Hello Group's Q2 2025 Earnings Call: Contradictions Emerge on MoMo Funds Growth, Domestic Revenue Stabilization, AI Integration, and Overseas Expansion

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

Date of Call: None provided

Financials Results

• Revenue: RMB 2.62 billion, down 3% YOY and up 4% QOQ
• Gross Margin: 38.8%, down 2 percentage points YOY
• Operating Margin: 17.1%, compared to 17.7% in the prior year

Guidance:

• Q3 revenue expected at RMB 2.59–2.69B, -3.2% to +0.6% YOY.
• Q3 PRC Mainland revenue to decline mid–low teens YOY; overseas to grow mid-60s YOY.
• 2025: Domestic down low teens; overseas up ~70%; group top-line flat to slightly down vs 2024.
• 2025 gross margin to the low end of 36–37% (~36%).
• 2025 adjusted operating margin to the low end of 13–14%.
• MoMo payout ratios to rise by ~1–2% to support agencies amid tax changes.
• Sales & marketing to increase low-teens %; R&D to decline in absolute terms.
• Overseas growth to moderate in Q3 (~60% YOY) and reaccelerate in Q4.

Business Commentary:

• Revenue Performance:
• Hello Group reported total group revenue of RMB 2.62 billion for Q2 2025, down 3% year-over-year.
• The domestic revenue was RMB 2.18 billion, down 11% year-over-year, while overseas business contributed RMB 442 million, up 17.3% year-over-year.

• The decline in domestic revenue was due to soft consumer spending sentiment, especially among high paying users, and revenue pressure in the dating segment.

• AI Integration and User Engagement:

• MoMo introduced AI features such as personalized greetings and AI chat assistants, which increased reply rates by a high single-digit percentage and drove in-depth chats.

• These AI innovations improved user retention and stabilized MoMo's user base, contributing to a sequential decrease in paying users but minimal impact on revenue.

• Dating Segment Strategies:

• Tang Tang maintained profitability by reducing channel investment and restructuring membership packages, despite a decline in paying users.

• The company focused on product upgrades to enhance user authenticity and core dating experiences, which partially offset revenue pressures.

• Overseas Business Expansion:

• Overseas revenue accounted for 17% of the group revenue, up from 10% in the same period last year, with a 17.3% year-over-year increase.

• Growth was driven by audio and video-based social products in the MENA region and the dating market in developed countries. The company exercised caution in marketing expansion to maintain profitability.

• Taxation and Financial Outlook:

• Hello Group accrued an additional tax expense of RMB 547.9 million due to a change in withholding income tax rates.
• The company anticipates a stable annual margin profile and expects overseas growth to reaccelerate in Q4, supported by new brands and cost discipline.

Sentiment Analysis:

• Management reported Q2 revenue down 3% YOY but up 4% QOQ; non-GAAP net loss driven by a one-off withholding tax accrual. Excluding this, non-GAAP net income would have been RMB 451.9M, up 1% YOY and 12% QOQ. Overseas revenue grew rapidly (CFO: up 73% YOY), while domestic softness persisted. Q3 outlook implies -3.2% to +0.6% YOY and 2025 margins at the low end of prior guidance.

Q&A:

• Question from Thomas Chong (Jefferies): Outlook for MoMo in 2H and plans for AI applications beyond AI greetings/chat assistant?
  Response: MoMo’s 2H should be stable/controllable though tax compliance may pressure revenue and margins; AI will be further integrated (icebreaking, chat guidance), a Japan AI role-play chat app has launched with early monetization, and in-house model work continues.

• Question from Leo Chiang (Deutsche Bank): Details on Tang Tang measures to offset paying ratio pressure from product upgrade?
  Response: They segmented users and cities, tailored exposure, matching, paywalls, and pricing to lift conversion and ARPPU; streamlined UI to prioritize core dating info; organic acquisition improved, and revenue impact from the upgrade is being mitigated.

• Question from Jiayuan (UBS): Sustainability of >70% overseas growth and 2H outlook?
  Response: Growth remains robust but paced to protect profits: Q3 overseas growth to moderate to ~60% YOY with ROI optimization, then reaccelerate in Q4; emerging subscription brands and the Happn acquisition support future growth and margin mix.

• Question from Xueqing Zhang (CICC): Margin outlook and whether the withholding tax issue is company-specific or industry-wide?
  Response: 2025 GM expected near ~36% and operating margin at the low end of 13–14%; one-off withholding tax accrual as rate moves to 10% from 5%; scrutiny is not unique to Hello Group—similar structures may face comparable review.