million from Tantan, reached RMB1.07 billion for the fourth quarter of 2020, a 30% increase year-over-year, and a 7% increase sequentially. The solid performance of Momo's core VAS business was primarily driven by the team's focus on product innovation and effective operational efforts. Audio and video-based social entertainment experience continued to generate strong growth momentum and was the biggest revenue driver for the core Momo VAS services. Now let me briefly review the costs and expenses items for the quarter. Our non-GAAP cost of revenue for the fourth quarter of 2020 was RMB4.02 billion compared to RMB3.32 billion for the same period last year. Non-GAAP cost of revenue as a percentage of total revenue was 53%, an increase from 50% from Q4 2019. Non-GAAP gross profit margin for the quarter was down 3% from a year ago. The decrease was attributed to the following factors: one, high payout ratio from the core Momo's live broadcasting business; two, a lower gross margin for Tantan, as its live broadcasting services revenue has become increasingly sizable; three, higher payout ratio from core Momo VAS business due to the robust growth coming from the audio, video-based social entertainment business, a big part of which involves third-party professional moderators; and four, certain fixed nature of cost items such as headcount and depreciation of fixed assets related impacted the gross margin negatively as total revenue declined; and these items represent a higher percentage of total net revenue. On a sequential basis, the non-GAAP gross margin remained flattish compared to Q3, much better than our original expectation. As Wang Li mentioned earlier, in Q4, we successfully locked down a vast majority of existing high grossing broadcasters by rolling out a new incentive program. We originally had expected this new plan to have a couple of percentage adverse impact on the gross margin. However, the team was able to optimize the overall cost structure so that the gross margin remains the same as in Q3. This demonstrates management's commitment to drive healthy growth of the business not only for the revenue aspect but also at the gross profit and cash flow level. This year, we will focus on supporting mid- to long-tail broadcasters and further strengthening the content ecosystem. A very important step for us to achieve that goal is to provide better motivation and recruit new talents so that we can maintain a good metabolic system. To serve that goal, in Q1, we made another adjustment to our incentive program to make it more attractive to the newcomers. We currently expect this new program to have a couple of percentage impact on our gross margin starting from Q1. In return, we now have a well-rounded incentive program that can provide sufficient motivation to all important broadcasters in our ecosystem. Non-GAAP R&D expenses for the quarter were RMB286.5 million compared to RMB244.3 million for the same period last year, representing 7.5% and 5.2% of total revenue, respectively. We ended the quarter with 2,394 total employees, of which 807 are from Tantan. The R&D personnel as a percentage of total employees for the group was 57% compared to 58% last year. Non-GAAP sales and marketing expenses for the fourth quarter were RMB654.1 million or 17.2% of total revenue compared to RMB554 million or 14% of total revenue for the same year last year. Non-GAAP G&A expenses were RMB134.5 million for the fourth quarter of 2020 compared to RMB151.7 million for the same quarter last year, representing 3.5% and 3.2% for the total revenue, respectively. Non-GAAP operating expenses as a percentage of total revenue were 28.3%, an increase from 22.4% from Q4 2019. The increase was mainly due to the negative operating leverage as a result of a decrease in total revenue. Now briefly on income tax expenses. In Q4, the company received an approval for qualification of Key Software Enterprise for one of our major profit-generating entities to enjoy a 10% preferential income tax rate. For the fiscal year of 2019, which enabled us to lower our tax rate for the entity from 12.5% to 10% for fiscal year 2019. Therefore, we subsequently reversed the over-accrued tax liability of RMB113 million to reduce the current quarter income tax expenses. As this qualification application is assessed by the relevant tax authorities annually, we make this tax adjustment upon receipt of our approval notice going forward. Now turning to balance sheet and cash flow items. As of December 31, 2020, Momo's cash, cash equivalents, short-term deposits, and long-term deposits totaled RMB16.48 billion compared to RMB15.23 billion as of December 31, 2019. Net cash provided by operating activities in the fourth quarter was RMB1.04 billion. Lastly, on business outlook, we estimated our first quarter revenue for 2021 to come in the range from RMB3.36 billion to RMB3.46 billion, representing a decrease of 6.5% to 3.7% year-on-year and a decrease of 11.5% to 8.8% quarter-over-quarter. For Q1 2021, on a year-over-year basis, we expected the total revenue from core Momo to decrease in the low teens percentage. Total revenue from Tantan is expected to grow in the high 40s percentage. Please be mindful that the forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to change. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Cathey to start the Q&A. Cathey, please?
Cathey Peng, Moderator
Actually just a quick reminder for people who are in the queue to ask their questions in Chinese first, and perhaps follow with English translation by yourself. And also if you could limit the number of questions to one to two, that will give more time for other people to ask questions. Operator, ready for questions. Thank you.
Thomas Chong, Analyst
Thanks management for taking my questions. I have two questions. The first one is about the user and the revenue trend during and after Chinese New Year for core Momo and Tantan. And also, can management comment about the full-year outlook, if possible. And my second question is about the spending. Can you comment about the marketing spending for this year as well as the overall margin outlook? Thank you.
Wang Li, CEO
Let me start by saying that it's been about five weeks since the lunar year holiday, and during this time, we have observed promising recovery trends in Momo's core, specifically in traffic and revenue. This positive trend can be attributed to three key factors. First, we made significant improvements to the basic social experience last year. Second, we are seeing the benefits of the structural reforms implemented in the second half of last year. Lastly, our targeted marketing strategies around the Chinese New Year have been effective for the core Momo. In terms of user engagement, the average daily active users in March have already surpassed last December's figures significantly. Regarding revenue, while we did experience a notable decline in live streaming and value-added services during the three weeks surrounding the Chinese New Year, live streaming has since shown steady improvement, and our value-added services have performed exceptionally well, exceeding pre-Chinese New Year revenue levels. We anticipate meaningful sequential growth in Q1 compared to Q4, and overall, we expect significant acceleration, which is very encouraging. Looking ahead, while it’s still early to provide specific forecasts, I can share some overarching trends. For live streaming, this year will focus on enhancing the content ecosystem and diversifying content offerings, emphasizing stabilization as our top priority. Therefore, we won’t pursue aggressive short-term revenue strategies. As the content ecosystem improves, we expect steady and gradual revenue growth for Q1 and beyond, and we need this progress to reflect in gross profit as well. We are identifying more growth opportunities within the core compared to live streaming, and from a product and traffic perspective, we plan to shift focus more toward value-added services due to their more stable distribution model and their integration with our social platform strengths. Consequently, we expect value-added services to continue growing robustly year-over-year as a percentage of total revenue, with Q1 value-added service revenue anticipated to approach 80% of live streaming revenue. We hope to increase this ratio over time, which highlights our unique advantage as a social platform compared to other entertainment providers. This year, we plan to leverage this advantage and differentiation more effectively than in the past. Now I will hand it over to Wang Yu for a discussion about Tantan.
Wang Yu, CEO of Tantan
Okay. So firstly, let me elaborate a bit on the user trends. In January and early February, we pretty much focused on building our user acquisition materials, and fixing other technical stuff in order to make the Chinese New Year campaigns more effective. So the December weekly user trends continued in January and early February, and they started ticking up from late February. As said, we're on track to deliver a better March DAU than last December while further lowering the total marketing costs from Q4. Revenue wise, we had pretty strong seasonality this year due to the streaming services. Because we have the big majority of our live streaming revenue coming from long-tail broadcasters that are difficult to manage, the broadcasting time and the number of channels saw a significant decline during the winter holiday period, causing revenue to see a deep dive and also a slow recovery. Now the supply has come back and we expect the revenue to gradually ramp up from Q2 onwards. Now some thoughts about the whole year. User growth is the single most important priority for Tantan this year. We had some initial success in sorting out the user acquisition approach in the post-Chinese New Year campaign. It definitely shows that we are heading in the right direction. In the coming few months, we've lined up a few other new product updates, most of which aim at further improving the retention ratio on the platform. We're confident that with these products and marketing efforts, we're going to see solid user growth this year. Revenue is not one of the top priorities for the company this year, neither is profit. We certainly care about top and bottom lines, and long-term wise, they should be the outcome of user growth. But if this year, any of the financial goals temporarily goes against the product and user goals, we will definitely put the latter on top. Here's an example. As I said, after we adjusted our marketing approach, Tantan now has a much higher percentage of females among the newly acquired users, which is going to be a big, big benefit for the dating ecosystem. However, that actually lowers the paying conversion ratio pretty significantly, because women are much less likely to pay upfront. Previously, we would have tried to reverse that trend to raise the paying conversion because we need to meet quarterly numbers in revenue and paying users, etc. But this year, this is going to be an example that we're going to put the short-term numbers aside and focus on what's really important for our future. That said, I believe overall, we're still going to see pretty decent growth on the top line for 2021. Here are some drivers for it. Firstly, user growth will drive VAS growth. Secondly, we're going to be rolling out a few new monetization features this year. Some of these are subscription-based, and others are card-based. For example, the virtual gifting around the voice dating experience that sort of drives our people on the VAS. For live streaming this year, we'll make it subservient to the product and user experience. This year, we also prefer not to go any further in terms of raising monetization levels. Putting everything together, most likely we will end this year with the majority of revenue coming from VAS, which goes more hand in hand with coordinating in relation to live streaming. Thanks.
Jonathan Zhang, CFO
Thomas, this is Jon. Let me address your second question. Regarding the marketing strategy for core Momo, we plan to maintain the same level of channel investment, with a similar dollar amount as last year. However, as Wang Yu mentioned, some of our new apps are gaining traction, and we want to keep the flexibility to invest more to grow users and revenues for those new initiatives, focusing on their revenue growth. We are likely looking to increase the marketing resources allocated to these new initiatives, aimed at about 1 to 2 percent of total revenue for core Momo. However, we will adjust this spending plan based on performance and ROI. For Tantan, as Wang Yu outlined, the team prioritizes user growth, and how much we will spend will depend on the pace and effectiveness of its marketing efforts and product rollout. If we see faster progress, we will invest more, leading to higher VAS revenue. Conversely, if it takes longer, our spending will decrease, and VAS revenue growth will slow. Instead of targeting specific line items, we aim to narrow down the adjusted net loss for 2021 by about RMB150 million to RMB200 million from last year's figures. Regarding margin trends, in addition to potential gains from core Momo, we anticipate a gross margin impact starting in Q1 due to a newly launched incentive program for new broadcasters. This will apply throughout the year, and while there are various factors affecting margins quarterly, we do not expect a significant overall impact. We anticipate a gross margin decline of 2% to 3% for the year due to potentially higher selling and marketing expenses from core Momo. Thank you.
Thomas Chong, Analyst
Got it. Thank you.
Cathey Peng, Moderator
Yes, we are ready for the next question. In the interest of time, this will be the last one we take.
Operator, Operator
Thank you. Yes. Our next question is from the line of Tian Hou of TH Capital. Please go ahead.
Tian Hou, Analyst
Yes. Good morning, management. Just a question on the VAS. Looking at the financial results, VAS was growing pretty rapidly and also Mr. Wang expressed enough confidence for 2021. So can Mr. Wang elaborate a little bit further on the drivers for VAS to continue to grow in 2021? That's my question.
Wang Li, CEO
With regards to the future outlook for VAS, we are actually seeing plenty of growth opportunities in VAS both in terms of product innovations as well as revenue growth. As I said, over 80% of the time spent on Momo is in a variety of social experiences that are not related to live streaming at all. There is actually a lot of potential that we can cultivate in this big pool of users and traffic. In addition to Momo and Tantan, this year some of our newer applications are also becoming more meaningful revenue contributors, and that could push the VAS opportunities beyond the core Momo. More specifically, I think in the year 2021, we are mainly looking at several key drivers. Number one, we're going to continue to bring in new product innovations into the chat room experience. Things like the new interactive gifting experience, and the new gameplay into the karaoke experience, all of these have proven to be effective levers that we can pull to drive continuous growth in the chat room. And the second area of growth is the revenue opportunities around the new applications and the new paying experiences that we're testing. Things like Hertz and the video matchmaking experience both within our core website and as a separate application, which is being developed. Other than these, we also had a few other projects. These new opportunities are increasingly coming into fruition on the revenue side. So they can be more of a longer-term driver for the VAS line. And the third driver this year is going to be the innovations within the older experiences. For example, the interest group is an old experience that has been around for many years but after we introduced new gifting experience, it started growing very impressively in the last year, making it actually one of the most important drivers for the VAS line. This year we also have plans to continue to introduce new features into the one-to-one chatting and also the group chatting in order to activate people's willingness to pay for VAS. Now about Tantan, content VAS is actually at a very early stage of development in terms of user growth, ARPPU, and the overextension of paying experiences. I think, obviously, the biggest priority for Tantan this year is on user growth instead of pulling other revenue levers. But actually, in the coming 3 to 5 years, Tantan should actually have bigger potential revenue-wise in the form of VAS than Momo has today.
Wang Yu, CEO of Tantan
I think we're approaching the market's open. So that will be the last question that we take today. And that also wraps up the conference call for today. Thank you for joining us. We'll see you next quarter. Operator, we're ready to close.
Jonathan Zhang, CFO
Thank you.
Cathey Peng, Moderator
Thank you.
Operator, Operator
Thank you. Ladies and gentlemen, that concludes today’s call. Thank you for participating. You may now all disconnect.