Earnings Call Transcript - MOMO Q4 2023

Operator, Operator

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's fourth quarter and fiscal 2023 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today are Mr. Tang Yan, CEO of the company; Ms. 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 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 the law. I will now pass the call over to our COO, Ms. Zhang Sichuan. Ms. Zhang, please.

Zhang Sichuan, COO

Thank you. Hello, everyone. Thank you for joining our call. 2023 was a busy year despite many changes and challenges in the external environment. Our team made steady progress in implementing our strategic priorities and achieved solid financial results. I'd like to walk you through the details of our work across business lines in the fourth quarter and fiscal year 2023, and then outline the strategic goals for fiscal 2024. I will start with a brief overview of our financial performance. For the fourth quarter of 2023, total group revenue was RMB3 billion, down 7% year-over-year and 1% sequentially, which is at the high end of our guidance. Adjusted operating income was RMB664 million, up significantly by 33% year-over-year. The profit margin was 22.1%, a significant improvement of 6.6 percentage points year-over-year. Total revenue from the Momo app and standalone new app was RMB2.73 billion, down 5% year-over-year. And adjusted operating income was RMB637 million, up 24% year-over-year with a margin of 23.3%, up 5.4 percentage points year-over-year. The year-over-year improvement in profit margin was primarily due to our team's excellent cost management and improved efficiency in resource utilization over the past year. Total revenue from Tantan came in at RMB272 million, down 21% year-over-year. Adjusted operating income was RMB27.04 million with a margin of 9.9% compared with an operating loss of RMB13.17 million in the same period of the previous year. For fiscal 2023, total group revenue was RMB12 billion compared with RMB12.7 billion in 2022. Adjusted operating income was RMB2.57 billion, up significantly by 27% year-over-year with a margin of 21.4%, up significantly by 5.4 percentage points. The strong improvement in gross profit and margins despite lower revenue was mainly driven by our effective cost optimization and efficiency improvement initiatives across our businesses over the past year. We supported the stable productivity of the Momo cash cow business and made Tantan profitable. Total revenue from the Momo app and standalone new app was RMB10.8 billion, down 5% from 2022, mainly due to the declines in revenue from the Momo app resulting from spending softness amid the weak microeconomy and our proactive product and operational investments to maintain a healthy economic ecosystem. Standalone new app maintains rapid growth momentum driven by our overseas business. Adjusted operating income was RMB2.5 billion, up 5% year-over-year with a margin of 23.2%, up 2 percentage points from a year ago. At Tantan, we continued implementing cost optimization and efficiency improvement initiatives in the past year. We continued to reduce investment in low ROI channels and we allocated excess human resources. In addition, we continued to optimize the paying experience to improve ARPU. As a result, with Tantan's revenue decline due to significantly reduced marketing spending, cost decreased more than revenue. Accordingly, we improved our cash use efficiencies, delivering fourth consecutive quarter of profitability. For fiscal 2023, Tantan's total revenue was RMB1.2 billion, down 30% year-over-year and adjusted operating income was RMB101 million compared with a loss of RMB330 million in 2022. While we're very pleased with the team's execution in cost optimization and efficiency improvements, we must admit that we made a mistake in ecosystem management, which led to an outbreak of spamming activities in the first part of the year and negatively affected Tantan's user experience and retention. While the problem has been fully solved through our efforts in the second half, it has also caused our various product and operational work to lag significantly behind expectations. As a result, we were unable to make any meaningful breakthroughs in the new dating features. We remain committed to working hard towards this goal this year, which I will discuss and explain in more detail later. Now I will walk you through the progress we made against our strategic priorities for Momo, Tantan and the new vendors, as well as the challenges we are facing and our plans to deal with them respectively. For the Momo app, this is the main goal for 2023 was to keep the user and revenue scale stable, continue to optimize cost structure and maintain the productivity of this cash cow business. In the past year, despite the pressure from the macroeconomy and changes in regulatory policies, our team mitigated the external revenue pressures by continuously optimizing product operations and introducing new monetization features. Meanwhile, by improving cash utilization and staff efficiency, we increased operating profits and margins despite revenue pressure. On the channel marketing front, we focused on improving channel ROI to pursue profitable user growth rather than blindly pursuing unprofitable user acquisition. In fiscal year 2023, our unit acquisition costs decreased 25% year-over-year and we acquired 20% more users while reducing channel investment by 10% year-over-year. The number of paying users remained stable in the first nine months of 2023, thanks to our product and channel efforts. However, at the end of the year, the number of active users fell temporarily due to the impact of external COVID and regulatory-driven product adjustments and community agile system optimization, which resulted in short term pressure on the number of long-term paying users. In the fourth quarter, the number of paying users of the Momo app was 7.4 million, a decrease of 400,000 compared with the previous quarter. Now let's go through the productivity of our Momo cash cow business. In the fourth quarter, Momo's live streaming revenue was RMB1.42 billion, down 9% year-over-year. For fiscal year 2023, Momo's live streaming revenue totaled RMB5.57 billion, down 7% year-over-year. With the pandemic over in early 2023, Momo's live streaming delivered positive year-over-year revenue growth in quarter two, a quarter earlier than we expected. Thanks to the economic recovery and our product and operational efforts. However, as we entered the year's second half, the economic recovery became weaker than expected. At the same time, to better manage regulatory risks, our operational team proactively reduced revenue-oriented competition events, resulting in a decline in revenue in the second half of the year compared with the same period of 2022. The combination of spending softness and decreased revenue from the competition events is the main reason for the decline in Momo's live streaming revenue in 2023. On the product front, our team continued to enrich interactive gamified features to improve paying conversion and engage users in different cohorts. Against the backdrop of spending softness, introducing new gamified features not only helps stabilize the engagement of live streaming users in the mid and long term but also plays a positive role on the supply side of live streaming. Regarding last revenue from value-added services, excluding Tantan, total revenue was RMB1.26 billion for the fourth quarter, flat year-over-year. Gross revenue from the Momo app totaled RMB940 million, down 10% year-over-year. Revenue from the standalone app was RMB320 million, up 44% year-over-year. For fiscal year 2023, gross revenue excluding Tantan totaled RMB5.09 billion, down 2% year-over-year. Gross revenue from the Momo app was RMB3.98 billion, down 10% year-over-year. Gross revenue from the standalone app was RMB1.11 billion, up 50% year-over-year. The incremental revenue contributed by the standalone app largely offset the revenue decrease from the Momo app. The rate of declines in live revenues from the Momo app was higher than we expected at the beginning of the year, mainly for two reasons. First, the economic recovery was weaker than expected. User spending remained soft. Second, the product adjustments to maintain a healthy community ecosystem in the second half of the year resulted in a decline in paying users. On the product front, integrating audio and video-based VAS experience with the nonpaying features on the homepage positively improved the efficiency of VAS monetization. On the operational front, we focused on user-oriented operational efforts to drive organic revenue growth, resulting in steady ARPPU improvement. Now moving to Tantan, our strategic goal for Tantan was to achieve overall breakeven for the year and develop product and monetization models tailored to Asian dating culture to pursue sustainable growth on the back of the positive business cycle driven by our efforts on both product and channel fronts. Tantan hit the first milestone of its strategic goals at the beginning of this year, achieving operating breakeven and maintaining a small profit throughout the year despite pressure on revenue. The success of our cost optimization and efficiency improvement initiative was primarily due to our continued improvement in channel efficiency and personnel cost optimization. However, as I mentioned at the beginning, due to some missteps in execution and inefficiencies in innovation, Tantan has yet to make breakthroughs in achieving its strategic goal of sustainable growth. As the pandemic subsided at the beginning of 2023, our user base and engagement level quickly recovered from the trough around the Chinese New Year holidays. However, due to overly aggressive adjustments to our user screening standards, our platform experienced significant spammer attacks starting in the spring, impacting our user experience and leading to a decline in user retention that threatens the health of our dating ecosystem. To improve the user experience and ensure the stability of our ecosystem, our team launched a rigorous six-month anti-spam campaign. However, the missteps I just mentioned, combined with our reduced investments in channels, had a significantly negative impact on our user experience and retention, putting significant pressure on our user base. With further reduction in channel spending and the impact of COVID, our MAU in December was down 30% from December to RMB30.7 million. As of the end of the fourth quarter, Tantan had 1.2 million paying users, a net decrease of 200,000 sequentially. Turning to Tantan's financials, total revenue for the fourth quarter was RMB272 million, down 21% year-over-year and 8% sequentially. The decrease was solely attributed to a reduced number of paying users. For fiscal year 2023, total revenue was RMB1.2 billion, down 30% year-over-year. The decrease was due to the declines in paying users resulting from reduced channel investments, the anti-spam campaign and adjustments to subscription renewals. In terms of business line, VAS revenue was RMB667 million, down 90% year-over-year, while live streaming revenue was RMB505 million, down 7% year-over-year. Content adjusted operating income for fiscal year 2023 was RMB101 million compared to an adjusted operating loss of RMB330 million in 2022. Tantan turned profitable despite the pressure on revenue. This was primarily driven by a significant reduction in unproductive channel investment as part of our cost optimization strategy and staff allocation optimization. Meanwhile, the continued improvement in ARPU resulted in revenue decline much less than the user count. Now I would like to walk you through the details of Tantan's progress on the channel and product front. First, on the channel front, our user acquisition team continued to reduce marketing expenses that couldn't generate positive ROI, and total channel investment declined by over 60% compared to 2022. We avoided seasonal costs by external competition by seasonably allocating budget ratio to different channels and positively adjusted marketing windows. By fiscal year 2023, our unit acquisition cost was significantly reduced by 45% compared to 2022. Although cost cutting put pressure on the user base, reducing investments in channels with negative ROI is essential for Tantan to remain profitable. On the product and operational side in 2023, our user product team mainly focuses on product adjustments and strategy upgrades to fight against the spamming activities that broke out during the spring. Our commercial product team launched various premium membership products and growth privileges on top of the basic membership services, which combined with appropriate guidance on the paying experience, led to a significant substantial increase in VAS ARPPU in every single quarter of 2023. To mitigate the impact of the reduced user base and regulations on server renewal, we improved the product experience for paying users, which plays a positive role in continuously and steadily increasing the paying ratio and ARPU throughout the year. By the end of 2023, spamming activities were under control and the dating ecosystem had recovered. Beyond the dating-centric value-added service, since live streaming and chat room services are not the focus on the dating cloud, we began emphasizing live streaming in the second half of the year and allocated excess human resources to innovative projects. Tantan achieved overall breakeven in 2023, thanks to our effective cost optimization and efficiency improvement initiatives as well as the continuous improvements in ARPU. We failed to achieve the strategic goals of sustainable growth on the back of the positive business cycle due to the missteps in ecosystem management and the lack of breakthroughs in product innovation. Therefore, the biggest priority for Tantan in 2024 is to continue focusing on product innovation and improving the monetization experience to ultimately achieve profitable growth. Lastly, in terms of new endeavors, our goal is to enrich our product portfolio, expand beyond Momo and Tantan, and develop long-term growth engines. In the fourth quarter, the total revenues of the new app, including social in-game product, was RMB328 million, up 43% year-over-year. For fiscal year 2023, revenue from the standalone app was RMB1.12 billion, up 42% year-over-year, driven by the rapid growth of our overseas business. Standalone apps maintain rapid growth momentum from the high base in 2022. As for the domestic app, given their relatively mature life cycle, our team's operational focus in 2023 was to control costs and expenses while continuing to have monetization potential. As a result, the profit growth rate of the domestic app was higher than the revenue due to the improved operating profit margin. Compared with domestic products, our overseas product is at a relatively early stage of its lifecycle with a broader market size, and the team has accumulated more experience from previous endeavors. Even though the overseas business was affected by negative factors such as the earthquake in Turkey and fluctuations in currencies in several countries in 2023, revenues still maintain rapid growth with the combined effort of our product and channel teams. On the product front, we continue to enrich localized experiences and operations for users in different cohorts. On the channel front, our team focused on acquiring paying users and strictly adjusted channel investments according to changes in revenue and ROI. As a result, our product efforts coupled with an increase in channel investment have supported the continued improvement in ARPPU and the number of paying users. Operating profit margins significantly improved year-over-year, thanks to operating leverage. Our overseas business profit increased significantly from a few million RMB in 2022 to close to RMB100 million in 2023. In addition to revenue and profit-oriented products, we have also made remarkable progress in exploring new opportunities in social sectors by leveraging technological product development. In 2023, we developed inspace, a brand new social app for Apple Vision Pro. As one of the 600 native apps, it was launched simultaneously with Apple Vision Pro in February this year. The product is still in a very early stage, and we will continue to enrich its use cases and capabilities for social interactions and emotional connections. Let's talk about our business review. As this is the first call with our investors in 2024, I would like to spend some time talking about management's priorities for this year. First of all, our goal for the Momo app is to maintain the productivity of this cash cow business with a healthy social ecosystem. In order to maintain an excellent social ecosystem and administer radical monetization approaches adopted by broadcasters and agencies to obtain competition event-related bonuses, we plan to further reduce revenue-oriented large-scale competition events. We will leverage Momo's social contribution to increase non-event driven revenue through new gamified features and user-oriented operational activities. We will use part of the advanced bonus savings to increase daily revenue sharing. As the decline in competition presents latest revenue, we'll put some pressure on our live streaming and live revenue. We will continue to look for ways to optimize our cost efficiency to mitigate the impact of lower revenue on our profit. For Tantan, our strategic growth for Tantan this year is to improve the core dating experience. On top of that, we aim to establish an efficient business model that drives profitable growth. Regarding our new endeavors, we plan to continue enriching the brand portfolio and push the business boundary beyond Momo and Tantan to build a long-term growth engine. Based on our experience in the MENA region over the past three years, we believe that the social and pan-entertainment industry still has great room for growth in the overseas market. Hello Group has a unique advantage in the social space and monetization built on the social ecosystem. We now have to help users find new friends and interact effectively with each other, and we know how to build value-added services on top of that to create value for the company and our shareholders. We leverage and replicate our successful experience to explore new products not limited to social and new markets beyond the MENA market. We believe that if we are doing a good job in localization, we can succeed in the broader market with a more diversified product. In 2024, we plan to invest more resources and take bigger strides to explore this area. Lastly, I would like to conclude by announcing that our Board has declared a special cash dividend in the amount of $0.54 per ADS, which will amount to a total cash payment of approximately $103 million or one-third of adjusted net income attributable to Hello Group Inc. in 2023. This is the sixth consecutive year that the company has paid a cash dividend. Together, with the revised repurchase program, it demonstrates management's confidence in the fundamentals of the business and our commitment to creating long-term value for shareholders. Thank you for your confidence and trust in us. Now, I will pass the call over to Cathy for the financial review.

Hui Peng, CFO

Thanks, Sich. 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 2023 was RMB3.0 billion, down 7% year-on-year and 1% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB514.7 million, up 5% year-on-year but down 15% from the previous quarter. Net income continued to grow on a year-over-year basis despite lower revenue. This was mainly attributable to our effective cost optimization and efficiency improvement initiatives which supported the stable productivity of the Momo cash cow business and turned Tantan profitable. Now let me walk you through the details. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue from the live broadcasting business for the fourth quarter of 2023 was RMB1.52 billion, down 12% year-over-year but flat quarter-over-quarter. The year-over-year decrease was mainly due to three factors. Number one, soft consumer sentiment in the current macro environment. Number two, our proactive operational adjustments to reduce competition events related revenue in order to better manage regulatory risk. Number three, Tantan pivoting away from the less dating-centric live streaming service. Momo application live broadcasting revenue totaled RMB1.42 billion for the quarter, down 9% year-over-year, but up 1% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB100.2 million, down 39% year-over-year and 17% quarter-over-quarter. Revenue from the value-added service for the fourth quarter of 2023 was RMB1.42 billion, down 2% from Q4 last year and 3% sequentially. Revenue from value-added service on an ex-compound basis was RMB1.26 billion in the fourth quarter of 2023, same as Q4 last year, but down 3% from the previous quarter. Momo application value-added service revenue decreased both on a year-over-year basis and a quarter-over-quarter basis. This was due to weak spending sentiment as well as our proactive product adjustments. On the other hand, revenue from the stand-alone new apps continues to show strong growth momentum, partially offsetting the revenue pressure from Momo value-added services. Tantan's VAS revenue amounted to RMB160.5 million, down 13% year-over-year and 5% sequentially. The decrease was due to a decline in paying users, which was in turn due to a reduction in channel investment, the anti-spam campaign and the adjustments to membership subscription renewals. However, the continued improvement in ARPU resulted in revenue declining much less than user accounts. Now turning to cost and expenses. Non-GAAP cost of revenue for the fourth quarter of 2023 was RMB1.77 billion compared to RMB1.91 billion for the same period last year. Non-GAAP gross margin for the quarter was 41.1% and up 0.7 percentage points from the year-ago period, but down 0.7 percentage points from the last quarter. The year-over-year increase was due to an improvement in profit margin that resulted from a shift in its revenue mix. The quarter-over-quarter decline was mainly due to incremental expenses in connection with various year-end events in live streaming. However, as you can notice, the sequential decrease in GP margin in this Q4 was much less than in the previous year as we de-emphasize revenue-oriented competition events to better manage regulatory risks. Non-GAAP R&D expenses for the fourth quarter was RMB218.1 million compared to RMB250.5 million for the same period last year or a 13% decrease year-over-year. The decrease was due to the continuous optimization and personnel costs. Non-GAAP R&D expenses as a percentage of revenue was 7% compared with 8% from the year-ago period. We ended the quarter with 1,382 total employees, of which 301 are from Tantan, compared to 1,705 total employees, of which 459 were from Tantan a year ago. The R&D personnel as a percentage of total employees for the group remained stable at 63% from Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was RMB296.0 million or 10% of total revenue compared to RMB398.6 million or 12% of total revenue for the same period last year. The significant year-over-year decrease both in terms of absolute renminbi amount and as a percentage of revenue was primarily attributable to Momo's strategy to cut lower efficiency channel marketing spend and to a lesser degree, content continuing to control costs and focus on channel ROI. Non-GAAP G&A expenses were RMB87.2 million for the fourth quarter 2023 compared to RMB84.9 million for the same quarter last year, both representing 3% of their respective total revenues. Non-GAAP operating income was RMB664.2 million, an increase of 33% from Q4 2022, but down 2% from the previous quarter. Non-GAAP operating margin for the quarter was 22.1%, up 6.6 percentage points from the same period last year, but slightly down 0.3 percentage points from the previous quarter. Non-GAAP operating expenses as a percentage of total revenue was 20%, a decrease from 23% from Q4 2022 and 21% from last quarter. Non-GAAP operating expenses on a year-on-year basis decreased 18%. The decrease in both the absolute renminbi amount and as a percentage of revenue of OpEx was mainly due to a reduction in sales and marketing expenses and to a lesser degree, optimization and personnel costs. Non-GAAP operating expenses decreased 5% sequentially. This is attributable to the decrease in marketing expenses, which offset the increase in seasonal expenses such as year-end bonus. Now briefly on income tax expenses. Total income tax expenses were RMB183.8 million for the quarter with an effective tax rate of 25%. In Q4, the company accrued recorded income tax of RMB53.5 million, which is 10% of undistributed profits generated by our ROE. Without a withholding tax, our estimated non-GAAP effective tax rate was around 18% in the fourth quarter. Now turning to balance sheet and cash flow items. As of December 31, 2023, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments and restricted cash totaled RMB13.48 billion compared to RMB13.40 billion as of December 31, 2022. Net cash provided by operating activities in the fourth quarter of 2023 was RMB415.9 million. Lastly, on the business outlook, we estimate our first quarter revenue to come in the range from RMB2.45 billion to RMB2.55 billion, representing a decrease of 13.1% to 9.5% year-on-year or a decrease of 18.4% to 15.1% quarter-over-quarter. At the segment level, for Q1 2024 on a year-over-year basis, we expect Momo revenue to decrease around 10% due to our operational plan to further reduce revenue-oriented competition events in order to better manage regulatory risk, and to a lesser degree, the continuous macro headwind. On the top-hand side, we expect revenue to decrease mid-20-ish due to our operational adjustment to deemphasize less dating-centric live streaming service and to a lesser degree, VAS revenue decrease caused by the decline in the user base. 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.

Operator, Operator

Just a quick reminder. Before we take the questions, for those who speak Chinese, please ask your questions in Chinese first and followed by English translations. And also please limit the number of questions to a maximum of two. So, operator, we're ready for questions.

Xueqing Zhang, Analyst

Thanks, management, for taking my question. And my question is about overseas business. Could management share with us your business key strategy and any financial guidance for the next two to three years? Thanks.

Yan Tang, CEO

I think our team's main competitive advantage in the overseas market lies in the social space and value-added services based on social and entertainment products. Our domestic team has very comprehensive capabilities in social product innovation, monetization and profitability. SoulChill is a good example of how these capabilities can be replicated overseas. At present, SoulChill still has visible room for improvement in three aspects. Number one, tap deeper into the monetization potential in its existing market. Number two, add video-based SoulChill experiences. And number three, expand into new markets. Based on the current trend, we believe SoulChill will continue to deliver decent revenue and profit growth this year and the growth will come from several directions. First, considering we're not doing a very good job in terms of localization, especially compared to our peers who have been in the overseas entertainment industry for many years, we're still far from good. Currently, we are accelerating our localization process, which is crucial for user experience and continued growth. Second, with limited staff and other resources, SoulChill's entire growth in the past came from audio-based SoulChill experiences. However, Momo has strong capabilities in building video-based interactive features that can be replicated in overseas products, and we will invest more resources in this area this year. And third, we will expand our services to the GCC countries in the Middle East and other countries. In addition to SoulChill, we also launched several new products in the past year, one of which is doing quite well. We will try to ramp up its investment in the second half of this year. Furthermore, we believe that dating services have a lot of room for growth in Asia and overseas Chinese communities. In the past, we have been trying to explore effective ways to drive growth but encountered many pitfalls. We lacked sustained and effective resource investment and, most importantly, we didn't do much in terms of localization. Nevertheless, Tantan is still a very mainstream and important dating product in Asia, especially in the Chinese communities. Momo also has established a solid foundation among overseas Chinese. We should better leverage this asset to tap its growth potential. This year, we will step up our efforts in the dating space to enhance the overseas user experience and increase our overseas market share. Regarding our results allocation, for 2024 we plan to greatly feel overseas in terms of human resources and capital allocation so as to accelerate localization. Around the end of last year, we adjusted staff in each business line and transferred some top product operations and technical talent to new endeavors to strengthen support for the overseas team. The budget allocation was also tilted towards overseas businesses. This approach will enable us to gain a foothold in the Middle East market while accelerating our efforts to explore new regions and new products. As for the revenue and profit guidance, I will leave it to Cathy.

Hui Peng, CFO

Revenue and profit expectations, I'll try to look at this. If we do a decent job in the three areas that Tang Yan mentioned, namely beefing up local operations, expanding to video service, and diversifying to other regions, we should be able to maintain similar growth rates as we saw in 2023 in terms of top line. Profit-wise, I think we're still going to grow pretty meaningfully. However, because SoulChill is still at an early stage of development and we're currently seeing a lot of growth opportunities. If ROI makes sense, we're going to be very flexible in terms of how much of the incremental revenue we would invest back to pursue higher growth. In other words, I think we're going to continue to see steady growth at the bottom line, but in terms of the magnitude of profit growth in 2024, it is secondary to top line and user growth. Now, for a longer-term point of view, if we take a three years perspective, we have an internal goal that we would like overseas revenue to take up a very sizable portion of Hello Group's top line. Obviously, to get there, SoulChill needs to be able to continue to grow that, needless to say. In addition to SoulChill, we have to achieve a decent level of success in building other products and in other parts of the world. Tang Yan and Sich already laid out a few areas we're going to be pushing very hard to grow organically. I would like to stress that over the past few years, we have also built up a very strong balance sheet. If we see good opportunities out there, we can certainly leverage our cash position to supplement the growth that we can achieve organically. So hopefully, that addresses your question. With that, back to Ashley for the next question.

Operator, Operator

Operator, next question, please.

Henry Chen, Analyst

Thanks management for taking my question. The question is about shareholder value return. We noticed that the dividend payout ratio has decreased from 50% last year to 30% this year despite the solid profit growth. So could management shed some light on the rationale behind the dividend payout reduction? Is there any consideration for a regular dividend plan in the future? And lastly, could management share your perspective on the buyback execution plan moving forward? Thanks a lot.

Hui Peng, CFO

I will address your question regarding the payout ratio. When determining how much profit to distribute, we assess our offshore cash reserves and potential capital needs overseas. As mentioned earlier, our primary focus for investment in the coming years is overseas expansion, which may require more cash than we have used in recent years. Given the current foreign exchange controls, it seems prudent to adopt a more conservative approach to distributing cash to shareholders through dividends. Additionally, we believe our stock is significantly undervalued at this time. With the stock trading below its net cash value, we find it more efficient to buy back shares rather than pay a cash dividend. Regarding the inquiry about a regular dividend plan, we have been issuing cash dividends for the past six or seven years. We've stated that if we continue to generate excess cash that we cannot effectively deploy, we will return this cash to shareholders either through dividends or buybacks. Whether or not we have a more structured plan, we have set certain expectations. Furthermore, we continue to see growth opportunities for investment. Without complete flexibility regarding foreign exchange, it may not be wise to commit to a rigid dividend payout ratio each year. You also asked about our buyback program management. From today’s earnings release, we announced an extension of our share repurchase plan, allowing us to purchase up to RMB200 million over the next two years. We view our current stock as significantly undervalued and are committed to using that cash to enhance shareholder value. I hope this addresses your questions.

Operator, Operator

Operator, next question, please.

Leo Chiang, Analyst

Thank you management for taking my question. My question is about core Momo. Could management share the business outlook of core Momo on both live broadcasting and VAS in 2024? How has the current macro environment impacted spending for core users? And lastly, how to view the profit stability of the core Momo in 2024? Thank you.

Yan Tang, CEO

As Sic mentioned earlier, our goal for the Momo app is to maintain the productivity of the cash cow business within a healthy social ecosystem. Given the uncertainties in the current market environment and consumer spending sentiment. In order to ensure users' social experience and prevent broadcasters and agencies from adopting a radical modernization approach to obtain competition event-related bonuses, we plan to reduce the scale of bonuses to deemphasize our large-scale competition events in live streaming and value-added services that may lead to periodic revenue surges. Such an arrangement will undoubtedly cause a decline in competition-related revenue, but we believe it will play a positive role in ensuring the social experience, engagement and retention of paying users, especially those high-paying users. On the product and operation front, we will better leverage monetization opportunities brought by more social attributes, and enrich gamified features and interactive tools for the top and middle cohort users to drive organic revenue growth. Momo is a mature brand with a 12-year history, but our product team has always been passionate about product innovation. As a result, over the past few years, Momo has demonstrated outstanding stability in terms of user traffic and profitability. Although the challenges in the current external environment are still tough, we believe that as long as we stabilize our basic social fundamentals and continue to make efforts to progress with time, Momo will continue to be a healthy and stable cash cow for the foreseeable future, providing a solid foundation for the group's future expansion. As for the specific financial-related guidance for '24, Cathy will answer.

Hui Peng, CFO

Okay. I guess, in her prepared remarks, Sic has already spelled out the priorities on management's agenda for 2024. Let me try to translate them into the impact on financials. When we say Momo segment, that segment actually includes the cash cow business of the old Momo app and also the revenue generated by the new applications, mainly SoulChill. For the cash cow business, one of the key themes this year is to significantly deemphasize the promotional events and competition for regulatory reasons. And that would involve changing the operational strategies and bonus structure for both live streaming and value-added service business. That could significantly lower the event-driven cash competition revenue. However, the non-event and more organic part of the revenue will increase. In the near term, though, it's difficult for the organic part to make up for the event-driven revenue that we're going to lose. So I guess the top line for the cash cow business will continue to see some pressure on a year-over-year basis for the coming few quarters because of that operational strategy changing. With regards to social and other new applications, we continue to see pretty strong growth momentum, which is going to partially offset the decline of the cash cow business. If you put the different pieces together and try to get a more quantitative outlook, this is probably what I can say at this point. We've already given our Q1 guidance, as you can see, at midpoint, we're seeing a year-over-year decrease of around 10% for the Momo segment. In it, I guess, the cash cow is declining in the mid-teens percentage, offset by a 40%-something year-over-year growth from the new applications. I don't have enough visibility to pin down the rest of the year with very reliable numbers. But I guess we can use Q1 as a good basis for the projection into the last few quarters of the year. How we move from Q1 will heavily depend on several factors, namely the macro, the regulatory environment and how well we execute our overseas strategy. So I guess that's what I can say at this point. I will keep you updated as the year progresses. Now back to Ashley for more questions.

Operator, Operator

Operator. Just in the interest of time, let's just take one last person for today's call.

Raphael Chen, Analyst

I have two questions. First, regarding Tantan, could management share the latest user trends, marketing, and monetization strategies for 2024, as well as any guidance on its revenue and profit this year? Secondly, I noticed management mentioned new products related to Apple Vision Pro in the prepared remarks. Could we get more insights on the product details? Additionally, considering the company's plans to explore new business opportunities, how should we evaluate the margin trend in 2024? Thank you.

Yan Tang, CEO

At the beginning of this year, our user base continued to be under pressure from factors such as the COVID wave, further reduction in channel investment, and the Chinese New Year holiday. After the holiday, as the external negative factors subsided, Tantan's new user engagement and new user paying ratio started to bottom out and stabilize. Our goal for Tantan this year is to improve the core dating experience. And on top of that, build an efficient business model that drives profitable growth. In order to improve the core dating experience, we need to constantly innovate use cases and explore dating scenarios. We aim to provide more tailored services for users in different markets and maintain a healthy, stable ecosystem. Achieving profitable growth depends on business model innovation and channel OI improvement. Last year, we achieved good results in reducing unit acquisition costs. This year, we'll continue to improve our monetization capability based on the core dating experience. For example, around the Chinese New Year holiday, we launched a pilot campaign for our membership product that is higher than the Black Gold membership. I received very positive feedback from the first batch of high-paying users. Through this new premium membership, we hope to unleash the spending power of the existing high-end members and capture the dating needs of the top cohort paying users from live streaming. Meanwhile, we will also leverage our algorithm to improve the basic member experience and drive paying ratio growth. If, through these efforts, ARPU can continue to improve without compromising user experience and retention, we will realize a positive business cycle and achieve profitable growth by increasing marketing investment. For other financial-related questions, Cathy will answer them.

Hui Peng, CFO

Sure. So as Sic and Tang Yan mentioned, the focus of Tantan this year can be really broken down into two priorities. One is to continue to improve the core dating experience. In the past couple of years, we tried to diversify into live streaming and the more community-driven entertainment experience, such as the chatroom experience. Now we can conclude that although these efforts did contribute meaningfully to ARPU, they are not very compatible with the saving experience at this point. Therefore, we will increasingly pivot away from these more entertainment-oriented experiences. The other focus for Tantan this year is, of course, to continue to improve the paying user experience so we can drive a higher ARPU. If ARPU and user retention continue to improve to the point where ROI turns positive, we will definitely ramp up marketing to drive user and top line growth. That’s when we will see what we call a profitable growth cycle. However, before we reach that tipping point, it's possible that we will continue to see the top line trending either flat or slightly under pressure as we scale back from live streaming and the chat room experience. If we are successful in reaching that tipping point and enter a positive business cycle, as we described, we can see growth in both top line and bottom line. At this point, I would say investors probably still need to have more patience as we work our way to get there.

Yan Tang, CEO

With the continuous iteration of XR hardware, more and more new users are joining the XR virtual space. The development of hardware has broken through the limitations of social models in the mobile Internet era and has also brought new opportunity to us who are dedicated to the social space for the past decade. Inspace users can create their own avatars and personalized spaces and invite Apple Vision Pro users around the world to have parties, play, chat, and have fun together. Inspace built a real-time translation function that allows users of 12 major languages to communicate without barriers. Checking over social or dinner-party games makes getting together more fun for acquaintances who are thousands of miles apart, and it also helps break the ice for strangers in an open social space. We plan to roll out more use cases and gamified features based on localized user preferences in different regions, and to make better use of technological innovation to break through the traditional social experience. For the investment budget for new endeavors and our overall margin trend, I will leave them to Cathy. Cathy, please.

Hui Peng, CFO

We have a budget for new endeavors, but we're currently holding off on providing a specific figure because we want to maintain flexibility. If we come across promising opportunities, we may increase our investment; if the return on investment doesn't perform well, we might reduce it. This number is meant to be flexible at the start of the year. Regarding the margin, gross margins have been relatively stable throughout 2023, with the main cost driver remaining constant. I don't anticipate any significant changes in that trend. However, as revenue declines, we could face some negative leverage on infrastructure and personnel costs, which might slightly pressure gross margin, though we don't expect this to be significant. On operating expenses, while we plan to significantly boost investment in new business, some of this increase will come from reduced resource consumption in the old business. Last year, we achieved around a 23% adjusted operating margin. In Q1, the ex-Tantan segment is expected to experience a 9% to 10% year-over-year decrease in revenue, which will pressure operating margin, but I believe a range of 19% to 20% for this segment is still attainable. I don’t have a margin number for the entire year right now due to the flexibility we wish to maintain, particularly for the new business. As for trends in operating margin moving forward from Q1, several factors will play into this. One is overall revenue improvement, which relies on the macro and regulatory environment, and the other is our approach to cost reduction. I see some potential to further decrease costs in the old business while keeping flexibility to invest in new business if we find good returns. That’s my current perspective on how margins may evolve throughout the year.

Operator, Operator

I think that's it for today. Operator, we're ready to close.

Operator, Operator

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