Hello Group's 2025 Q2 Earnings Call: Contradictions Emerge in Overseas Growth, Taxation, and Product Strategies

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 9, 2025

Financials Results

• Revenue: RMB 2.62B, down 3% YOY, up 4% QOQ
• Gross Margin: 38.8% non-GAAP, down ~200 bps YOY
• Operating Margin: 17.1% non-GAAP, compared with 17.7% in the prior year

Guidance:

• Q3 revenue guided to RMB 2.59–2.69B (-3.2% to +0.6% YOY).
• Assumes PRC Mainland revenue down mid- to low-teens YOY; overseas up mid-60s YOY.
• Overseas growth to moderate to ~60% YOY in Q3, reaccelerate in Q4 as ROI improves.
• 2025: domestic revenue down low-teens; overseas up ~70% YOY; group revenue flattish to slightly down vs 2024.
• 2025 non-GAAP gross margin expected at low end of 36%–37%; operating margin at low end of 13%–14% range.
• Sales & marketing to rise low-teens; R&D to decline; mix and higher payout ratios may pressure margins.

Business Commentary:

* Domestic Revenue Challenges and Overseas Growth: - Hello Group's domestic revenue reached RMB 2.18 billion in Q2 2025, down 11% year-over-year, while overseas business was RMB 442 million, up 73% year-over-year. - The decline in domestic revenue was due to soft consumer sentiment and macroeconomic pressures, while overseas growth was driven by increased user engagement and product optimization in the MENA region.

• Momo and Tantan Product Strategies:
• Momo's value-added service revenue was RMB 1.85 billion, down 11% year-over-year, due to reduced user acquisition investments and the economic environment affecting high-paying users.

• Tantan's revenue from the onshore business was RMB 160 million, down 18% year-over-year, as the company focused on product upgrades to enhance user experience and monetization.

• Operational and Financial Metrics:

• Hello Group's adjusted operating income was RMB 448 million, down 6% from the previous year, with a margin of 17%.

• This was affected by increased payout ratios to support domestic agencies and higher costs associated with overseas expansion.

• Withholding Tax Impact and Compliance:

• The company accrued an additional RMB 547.9 million in withholding income tax due to a new interpretation of tax rates, impacting Q2 financials.
• The adjustment was made in compliance with authorities' guidance, indicating broader industry scrutiny on similar tax practices.

Sentiment Analysis:

• Revenue down 3% YOY but up 4% QOQ; overseas VAS up 73% YOY. Non-GAAP net loss driven by a one-off withholding tax; excluding it, non-GAAP net income would have been RMB 451.9M, up 1% YOY. Q3 guide: -3.2% to +0.6% YOY, with domestic pressure offset by strong overseas. Management expects 2025 margins at lower end of prior ranges due to tax/mix but emphasizes disciplined ROI and cost control.

Q&A:

• Question from Thomas Chong (Jefferies): Outlook for Momo in 2H and strategy/impact of AI tools like AI greetings and AI chat assistant?
  Response: Momo’s 2H revenue/profit should be manageable but sensitive to sentiment and new tax rules; AI-led features are boosting icebreaking/engagement, and a standalone AI role-play app in Japan is gaining traction.

• Question from Leo Chiang (Deutsche Bank): Details on Tantan’s membership restructuring and operations to offset paying ratio pressure from product upgrades?
  Response: Tantan is segmenting users/cities with tailored exposure, pricing, and paywalls to lift conversion/ARPU; streamlined UI and algorithm tweaks are mitigating revenue pressure while boosting organic growth.

• Question from Yicheng Yuan (UBS): Sustainability of >70% YOY overseas growth and 2H expectations?
  Response: Growth remains robust but paced for ROI—Q3 to ~60% YOY then reaccelerate in Q4; MENA apps continue strong, and dating (including Tantan International and Happn acquisition) adds new drivers.

• Question from Xueqing Zhang (CICC): Profit margin outlook and context on the withholding tax change—company-specific or industry-wide?
  Response: 2025 non-GAAP gross and operating margins likely at low end of prior ranges; withholding tax rate raised to 10% per new authority interpretation, a situation not unique to Hello Group.