Earnings Call Transcript - MOMO Q1 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to Hello Group Inc.'s First Quarter 2022 Earnings Conference Call. Please note that this conference is being recorded today. I'd now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

Ashley Jing, Moderator

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group's First Quarter 2022 Earnings Conference Call. The company's results were released earlier today and are available on the company's Investor Relations website. On the call today are Mr. Wang Li, CEO of the company; and Mr. Jonathan Zhang, CFO of the company. We 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 statements as a result of new information, future events, or otherwise, except as required under law. I will now pass the call to Mr. Wang. I'll translate for him. Mr. Wang, please.

Wang Li, CEO

Good day, everyone. Thank you for joining our conference call today. Q1 was a very challenging quarter for numerous companies in China, and the same applies to us. However, I'm pleased that our team was able to focus on our products and operational initiatives to cope with headwinds from the resurgence of COVID-19 and related challenges, making 2022 off to a good start. In my remarks today, I will begin by reviewing the key operational and business results for the first quarter followed by an update on progress that we've made pertaining to the company's strategic priorities. I will start with a brief overview of our financial performance. For the first quarter of 2022, total revenue at the group level was RMB 3.15 billion, down 9% year-over-year and 14% quarter-over-quarter. Adjusted operating income for the quarter was RMB 461 million with a profit margin of 15%. On an ex-Tantan basis, total revenue was RMB 2.8 billion, down 4% from Q1 last year and 14% from last quarter. The year-over-year decrease was mainly due to the negative impact of the macro headwind and COVID on the live streaming business. VAS revenue growth partially offset the decline in live streaming. Among them, the new bucket of stand-alone apps was a real outperformance this quarter and this incremental revenue contribution exceeded that of the Momo app value-added services, making it a new growth engine for the VAS business line. Adjusted operating income on an ex-Tantan was RMB 619 million with a 22% margin. Tantan’s total revenue for the quarter came in at RMB 349 million, down 39% year-over-year and 20% quarter-over-quarter. The year-over-year decrease was due to the demonetization process to improve users’ experience and retention in the second half of 2021 as well as COVID's negative impact on user dating sentiment and intention to pay for VAS. Adjusted net loss from Tantan was RMB 159 million for the quarter compared with RMB 42.04 million a year ago. Now I will walk you through the progress we made with our strategic priorities during the first quarter. At the beginning of the year, I set strategic goals for Momo, Tantan, and the new endeavours. For the Momo app, our first goal for the year 2022 is to maintain a stable user growth with a limited marketing budget and seek growth on top of that. The second goal for Momo is to ensure the cash cow business remains stable. With respect to Tantan, the strategic goal set at the beginning of the year was to deliver solid user growth by improving marketing efficiency and core dating experience. However, as we entered into Q2, the COVID situation continued to accelerate, which resulted in a significant decline in users' dating sentiment and propensity to pay for VAS. Our team has temporarily decided to scale back China investment for ROI considerations. We'll explain this decision in more detail later. For that reason, we have shifted our focus for the next few months from user growth to continuously improve marketing efficiency and enhance core dating experience in order to improve user retention. At the same time, we have lowered Tantan's marketing budget to reduce net loss amidst the escalation period of the COVID lockdown. For new products and businesses, we aim to continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan. Firstly, regarding Momo's user growth and key metrics. Momo had 110.9 million monthly actives for the first quarter of 2022, down 3% from the previous quarter. The sequential decrease was due to Chinese New Year seasonality, compounded by continuous escalation of pandemic containment measures in various regions across China. However, the magnitude of the decrease was lower than the 6% seen in Q1 2020 at the beginning of the initial COVID-19 outbreak. Negative seasonality and the COVID resurgence led to a significant decrease in organic user growth. We therefore stepped up our channel marketing efforts to counter this trend. In terms of the channel strategy, our team optimized the data models and ad materials and took advantage of favorable marketing windows during Chinese New Year which significantly improved overall user acquisition efficiency. This, in turn, resulted in an increase in traffic acquired from channels on the back of a slight decrease in total marketing expenses from the previous quarter. On the product side, we upgraded the design of the core nearby features, which improves the efficiency of relationship discovery for male users. At the same time, we continue to refine the mini verse experience launched last year to enhance a sense of companionship and content consumption to meet the needs of female users to express their feelings. The number of paying users for the quarter was 8.6 million. The 300,000 sequential decrease was mainly due to the decrease in MAUs. Paying conversion remained stable, thanks to the success of our product and operational efforts. Now I'll discuss the progress we made regarding our priority of ensuring the cash cow business remains stable. Despite the negative impact of multiple external factors, such as macro headwinds and the escalation of COVID, on an ex-Tantan basis, revenue was RMB 2.8 billion, down 3.6% from Q1 last year. Value-added service revenue represented 85% of the size of live streaming, up 21 percentage points quarter-over-quarter. Momo's live streaming revenue totaled RMB 1.48 billion for the first quarter, down 13% year-over-year. The decrease was mainly due to two factors: first, consumption softness due to macro headwinds; second, the negative impact of tax compliance scrutiny on the engagement of talent agencies. In order to overcome these external challenges, we deemphasized the revenue in favor of improving profitability during the first quarter. Instead of hosting one large quarterly tournament, we focused on small-scale promotional events and optimized our live streaming ecosystem by allocating more resources to meet level performance and quality newcomers. The scale back in competition events led to a decrease in bonus-related revenue-sharing costs. Momo's gross profit margin in Q1 rebounded from the previous quarter, and the agency revenue contribution mix shifted from top agencies to medium-sized ones. Operational indicators reflecting the health of the live streaming ecosystem improved from the previous quarter. The number of sections and online time committed by the top broadcasters remained stable. However, revenue recovery was slow after Chinese New Year due to unfavorable macro conditions. We believe the macroeconomy and regulatory environment will remain quite challenging throughout the second quarter. We plan to continue our conservative operation strategy with minimum budget on event-related bonuses, stabilizing gross profit margin and driving spending from profit margin to ensure steady improvement in our ecosystem so that revenue can recover as soon as consumer sentiment comes back. In the first quarter, revenue from value-added services, excluding Tantan, was RMB 1.26 billion, which represents an 11% increase year-over-year. The Momo app contributed RMB 1.12 billion to this revenue, showing a 4% growth compared to the previous year. Revenue from new stand-alone apps was RMB 135 million, reflecting a remarkable growth of 140% year-over-year, while net losses continued to decrease. I will share more details about our new initiatives later, but I want to focus on the Momo app's VAS business for now. In Q1, we experienced some softness in consumption due to macroeconomic challenges, and COVID's resurgence in various parts of China led to tighter containment measures, which significantly slowed year-over-year growth in Momo's VAS revenue. However, VAS tends to be more resilient to economic fluctuations and challenging external conditions than live streaming. During the first quarter, our team emphasized product innovation for our users. We introduced a new feature in the chat room that allows users to showcase content on a wall for others to comment on and engage with, catering to those seeking attention. Continuous innovation in our products and operations helped keep revenue stable sequentially, despite challenges from the pandemic, the Chinese New Year seasonality, and tough macroeconomic conditions. Moreover, our revenue structure increasingly targeted middle cohort and long-tail users with smaller VAS features. Regarding Tantan, I will first address user trends and financial performance. Since late last year, stringent COVID prevention measures in many regions of China have dampened social sentiment and hampered user growth. Tantan reported 25.6 million monthly active users in the first quarter, a 5% decline from December. This drop was sharper than Momo's, primarily because Tantan's core value is in helping users form romantic relationships, which involves connecting them for potential offline dating. Tantan users are more likely to seek in-person meetings than Momo users, making Tantan more vulnerable during the pandemic as outdoor activities were restricted. Optimizing our product and marketing strategies did improve overall retention, and regions unaffected by the pandemic saw sequential growth in user numbers. However, extensive outbreaks in many densely populated cities severely impacted both organic user growth and retention, causing a significant decline in active users in those hardest-hit areas. To address the decline in new user retention and ROI, we reduced our channel investment and strategically aimed to enhance retention through product improvements to ultimately boost user growth. The number of paying users for the quarter was 2.4 million, a decrease of 100,000 from the previous quarter, primarily driven by the drop in monthly active users. Now I’ll briefly review Tantan's financial performance. Total revenue for the first quarter was RMB 349 million, which is a 39% decrease compared to the same period last year and a 20% decline from the previous quarter. The year-over-year drop was primarily due to our demonetization strategy aimed at enhancing user experience and retention following management changes in the second half of last year. For this reason, we will analyze Tantan's revenue on a sequential basis. VAS revenue for the first quarter was RMB 224 million, reflecting a 29% decrease year-over-year and a 5% decline quarter-over-quarter. This sequential decrease can be attributed to two main factors. First, the reduction in paying users as a result of lower MAUs, while ARPPU remained relatively stable. Second, the financial impact of the demonetization efforts has not yet been fully absorbed, which was evident in the absence of deferred revenue for the membership business. Live streaming revenue for the first quarter was RMB 125 million, which is a 38% decline quarter-over-quarter, mainly due to two factors: first, the typical seasonality affecting the live streaming business in Q1; and second, the continuation of the demonetization process for live streaming from the previous year into this quarter. Our current product strategy is to gradually evolve live streaming into a multiplayer video party mode, which better aligns with an open social networking environment. Now let's discuss the progress Tantan has made regarding our strategic priorities, specifically in enhancing marketing efficiency and user experience. In the first quarter, we concentrated on lowering unit acquisition costs while also optimizing and innovating our ad content. Our team made efforts to more effectively target users from core channels. These new user acquisition initiatives allowed us to better reach Tantan's target audiences, which has helped improve user retention. Organic user growth slowed considerably in the first quarter due to the pandemic, prompting us to increase user acquisition from various channels. I'm pleased to report that we saw an increase in the total number of users acquired from channels, while overall marketing expenses in these channels decreased compared to the last quarter. Additionally, we successfully maintained a favorable ratio of female users and the age range of new users. This reflects the team's initial yet significant progress in enhancing user acquisition efficiency. However, the market conditions for user growth became more challenging compared to the fourth quarter of last year, largely due to the pandemic and ongoing containment measures. We anticipate that monthly active users may continue to face difficulties in the second quarter as COVID spreads further and control measures are heightened. Given the considerable decline in new user retention and a decreased conversion ratio during the pandemic, which have led to low returns on investment, we have opted for a conservative marketing approach in Q2. This involves reducing channel investments to minimize net losses for Tantan. We will maintain this strategy until the pandemic situation improves and users' social engagement begins to recover. Although user appreciation faced challenges due to the pandemic, the team continued to make progress on product improvements according to our original plan. In the first quarter, we focused on enhancing the retention of female users and those with qualifying photos through two key initiatives. First, we aimed to enrich user profiles and other content to better showcase users' personalities. For instance, we encouraged users to upload photos that genuinely reflect their personality and lifestyles, as well as share more detailed interests such as books and dramas they've enjoyed recently. This allows other users to have more information to inform their swipe decisions. Second, we expanded the ways people connect and interact. For example, we introduced a greeting function on posts to help users greet others based on content, providing more passive social opportunities for female users who tend to be more reserved about dating. Additionally, we created a unique swiping experience for users who do not provide qualifying photos, with our algorithm prioritizing users who have received right swipes to enhance the likelihood of matching among users without qualifying photos. This concludes Tantan's domestic business update. Now I'll briefly discuss Tantan's overseas development. Tantan's strategy in the overseas market is straightforward: to pursue profitable growth. Our approach to achieve that goal has two important components. One is to improve our ARPU by introducing audio and video services and, subsequently, non-subscription-based revenue models in developing countries. The other component is to reduce marketing costs in regions that are not currently delivering a positive ROI. As I mentioned in previous quarters, following the management transition, we re-entered the Indonesian market. One of our significant achievements since then has been the successful improvement of ARPU and ROI in that market through live streaming and the monetization of non-membership value-added services. With the increased ARPU and enhanced ROI, we have increased channel investments to drive user and revenue growth. Meanwhile, we've reduced marketing efforts in some loss-making areas. As the number of overseas users and the scale of the live streaming business expands, we can effectively lower the payout ratio of the non-subscription business. Consequently, due to improved ARPPU, reduced marketing costs, and an optimized payout structure, Tantan's overseas business became profitable in Q1 on an ex-payroll basis. Tantan will continue to implement this strategy in overseas markets for the remainder of the year. Lastly, I'll review the progress we made with our new endeavors. In 2018, we launched a brand portfolio strategy through the acquisition of Tantan. This marked our first step in meeting the social needs of different target groups more effectively through various apps. Starting from 2019, our incubator continued to launch new apps, enabling us to reach a broader group of users and cater to different social preferences through a multi-brand and multi-platform approach. This strategy helped us quickly and effectively penetrate niche areas within the social space, explore opportunities in overseas markets, and solidify our industry-leading position. Revenue from the new bucket in the first quarter was RMB 160 million, up 184% year-over-year and 43% quarter-over-quarter. Revenue from the new bucket includes ROI-oriented social apps, and revenues from these were recorded in the VAS line, as well as a simulation game focusing on the western markets, revenue from which was recorded in the game line. For the two social apps targeting domestic markets, we continue to focus on cost reduction and efficiency improvement as we did in the second half of 2021, optimizing costs and expenses while moderately ramping up the monetization level. Driven by an increase in ARPPU, revenue rapidly increased quarter-over-quarter, and both apps achieved full quarter profitability and made incremental contributions to the group's bottom line in Q1. In particular, for a video matchmaking app targeting lower-tier markets, our team leveraged the rich product and operational experience accumulated in our other projects and achieved breakeven in less than two years after its launch in 2020. Furthermore, the app has shown the potential to sustain top-line growth and profit expansion. Our strategy for the domestic market new endeavors this year is to simultaneously pursue steady growth and ensure profitability. Among overseas ROI-oriented products, we intensified our efforts to boost revenue growth for Sochio, a social app aimed at the MENA region. As a result, in the first quarter, both the number of paying users and revenue experienced rapid growth compared to the previous quarter. We implemented a similar strategy to reduce the payout ratio as users and revenues continue to increase. Consequently, the net loss significantly decreased compared to the last quarter. Our goal for Sochio this year is to achieve profitable growth in its core market in the MENA region while also developing a product model that is suitable for the Southeast Asian and South American markets. This will establish a foundation for long-term user and revenue growth for Sochio. In addition to products focused on return on investment, we launched a product aimed at daily active users shortly after the Chinese New Year. This is a social app primarily targeting GenZ and Gen Alpha users who like to share content with a select group of close friends. Users can capture their daily lives through photos and videos, and this content will automatically appear on the homepages of their chosen close friends. This type of app, which facilitates real-time sharing of genuine life moments, complements the Momo app well in terms of features and target demographics. It effectively meets specific needs of GenZ and Gen Alpha users, leading to rapid growth in both organic users and retention upon launch. We quickly enhanced our product development and marketing initiatives. Currently, the app has reached a significant user base and continues to demonstrate strong growth. We see this as an app that will pave the way for numerous future opportunities. It also represents a major milestone for us in developing new apps and addressing a distinct category of user demand. This is a new area we will keep exploring. In the second quarter, we plan to accelerate product development and increase marketing efforts to drive even greater growth. Lastly, I'm pleased to announce that today our board approved a $200 million share repurchase plan for a 24-month period. This program will enable the company to significantly enhance shareholder value, taking advantage of the undervalued share price that does not reflect the company's fundamentals. This share buyback plan showcases our long-term commitment to maximizing shareholder value and demonstrates management's confidence in the future of the business. Now I'll pass the call over to Mr. Jonathan Zhang for the financial review. Jon, please?

Jonathan Zhang, CFO

Thank you all for joining our conference call today. I will provide a brief financial review. Total revenue for the first quarter of 2022 was RMB 3.15 billion, a decline of 9% year-over-year and 14% quarter-over-quarter. The non-GAAP net income attributable to the company was RMB 398.5 million, compared to RMB 633.7 million in the same period last year. Since Wang Li has discussed the revenue analysis in detail, I will move on to the cost and expense items for the quarter. Our non-GAAP cost of revenue for the first quarter of 2022 was RMB 1.82 billion, down from RMB 1.92 billion in the same period last year. The non-GAAP cost of revenue as a percentage of total revenue increased to 58% from 55% in Q1 2021. The non-GAAP gross profit margin for the quarter decreased by 2.5 percentage points year-over-year, primarily due to higher payouts to content providers. However, there was a sequential increase of 1.8 percentage points compared to Q4 last year, driven by lower streaming event-related costs and a favorable revenue mix toward value-added services, which have a higher gross margin than live streaming. Non-GAAP R&D expenses for the first quarter were RMB 229.2 million, down from RMB 244.1 million in the same period last year, reflecting 7.3% and 7% of total revenue, respectively, as a result of personnel cost optimization. Sequentially, non-GAAP R&D expenses fell by 18% from RMB 279.7 million in Q4 last year, partially due to the year-end bonuses paid during that quarter. We ended the quarter with 1,936 employees, of which 563 were from Tantan, with R&D personnel constituting 61% of total employees compared to 57% in Q1 last year. Non-GAAP sales and marketing expenses for the first quarter amounted to RMB 578 million, representing 18.4% of total revenue, compared to RMB 579.8 million or 16.7% of total revenue for the same period last year. Sequentially, these expenses decreased by 11% from RMB 648.6 million in Q4 last year due to reduced marketing spending for new apps as part of our cost efficiency focus, lower user acquisition investment on Tantan during the pandemic, and the absence of a specific branding expense that occurred in core Momo during Q4 last year. Non-GAAP G&A expenses were RMB 85.9 million for the first quarter of 2022, down from RMB 94.2 million a year ago, reflecting 2.7% of total net revenue, unchanged from the previous period. The decrease was similarly due to personnel cost optimization. Non-GAAP operating income was RMB 460.6 million, a 30% decline from Q1 2021, with a non-GAAP operating margin of 14.6%, down 4.4% from the same period last year. Non-GAAP operating expenses as a percentage of total revenue increased to 28.4% from 26.5% in Q1 last year. Moving forward, we will maintain cost discipline for the remainder of the year to enhance cost efficiencies in a challenging macro environment. Regarding income tax expenses, the total was RMB 150.8 million for the quarter, up from RMB 100.3 million a year ago, with an effective tax rate of 27.4%. In Q1, we accrued a withholding income tax of RMB 44 million, equating to 10% of the undistributed profit from our WOFE. Excluding this, our estimated non-GAAP effective tax rate was around 19% for the first quarter. Looking at our balance sheet and cash flow, as of March 31, 2022, Hello Group's total cash, including cash equivalents and short-term and long-term deposits, was RMB 15.6 billion, slightly lower than RMB 15.71 billion as of December 31, 2021. After excluding the RMB 140 million cash payment to Chinese tax authorities for repatriating RMB 1.4 billion from our WOFE, the net cash provided by operating activities in Q1 2022 was RMB 183 million compared to RMB 502 million in Q1 2021. Additionally, in the first quarter of 2022, we paid a larger portion of revenue share to content providers that had accrued from the previous quarter, leading to a significant year-over-year decline in operating cash flow compared to our non-GAAP net income. Lastly, for our business outlook, we estimate our second-quarter revenue to range from RMB 3.05 billion to RMB 3.15 billion, reflecting a year-over-year decrease of 16.9% to 14.2% and a sequential change of a decrease of 3.1% to an increase of 0.1%. We expect a slight decline in total revenue from core Momo due to regulatory impacts on the live streaming business. Despite macro challenges and intensified COVID control measures, we anticipate that value-added services will help mitigate the decline in live streaming revenue. Tantan's revenue is expected to decrease in mid-single digits due to COVID control pressures, but we believe user and revenue growth will return following the lifting of lockdowns and improved dating sentiment. Please note that this forecast is our current and preliminary outlook on market and operational conditions, which may change. That concludes our prepared remarks for today. I will now hand the call back to Ashley to begin the Q&A.

Ashley Jing, Moderator

Just a quick reminder before we take the questions. For those who can speak Chinese, please ask a few questions in Chinese first, followed by English translation by yourself. Operator, we're ready for questions, please.

Operator, Operator

Our first question comes from Daniel Chen from JPMorgan.

Unidentified Analyst, Analyst

I'll translate for myself. This is Henry speaking on behalf of Daniel Chen. I have two questions. The first one is about regulation. Can management share more details on the impact of regulations on your financials and the overall live streaming industry in China? The second question is about the Tantan user trend. Can management comment on the Tantan user trend this year?

Wang Li, CEO

With regards to regulations, the opinions on regulating live streaming and enhancing the protection of minors published in May indicate that we should finalize the requirements for ranking systems and PK competition during peak evening hours, aimed at encouraging positive spending behavior among users with clear implementation guidelines and detailed rules. This is beneficial for the live streaming industry as it helps create a fair competitive environment and supports healthy and sustainable industry development. Since the release of the opinion, our team has made operational adjustments. In the coming weeks, we will refine our product plan to align with regulatory demands. The new product plan officially started in early June, so its effect on revenues will primarily be felt in the second half of the year. Our current revenue impact assessment may not be precise because we only have a few days of adjusted operating income from late May as a reference. However, based on this limited data, we estimate that the new product plan will affect the full year's live streaming revenue by less than 10%, which is manageable. Tantan's user growth relies on both internal and external factors. On the external front, the new wave of COVID-19 began late last year and intensified in Q2, leading to stricter control measures that surpassed our expectations from March. Our April data showed that new user growth retention and paying conversion were significantly impacted in regions with severe pandemic measures, consistent with trends from early 2020. Given the decline in retention and paying conversion resulting in low ROI, we chose to cut Tantan's marketing budget in Q2 and will continue this approach until the situation improves. Currently, the pandemic has been somewhat controlled in Beijing and Shanghai, but containment measures remain strict, and it will take time for user sentiment to recover. Nonetheless, we are optimistic about the second half and hope to see notable improvements then. Regarding internal factors, user growth is driven by user acquisition and product offerings, both of which have seen steady progress since the start of the year. This explains the significant decline in MAUs in heavily affected pandemic regions, while users in unaffected areas have shown an upward trend. We plan to continue our efforts to improve retention and build a solid foundation for stable user growth in the post-pandemic era.

Operator, Operator

Our next question comes from Thomas Chong from Jefferies.

Thomas Chong, Analyst

My question is really about the overall macro and the consumption environment in China. How should we consider the impact on live streaming and VAS, as well as our revenue and earnings projections for the full year?

Jonathan Zhang, CFO

Thanks, Thomas. This is Jonathan. Let me address your question. First, regarding revenues, I’ll start with the live streaming business. The macro uncertainties and decline in spending have posed significant challenges to live streaming, which have become more apparent in Q2 compared to Q1. Our guidance for Q2 indicates that the Momo app’s live streaming will experience a year-on-year decline of over 20%. Given the unpredictability of the macro environment for the latter half of the year, I recommend that investors use Q2 as a baseline for their forecasts. Strategically, we are actively working to enhance user experience and stabilize the supply-side content ecosystem amidst the year-over-year revenue decline. Based on Q1’s performance, we are confident in our ability to recover the live streaming business as the macro environment improves. For the VAS business, although it involves discretionary spending and is influenced by the macro environment and the pandemic, it tends to be more resilient to economic fluctuations compared to live streaming. Additionally, with the rapid growth of new apps, we expect VAS revenue, excluding Tantan, to still meet the double-digit growth target we set at the beginning of the year. Tantan has faced greater impact from pandemic-related lockdowns in the first half of the year than we anticipated. Along with the demonetization process in late 2021, the year-on-year growth in VAS revenue for the first half will likely be significant, ranging from 20% to 30%. Once the pandemic subsides, we expect revenue to return to a growth trajectory as dating sentiment improves and user numbers increase. However, specific estimates will need to wait until conditions improve. Tantan's live streaming business is no longer a priority for us. We will shift its focus to better align with its social context. Lastly, I would like to highlight an important aspect of our revenue structure. With the ongoing growth of the VAS business at the group level, VAS revenue is expected to equal or surpass that of live streaming in the second half of the year. This creates a more stable and resilient revenue model, which will lead to a more balanced development for the group and a safer structure for our shareholders. Regarding gross margin, the primary factor affecting fluctuations is our live streaming revenue-sharing ratio. In Q1, this ratio was lower by two percentage points compared to Q4 of last year due to the absence of large-scale competitive events, resulting in decreased bonus-related revenue-sharing costs. Year-over-year, the revenue-sharing ratio increased by 2% as smaller scale events helped agencies navigate challenges. As we continue investing in such events throughout the year, the overall impact of the revenue-sharing ratio on gross margin for live streaming will be about 2% for the year. However, the growing contribution from VAS, which has a relatively higher gross profit margin, will improve our overall gross margin. Therefore, we anticipate that for 2022, the decline in gross profit margin at the group level will be between 1% and 2%. On the costs and expenses front, we have been optimizing Momo’s costs. Marketing expenses for the Momo app will remain stable compared to last year. However, due to the growth of new apps, particularly one showing strong performance in user acquisition costs, retention, and engagement, we will increase marketing efforts in the coming quarters, which should result in rapid growth in its monthly active users. Although marketing expenses for new apps have risen, thanks to Momo app cost optimizations, we expect our operating margin, excluding Tantan, to remain around the high teens to 20%. For Tantan, we project its net loss will be between RMB 500 million and RMB 600 million.

Ashley Jing, Moderator

Okay. Maybe in the interest of time, let's just take one last question, operator. Next one, please.

Operator, Operator

Our last question comes from Leo Chiang from Deutsche Bank.

Leo Chiang, Analyst

My question is about the new additions in Tantan overseas. As these two new businesses gradually become our new growth drivers, can management share with us the longer-term potential of these two initiatives and the differences in user spending behaviors between the new initiatives and our older business?

Wang Li, CEO

Thank you for your questions. We have different strategies and expectations when managing apps focused on ROI and those focused on daily active users. For ROI-oriented apps, which include some specific names, our strategy emphasizes profitable growth by scaling back on unprofitable users and driving revenue growth. We aim to achieve this by improving average revenue per user, lowering user acquisition costs, and adjusting the revenue-sharing ratio. Last year, total revenues from this group of new apps exceeded RMB 300 million, and we expect revenue this year to be between RMB 700 million and RMB 800 million, with a continued reduction in net loss and a trend towards profitability emerging. For our apps focused on daily active users, our main objective this year is to drive rapid growth in product usage and user numbers without any immediate revenue expectations. Regarding Tantan's overseas operations, our goal is to enhance our average revenue per paying user in developing regions by utilizing a non-subscription monetization model while also reducing user acquisition costs to aim for profitable growth. Our first pilot was in the Indonesian market, where over the last six months, we saw user growth of 27%, our average revenue per paying user doubled, and revenue increased by 2.5 times. To ensure profitability and avoid spreading resources too thin across multiple unprofitable markets, we've started to pull back investments in loss-making markets with low returns like Japan and South Korea. Although revenue from these regions has declined, overall revenue from overseas markets will continue to grow, and our profitability has significantly improved. Our strategy is to first replicate the successful model from Indonesia in Asia before directing our resources towards other regions.

Ashley Jing, Moderator

I think this is going to be the end of the conference. So thank you guys for participating, and we will see you next quarter. Back to you operator.

Operator, Operator

Thank you. So with that, we conclude our conference for today. Thank you for participating. You may now disconnect.