China's Entertainment Firm, Hello Group, Surpasses Revenue Expectations Amidst User Decline

Hello Group Inc MOMO reported a second-quarter FY23 net revenue growth of 0.9% year-on-year to $432.7 million, beating the consensus of $416.8 million.

China's mobile-based social and entertainment services provider reported a non-GAAP net income per ADS of $0.43, above the consensus of $0.35.

Drivers: Monthly Active Users (MAU) on the Tantan application were 17.3 million in June 2023, down from 24.8 million in June 2022.

Total paying users of its Momo app declined from 8.6 million in Q2 FY22 to 7.9 million in Q2 FY23. Tantan had 1.4 million paying users for Q2 FY23 versus 2.2 million in Q2 FY22.

Segments: Revenues from the Live video service grew by 4.5% Y/Y to $219.1 million, Total value-added service decreased by 2.4% Y/Y to $206.8 million, Mobile marketing increased by 3% Y/Y to $5.1 million, and Mobile games fell 84.8% Y/Y to $0.4 million.

Net revenues from the Momo segment grew by 1.3% Y/Y to $388.4 million, while the Tantan segment revenues decreased by 3.1% to $44.2 million.

Non-GAAP income from operations improved to $97.8 million. 

Hello Group held $1.55 billion in cash and equivalents and generated $114.2 million in operating cash flow.

"In Q2 we achieved the first year-on-year topline growth since the beginning of the pandemic three years ago, thanks to the stabilization and recovery of Momo's cash cow business. The Group level profitability improved significantly both year on year and from the previous quarter, mainly due to our effective cost control initiatives, which led to Tantan's break-even and the stable performance of Momo," commented Sichuan Zhang, COO of Hello Group.

Outlook: Hello sees a Q3 revenue of RMB 2.9 billion - RMB 3.0 billion (a decrease of 10.3% - 7.2% year over year), representing $414.135 million-$428.415 million versus the consensus of $448.34 million.

Price Action: MOMO shares closed lower by 0.94% at $9.53 on Wednesday.