Hello Group Inc.'s Q3 2025 Earnings Call: Contradictions Emerge in Momo's Domestic Growth, Gross Margins, and Overseas Strategy

Date of Call: None provided

Financials Results

• Revenue: RMB 2.65 billion, down 1% YOY, up 1% quarter-over-quarter
• Gross Margin: 37.6% non-GAAP, down 1.7 percentage points YOY
• Operating Margin: 15.2% non-GAAP, compared with 17% in prior year (down ~1.8 pp YOY)

Guidance:

• Q4 revenue expected RMB 2.52bn–RMB 2.62bn (-4.4% to -0.6% YoY).
• Guidance assumes Mainland China revenue to decline mid- to low-teens YoY; overseas expected to maintain Q3-like growth.
• Management expects domestic business to exit 2025 at ~13% YoY decline; with seasonality this implies ~10% full-year decline for 2026 barring macro/regulatory changes.
• Overseas growth to continue (MENA audio/video and dating brands); investments remain ROI-disciplined.

Business Commentary:

• Domestic Revenue Decline and Overseas Revenue Growth:
• Hello Group's domestic revenue reached RMB 2.12 billion in Q3 2025, down 10% year-over-year, while overseas revenue was RMB 535 million, up 69% year-over-year.

• The domestic decline was primarily due to tax scrutiny on broadcasters and agencies, softened consumer sentiment, and reduced paying users on Tantan. Conversely, overseas growth was driven by strong performance in the MENA region and the acquisition of Happn.

  

• Momo Business Performance:

• Momo's value-added service revenue was RMB 1.79 billion, down 11% year-over-year and 3% quarter-over-quarter.

• The decline was attributed to new tax requirements affecting operational focus and a significant revenue decline in audio and video-based scenarios. However, Momo maintained strong brand loyalty among high-value users and improved user engagement through product upgrades and algorithm optimizations.

• Tantan Financials and User Metrics:

• Tantan's onshore revenue was RMB 150 million, down 15% year-over-year but with a 25% year-over-year increase in ARPU.
• Despite a decline in paying users, Tantan improved its monetization strategy and achieved profit growth. Product improvements and algorithm adjustments have led to better user retention and engagement metrics, particularly for female users.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Q3 revenue RMB 2.65bn (-1% YoY) with adjusted operating income RMB 404M (15.2% margin). Overseas revenue +69% YoY while mainland VAS down 11% YoY. Management flagged tax-related headwinds reducing H2 gross margin ~1-2 pp but emphasized product improvements and confidence that Momo will continue to deliver profit and cash flow; provided cautious Q4 guidance RMB 2.52–2.62bn.

Q&A:

• Question from Thomas Chong (Jefferies): Impact and progress of Momo revenue-sharing adjustments after the tax changes; expected margin impact; why peers didn't mention similar issues; outlook for Momo/domestic cash-cow into 2026?
  Response: Company increased revenue-sharing subsidies for affected broadcasters/agencies, which produced modest sequential recovery but will depress group gross margin ~1–2 percentage points in H2 2025; domestic exit rate ~13% YoY implying mid/low‑teens decline in 1H26 with narrowing in 2H26; Momo fundamentals and engagement metrics are improving, supporting confidence in future profitability.

• Question from Jenny Wan (UBS): Breakdown of Q3 overseas 69% growth between organic business and the Happn acquisition; what parts outperformed; outlook for next year and can overseas offset domestic declines?
  Response: Most Q3 overseas growth was organic—driven by MENA audio/video apps (Soulchill/Ahlan) and rapid growth in non‑Soulchill brands; Happn had minimal Q3 impact but contributes to Q4; overseas is multi‑pillar and will continue strong growth but is unlikely to fully offset domestic profit pressure in 2026 though it materially narrows the gap.

• Question from Leo Chiang (Deutsche Bank): Key M&A selection criteria (industry, geography, revenue/profit) and degree of post-acquisition management involvement?
  Response: Targets stay within social/dating verticals; selection focuses on product/team fit, sustainable profitability, and reasonable valuation; post-acquisition involvement is pragmatic and case‑by‑case—local teams keep control if best, otherwise Hello Group provides hands‑on support.

• Question from Xueqing Zhang (CICC): How to view group gross margin going forward given lower‑margin overseas audio/video growth and higher Momo payouts, plus implications for 2026 profitability and shareholder returns?
  Response: Expect some margin compression next year mainly from domestic headwinds (domestic gross margin down a couple points); Q4 2025 adjusted gross margin anchored around ~36–37%; overseas margins vary by product and are ROI‑disciplined, unlikely to fully offset domestic profit decline in 2026; dividend/share‑repurchase decisions will consider cash, repatriation, M&A and overall capital needs.

Contradiction Point 1

Momo's Domestic Revenue and Growth

It involves differing perspectives on the sustainability and growth outlook for Momo's domestic revenue, which is a critical component of Hello Group's overall financial performance.

Can you discuss the latest progress and margin impact of Momo's revenue sharing policy adjustment? Why haven't competitors mentioned similar issues? How should we view Momo's cash cow business revenue trend in 2026? - Thomas Chong (Jefferies)

2025Q3: Momo's brand loyalty remains strong among high-value users aged 30 to 40. Despite a slight year-over-year domestic revenue decline, Momo's fundamentals remain robust. - Zhang Sichuan(COO)

What is the outlook for the second half of the year and how do you view AI applications in social products? - Thomas Chong (Jefferies LLC, Research Division)

2025Q2: Momo's Q2 revenue and profit are expected to be controllable. - Ashley Jing(Head of Investor Relations)

Contradiction Point 2

Group Gross Margin Impact from Revenue Sharing Policy

It involves differing assessments of the impact of the revenue sharing policy adjustment on the company's overall gross margin, which is a key financial metric.

Could you provide updates on the progress and margin impact of Momo's revenue-sharing policy changes? - Thomas Chong (Jefferies)

2025Q3: The revenue sharing policy was adjusted in August to support broadcasters and agencies affected by tax changes. This had a 1-2 percentage point impact on group gross margin in the second half of 2025. - Zhang Sichuan(COO)

How will the withholding tax issue impact profit margins, and is it industry-wide? - Xueqing Zhang (China International Capital Corporation Limited, Research Division)

2025Q2: The withholding tax issue is not unique to Hello Group but affects many companies with similar structures. The tax authorities reassessed the applicable rate, leading to an additional RMB 547.9 million expense. The company complied with the new guidance, but expects group margin to remain stable with cost discipline. - Cathy Peng(CFO)

Contradiction Point 3

Overseas Revenue Growth and Strategy

It involves assumptions and expectations regarding the growth strategy and performance of the overseas business, which are crucial for investor expectations and strategic planning.

What overseas business segments exceeded Q3 expectations? How much of Q4 overseas revenue growth guidance is from organic business vs. the Happn acquisition? What are your expectations for overseas growth next year? - Jenny Wan (UBS)

2025Q3: Overseas revenue growth is driven by audio and video products in the MENA region. After a reduction in marketing spend mid-year, ROI improved, allowing for increased investment. - Cathy(CFO)

Did the Q1 overseas revenue exceeding RMB 415 million include over RMB 100 million from the two newly monetized apps? Can management outline the growth plans and revenue projections for these two products this year? - Leo Chiang (Deutsche Bank AG)

2025Q1: Ensuring the stability of the overseas business and promoting steady growth to become a key revenue growth driver for us. - Yan Tang (CEO)

Contradiction Point 4

Profit Margin Expectations

It involves changes in financial forecasts, specifically regarding profit margin expectations, which are critical indicators for investors.

How should we view the group's future profit margin considering lower overseas AV business margins and Momo’s revised revenue share? Will this affect future shareholder returns? - Xueqing Zhang (CICC)

2025Q3: Domestic business pressures will drive some profit compression, but the overseas business won't be a drag. - Cathy (CFO)

What is the profit outlook for this year and how will expenses be managed and allocated? - Jiahui Wang (UBS Investment Bank, Research Division)

2025Q1: Gross margin is expected to decline due to the mix shift towards overseas revenue. The full-year gross margin is anticipated to be between 36% and 37%. - Hui Peng (CFO)

Contradiction Point 5

Momo's Growth Strategy and Financial Outlook

It involves differing perspectives on Momo's growth strategy and financial outlook, which are crucial for investor expectations and market projections.

What is the progress and margin impact of Momo's revenue sharing policy adjustment? Why haven't competitors raised similar issues? What is the outlook for Momo's cash cow business revenue in 2026? - Thomas Chong (Jefferies)

2025Q3: Momo's brand loyalty remains strong among high-value users aged 30 to 40. Despite a slight year-over-year domestic revenue decline, Momo's fundamentals remain robust. - Zhang Sichuan(COO)

What caused the significant decline in Momo's paying users in Q1? How will this affect revenue and profit? Are further adjustments planned for live streaming and VAS products? What are the 2025 revenue and profit projections for Momo? - Xueqing Zhang (CICC)

2024Q4: The company plans a low-teens revenue decline for Momo's cash cow business in 2025, with a focus on overseas growth. - Hui Peng(CEO)