Earnings Call Transcript - MOMO Q4 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Fiscal Year 2022 Hello Group Inc. Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. Please note this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

Ashley Jing, Presenter

Thank you, operator. Good morning, and good evening, everyone. Thank you for joining us today for Hello Group's fourth quarter and fiscal year 2022 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; and Ms. Peng Hui, CFO of the Company, who will discuss the Company's business operations and highlights as well as the financials and guidance. They will both 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 related events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties and factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement, as a result of new information, future events or otherwise, except as required under law. I'll now pass the call over to our CEO, Mr. Tang Yan.

Tang Yan, CEO

Hello, everyone. Thank you for joining our call. 2022 was an extremely challenging year for many Chinese companies. The resurgence of COVID brought a lot of uncertainties to the overall business environment. However, I'm pleased to see that our team managed to cope with external pressures by timely adjusting strategic priorities and corresponding execution plans in the second half of the year with flexible product and operational measures. Despite the challenges, we delivered solid financial results for shareholders, enabling us to conclude the year on a satisfactory note. First, I will review the main operating and business results for the fourth quarter and fiscal year 2022 and then outline our strategic priorities for fiscal 2023. I will start with a brief overview of our financial performance. For the fourth quarter of 2022, total revenue was RMB3.21 billion, down 13% year-over-year, and 1% quarter-over-quarter. Adjusted operating income was RMB499 million with a margin of 16%. Total revenue for the Momo app and standalone new app was RMB2.87 billion, down 11% year-over-year and 1% quarter-over-quarter, and adjusted operating income was RMB514 million, down 21% year-over-year and 20% quarter-over-quarter, with a margin of 18%. Total revenue from Tantan came in at RMB347 million, down 21% year-over-year but up 2% quarter-over-quarter. Adjusted operating loss was significantly narrowed to RMB15.17 million from RMB114 million in the same quarter of last year. On a sequential basis, adjusted operating loss continued to narrow further despite an increase in the year-end seasonal expenses. I'm pleased with the progress that Tantan made in improving cost efficiency in the second half of the year. For fiscal year 2022, total revenue was RMB12.3 billion compared to RMB14.6 billion in 2021. Adjusted operating income was RMB2.03 billion with a margin of 16% compared to RMB2.59 billion in 2021. The decrease in total revenue and adjusted operating income was mainly due to the significant pressure from both Momo and Tantan caused by COVID-related factors and regulatory pressures. We adjusted some of our strategic priorities mid-year focusing on cost reduction and efficiency improvement to mitigate the negative impact of external factors on our bottom line. Total revenue from the Momo app and standalone app for fiscal year 2022 was RMB11.3 billion, down 10% from last year, due to the decline in Momo revenue while the standalone apps maintained rapid growth momentum from a high base in 2021. Adjusted operating income for 2022 was RMB2.36 billion, with a margin of 21% compared to RMB2.92 billion in 2021 with a margin of 23%. Tantan's total revenue was RMB1.37 billion, down 33% from 2021. Adjusted operating losses were RMB330 million, compared with RMB337 million in 2021. Although revenue declined from last year, due to the impact of the pandemic and the reduction in channel investments, Tantan's adjusted operating loss narrowed as a result of our initiatives to reduce costs and improve efficiency starting in July. Bottom line performance improved significantly in the latter half of the year, laying a solid foundation for Tantan to achieve breakeven in fiscal 2023. Now, I'll discuss the execution of our strategic priorities in 2022. At the beginning of the year, we set separate goals for Momo, Tantan, and our new standalone apps, given the different business cycles. For the Momo app, our main goal was to maintain a stable user base with a limited marketing budget while seeking growth opportunities. Although many uncertainties surrounding COVID and regulatory environment last year resulted in a relatively large gap between that goal and actual results, I'm pleased to see that our team primarily mitigated the decline in profit by reducing costs and improving efficiency. This has laid a solid foundation for our cash cow business to turn to a growth trajectory, once the external environment improves this year. Tantan's goal was to deliver solid user growth by improving marketing efficiency and the quality of the experience. However, the COVID situation continued to deteriorate from the beginning of the year, and largely affected user saving sentiment and their propensity to pay for value-added services, resulting in a significant decline in ROI. Therefore, we decided to adjust Tantan's strategic goals in the second half of the year to focus on narrowing net loss by reducing low-efficiency channel marketing spend and accelerating our efforts to develop product and monetization models that are suitable for the Asian dating culture in order to pursue profitable growth. Tantan's financial performance in the past two quarters has clearly demonstrated the importance of our strategic adjustments and our team's strong execution ability. With respect to the new products and businesses, our goal was to continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan. We made steady progress on this front in 2022. Next, I will walk you through the details. Firstly regarding Momo App user growth and key operating metrics in 2022, user traffic and engagement levels faced the most challenges in comparison with the previous year. The main pressure came from increasingly tightened COVID containment measures throughout the year, as well as the COVID infection surge in many regions in China after removing the zero COVID policy in December. In the fourth quarter, Momo had 94.6 million monthly active users, down 13% sequentially. The rapid spread of COVID led to a significant decline in organic traffic and retention. For our considerations, our team scaled back investments in channels timely to reduce unnecessary spending during the peak of the pandemic. The decline in MAU caused the number of paying users to decrease by 600,000 to 7.8 million in the fourth quarter. To improve marketing efficiency, our team continued to optimize channel strategy and shifted our user acquisition focus from MAUs to paying users. The improvements in channel marketing efficiency mitigated financial pressure in a challenging environment and had a positive impact on ensuring the stability of our cash cow business. With user social sentiment gradually recovering after the Chinese New Year, usage started to continuously trend upward and bounced back to the same level as Q3 last year. Meanwhile, usage time spent surpassed its peak level in 2022. Now, I will discuss progress we made regarding the priorities of ensuring our cash cow business remains stable. In 2022, multiple external factors brought severe challenges to Momo app's top line, particularly in the live streaming business. The incremental revenue contributed by the new standalone apps partially elevated the pressure from Momo app's bottom line. For fiscal 2022, the revenue ratio of VAS and live streaming increased by 22 percentage points from the previous year to 87%. Our team leveraged VAS use cases to unleash the spending potential of long-tail users, which created a more balanced revenue structure. Momo's live streaming revenue was RMB1.56 billion for the fourth quarter, down 20% year-over-year but up 3% sequentially. For fiscal 2022, revenue from live streaming totaled RMB5.97 billion, down 20% year-over-year. In 2022, the pressure on live streaming revenue mainly came from two factors: first, the macro headwinds and spending softness as a result of the pandemic, and second, product adjustments we made in Q2 to meet regulatory requirements. In the second half of the year, our live streaming team introduced new features targeting high-paying users to improve their product experience, and the expansion in the number of top cohort users drove continuous growth in live streaming revenue. In December, a significant number of broadcasters suspended work due to a high infection rate after the reopening, causing severe short-term disruptions to the supply side and revenue growth. However, the incremental revenue from the year-end competition in November provided strong support for the live streaming revenue to grow sequentially in Q4. In 2022, our live streaming team gradually shifted operational focus from revenue growth to profitable growth and cost control by adjusting operational policies and design of the Themify features. With this guideline in mind, we introduced cost-saving designs to the year-end competition events. This partially reduced the pressure of large-scale events on the gross profit margin. The sequential dip in GP margin in Q4 2022 was milder than in the same period last year. The overall revenue-sharing policy and supply ecosystem remained stable throughout the year. With regards to value-added services, revenue excluding Tantan totaled RMB1.27 billion for the fourth quarter, up 2% year-over-year and down 5% sequentially. The year-over-year growth was entirely attributable to incremental revenue from the new standalone apps. In the fourth quarter, revenue from the Momo app totaled RMB1.04 billion, down 9% both year-on-year and quarter-over-quarter, while revenue from standalone apps was RMB220 million, up 129% year-over-year and 15% sequentially. For fiscal year 2022, revenue from value-added services excluding Tantan totaled RMB5.18 billion, up 7% year-over-year. VAS revenue from the Momo app decreased 2% year-over-year to RMB4.45 billion, due to continuous pressure from COVID. Momo Advanced revenue was considerably lower than our expectations at the beginning of 2022. In order to offset this revenue decline, our team pushed harder on monetization of new apps, driving collective revenue from these new apps to increase 143% year-over-year to RMB737 million. As COVID control measures became increasingly strict in 2022, social use cases with higher conversion of online to offline activities faced significant pressure on both traffic and revenue fronts. For example, users' enthusiasm on virtual gifts consumption in interest groups significantly weakened compared to before strict COVID control measures were implemented. Revenue from membership subscriptions also declined since this service was designed to increase users' efficiency in making new connections that they can potentially meet offline. In contrast, the audio- and video-based social entertainment experiences with fewer tangible attributes were able to effectively offset the impact of COVID on traffic and users' propensity to pay and drove steady revenue growth in 2022 by leveraging innovative products and features. Regarding Tantan, I will start with user trends and overall financials. In response to the business and financial impacts on Tantan caused by the escalating pandemic control measures, since the beginning of the year, the management decided to pursue a cost control strategy in the second half to narrow Tantan's net loss by reducing marketing spend and cutting investments in channels and methods with low ROI. Since the removal of the zero COVID policy in early December, many regions across the country experienced a surge in COVID infections, putting a lot of pressure on user traffic, compounded by the reduction in China investment. Tantan's overall MAU decreased to 12% quarter-over-quarter to RMB18.4 million in December, down 26% from June before we initiated call controls. The number of paying users was 1.7 million down 100,000 sequentially, mainly due to a decline in both MAU and paying conversion amid the fast-growing COVID infections. As infection levels gradually eased after the Chinese New Year, traffic started to resume growth. DAU in early March has recovered to the level before the pandemic outbreak in December last year. Now, I'll briefly reveal Tantan's financial performance. Total revenue for the fourth quarter was RMB347 million, down 21% year-over-year but up 2% sequentially. The year-over-year decrease was mainly attributed to a decline in the number of paying users. The sequential growth was due to the improvement in ARPPU driven by live streaming and the new premium Black Gold membership service, which offset the pressure on revenue caused by the decline in paying users. Lost revenue was RMB184 million, down 9% sequentially, although the sale of new memberships service positively impacted VAS ARPPU, the increase couldn't fully offset the pressure from the decline in paying users. On the other hand, the live streaming business, which is more sensitive to revenue-oriented operational efforts, was able to drive significant ARPPU growth through product improvements and new features. Therefore, live streaming revenue for the fourth quarter was up 17% sequentially to RMB163 million. For fiscal year 2022, Tantan's total revenue was RMB1.37 billion, down 33% year-over-year, mainly due to the decrease in paying user count stemming from COVID and our initiative to reduce channel investments. Lost revenue in 2022 was RMB824 million, down 27% year-over-year, and live streaming revenue was RMB544 million, down 40% year-over-year. Tantan's adjusted net loss for fiscal year 2022 was RMB306 million compared to RMB337 million in 2021. Although the net loss in 2022 was still relatively large, the adjusted net loss was substantially narrowed in the latter half of the year, thanks to our effective strategy to control costs and optimize channel investments. The average quarterly adjusted net loss significantly improved from RMB140 million in the first half of the year to RMB14 million in the second half. The efficiency of our result investments greatly improved. Now, let's look at the progress Tantan has made against its strategic priorities. The strategic goal at the beginning of the year before the pandemic situation deteriorated was to deliver solid user growth by improving marketing efficiency and overall dating experience. However, during the second quarter, tightened COVID control measures had a severe negative impact on user retention and paying conversion. The significant decline in both metrics led to a negative cycle where the more users we acquired, the greater the financial loss. Growing the user base without generating a profit not only makes no economic sense, but it's also unsustainable. In response to the uncertainties created by the pandemic, in the second half of the year, we adopted a more prudent marketing strategy rather than growing at the expense of the bottom line. We reduced spending in low-efficiency channels to narrow the net loss. At the same time, we continued to focus on improving user retention and ARPU growth through algorithms, product innovation, and new non-membership VAS features. Once all metrics trend positively, we will invest profits into marketing to create a self-sustaining growth cycle. Next, let's review the progress made in improving user acquisition efficiency and enhancing retention and ARPU. Firstly, on the channel front, since the beginning of the year, our team enhanced channel efficiency by optimizing ad materials and adjusting the proportion of new users and domain users. Therefore, although the large-scale outbreak of the pandemic in December led to a larger-than-expected decline in user base, key user acquisition indicators such as unit acquisition cost, retention, and new user ARPU improved to varying degrees compared with the previous year. The average unit acquisition cost for fiscal year 2022 was down nearly 20% year-on-year, and in Q4, user acquisition cost was down 50% from the year-ago period. Additionally, new user ARPU increased by more than 40%. Compared with the previous year, the average user age tended to be younger and the proportion of new female users remained at a satisfactory level. Our team maintained stability in user experience and platform ecosystem despite the deteriorating pandemic situation and the decline in new users resulting from reduced channel investments. In terms of improving ARPPU through new product experiences, we focused on two important directions: Firstly, we needed to explore effective social experiences beyond swipe and match features. Secondly, we introduced non-language advanced paying models to improve per-user revenue. During 2022, we made several important optimizations to chat room experience, positively impacting retention and the time spent of female users as well as those who are reluctant to show their real photos. Simultaneously, the consumer experience based on virtual gifting in chat rooms also effectively unleashed the spending potential of different cohorts of users concerning monetization. In 2022, in addition to exploring non-membership VAS features, our team also continued to delve deeper into membership subscriptions. In the second half of the year, we launched the high-end Black Gold membership service, which was well received by a high-spending cohort, positively impacting ARPPU expansion. Now, I will discuss our new endeavors. Regarding the new standalone apps, the financials of the profit-oriented VAS and gaming apps are consolidated under Momo's P&L in our segment reporting. In the fourth quarter, revenue from standalone apps totaled RMB229 million, doubling from the year-ago period and up 13% sequentially. For fiscal year 2022, total revenue of our new endeavors was RMB791 million, nearly 150% year-over-year. All standalone social apps have begun contributing to the group's profits this year while delivering rapid top-line growth. We expect the three standalone apps to continue providing meaningful revenue and profit to the group. In addition to the profit-oriented products, we made breakthroughs in non-ROI oriented products for the first time in 2022. At the beginning of the year, we took the opportunity of generational transition to launch a large DAU product targeting Gen Z and Gen Alpha users, rapidly establishing a considerable user base. This confirms our team's competitive advantage in discovering new markets and seizing opportunities in the social space. Going forward, we will accelerate the pace of new product exploration based on trial and error and strive to provide better social products for users of different ages and needs. This concludes our business updates. Now, I'll briefly go through our strategic priorities for 2023. Firstly, for the mature Momo app, our goal is to keep the user and revenue scale stable while continuing to optimize our cost structure and maintain the productivity of our cash cow business. To achieve this goal, we will continue to optimize product operations, introduce new monetization features, and improve cash utilization and personnel efficiency. Secondly, for Tantan, our goal is to achieve breakeven for the year and pursue sustainable growth based on a positive business cycle. To achieve this, we'll work on both channel and product fronts so we can build monetization models suitable for the Asian dating culture. Lastly, with respect to new products, we aim to enrich our product portfolio, push boundaries beyond Momo and Tantan, and develop a long-term growth engine. We plan for ROI-oriented standalone apps to continue scaling up profit and contributing more incremental revenue and profit to the group's top and bottom line. Additionally, we will further explore opportunities for large DAU products to create new growth avenues. Finally, I would like to conclude by announcing that our board has declared a special cash dividend in the amount of $0.72 per ADS, which will amount to a total cash payment of approximately $137 million or 50% of adjusted net income attributable to Hello Group Inc. in 2022. Investors who have followed us long enough will know that this is the fifth consecutive year we have shared the fruits of our work with our shareholders. Regardless of the decisions we make in terms of driving organic growth, identifying decent investment opportunities, or paying back shareholders, the fundamental principle of our capital allocation strategy is to create long-term value for our shareholders. I would like to thank you all for your faith in us. Now, let me pass the call over to Cathy for the financial review.

Peng Hui, CFO

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 2022 was RMB3.21 billion, down 13% year-on-year and less than 1% quarter-on-quarter. Non-GAAP net income attributable to the Company was RMB487.9 million excluding the impact of accrued income tax expenses on the undistributed earnings, which were not on a comparable basis for the two periods. Non-GAAP net income in the fourth quarter of 2022 was up 8% from the year-ago period, despite the top-line decrease as a result of our cost control efforts. Looking into the key revenue line items for the quarter, firstly, for live broadcasting, total revenue from the live broadcasting business for the fourth quarter of 2022 was RMB1.72 billion, down 20% year-over-year but up 4% quarter-over-quarter. Momo app's live broadcasting revenue totaled RMB1.56 billion for the quarter, down 20% year-over-year but up 3% quarter-over-quarter. The year-over-year decrease was due to pressures caused by COVID and regulatory factors. The sequential growth was mainly attributable to incremental revenue generated by the year-end competition event. Tantan's live broadcasting revenue amounted to RMB152.9 million, down 19% from Q4 last year but up 7% from the previous quarter. The year-over-year decrease was primarily due to the negative impact of the pandemic and reduced channel investment, resulting in a significant decrease in the paying user count. The sequential increase was driven by ARPU growth thanks to our product and operational efforts. Revenue from value-added service for the fourth quarter of 2022 was RMB1.45 billion, down 2% from Q4 last year and 6% sequentially. Revenue from value-added service on an ex-Tantan basis reached RMB1.27 billion in the fourth quarter of 2020, a 2% increase year-over-year but down 5% sequentially. The year-over-year growth was driven by incremental revenue contributed by the standalone new applications. The sequential decrease was due to pressure from Momo app, particularly LBS-related features, caused by the deteriorating COVID situation in China in Q4 2022. Tantan's value-added service revenue amounted to RMB183.8 million, down 22% from Q4 last year and 9% from the previous quarter. The decrease was due to the pressure on Tantan's MAUs and paying conversion caused by COVID-related factors as well as the reduction in marketing spend. Non-GAAP cost of revenue for the fourth quarter of 2022 was RMB1.91 billion compared to RMB2.19 billion for the same period last year. Non-GAAP gross margin for the quarter was 40.4%, the same as the year-ago period and down 1.3% from last quarter, mainly due to the incremental expense related to the year-end competition event for live streaming. Non-GAAP R&D expenses for the fourth quarter were RMB250.5 million compared to RMB279.7 million for the same period last year, marking a 10% decrease year-on-year. The decrease was attributed to continuous optimization of personnel costs since the beginning of the year. Non-GAAP R&D expenses as a percentage of revenue remained stable at 8% from the year-ago period. We ended the quarter with 1,705 total employees, of which 459 are from Tantan, compared to 2,051 total employees, of which 552 were from Tantan a year ago. The R&D personnel as a percentage of total employees for the group was 63% compared with 62% in Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter were RMB388.6 million, or 12% of total revenue, compared to RMB648.6 million or 18% of total revenue for the same period last year. The significant year-over-year decrease in both absolute RMB amount and as a percentage of revenue was primarily attributable to a strategic shift in marketing to cut spending on low-efficiency approaches to ensure ROI, alongside a reduction in Momo's marketing spend amid the pandemic outbreak. Non-GAAP G&A expenses were RMB84.9 million for the fourth quarter of 2022, compared to RMB89.4 million for the same period last year, representing 3% and 2% of total revenue respectively. Now, briefly on other operating loss items, other operating loss for the quarter was RMB65.2 million compared to an income of RMB38.6 million for the same period last year. In Q4 2022, we accrued RMB92.9 million of potential loss related to Momo users' alleged illegal activity and embezzlement of funds, which was retrieved and consumed on Momo platform. There is no suspected or alleged wrongdoing on the part of the group. The RMB92.9 million involved in the case is recorded as restricted cash on our balance sheet. Until the court ruling is announced, we won't know for sure whether the fund will ultimately be released or drawn from our account to compensate a plaintiff in the case. However, for conservative purposes, we've decided to take this item into our P&L as an operating loss for Q4 2022. This other operating loss was partially offset by a couple of income items. Non-GAAP operating income was RMB499.2 million, a decrease of 2% from Q4 2021 and 18% from the previous quarter. Non-GAAP operating margin for the quarter was 16%, up 2 percentage points from the same period last year, but down 3 percentage points from the previous quarter. Non-GAAP OpEx as a percentage of total revenue was 23%, a decrease from 28% for Q4 2021 and 24% from the last quarter. Non-GAAP operating expenses on a year-over-year basis decreased by 28%. The decrease in both absolute R&D amount and as a percentage of revenue for all pass was mainly due to the reduction in social marketing expenses and optimization in personnel costs. Non-GAAP operating expenses decreased 4% sequentially. This is attributable to the decrease in marketing expenses, which offset the increase in seasonal expenses such as year-end bonuses. Now briefly on income tax expenses; total income tax expenses were RMB110.3 million for the quarter, with an effective tax rate of 19%. In Q4, the Company accrued withholding tax income of RMB39.7 million, which is 10% of undistributed profits generated by our WFOE. Without withholding tax, our estimated non-GAAP effective tax rate was around 12% for the fourth quarter. Now, turning to balance sheet and cash flow items. As of December 31, 2022, the whole group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled RMB13.4 billion, compared to RMB15.71 billion as of December 31, 2021. The decrease was due to a number of cash flow items, including our cash dividend payments, repurchase of the Company's convertible notes, repurchase of the Company's equity under the ongoing buyback program, and payment to Chinese tax authorities to repatriate cash from WFOE in China to our offshore entity. Net cash provided by operating activities in the fourth quarter of 2022 was RMB539 million compared to RMB666 million in the fourth quarter of 2021. Lastly, on business outlook, we estimated our first quarter revenue to be in the range from RMB2.65 billion to RMB2.75 billion, representing a decrease of 15.8% to 12.6% year-on-year, or a decrease of 17.5% to 14.4% quarter-over-quarter. For Q1 2023, we expect total revenue from both Momo and Tantan to decline in the mid-teens due to the infection surge after reopening coupled with the Chinese New Year seasonal effects. Please note that this forecast represents the Company's current and preliminary view on market and operating conditions, which are subject to changes. That concludes our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q&A.

Ashley Jing, Presenter

Thanks. Just a quick reminder before we take the questions, please ask your questions in Chinese and provide an English translation yourself. Operator, we're ready for questions. Thank you.

Leo Chiang, Analyst

Thank you, management, for taking my question. My question is regarding the Momo app. As online activities resume normalization, can management provide insights on the latest user and revenue recovery trend of the Momo app? Additionally, what is the target for Momo's revenue in 2023?

Tang Yan, CEO

Let me translate first. As I mentioned earlier, reopening in early December severely affected our user base in a short period of time, resulting in a sharp sequential decline in Q4. In early January, as the infection rate reached its peak in many regions, local users began to gradually return as the pandemic subsided. However, the recovery trend was interrupted by the traditional low seasonality of the Chinese New Year. When people started to return to their hometowns in January to prepare for the holiday celebration, DAU rebounded rapidly in early February after the Chinese New Year trough. The growth rate was significantly higher than that in early January and exceeded our previous expectations. Currently, the Momo user base has rebounded to the same level as the end of last year's summer holiday. In terms of operational strategy, the Momo app will remain focused on the ecosystem and product experience. We will continue to take a conservative approach in event operation and competition arrangements, prioritizing stable profits over driving non-profitable revenue growth. I'll leave it to Cathy for financial details.

Peng Hui, CFO

Sure. Let me briefly share what we can say at this point regarding Momo's revenue outlook. For Q1, as you can see from our guidance, Momo's live streaming will see a mid- to high-teens decrease from last year. The biggest reason here is that last quarter's performance was relatively high due to the prior regulatory changes in May 2022 that created a challenging comparison for Q1 this year. Additionally, I suspect that not having full visibility into the macro conditions for the rest of the year is still weighing on the minds of some of our high-paying users and that is the general sentiment we are getting from discussions with part of our top standards. We will see if sentiment improves over time as the year progresses with the release of stimulating policies. For Q2 onwards, we anticipate quarter-on-quarter increases as both traffic and the overall economy continue to recover from the past three years of COVID restrictions. It also appears that the fluid regulatory situation that has burdened the sector for the past two to three years will stabilize over the coming few quarters. The only uncertainty is the extent of the macro recovery as we move further into the year because that's critical for the spending sentiment of our top-tier users in live streaming. For value-added services, Q1 this year is slightly challenging due to January's trough related to the reopening and infection surge in China. Another contributing factor was SoulChill, which was heavily impacted in Q1 due to the Turkey earthquake and the depreciation of the Egyptian pound against the U.S. dollar. Some of our payment channels in Egypt ended up suspended by local authorities due to that reason. We are currently reallocating both marketing dollars and resources to other Gulf countries where growth momentum remains strong. Overall, we expect value-added services to continue growing this year, with the second half being significantly stronger than the first half because of these several factors. If you put all these different pieces together, we expect continued quarter-over-quarter improvement throughout the year, driven by gradual recovery and the strong momentum from the smaller new apps. How fast the top line ramps up throughout the year will depend heavily on macro conditions.

Thomas Chong, Analyst

Thanks, management, for taking my question. My question is about Tantan. Can management share insights about the latest user trends as well as the outlook for 2023 revenue and profitability? Also, regarding revenue scale, can management share expectations for chat room performance in 2023?

Tang Yan, CEO

Certainly. Tantan's user trends show similar patterns to Momo. We fell sharply during the surge of infections and have been recovering since the Chinese New Year. Currently, the DAU has rebounded to the same level as November last year. Whether we can continue to grow from that and at what pace depends on whether we can see continuous improvement in product experience and user retention, as well as our ability to introduce new payment features that can effectively improve channel ROI. We no longer pursue user growth at the expense of profits, as that model is no longer viable. Our focus is on revenue growth that generates profits. We will resume channel investment to accelerate user growth, if there is significant improvement in ROI, and I urge investors to be a bit patient with us on this front. Regarding revenue growth, we anticipate that revenue growth will likely come early and faster than user growth because both the Black Gold membership and the chat room experience are well-established monetization models. Both features positively impact user experience and retention. Therefore, even if the user base remains at its current level, we expect to continue growing sequentially from Q1. For the chat room experience, we will focus on refining its products and operations for now. We do not expect chat rooms to generate substantial revenue this year; however, we have full confidence in their monetization model and revenue potential. I will let Cathy discuss the bottom line.

Peng Hui, CFO

Regarding Tantan's bottom line, if you look at the trajectory of the non-GAAP operating loss in 2022, you will see that we've been consistently narrowing the operating loss quarter-over-quarter throughout the year. In Q4, the non-GAAP operating loss was already at RMB15 million kind of run rate. We expect that overall narrowing trend to continue into 2023, which means we should be looking at a positive bottom line for Tantan by the back half of the year, if not earlier. Another important point is that as Tang Yan mentioned, as long as marketing ROI is positive, we won't focus too much on bottom line margins for Tantan because there are still numerous growth opportunities for new products in the China market. Instead, we could reinvest part of the profits into marketing to drive sustainable user growth as well as top-line growth. This reflects our goal of getting into a positive cycle, which is our most important strategic priority for Tantan this year.

Xueqing Zhang, Analyst

Thanks, management, for taking my questions. My question is about standalone new applications. Could management provide more insights on the strategies and revenue expectations of these new apps this year?

Tang Yan, CEO

In 2022, ROI-oriented new products turned profitable, with revenues up nearly 150% from 2021. Our goal for this app this year is to further scale up revenue and profit. For the domestic apps, which are at a more mature stage, the user base is relatively stable at the moment. We will continue to expand profits by driving ARPPU and margins. For the overseas apps, which face a much broader market, our goal is to expand new revenue markets in addition to deepening existing ones. Turkish and Egyptian markets may be affected to some extent this year; however, we see strong revenue and profit growth opportunities for social apps in the mainland market. We will continue to focus our efforts in this direction. In addition to the ROI-oriented products that focus on revenue and profit, we will also invest and explore opportunities in DAU-oriented products. We currently have several DAU-oriented products that are in beta testing, and we will share more information with the investor community as we accumulate more data.

Henry So, Analyst

Thanks, management, for taking our question. My question is about margin. As you mentioned in your prepared remarks, optimizing costs will continue to be key this year. Could management elaborate on the cost control strategy and overall margin trends this year?

Peng Hui, CFO

Yes, certainly. Regarding gross profit margin, the biggest driving factor here is the payout ratio. Supply-side factors remain stable, indicating that payout will also remain largely stable. Of course, different segments of our business will exhibit different margin profiles, which means revenue mix will always be another variable in the equation to consider when modeling gross profit margin. In terms of operating expenses, last year we performed well in optimizing key areas such as personnel expenses, marketing costs, and infrastructure spending. We just finished our annual budgeting cycle, and it seems we still have room to enhance efficiency across all these spending areas. Therefore, we expect operating expenses to further shrink significantly this year. As top-line trends improve, both bottom-line and bottom-line margins will also improve. To summarize, for 2023, we expect continuous quarter-over-quarter improvement in top line driven by the overall COVID recovery as well as strong growth momentum from the smaller new applications. We will continue to optimize our costs and expenses, resulting in meaningful growth in the bottom line on a year-over-year basis, especially in the second half of the year. That is the financial outlook I can provide at this point.

Ashley Jing, Presenter

Thank you everyone for participating in our call, and we'll see you next quarter. Have a good night and good morning. Bye.

Operator, Operator

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