Earnings Call Transcript - MOMO Q1 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2023 Hello Group, Inc. Earnings Conference Call. Please note the 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, Speaker

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's first quarter 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, 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 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 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 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. We delivered solid results in the first quarter, laying a good foundation for our business development in the post-pandemic era. Now, I'll review the progress made in each business line since the beginning of the year and our future development plan. I will start with a brief overview of our financial performance for the first quarter of 2023. Total revenue was RMB2.82 billion, down 10% from the same period last year and 12% sequentially. Top line performance came in better than our expectations as the year-on-year decline in revenue narrowed compared to the previous quarter. Adjusted operating income was RMB518 million, up 12% from Q1 last year and 4% sequentially with a margin of 18%, up 4 percentage points year-on-year and 3 percentage points quarter-over-quarter. Profitability improved despite the downward pressure on the top line, mainly due to Tantan's breakeven, which relieved pressure on the Group's profit level, as well as solid cost control on the cash cow business front. Total revenue from the Momo app and standalone new apps was RMB2.51 billion, down 10% year-over-year and 12% quarter-over-quarter. The adjusted operating income was RMB503 million, down 19% year-over-year or a slight decrease of 2% from the previous quarter with a margin of 20%. Total revenue from Tantan came in at RMB309 million, down 12% year-over-year and 11% quarter-over-quarter. In response to the many uncertainties surrounding the pandemic and its impact on the economy, we initiated a cost control strategy in the second half of last year to reduce low-efficiency channel marketing spend in order to narrow Tantan's net loss. As a result, in Q1, Tantan delivered its first quarterly profit at the operating level since its inception with an adjusted operating income of RMB14.48 million, representing a margin of 5%, compared with an adjusted operating loss of RMB158 million in the same period last year. I'm very pleased with Tantan’s team's ability to execute and improve cost efficiency over the past few quarters. At the end of last year, we completed the alignment of our overall organizational structure and divided Momo, Tantan, and the new endeavors into three relatively independent business segments. This lifecycle-based management approach makes it easier for us to divide and execute different strategic priorities for products at different stages of their respective life cycles, allowing our product teams to focus effectively on the integration and balance of user experience and monetization to better unleash the long-term product and commercial value of each app. On the March earnings call, I outlined our strategic priorities for 2023 across our businesses. For the mature Momo app, our goal is to keep the user and revenue sales stable, continue to optimize cost structure and maintain the productivity of the cash cow business. For Tantan, our goal is to achieve overall breakeven for the year and develop products and monetization models that are suitable for the Asian dating culture in order to pursue sustainable growth on the back of a positive business cycle. With respect to new products, we will enrich our product portfolio, push the boundaries beyond Momo and Tantan and develop a long-term growth engine. Now I'll walk you through the details. For the mature Momo app, in order to ensure that the cash cow business remains stable, we must optimize product operation and introduce new monetization features, as well as improve cash utilization and personnel efficiency. Momo's better-than-expected financial performance in the first quarter is a good demonstration of our team's execution on these capabilities on those strategic priorities. Although revenue from the Momo app declined year-on-year due to multiple external pressures, new standalone apps continued their rapid growth momentum partially offsetting the pressure on the Momo app. The incremental revenue contributed by the new standalone apps to Momo's value-added service line resulted in an increase in the revenue ratio of VAS and live streaming from an average of 87% last year to 93% in the first quarter, which further optimized our revenue structure. In the first quarter, Momo's live-streaming revenue was RMB1.29 billion, down 13% year-over-year and 17% sequentially. The year-over-year decrease was mainly due to the pandemic and product adjustments to comply with regulatory requirements in the second quarter last year. The quarter-over-quarter decline was due to the severe impact of the COVID infection surge on the supply side at the end of last year, coupled with negative Chinese New Year seasonality. The financial performance of the live-streaming business in Q1 turned out to be better-than-expected with a lower sequential revenue decline than in the same period last year, mainly due to incremental revenue from operational events and a rebound in organic revenue brought about by product upgrades. In order to stimulate supply-side recovery, we offered incentives to broadcasters to resume the live shows. The related incremental costs were offset by the reduction in competition event costs. The revenue-sharing ratio in the first quarter was relatively stable compared to the previous quarter. By March, the supply side had almost recovered to its level before the COVID infection spike at the end of last year. In the third quarter, VAS revenue excluding Tantan totaled RMB1.19 billion, down 5% year-over-year and 6% sequentially. VAS revenue from the Momo app totaled RMB969 million, down 14% year-over-year and 7% quarter-over-quarter, while revenue from the standalone app was RMB225 million, up 66% year-over-year and flat sequentially. The decline in Momo app was mainly due to the severe impact of COVID on traffic and users' propensity to pay for the app. Combined with negative seasonality in order to mitigate the negative impact of external factors on the paying user count and ARPPU, we launched the same event around the Chinese New Year holiday in our traditional virtual gifting social use cases and tried to maintain a stable revenue scale in the off-season. The audio and video-based social entertainment experiences will optimize the supply side to bring revenue back to a growth track soon after the Chinese New Year. In late March, we introduced the new multiplayer interactive feature in the chat room and the initial data shows that it has a notable effect on improving ARPPU. In terms of our user base and operating metrics after the removal of the zero-COVID policy in December last year, the year was severely hit by the large-scale infection surge over a short period of time. After COVID cases peaked in January, MAUs in various regions gradually picked up, but the recovery was negatively impacted by Chinese New Year. During the holiday, MAUs fell to an all-time low for the same period. However, MAUs and user engagement rebounded rapidly after the holiday and the extent and duration of the recovery were better than previous years and the sharp recovery period before the holiday. In March, MAUs increased to 13% sequentially to 106.5 million, close to the level in September last year. Channel marketing unit acquisition cost decreased by nearly 10% from a year ago. Thanks to our continuous efforts to optimize user acquisition strategy to enhance efficiency, which enabled us to obtain a relatively stable user scale with lower investment in channel. The improvement in capital utilization efficiency has played a positive role in holding up Momo's overall profit level. In Q1, Momo had 7.8 million paying users flat sequentially. The COVID spike and the Chinese New Year holiday had a severe negative impact, particularly on the demand from long-tail VAS users. After the holiday, people's lives returned to normal and users' consumption sentiment also began to recover. However, the relatively large decrease in the number of paying users in the first half of the quarter dragged down the average for the entire quarter. In terms of various users' engagement metrics, the trend in user engagement and retention at the beginning of the year is consistent with that of MAUs. After entering the rebound period, use cases with strong RBS attributes, which were hit hard by the pandemic, recovered particularly well. As Momo has experienced a period of rapid user growth for more than a decade, our current strategic priority is to control costs and maintain the stability of the user scale. Our overall strategy for this cash cow in 2023 is to focus on ROI, reducing investments in low LTV channels to drive profitable growth rather than blindly chasing unprofitable user growth. Consequently, in comparison with paying user count, MAU will no longer be the most meaningful operational metric for investors and thus does not need to be tracked on a quarterly basis. Therefore, we have decided to stop disclosing MAU data on a quarterly basis from Q2 onwards. Unless there are significant changes in our user base, we suggest that investors focus on the trend in paying users while looking at Momo's users metric. Now, let's review Tantan's performance. At the beginning of the year, our user base was severely affected by internal and external factors such as the pandemic, the Chinese New Year, and the continued reduction in channel investment. Traffic started to recover gradually after the Chinese New Year. In March, MAUs increased 6% sequentially to 19.5 million. The growth was mainly due to the continued recovery in organic traffic after the external pressures eased off. We have been seeing an outbreak in spending activities on Tantan threatening the health of the dating ecosystem. Therefore, we've launched an anti-spam campaign, which has caused the user count to go down from March levels. However, overall speaking, we believe that the path to more than three years downward trend in MAUs caused by the pandemic and cutbacks in marketing has gradually bottomed out. We may see some small fluctuations from the current level, but overall speaking, if marketing spend stays at the Q1 level, our user base should remain stable around 80 million. Our next step plan is to further improve channel efficiency while increasing ARPU and retention through product innovation in order to sustainably improve ROI and drive Tantan into a stable positive business cycle and pursue user growth from that. As of the end of Q1, Tantan's paying user count was 1.6 million, a decrease of 100,000 from the previous quarter, mainly due to the pandemic and Chinese New Year, which led to soft consumer demand in the first half of the quarter. Now, I'll briefly reveal Tantan's financial performance. Total revenue for the first quarter was RMB309 million, down 12% year-over-year and 11% sequentially. Although the pandemic and reduction in channel investment caused a significant year-over-year decline in MAUs and paying users by 24% and 33% respectively, the increase in ARPPU brought about by product and paying experience outreach have partially offset the impact of the decline in the paying user count on revenue. The sequential decline in revenue was due to the suppressed user demand caused by the COVID infection surge at the beginning of the year and Chinese New Year. Both the number of paying users and ARPPU declined compared with Q4 last year. VAS revenue was RMB168 million, down 9% sequentially. Live streaming revenue was RMB140 million, down 14% quarter-over-quarter. However, it's good to see that our efforts to reduce costs and increase ROI are paying off. The efficiency of capital utilization in terms of personnel and marketing was substantially improved, and unit acquisition costs continue to decrease significantly with the improvement in capital utilization efficiency and further optimization in channel investment. Even though revenue fell temporarily due to external factors, Tantan achieved its first-ever quarterly profit at the operating level, a good start to achieving its strategic goal for the year. For Tantan, our strategic goal is to achieve breakeven for the year and develop product and monetization models that are suitable for the Asian dating culture in order to pursue sustainable growth on the back of a positive business cycle. To achieve this, we will be pursuing aggressively both marketing and product fronts. Now, let me brief you on the specific work our team has done in these areas and our execution plan going forward. Firstly, on the channel front. One of our strategic priorities in the second half of last year was to cut down investments in low ROI marketing channels and improve user acquisition efficiency. This was the key factor for Tantan to achieve operating profit this quarter given the multiple external challenges at the beginning of the year, which had a significant impact on the user's saving sentiment and willingness to pay. We further reduced Tantan's channel marketing funds and focused our efforts on refining our operations such as adjusting channel strategies to reach high-quality users more efficiently and optimizing our onboarding experience to lower entry-level barrier for new users. Our data shows that this new initiative has contributed to the improvement in DAU. In the first quarter, unit acquisition costs decreased significantly both year-on-year and sequentially. Channel ROI improved significantly after the low point in December last year, forming a self-sustaining cycle. MAUs also stabilized after a period of decline. In other words, Tantan has become a sustainably profitable business based on its current user base. However, our expectation for Momo goes far beyond this. Despite the strategic adjustments we have made over the past year, Tantan's long-term goal remains unchanged as we state there's a big market that consists of hundreds of millions of users with genuine dating demand that are currently underserved. At its peak, Tantan's user base was almost half the size of Momo's. However, in recent years due to the impact of COVID and our overly conservative product development strategy, Tantan's user base declined substantially. The whole point of adjusting our strategic goal is to resume Tantan's user and revenue growth without incurring losses. In the first quarter, we achieved the first half of our strategic goal, which is to achieve breakeven. The next step for us is to address the underdeveloped user needs through product innovation and leverage new product experiences to improve ARPU and drive user and revenue growth. This is what we mean by driving sustainable growth on the back of a positive business cycle. We have clarified two important directions on this front. First, for user products, we need to create social experiences beyond the swipe and match features. Second, for commercial products, we need to introduce new VAS-paying models with more flexibility to improve ARPPU. In the first quarter, we're trying to prioritize diverting users who are reluctant to swipe to alternative use cases such as posting. This helps those who are not very good at talking to strangers to get more timely interactive opportunities by commenting on posts, thereby increasing their positive social feedback. In terms of monetization, we believe there is a lot of room for ARPU improvement, but we don't think ARPU growth should come from building excessive payrolls for memberships or live streaming as we did a couple of years ago. Since last year, we have taken a new approach to monetization that can enhance the dating experience. In January, we upgraded and repriced our high-end Black Gold membership service, which we launched at the end of last year. Since then, we've attracted a group of high-paying users that we couldn't reach before. The adjustment of the Black Gold membership service drove our ARPU to a record high during the Chinese New Year holiday period, which normally is a low season for our business and supported our daily revenue against the seasonality with this incremental revenue. In terms of non-membership VAS features, we continue to increase the penetration ratio of our chat room experience through continued product refinement. If the Black Gold membership service, chat room, and other new VAS products can deliver significant ARPU growth and effectively improve channel ROI, then we'll invest our profit in user acquisition to drive further user growth and revenues. Lastly, I will review the progress we've made against our strategic priorities of enriching product portfolio and developing long-term growth engines. Our plan for ROI-oriented standalone apps is to continue to scale up profit and contribute additional incremental revenue and profit to the group. In the first quarter, total revenue of the profit-oriented standalone apps was RMB228 million, up 42% year-over-year and flat sequentially. The deceleration in growth was mainly due to a slight quarter-over-quarter decline in revenue of the relatively mature domestic apps, which were negatively impacted by the pandemic and Chinese New Year. Overseas social app with the largest revenue scale and at the state of rapid growth experienced a temporary revenue growth slowdown due to multiple short-term negative factors such as the reduction of social entertainment activities during Ramadan, the earthquake in Turkey, and the devaluation of our Egyptian currency. Our team responded quickly by adjusting marketing plans to reduce operating expenses in order to protect profitability. We've also shifted market focus to countries that are less affected by the aforementioned factors. The proportion of revenue from these markets increased steadily, while channel ROI trended upward, laying a good foundation for rapid revenue and profit growth this year. With continuous product iteration and cost optimization, we expect both domestic and overseas apps to contribute more incremental profit to the Group this year. This concludes my remarks. Now, let me pass the call over to Cathy for a financial review.

Peng Hui, CFO

Thanks, Tang Yan and Ashley. Hello everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the first quarter of 2023 came in better than our previous expectations at RMB2.82 billion, down 10% year-on-year and 12% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB471.9 million, up 18% from the year-ago period, despite the top line decrease of 3% from the previous quarter. The better-than-expected bottom line performance was attributable to our continuous cost control efforts, which led to Tantan's breakeven and improvement in Momo's profitability. Looking into the key revenue line items for the quarter. Firstly, on live broadcasting. Total revenue from the live broadcasting business for the first quarter of 2023 was RMB1.43 billion, down 11% year-on-year and 17% quarter-over-quarter. Momo app's live broadcasting revenue totaled RMB1.29 billion for the quarter, down 13% year-on-year and 17% quarter-over-quarter. The year-over-year decrease was due to the pressure caused by the COVID infection surge and regulatory factors. The sequential decrease was mainly due to COVID coupled with negative seasonality. Tantan's live broadcasting revenue amounted to RMB139.6 million, up 12% from Q1 last year, but down 14% from the previous quarter. The year-over-year growth was mainly due to a low base in Q1 2022 when we adopted a demonetization strategy to focus on user experience and retention. The sequential decrease was due to the pandemic and negative seasonality. Revenue from value-added service for the first quarter of 2023 was RMB1.36 billion, down 8% from Q1 last year and 6% sequentially. Revenue from value-added service on an ex-Tantan basis was RMB1.19 billion in the first quarter of 2023, a 5% decrease year-on-year and down 6% sequentially. The decrease was due to pressure on the Momo application caused by the pandemic and Chinese New Year negative seasonality, which put pressure on both traffic and users’ propensity to pay for value-added services. The year-over-year decrease was largely offset by incremental revenue contributed by the standalone new applications. Tantan's value-added service revenue amounted to RMB167.9 million, down 25% from Q1 last year and 9% from the previous quarter. The decrease was mainly due to the COVID-related factors, as well as the reduction in marketing spend. Non-GAAP cost of revenue for the first quarter of 2023 was RMB1.66 billion, compared to RMB1.82 billion for the same period last year. Non-GAAP gross margin for the quarter was 40.0%, down 1.2% from the year-ago period, but up 0.6% from last quarter. The year-over-year decrease was mainly due to the one-off incentives that we provided to live-streaming broadcasters to stimulate supply-side recovery after the pandemic surge. The sequential increase in non-GAAP gross margin was attributable to the reduction in the costs related to the year-end competition event in the previous quarter. Non-GAAP R&D expenses for the first quarter were RMB214.4 million, compared to RMB229.2 million for the same period last year or a 6% decrease year-over-year. The decrease was due to the continuous optimization in personnel costs. Non-GAAP R&D expenses as a percentage of revenue remained relatively stable at below 8%. We ended the quarter with 1,533 total employees, of which 374 are from Tantan, compared to 1,936 total employees, of which 563 are from Tantan a year ago. The R&D personnel as a percentage of total employees for the group was 63%, compared with 61% in Q1 last year. Non-GAAP sales and marketing expenses for the first quarter were RMB372.0 million or 17% of total revenue, compared to RMB578.0 million or 18% of total revenue for the same period last year. The significant year-over-year decrease, both in terms of the absolute RMB amount and as a percentage of revenue was primarily attributable to Tantan's shift in marketing strategy to control costs and focus on channel ROI. Momo's sales and marketing expenses remained stable from the year-ago period. However, with Momo's marketing spend, our team trimmed low-efficiency channel marketing spend and used the savings for Momo live streaming year-end gala, which did not happen last year due to COVID control measures. Non-GAAP G&A expenses were RMB88.4 million for the first quarter of 2023, compared to RMB85.9 million for the same period last year. G&A expenses as a percentage of total revenue remained stable at 3% from the year-ago period. Non-GAAP operating income was RMB517.8 million, an increase of 12% from Q1 2022 and up 4% from the previous quarter. Non-GAAP operating margin for the quarter was 18.4%, up 4 percentage points from the same period last year and 3 percentage points from the previous quarter. Non-GAAP operating expenses as a percentage of total revenue were 24%, a decrease from 28% in Q1 2022 and slightly up from 23% in Q4 last year, largely due to the sequential decrease at the top level due to seasonality. Non-GAAP operating expenses on a year-on-year basis decreased from 24%. The decrease in the absolute RMB amount was primarily due to reductions in sales and marketing expenses and to a lesser degree optimization in personnel costs. Now briefly on income tax expenses. Total income tax expenses were RMB122.6 million for the quarter with an effective tax rate of 20%. In Q1 the company accrued withholding tax of RMB34.5 million, which is 10% of undistributed profit generated by our ROCE. Without the withholding tax, our estimated non-GAAP effective tax rate was around 15% in the first quarter. Now turning to balance sheet and cash flow items. As of March 31, 2023, Hello Group's cash, cash equivalents, short-term deposits, long-term deposits, short-term investments, and restricted cash totaled RMB13.35 billion, compared to RMB13.40 billion as of December 31, 2022. Net cash provided by operating activities in the first quarter of 2023 was RMB451 million, which was in line with net profit. Lastly, on business outlook. We estimated our second quarter revenue to come in the range from RMB3.0 billion to RMB3.1 billion, representing a decrease of 3.5% to 0.3% year-over-year or an increase of 6.4% to 10% quarter-on-quarter. At the segment level for Q1 2023 on a sequential basis, we expect Momo revenue to grow high-single-digit and Tantan revenue to grow low-single-digit. 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.

Ashley Jing, Speaker

That concluded the prepared portion of today's discussion. With that let me turn the call back to Ashley to start Q&A. Hi operator, we're ready to take questions. Just a quick reminder for those who are taking questions, please ask your questions in Chinese and follow with an English translation by yourself. Thanks.

Operator, Operator

Thank you. (Operator Instructions) Your first question comes from Xueqing Zhang with CICC. Please go ahead.

Xueqing Zhang, Analyst

Thanks, management for taking my question. My question is about Tantan. We've noticed that the monthly active users on Tantan have recovered in the first quarter. Could management share the latest user trend and the progress on the chat room? In terms of financials, Tantan achieved its first quarterly profit at the operating level. What is your outlook for revenue and profitability in 2023? Thank you.

Tang Yan, CEO

Tantan's biggest achievement since the start of the year is that it achieved its first-ever quarterly profit at the operating level, and channel ROI has turned positive while user scale has stabilized. We need to improve the contribution rate of new users to ensure effective growth moving forward. Our next step is to increase ARPU by introducing new value-added services and simultaneously reduce unit acquisition costs through technical methods to enhance ROI through both product and channel initiatives. In terms of ARPU, we have made significant progress, as it has been trending upwards since early 2022, despite some seasonality challenges in the first quarter. Factors contributing to this include enhancements in the basic payment experience and the introduction of new paying features like the Black Gold membership service and the chat room. We have made good progress on the chat room product since the beginning of the year. We prefer to take a cautious approach to monetization for now, as the product has not yet reached the desired level, and we are exploring additional payment experiences. Besides the chat room, we are also testing other new features to drive ARPU growth, which are expected to be launched in the second half of the year.

Peng Hui, CFO

Tantan's revenue will be driven by both user growth and ARPU growth. As Tang Yan mentioned, we expect ARPU to continue improving as we introduce more value-added service experiences in the second half of the year. If we achieve a satisfactory level of marketing ROI, we plan to increase our marketing efforts, which should lead to user growth as another component of our growth strategy. However, until we see that user growth, I would adopt a conservative approach and project mid to high single-digit quarter-over-quarter top-line growth for Tantan from Q2 onwards. Regarding profitability, I anticipate the bottom line will remain relatively stable around Q1 levels. If, as I mentioned, marketing ROI improves significantly, the top line and gross profit will obviously increase, but instead of letting that flow straight to the bottom line, we would likely invest a significant portion back into marketing to build future growth drivers and enhance market share. I hope that addresses your question.

Ashley Jing, Speaker

Yes, that's it. Operator, next question please.

Operator, Operator

Thank you. Your next question comes from Raphael Chen with BOCI please go ahead.

Raphael Chen, Analyst

I will translate myself. Thank you, management, for addressing my questions. Congratulations on a strong quarter. First, could management provide an update on the development of Tantan's international business? Secondly, could management share insights on the latest developments regarding our new initiatives, including ROI-focused apps and daily active user-oriented apps? Thank you.

Tang Yan, CEO

Our most promising overseas product right now is SoulChill. Since we decided to focus on SoulChill and target the Middle East market in 2021, it has been experiencing rapid growth in user revenue and profit. Despite facing unexpected challenges in the first quarter like the Turkish earthquake and the Egyptian currency devaluation, SoulChill has proven to be resilient and has continued to grow. Revenue in the Turkish market has begun to recover, and as we temporarily redirected marketing funds from the impacted areas, we identified strong growth potential in emerging markets such as North Africa and the Middle East, which have traditionally been strong for SoulChill. Consequently, we will concentrate our resources on marketing SoulChill internationally with the expectation of improved revenue performance in the second half of this year. Regarding Tantan's overseas development, we have been experimenting in Indonesia and a few other Southeast Asian countries for over a year, but our localized operations are not yet strong enough to scale profitability, necessitating additional time to address this. Nevertheless, we will adhere to our strategy of pursuing profitable growth, meaning we will not hastily increase marketing spending without a significant positive return on investment. Instead, we will seek ways to boost profitability while maintaining breakeven. SoulChill remains the most promising app among our new initiatives. In recent years, many Chinese Internet companies have launched products internationally, and SoulChill's success demonstrates that social apps have substantial advantages in overseas markets. With our foundation in social products, our team has gained extensive experience in user engagement and monetization. Attracting users through social features and monetizing traffic through value-added services represents a profitable business model. There are still many potential markets across various regions and in other Asian countries that we have yet to tap into. Given that SoulChill has already contributed significant revenue and profit to our group in only two years, we aim to replicate the SoulChill model in these potential markets to broaden our user reach and generate greater profits. We have been testing several new products and will provide updates as appropriate. Since the end of last year, we have tightened the channel budget for Tantan and focused on marketing on college campuses, where we found the product particularly effective for fostering intimacy and enjoyable interactions among young people. Our current perspective is that if we can identify a new model that attracts new user demographics and expands our overall user base, we will continue investing in marketing; otherwise, we will prepare to start monetizing Tantan. We also have several other daily active user-oriented products in development, but they are still at an early stage, and we will share updates once we have more information. I believe that answers your questions, Raph.

Ashley Jing, Speaker

Maybe let's move to the next question, operator?

Operator, Operator

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong, Analyst

Thank you, management, for addressing my questions. I have two inquiries. First, regarding the Momo app, how should we understand the scale of users since Q2 and their engagement levels? Secondly, could management provide insights on the full-year revenue outlook and profitability from a Group level perspective? Thank you.

Tang Yan, CEO

Momo's daily active users and user engagement quickly recovered after the Chinese New Year holiday, showing stronger growth momentum than in previous years. Although the growth rate did slow down in May, it continues to show a slight upward trend, and we are pleased to see that Momo, as a mature brand, can achieve this current user trend. This is driven by the recovery of organic users, even with a reduction in channel investment. We believe this is due to Momo benefiting from an improvement in social sentiment following the pandemic and our product team implementing various innovations this year, such as offering users more timely interactive experiences. The use of our content and emotional sharing features, like posting and Miniverse, has seen a significant increase. I must say, the user engagement and financial performance of the Momo app in 2023 have pleasantly surprised me. This demonstrates the strong vitality of Momo's brand influence, product offering, and social ecosystem, which gives our team greater confidence in maintaining the steady productivity of this cash cow business.

Peng Hui, CFO

Hi, this is Cathy. I'll address the financial aspect of the question. The first part focuses on the revenue outlook for the ex-Tantan section and the profitability outlook for the entire group. Regarding Momo's top-line outlook, our Q2 guidance indicates a healthy quarter-over-quarter growth. This growth stems mainly from two factors: the overall post-COVID recovery in social sentiment and consumer spending, and the growth momentum from new applications, particularly strong in the overseas market. Looking ahead, the top-line performance will likely continue to rely on these two driving factors. We are gaining strong traction in the MENA region and exploring expansion into other markets as the year progresses, which should support the overall top line. However, in terms of China's macro environment, the situation is mixed and largely depends on consumer confidence, especially among wealthier private business owners and their perceptions of future economic trends. The Chinese government appears committed to addressing these issues, so we remain cautiously optimistic about the macro landscape. As we approach the latter half of the year, we anticipate challenges will ease significantly. Considering all these factors, we are cautiously optimistic that we will achieve mid to high single-digit year-over-year growth for the ex-Tantan segment, setting a solid foundation for 2024. Concerning the bottom line, we don't have specific guidelines but can discuss gross profit margins and operating expenses. We expect gross profit margins to remain stable since revenue sharing with broadcasters and agencies is unlikely to change significantly. Therefore, investors can use Q1's gross profit margin as a baseline for modeling the rest of the year, noting that while revenue mix may shift, it will likely remain within a narrow margin range. In terms of operating expenses, we are pleased with our cost control efforts in Q1 and anticipate further decreases in Q2 as our optimization initiatives take effect. We want to maintain some flexibility to invest more if good spending opportunities arise, which may lead to slight increases in R&D and marketing expenses, but these should yield strong returns. Regarding operating margins, we recorded around 18% on a non-GAAP basis in Q1, and with revenue increases and effective cost management, we expect to see operating leverage returning for the first time in years. There is a good chance we can achieve a non-GAAP operating margin in the 20% range in the second half, which would align well with our current business profile.

Ashley Jing, Speaker

I think that's all the time we have for today's session. Maybe let's just call it a day. Thank you everyone for participating and we'll see you next quarter. Thank you.

Operator, Operator

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