Hello Group Inc

NASDAQ:MOMO

Earnings Call Analysis

Declining Revenue Offset by Profit Margin Gains

Despite a challenging environment, the group reported solid financial results for 2023. Total revenue fell by 7% year-over-year to RMB 3 billion in Q4, though adjusted operating income jumped by 33% to RMB 664 million. Consequently, the profit margin soared to 22.1%, reflecting stringent cost management and amplified efficiency. Over the entire fiscal year, revenue dipped slightly to RMB 12 billion from RMB 12.7 billion, yet adjusted operating income improved by 27%, reaching RMB 2.57 billion, and margins increased notably by 5.4 percentage points to 21.4%. The Board has declared a special dividend of $0.54 per ADS, signaling confidence and shareholder commitment. Looking ahead, Q1 2024 forecasts a revenue decline between 13.1% to 9.5% year-on-year, with Momo and Tantan segments expected to shrink, mainly due to adjustments for regulatory risks and a changing business emphasis.

Repositioning for Sustainable Growth Amidst User Spending Challenges

The company faced a challenging year with a 10% year-over-year decline in revenue from the Momo app, totaling RMB 3.98 billion. In contrast, the Tantan app soared with a 50% revenue increase to RMB 1.11 billion, mitigating the impact of weaker Momo app revenues. Soft user spending and an economic recovery lagging expectations were primary factors, compounded by adjustments aiming to nurture a healthy community ecosystem which led to a drop in paying users.

Efficiency Improvements and Struggling User Base

A proactive anti-spam campaign to safeguard the gaming ecosystem inadvertently caused a significant user decline. The impact was felt as monthly active users (MAU) in December dropped by 30%. Revenue was also affected, diving 30% to RMB 1.2 billion. Nevertheless, cost control efforts, notably in channel investment reduction, allowed Tantan to post an adjusted operating income of RMB 101 million, a swing from a RMB 330 million loss the previous year.

Diversification Fuels Growth

Despite the challenges, total revenue for new apps rose to RMB 328 million, marking a 43% year-over-year surge. This growth was driven by a strong performance in overseas business, leading to a significant revenue increase for standalone apps to RMB 1.12 billion, and a 42% bump year-over-year. The company intends to control costs for domestic apps while tapping into their monetization potential, boosting profitability amidst sustained rapid growth in revenue in overseas markets.

A Mixed Final Quarter with Cost Optimization Gains

Fourth-quarter revenue slipped by 7% year-on-year to RMB 3.0 billion but was balanced by a 5% rise in Non-GAAP net income to RMB 514.7 million, thanks to cost optimization initiatives. A slight 15% drop from the preceding quarter didn’t overshadow the income growth. The live broadcasting business took a hit due to softer consumer sentiment, while proactive operational adjustments and a pivot from Tantan's live streaming service resulted in a 12% year-over-year decrease. The live broadcasting revenue from the Momo app fell by 9%, though it was partially offset by stable revenue from new apps. The company expects this trend to result in a 10% revenue drop in the first quarter of 2024.

Effective Cost Management Spurs Incremental Profitability

Non-GAAP cost of revenue was cut to RMB 1.77 billion from RMB 1.91 billion the previous year, while non-GAAP gross margin edged up by 0.7 percentage points year-over-year to 41.1%. This margin improvement was largely due to a favorable shift in the revenue mix, with a slight decrease quarter-over-quarter due to additional expenses linked to year-end events. The company's strategic cost control was also evidenced by reduced non-GAAP R&D expenses, which declined by 13% year-over-year to RMB 218.1 million.

Strategic Share Repurchase amid Undervaluation Concerns

The company believes its stock is undervalued, currently trading below net cash value. To address this, a share repurchase plan has been extended, allowing purchases of up to $200 million worth of shares over two years to create more shareholder value. The move suggests a focus on efficient capital allocation over the implementation of a regular dividend pattern, as the management looks to maximize growth prospects and invest in potential areas like overseas expansion.

Realigning Incentive Structures in Live Broadcasting

Facing market uncertainty and consumer spending volatility, the company intends to recalibrate its strategy within the live broadcasting and value-added service segments. By reducing the scale of bonuses and de-emphasizing large-scale competition events, the company aims to maintain a stable revenue flow from its Momo app, which is viewed as a cash cow, and preserve a healthy social ecosystem. This realignment is poised to cause a dip in competition-related revenue but is expected to foster long-term stability.

Forward-Looking and Adjustment Disclaimer

The company has provided a candid preliminary view of the market and operational conditions. However, investors should note that these observations are subject to change based on evolving market dynamics and strategic decisions by the company's management.

Earnings Call Transcript 2023-Q4

[Operator]

Fourth Quarter and Fiscal Year 2023, Hello Group Inc. Earnings Conference Call. [ Participate ] presentation followed by a question-and-answer session. Please note this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, ma'am.

[Ashley Jing, executive]

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. [indiscernible], CEO of the company; and Ms. Peng Hui, CFO of the company. who will discuss the company's business operations and highlights as well as the financials and guidance.

We will all be available for the Q&A session. Before we begin, I would like to remind you that this call may contain forward-looking statement 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 over to our COO, Mr. Zhang Sichuan.

[Sichuan Zhang, executive]

Hello, everyone. Thank you for joining our call. 2023 was a big year. Despite many changes and challenges in the external environment, our team made steady progress in implementing our strategic priorities and achieve 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 I outlined ] the strategic growth for fiscal 2024.

I will start with a brief overview of our financial performance. For the fourth quarter of 2023, total group revenue was RMB 3 billion, down 7% and year-over-year and 1% sequentially, which is at the high end of our guidance. Adjusted operating income was RMB 664 million, up significantly by 33% year-over-year. The profit margin was 22.1%, a significantly improvement of 6.6 percentage points year-over-year. Total revenue from the [ mobile app ] and the [ stand alone ] new app was RMB 2.73 billion down 5% year-over-year, and adjusted operating income was RMB 637 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 RMB 272 million, down 21% year-over-year. Adjusted operating income was RMB 27.04 million, with a margin of 9.9% compared with the operating loss of RMB [ 0.17 ] million in the same period of previous year.

For fiscal 2023, total group revenue was RMB 12 billion compared with RMB 12.7 billion in 2022. Adjusted operating income was RMB [ 2.57 ] 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've supported the stable productivity of the normal cash [ cow ] business and make Tantan profitable.

Total revenue from the Momo app and [ stand alone ] new app was RMB 10.8 billion, down 5% from 2022, mainly due to the decline in revenue from the Momo app resulting from [ spending ] softness amid the weak macro economy and our proactive product and operational investments to maintain a healthy economy ecosystem. Standalone new app maintained rapid growth momentum driven by our overseas business. Adjusted operating income was RMB 2.5 billion, up 5% year-over-year, with a margin of 23.2%, up 3 percentage points from a year ago.

At Tantan, we continue implementing cost optimization and efficiency improvement initiatives in the past year. We continue to reduce investment in low ROI channels and reallocated access to human resources. In addition, we continue to optimizing the paying experience to improve ARPU. As a result, with Tantan revenue declined due to significantly reduced marketing earnings decreased more than revenue. Accordingly, we improved our cash use efficiencies, delivering for consecutive quarter of profitability.

For fiscal 2023, Tantan's total revenue was RMB 1.2 billion, down 30% year-over-year, and adjusted operating income was RMB 101 million compared with a loss of RMB 330 million in 2022. While we're pleased with the team's execution in cost optimization and efficiency improvements, we must submit that [ mechanistic ] in ecosystem management, which led to our of [indiscernible] activities in the first part of the year and negatively affect 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 lack significantly behind expectations. As a result, we were unable to make any meaningful breakthroughs in new [ dating ] features. We remain committed to working hard towards this goal this year. [ Rich ] will discuss and explain in more detail later.

Now I'll 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 mobile app, this is the main goal for 2023 with to keep the user and revenue scale stable, continue to optimize cost structure and remain the productivity of the cash [ cow ] business. In the past year, despite the pressure from the macro economy 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 humanization and staff efficiency, we increased operating profits and margins despite revenue pressures.

On the channel marketing front, we have focused on improving channel ROI to pursue profitable user group rather than [ bring ] pursuing unprofitable user acquisition. In fiscal year 2023, our unit acquisition cost decreased 25% year-over-year, and we acquired 20% more users while reducing channel investments by 10% year-over-year. The number of paying users remained stable in the first 9 months of 2023, thanks to our product and channel efforts. However, at the end of the year, the number of active users fell temporary due to the impact of extraordinary [ COVID ] and regulatory-driven product adjustments and community Eagle system optimization, which resulted in a short-term pressure on the number of long-tail paying users.

In the fourth quarter, the number of paying users of normal 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 [ house ] business. In the fourth quarter, Momo's app driven revenue was RMB 1.42 billion, down 9% year-over-year. For fiscal year 2023, Momo's live streaming revenue totaled RMB 5.57 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 2, a quarter earlier than we expected.

Thanks to the economy recur and our product and operational efforts. However, as we enter the year's second half, the economy recovery become weaker than expected. At the same time, to better manage regulatory risk, 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 live streaming revenue in 2023.

On the product front, our team continued to enrich interactive [ game type ] features to improve paying conversion and [indiscernible] approve of users in different cohorts against the backdrop of [ spending softness ], introducing new [ game advice ] features not only help stabilize the engagement of live streaming users in the mid- and long-term cohort, but also plays a positive growth on the supply side of live streaming.

Regarding loss revenue from value-add services, excluding Tantan, totaled RMD 1.26 billion for the fourth quarter, flat year-over-year. Gross revenue from the normal at totaled RMB 940 million, down 10% year-over-year. Revenue from the standalone app was RMB [ 220 ] million, up 44% year-over-year. For fiscal year 2023, gross revenue, excluding content, totaled RMB 5.09 billion, down 2% year-over-year. Gross revenue from the Momo app was RMB 3.98 billion, down 10% year-over-year.

Whilst revenue from the standalone was RMB 1.11 billion, up 50% year-over-year. The incremental revenue contributed by Tantan app largely offset the revenue decrease from the Mono app. The rate of decline in gross revenue from the Momo app was higher than we expected at the beginning of the year, mainly for 2 reasons. First, the economic recovery was weaker than expected, user spending remained soft. Second, the product adjustment to maintain a healthy community ecosystem in the year's second half resulted in a decline in paying users.

On the product for integrating audio and video-based as experience with the nonpaying features on the homepage, positively improved the efficiency of wide monetization. On the operational fronts, we focus on user-oriented operational efforts to drive organic revenue growth, resulting in 3 app improvement.

Now moving to Tantan. Our strategic goal for Tantan was to achieve overall breakeven for the year and develop product and [ monetization ] model that suitable for Asian dating culture to pursue sustainable growth on the back of the positive business cycle, driven by our efforts on both product and channel funds, Tantan hit the first milestone of its strategic goals at the beginning of this year, achieving operating breakeven and maintain a small profit throughout the year despite the pressure on revenue.

With the set of our cost optimization and efficiency improvement initiatives was primarily due to our continued improvement in channel efficiency and personnel cost optimization. However, as I mentioned at the beginning, due to some [ set ] in execution and efficiency in elation, Tantan has yet to make breakthroughs in achieving its strategic goal of sustainable growth. As the pandemic [ supplies ] at the beginning of 2023, our user base and engagement level quickly recovered from the trough around Chinese new year holidays. However, due to the overlay overly aggressive adjustments to our user screening centers. Our platform experienced significant [ panel ] attack starting at the spring [indiscernible] impacting our user experience and leading to a decline in user retention that threatens the health of our gaming ecosystem to improve the user experience and ensure that table of our ecosystem.

Our team launched [ Berger ] 6-month [ anti-bank campaign ]. However, the missteps I just mentioned, combined with our received investments in channels has 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 the COVID our MAU in December was down 30% from December to 30.7 million.

As of the end of the fourth quarter, Tantan had a 1.2 million paying users, a net decrease of 200,000 sequentially. Turning to Tantan's financials, total revenue for the fourth quarter was RMB 272 million, down 21% year-over-year and 8% sequentially. The decrease [indiscernible] attributable to a reduced number of paying users. For fiscal year 2023, total revenue was RMB 1.2 billion, down 30% year-over-year. The decrease was due to the decline in paying users that resulted from [indiscernible] channel investments, the anti-bank campaign and adjustment to subscription renewals.

In terms of business line, gross revenue was RMB 667 million, down 19% year-over-year. While live streaming revenue was RMB 505 million, down 7% year-over-year. Tantan adjusted operating income for fiscal year 2023 was RMB 101 million compared to an adjusted operating loss of RMB 330 million in 2022. Tantan turned profitable despite the pressure on revenue, this was primarily driven by significant reduction in unproductive channel investments. As part of our cost optimization strategy and staff with allocation optimization. Meanwhile, the continued improvement in ARPU resulted in revenue declining 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 the seasonal cost [ site ] caused by external competition by seasonally allocating [indiscernible] ratio to different channels and [ facility ] adjusted marketing windows.

By fiscal year 2023, our unit acquisition cost was significantly reduced by 45% compared to 2022. Other cost cutting was put pressure on the user base, reducing investments in channel with negative ROI is essential for Tantan to remain profitable. On the product and operational side in 2023, our user product team mainly focused on product adjustments and strategy upgrade to fight against the spending activities that [ will out this spring ].

Our commercial product team launched a variety of premium membership products and [ Pago ] privilege on top of the basic membership services, which combined with appropriate guidance on paying experience last year a significant subquential increase in [indiscernible] in every single quarter of 2023. To mitigate the impact of reduced user base and the Ministry of Industry and Information Technology regulations on server renewal.

We improved the product experience for paying users which plays a positive growth in the continuous and [ start ] increase in paying ratio and ARPU throughout the year. By the end of 2023, spending activities were under control and the [indiscernible] ecosystem has also recovered. Beyond the dating center value-added service, since live streaming and chatroom services are not the focus on the dating cloud. We began to emphasizing live streaming in the second half of the year, and we allocated [ accent ] resources to innovate projects.

Tantan achieved overall breakeven in 2023, thanks to our effective cost optimization and efficiency improvement initiatives as well as the continued improvement in ARPU. Without achieve the strategic growth of sustainable growth on the back of the positive business cycle, due to our [indiscernible] ecosystem management and the lack of breakthrough 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 expands beyond Momo and Tantan, and develop long-term growth engine. In the fourth quarter, the total revenue of the new apps, including social and game products, was RMB 328 million, up 43% year-over-year. For fiscal year 2023. Revenue from the standalone app was RMB 1.12 billion, up 42% year-over-year, driven by rapid growth of our overseas business standalone apps remain rapid growth momentum from the high base in 2022.

As for the domestic app, given their relative mature life cycle, our team's operational focus on 2023 with controlled 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 still should improve operating profit margin. Compared with [indiscernible] products, our overseas product is at a relatively early stage of its [ less with border ] market size, and the team has accumulated more experience for previous vendors endeavors.

Even though the overseas business was affected by negative factors, such as the earthquake in Turkey and the devaluation of currencies in several countries in 2023 with revenues still maintain rapid growth with the combined effort of our product and channel team.

On the product front, we continue to enrich localized experience and operation for users and different cohorts. On the channel front, our team focus on acquiring paying users strictly adjusted channel investments according to change the revenue and ROI. As a result, our product efforts covered with an increase in channel investment has supported the continued improvement in ARPU and a number of paying users.

Operating profit margin 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 RMB 100 million in 2023. In addition to revenue and profit-oriented products, we have also made remarkable progress in exploring new opportunities in [ short ] sectors by leveraging technological product development.

In 2023, we developed [ in-space ], a brand-new [ Soulchill ] app for Apple VisionPro. As 1 of the 600 native app was launched simultaneously with Apple VisionPro in February this year. The product is still in very early stage, and we will continue to enrich its use cases and in place for social interactions and [ in motion ] 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 to maintain the productivity of this cash [ card ] business with a healthy social ecosystem. In order to maintain an excellent social ecosystem and [ administer ] radical monetization approaches adopted by broadcasters and agencies in order to obtain competition events related bonuses.

We plan to further reduce revenue-oriented large-scale competition events. In third, we will leverage Momo social contribute to increased nonevent driven revenue through new game by 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 present latest revenue, we'll put some pressure on our live streaming and lost 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. And on top of that, [ to an ] efficient business model that drives profitable growth.

Regarding our new vendors and endeavors, we plan to continue enriching the brand portfolio pushing the business boundary beyond Momo and Tantan and build a long-term growth engine. Based on our experience in the MENA region over the past 3 years, we believe that the social and pan-entertainment industry still has a great room for growth in the overseas market. Hello Group has a unique advantage in social space and monetization built on the social ecosystem. We now have to help users find new firms and interact effectively with each other, and we know how to build well 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 Soulchill and new market beyond the MENA market. We believe that if we are doing a good job in localization, we can succeed in the border market with a more diversified product. In 2024, we plan to invest more resources and take bigger [ strikes ] 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 USD 103 million or 1/3 of adjusted net income contributable to Hello Group Inc, in 2023. This is the sixth consecutive year that the company has paid a cash dividend. And together, with the device repurchase program. It demonstrates the management's confidence in fundamental of the business and our commitment to creating long-term value for shareholders. Thank you for your confidence and [indiscernible]. And now I will pass the call over to [ Kathy ] for the financial review.

[Cathy Peng, executive]

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 of 2023 was RMB 3.0 billion, down 7% year-on-year and 1% quarter-on-quarter. Non-GAAP net income attributable to the company was RMB 514.7 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 a stable activity 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 live broadcasting business for the fourth quarter of 2023 was RMB 1.52 billion, down 12% year-over-year but flat quarter-over-quarter. The year-over-year decrease was mainly due to 3 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 stating centric live streaming service.

Momo application live broadcasting revenue totaled RMB 1.42 billion for the quarter, down 9% year-over-year, but up 1% quarter-over-quarter. Tantan's live broadcasting revenue amounted to RMB 10.2 million, down 39% year-over-year and 17% quarter-over-quarter. Revenue from the value-added service for the fourth quarter of 2023 was RMB 1.42 billion, down 2% from Q4 last year and 3% sequentially. Revenue from value-added service on an ex compound basis was RMB 1.26 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 a weak spending sentiment as well as our proactive product adjustments. On the other hand, revenue from the stand-alone new apps continue to show strong growth momentum, partially offsetting the revenue pressure from Momo value-added services. Tantan [ BaaS ] revenue amounted to 160.5 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 SAM ] campaign and the adjustments to membership subscription renewal. 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 RMB 1.77 billion compared to 1.91 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 to tax 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, non-GAAP R&D expenses for the fourth quarter was RMB 218.1 million compared to RMB 250.5 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 1,705 total employees of which 459 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 RMB 296.0 million or 10% of total revenue compared to RMB 398.6 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 RMB 87.2 million for the fourth quarter 2023 compared to RMB 84.9 million for the same quarter last year, both representing 3% of their respective total revenues. Non-GAAP operating income was RMB 664.2 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% and 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 202 and 21% from last quarter.

Non-GAAP operating expenses on a year-on-year basis decreased 18%. The decrease in both 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 was RMB 183.8 million for the quarter with an effective tax rate of 25%. In Q4, the company accrued recording income tax of RMB 53.5 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 RMB 13.48 billion compared to RMB 13.40 billion as of December 31, 2022. Net cash provided by operating activities in the fourth quarter 2023 was RMB 415.9 million. Lastly, on business outlook. We estimated our first quarter revenue to come in the range from RMB 2.45 billion to RMB 2.55 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 segment level, for Q1 2024 on a year-over-year basis, we expect Momo revenue to decrease around 10% and 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 due to our operational adjustment to deemphasize less stating centric live streaming service and, to a lesser degree, [ VAS ] revenue decrease caused by decline in user base.

Please be mindful that this forecast represents the company's current and preliminary view on the market and operational conditions, operational conditions, which are subject to changes. That concluded our preparation of today's discussion. With that, let me turn the call back to Ashley to start Q&A.

[Ashley Jing, executive]

[Operator Instructions]

So operator, we're ready for questions.

[Operator]

[Operator Instructions]

Your first question comes from [ Jason Kang ] from CICC.

[Unknown Analyst]

[Foreign Language]

[indiscernible] and any financial guidance for the next 2 to 3 years?

[Unknown Executive]

[Foreign Language]

[interpreted] I think our teams made competitive advantage in the overseas market like in the social space and value-added services based on social and pan-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.

[Foreign Language]

[interpreted] At present, Soulchill still has a visible room for improvement in 3 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 market, 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 directors. 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. And 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.

[Foreign Language]

[interpreted] In addition, 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 like to sustain an effective resource investments. 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. And Momo also has established a solid foundation among overseas Chinese. We should better make use of this asset to [ TAPI's ] growth potential. This year, we will step up our efforts in the dating space to enhance overseas user experience and increase our overseas market share.

[Foreign Language]

[interpreted] Regarding our results allocation for 2024, we plan to greatly [indiscernible] 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 in order to strengthen the support for overseas team, and the budget allocation was also tilted towards overseas businesses. This approach will enable us to back root 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 [ Kathy ].

[Unknown Executive]

Okay. Revenue and profit expectations I'll try to look at this both from a near-term perspective and a longer-term perspective. For -- if you look at the near term for 2024, as Tang Yan said, Soulchill is still going to be the primary driver of our overseas revenues and profit growth. If we do a decent job in the 3 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 rate as we saw in 2023 in terms of top line.

Profit wise, I think we're still going to be growing pretty meaningfully. However, because Soulchill is still at an early stage of development, and we are currently seeing a lot of growth opportunities its RI 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 bottom line. But in terms of magnitude of the profit growth in 2024, it is secondary to top line and user growth.

Now for a more longer-term point of view, if we take a 3-year 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 decent level of success in building other products and in other parts of the world. [indiscernible] 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.

[Operator]

The next question is from Henry Sun from JPMorgan.

[Unknown Analyst]

[Foreign Language]

The question is about shareholder value in China. We noticed that the dividend payout ratio has decreased from 50% last year to around 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 [indiscernible] management share your perspective on the buyback execution plan moving forward?

[Unknown Executive]

Okay. I guess that's the question. I will take that question. So first, on the payout ratio question. when we think about how much profit we are going to pay out, we compare our offshore cash reserves and the potential offshore capital demand. As Tang Yan and [indiscernible] mentioned earlier, the [indiscernible] investment area for the coming couple of years is overseas expansion. Whether we invest organically or through M&A, it might consume more offshore cash than the past, past few years with the foreign exchange controls I guess it makes more sense to try to be more conservative in terms of returning cash to shareholders through dividend payments.

So that's the first reason. The other factor that led to the decision to lower the payout ratio a little bit this year is that we considered our stock significantly undervalued at this point with the stock trading below the net cash value, I believe it's more efficient to buyback versus paying cash dividend. So that's my response to payout ratio.

[Unknown Executive]

Is there a question about why not paying a revenue dividend? You're in the regular [ dividend ].

[Unknown Executive]

So, why not a regular dividend plan? We've been paying cash dividend for against the past 6 or 7 years in a row. We've said many times that if we continue to generate more excess cash than what we can effectively deploy, we will continue to return them to the shareholders, either through dividend or share repurchase. So whether or not we have a more regular plan or not, we've already get the expectation right. At the same time, we're still seeing like we said before, we are still seeing any growth opportunities and investment areas. And without 100% flexibility in foreign exchange it may not be too wise to be pinned down by a regular dividend payout ratio every year.

I think I heard a question on how we plan to manage the repurchase program I think from today's earnings release, you can see that we announced an extension of the share repurchase plan. That extension of the plan would allow us to purchase up to 200 million for the 2 years period from now onwards. So like I said, we consider our stock at this point significantly undervalued and trading at net cash value. We're going to utilize that cash and take the opportunity to create more shareholder value. That's for sure. Hopefully, that answers your question.

[Operator]

The next question is from Leo Chiang from Deutsche Bank.

[Leo Chiang, analyst]

[Foreign Language]

My question is about core Momo, to management share the business outlook of core Momo on both live broadcasting and VAS in 2024. How the current make [ co ] environment has impacted the spending for core users? And lastly, how to view the processability of the core Momo in 2024?

[Unknown Executive]

[Foreign Language]

[interpreted] As [ Sig ] 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 large-scale competition events in live streaming and value-added services that may lead to periodic revenue search, 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 of those high-paying users.

On the product and operation front, we will better leverage monetization opportunities brought by more and more social attributes, and enrich [ gamified ] features and interactive tools for the top and middle [ cohort ] users to drive organic revenue growth.

[Foreign Language]

[interpreted] 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 [ Kathy ] will answer.

[Unknown Executive]

Okay. I guess, in her prepared remarks, SEC 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, 1 of the key themes is to this year is significantly deemphasized on the promotional events and the competition for regulatory reasons. And that would involve changing the operational strategies and bonus structure for both live streaming and value-added service business. And that could significantly lower the event a competition-driven tipping revenue. However, the nonevent 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 Y-o-Y basis for the coming few quarters because of that operational that strategy changing operational policies.

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. So if you put the different pieces together and try to 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 somewhere around 10% year-over-year decrease for Momo segment. in it, I guess, the cash cow is declining mid-teens percentage, offset by a 40-something percent Y-o-Y 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. And how do we move from Q1 will heavily hinder upon 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, and we'll keep you updated as the year progresses.

[Operator]

The final question is from [ Rafael Chan ] from BOCI Research.

[Unknown Analyst]

[Foreign Language]

I have 2 questions. First 1 is regarding Tantan. Could management share the latest user trend, marketing and monetization strategies in 2024? And any guidance on its revenue and profit this year. Secondly, could management mention -- I see management mentioned new products related to Apple VisionPro in the prepared remarks. Could we have more insights on the product details? Also considering company plans to ramp up exploring new business opportunities. How do we evaluate the margin trend in 2024?

[Unknown Executive]

[Foreign Language]

[interpreted] 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. And 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 [ quality ], dating experience. And on top of that, build an effective and efficient business model that drives some profitable growth. In order to improve the quality experience, we need to constantly innovate use cases and explore dating scenarios around the core dating theme, provide more tailor-made 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. And this year, we will continue to improve our monetization capability based on the quality 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 a very positive feedback from the first batch of high-paying users. Through this new premium membership, we hope to, first, unleash the spending power of the existing high-end members; and second, 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 truly realize a positive business cycle and achieve profitable growth by increasing marketing investment. For other financial-related questions, [ Kathy ] will answer them.

[Unknown Executive]

So as [ Sik ] and Tang Yan mentioned, the focus of Tantan this year can be really broken down into 2 priorities. One is to continue to improve the core dating experience. In the past couple of years, we try to diversify into live streaming and the more community-driven entertainment experience, such as chatroom experience. Now we can conclude that although these efforts did contribute meaningfully to ARPU, they are not very compatible to saving experience at this point. And therefore, we will increasingly pivot away from these more entertainment-oriented experiences. And the other focus for Tantan this year is, of course, to continue to improve 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 are going to see what we call a profitable growth cycle. However, before we hit that tipping point it's possible that we will continue to see top line trending either flat or slightly under a bit of pressure as we continue to scale back from live streaming and the chat room experience. However, if we are successful in reaching that tipping point and enter into 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 patients as we work our way to get there.

[Unknown Executive]

[Foreign Language]

[interpreted] With the continuous iteration of [ XR ] hardware, more and more new users are joining the [ Exar ] 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. In-space users can create their own avatars and personalized space and invite Apple VisionPro users around the world to have parties, play, chat and have fun together, and [ in-space ] but in real-time translation function of users of 12 major languages to communicate without barriers.

Checking over social diner-party games makes getting together more fun for aquatics who are thousands of miles apart. And it also helps break the eyes for stringers in the open social space. We plan to roll out more use cases and gamify features based on localized users preference 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 [ Kathy ].

[Unknown Executive]

Investment budget for new endeavors. Internally, we do have a budget for new endeavors. But at this point, we hesitate we will probably defer until later to answer that question with a more definite number because we want to keep the budget flexible at this point in time. If we see really good opportunities, we will invest a little bit more if the RI doesn't trend good, we will probably invest a little bit less. So it's really a quite flexible number that we're trying to put in there at the beginning of the year.

On the margin question, I guess, this is a question about -- at the whole group level, I think for gross margin, it has remained relatively stable throughout 2023, with the largest cost driver, which is the payout ratio being stable, I'm currently not seeing any factor that could potentially change that trend one way or another in a very meaningful way. But there is this one thing that I would like to call out here, which might cause the margin to fluctuate a little bit. And that is that as revenue decreases, there could be some negative leverage on the infrastructure cost and also the personnel cost charging to the cost of sales line, which is going to pressure the growth margin a little bit, but we do not expect that to be very significant. So that's what we're seeing on the gross margin line.

Operating expenses wise, although we plan to substantially increase our investment in the new business, part of the increase will come at the expense of the old business, which won't be consuming as much resources. Now if we try to think about the operating margin on an ex compound basis, last year, I believe we delivered close to 23% adjusted operating margin. In Q1, the [ extent ] is going to see a 9% to 10% year-over-year decrease at top line. And that level of top line decrease is obviously going to pressure the operating margin a little bit. But I would say from 19% to 20% is still a quite achievable range of adjusted operating margin for the ex Tantan part of the business.

I do not really have a margin number for the whole year. because of that flexibility that we talk about that we would like to maintain, especially for the new business. But in terms of how the operating margin is going to trend from Q1 onwards, I would say there are several factors to consider here. One is the overall top line improvement from Q1 onwards. Of course, that is heavily dependent on the overall macro and regulatory environment. And the second factor is how aggressive we are to cut down on cost. At this point, I do see some headroom to continue to cut on the old business part but we do want to, like I said, maintain the flexibility to move the spending to new business if we see good ROI. So basically, that's my current thought on how the margin may play out for the whole year.

[Ashley Jing, executive]

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

[Operator]

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