Hello Group's Global Gambit: Can Overseas Growth Salvage a Domestic Decline?

The tech-driven social media landscape is no stranger to upheaval, but few companies have faced such starkly divergent fortunes in their core and international markets as Hello Group. While its domestic operations in China falter, the company's pivot to global markets—bolstered by its hit app Soulchill—has become a beacon of hope. Now, investors are debating whether this strategic shift can transform Hello Group from a laggard into an undervalued growth story.

The Domestic Downturn: A Story of Trade-offs
Hello Group's struggles in mainland China are undeniable. In Q1 2025, its domestic revenue plummeted 9.2% year-over-year, driven by strategic cuts to high-cost Momo app events and a shift away from live-streaming monetization on Tantan. Monthly Active Users (MAUs) on Tantan dropped to 10.7 million from 13.7 million, while paying users on Momo fell by nearly half to 4.2 million. These moves reflect a deliberate trade-off: prioritize profitability over user growth.

But the costs of this pivot are clear. Total net revenues dipped 1.5% to RMB2.52 billion, and operating income fell 35% year-over-year, pressured by overseas expansion expenses and product development. Yet, the company's net income surged to RMB358 million, aided by tax efficiency and a one-time Q1 2024 withholding tax that skewed comparisons.

The Overseas Opportunity: A 71.9% Growth Engine
The silver lining lies offshore. International revenue soared 71.9% to RMB414.6 million in Q1, now comprising 16.4% of total revenue—a doubling from two years prior. Soulchill, the company's AI-driven social app, has become a breakout hit in markets like Brazil and Southeast Asia, where it avoids China's regulatory strictness and taps into younger, tech-native audiences.

Management has doubled down on this momentum. The company's Q2 2025 revenue guidance of RMB2.57 billion to RMB2.67 billion hints at a slowing domestic drag but also reveals cautious optimism about overseas scalability. Cash reserves of RMB12.79 billion provide ample fuel for further localization efforts, partnerships, and app launches.

Valuation: Undervalued, but for How Long?
On paper, Hello Group looks cheap. Its P/E ratio of 6.33 and Price-to-Book (P/B) ratio of 0.66—both below industry averages—suggest the market isn't pricing in the full potential of its international expansion.

The P/B metric, which divides share price by book value per share, often undervalues asset-light tech firms. Yet here, it underscores a stark disconnect: Hello Group's stock trades at 66% of its book value, even as its overseas growth accelerates. Meanwhile, its dividend yield of 4.18%—funded by a RMB358 million net income quarter—adds a rare income component to its appeal.

However, risks linger. Higher overseas costs have already pinched operating margins, and regulatory hurdles in new markets (e.g., data privacy laws in Europe) could complicate scaling. A 13.2% dip in cash reserves since December 2024 also raises questions about the sustainability of its aggressive expansion.

The Investment Case: A Calculated Gamble
For investors, the question is whether Hello Group's valuation discount reflects temporary headwinds or fundamental flaws. The domestic market's decline may stabilize, as user metrics could bottom out, and cost cuts take hold. Meanwhile, the 71.9% international growth rate—while unsustainable at current levels—hints at a playbook that could be replicated in new regions.

The dividend and share buybacks—totaling $291 million—add a safety net, but the stock's 52-week trading range ($5.12–$8.38) suggests volatility. Analysts' mixed ratings (“Hold” consensus with a $8.25 target) reflect this tension.

Recommendation:
Hello Group is a buy-for-holders. At its current valuation, the stock offers a rare blend of a high dividend yield, cash-rich balance sheet, and a growth story still underappreciated by the market. However, investors should proceed with a narrow focus: allocate only if you're comfortable with near-term volatility and willing to bet on management's execution in overseas markets. The company's Q2 results and Soulchill's user retention metrics will be critical next steps.

In a sector where growth is scarce, Hello Group's global bet isn't just a defensive move—it's a gamble with asymmetric upside. The question now is whether the world's next social media giant is being built far from China's shores.