Hello Gr (NASDAQ:MOMO) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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Summary
Hello Group's Q1 2026 revenue was 2.39 billion RMB, a 5% year-over-year decline, with domestic revenue falling 15% and overseas revenue increasing by 44%.
Adjusted operating income was 349 million RMB, up 1% year-over-year, with a margin of 14.6%.
Overseas revenue now accounts for 25% of total revenue, driven by strong growth in new products in the MENA region.
Momo's revenue decreased due to new tax regulations and seasonal factors, but strategic changes in agency incentives are expected to stabilize revenue by Q3.
Tantan faced challenges from changes in Alipay's auto-renewal policy, affecting membership renewals, but adjustments are underway to mitigate the impact.
AI-driven innovations are enhancing user engagement and monetization, with new AI features like AI chat assist and voice drift bottle being explored.
Full-year domestic revenue is expected to decline by mid-teens percentage, while overseas revenue is projected to grow by high 50s percentage.
The company targets a low teens operating margin for 2026, with ongoing efforts to optimize spending amid revenue pressures.
Full Transcript
OPERATOR
Ladies and gentlemen, thank you for standing by and welcome to Hello Group's first quarter 2026 earnings conference call. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Please note this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Ashley Jing. Thank you. Please go ahead, Ma'am. Thank you.
Ashley Jing
Good morning and good evening everyone. Thank you for joining us today for Hello Group's first quarter 2026 earnings conference call. The company's results were released earlier today and are available on the Company's IR website. On the call today, Mr. Tang Yan, CEO of the Company, Ms. Jiang Sichuan, COO of the Company and Ms. Peng Hui, CFO of the Company. They will discuss the company's business operations and highlights as well as the financials and guidance. They will all be available to answer your questions during the Q and A session that follows. Before we begin, I would like to remind you that this call may contain forward looking statements made under the Safe harbor provision of the Private Security Litigation Reform act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control which may cause the Company's actual results, performance or achievements to differ materially from those in the forward looking statements. Further information regarding this and other risks, uncertainties and factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise, except as required under law. I will now pass the call over to our COO, Ms. Zhang Sichuan.
Zhang Sichuan
Ms. Zhang, please. Thank you, Ashley. Hello everyone. Thank you for joining today's call. The Group maintained steady business momentum in Q1, guided by the strategic priorities set last year. Our domestic business stayed healthy through focused product innovation and refined operations despite external pressures leveraging the synergy of a diversified product portfolio, our overseas business has remained a positive trend. Looking ahead, we are fully confident in each business line to continue to advance along the strategic roadmap in 2026. Now I walk through you through the key updates starting with the financials for Q1, 26. Total group revenue was 2.39 billion RMB, down 5% year over year. Domestic revenue reached 1.79 billion RMB, down down 15% year over year, overseas revenue was 597 million RMB, up 44% year over year. Overseas revenue accounted for 25% compared to 16% in the same period last year. Adjusted operating income was 349 million RMB, up 1% year over year with a margin of 14.6%. Building on the strategic direction from 2025, our 26 priorities continue along three main tracks. For MOMO, the goal is to ensure stable, sustained productivity of our cash cow business, for Tantan to continue exploring a dating experience and efficient business model tailored for Asian users and for our new businesses to deepen overseas presence, enrich our brand portfolio and build a long term growth engine. Let me walk through you through each starting with MOMO. On the product side, our key focus in recent years has been to optimize user experience and stabilize our user base. This year we have continued to refine the chat experience. Our knock knock feature improves connection accuracy by analyzing users historical chat patterns to optimize matching algorithms driving sustained growth in two way and in depth chats in real time. Check scenario. Building on a steady roundup of voice features, we have also introduced video features to enrich our portfolio of instant interactions. The combined upgrades in algo recommendation and product experience have lowered the barrier for users to find chat partners. This is the main driver behind the steady improvements in retention among existing users. In 2025 we undertook a number of meaningful inspirations in leveraging AI to improve users social efficiency with encouraging initial results. For example, our AI greetings and AI chat assist features improved the female users experience. This drove higher reply rates from male users and more in depth conversation overall. In Q1, the product team explored AI driven innovations such as voice drift, bottle, guiding users complete voice profiles, auto generating voice content and releasing it onto the platform in a message in a bottle format to spark users desire to connect. For user acquisition. Channel ROI has remained fully profitable since the beginning of the year. Ongoing audio-room gameplay updates and better channel conversion lifted payment intent among mid and small spending users. This drove steady LTV growth and channel ROI improved moderately quarter over quarter. Overall acquisition spend continued a refined disciplined approach narrowing slightly from last quarter. This is worth noting that Q1, was affected by the Chinese New Year as some users shifted their shorter time to offline gathering and close friends and family. This temporary pullback platform activity and paying scales with MOMO's paying users decreasing by 200,000 quarter over quarter to 3.7 million. That said, thanks to a year of product refinement focused on chat experience, organic traffic grew compared to last year and Retention among existing users improved slightly during the Chinese New Year. The team ran targeted operational events at a low point of the cycle, narrowing the declines in user activity compared to last year past holidays. As a result, the post holiday recovery was meaningfully better than in the same period last year. This set a solid foundation for stabilizing our user base over the full year. Turning to MOMO's commercial performance in Q1,, MOMO's ROAS revenue was 1.52 billion RMB, down 15% year over year and 9% quarter over quarter. The year over year decline mainly reflects the ongoing impact of the new tax regulation and stricter local enforcement that came into effect in 2H25. The motivation of some high grossing agencies and broadcasters is still recovery. The sequential decline was largely seasonal driven by the Chinese New Year alongside persistently soft consumer spending sentiment. In response to this external shift, the teams continue to direct gameplay innovation and operational resources towards mid tier and long tail users, keeping revenue from audio scenarios and social games such as Parking wars volatility resilient. This helped partially absorb the external pressure on overall revenue. On the product and operations side, our live streaming business organized a series of user oriented events during the Chinese New Year, effectively cushioning the dilution of online behavior from the long holiday. As a result, the post holiday recovery in key operational metrics including user engagement, paying conversion rate and streamer return rate was meaningfully stronger than in the same period last year. At the same time we continue to introduce and selectively support high quality talent streamer lifting organic revenue through content quality improvements in audio scenarios. We roll out the new PK gameplay to further motivate users to gift one another with some mid tier and long tail broadcasters and agencies on our platform. Facing ongoing profit pressure during the test compliance process, we have rolled out a new incentive based revenue sharing policy. This is decided to enable the quality performance to deliver greater value to the platform while ensuring they make stable income in turn. Now let's turn to Tantan. As of the end of Q1, Tantan had 0.6 million million paying users, a modest decrease of 30,000 quarter over quarter. This decline was driven by two factors. First the carryover from ongoing MAU decline and second Alipay's changes to its auto renewal paying rules billing rules which placed short term pressure on membership credit conversion under the continued effect of our strategic marketing cuts, content user base remain on the downward trajectory though the magnitude of the client has narrowed meaningfully through algorithm iteration and refined operations. Engagement and retention among younger users slight improvements contributing positive to user base stability. On the product side, the team optimized recommendation strategies in our court select based scenario. For example, we introduced here restrictions on female users matches allowing only horizontal or upward matching a benefit for female users view or social expectations. This drove a near 3 percentage point increase in average swipe per female user, slightly improving the retention. On new scenario inspiration, we piloted map based social and AI chat assist features on user acquisition. Although the year over year reduction in channel investment led to a lower required volume, the meaningful narrowing the unit acquisition cost partially offset the impact. Additionally, because organic traffic outperform channel traffic on both user engagement and retention, the overall declines in our user base has far smaller than the channel driven declines implied by our strategic cuts. Sequentially, both spend and user acquisition cost narrow by various degrees so the channel volume decline was relatively limited. While early pace rule policy created new near term app pull pressure, channel ROI was sustained well above 100% throughout the quarter. On the financial side, in Q1, 10's domestic business generated 125 million RMB in revenue, down 25% year over year and 8% quarter over quarter. The primary driver remains MAU construction, leading the fewer paying users. Compounded by the short term impact of Alipay's policy adjustments on VAS payments on monetization, the team unbundled membership features into a Lockhart offerings while enriching fresh chat game plan and stepping up in app promotion to ease top line pressure on profitability. Thanks to ongoing cuts in channel investment and personal costs, net profits grew significantly year over year. Lastly, our new businesses our 2026 goal carries forward from 25 to deepen our overseas presence, enrich our brand portfolio and build a long term growth engine. In Q1, overseas revenue totaled 597 million RMB up 44% year over year with a slight 2%. Sequential decline. Overseas now accounted for 25% of group revenue compared to 16% in the same period last year. The sequential softness was mainly due to some external challenges Sochio faced during the quarter which weighted on our overseas business. Overall, excluding Socho, the rest of our overseas businesses continued to deliver healthy growth this quarter, further validating the value of diversified product portfolio in dispensing risk from single product volatility. Our two newer products in MENA, Yahaland and Amar continue their rapid growth trajectory with both delivering triple digit revenue growth year over year. In Q1,, driven by continuously improving localized operations, a more precise grasp of local user preferences and sustained game plan innovation, both products saw concurrent improvement in revenue and profit this quarter. Yahaland is approaching net income. Breakeven and Amarf achieved positive marginal contribution for the first time. This is a significant milestone making our shift in MENA from a social dominated model to a multi product portfolio beyond our audio and video social products in MENA region. Our dating business focus on developed market is another important pillar of our overseas footprint also deliver satisfaction progress this quarter Panda International Net by our Singapore team completed a full upgrade of product positioning and branding over the past year and in second half of 25 began migrating from a shared domestic international app built to a standalone overseas app. The migration was completed in Q1, with 99% of fans users successfully transfer, minimizing the revenue impact of the version speed. Starting in Q2, the team's focus will turn to further optimizing product experience and improving monetization efficiency. Separately, hepbn, which joined the group last year, has continuous study healthy growth training trajectory since the beginning of this year Happns user base has remained relatively stable over the past year and both sequential and over year over year. Revenue growth came mainly from improvements in paid conversion rate and app people, reflecting greater efficiencies in operating the existing user base. In Q1, we began texting Happns entry into new markets, laying the foundation for the brand's mid to long term growth. As a relatively newer segment for our overseas footprint, we remain confident in the dating business continued release of growth potential in 2026. This concludes my remark. Now let me pass the call to Cathy for the Financial Review Kathy please. Thanks Zig
Kathy
hello everyone. Thank you for joining our conference call today. Now let me take you through the Financial Review. Total revenue for the first quarter 2026 was 2.39 RMB down 5% year-on-year year and 7% quarter over quarter. Non GAAP net income attributable to the shareholders of the company was 328.8 million RMB compared to 403.8 million RMB in the same period of 2025 and 281.3 million RMB in the previous quarter. Looking into the key revenue items for Q1, total revenue for value added services for the first quarter of 2026 was 2.35 billion RMB down 6% year-on-year and 7% quarter-on-quarter. On a geographic basis, mainland China Value Added Service revenue was 1.76 billion RMB, down 15% year over year and 9% quarter quarter over quarter. The decrease was primarily due to heightened tax scrutiny on the agencies for Hello's entertainment business combined with softened consumer sentiment amid broader macro pressure and To a lesser degree, a decline in paying users on tantan baas. Overseas revenue reached 593.7 million RMB up 44% year over year driven by the rapid expansion of our diversified product portfolio. Overseas VAS revenue decreased slightly by 2% sequentially due to seasonal factor namely Ramadan as well as some external challenges in MENA area during the quarter. Turning to cost and expenses, non GAAP cost of revenue for the first quarter of 2026 was 1.46 billion RMB compared to 1.57 billion RMB for the same period last year. Non GAAP gross margin for the quarter was 38.8% compared to 37.9% from year ago Period gross profit margin OR GPM in Q1. 26 rose by around 1 percentage point worldwide. The increase was primarily driven by improved margins in MENA products after lowering the revenue sharing ratio to promote quality growth together with a greater revenue mix from higher margin overseas saving products. This was partially offset by a decline in momoa's GPM resulted from increased payout ratio to agencies in order to cushion the impact from the tax scrutiny. Non GAAP R and D expenses for the first quarter was 165.2 renminbi compared to 185.9 million renminbi for the same period last year representing an 11% decrease worldwide. The decrease was due to overall labor cost savings from the optimization of our personnel structure. Non GAAP R and D expenses as a percentage of revenue was 7% same as Q1 last year. We ended the quarter with 1,396 total employees compared to 1,336 from a year ago. The R&D personnel as a percentage of total employee for the group was 56% compared with 58% from Q1 last year. Non GAAP sales and marketing expenses for the first quarter was 335.4 million RMB compared to 322.1 million RMB for the same period last year representing a 14% and 13% of 13% of total revenue respectively. The year over year increase in sales and marketing expenses was mainly driven by increased marketing investments in our new overseas apps. This was partially offset by continued cost control in our PRC mainland operations as both MOMOA and Tantan reduced marketing spend while Sochio also temporarily skipped scale back channel investments amid external challenges. Non GAAP G and a expenses was 89.4 million renminbi for the first quarter compared to 114.8 million renminbi for the same period last year representing a 4% and 5% of total revenue respectively. The decrease in GNA expenses was primarily attributable to a high base effect in Q1.25 resulting from a self inspection related to tax matters. Non GAAP operating income was 349.2 million renminbi representing a margin of 14.6% compared with 345.3 million renminbi and a margin of 13.7% from Q1.25. The increase was driven by improvement in GPM. Non GAAP opex as a percentage of total revenue stood at 25% unchanged from the year ago period. Now briefly on income tax expenses, total non GAAP income tax expenses was 81.5 million RMB for the quarter with an effective tax rate of 20%. In Q1, the company accrued withholding income tax of 21.2 million RMB which is 10% of undistributed profit generated by our wealthy without withholding tax. Our estimated non GAAP effective tax rate was around 15% in the first quarter. Now turning to balance sheet and cash flow Items. As of March 31, 2026, Hanlo Group's cash cash equivalents, short term deposits, long term deposits, short term investments and restricted cash totaled 8.56 billion Renminbi compared to 8.0 billion Renminbi as of December 31, 2025. Net cash provided by operating activities in the first quarter of 2026 was 158.9 million Renminbi. The difference between operating net cash and non GAAP net income was mainly due to a significant increase in accounts receivable caused by temporary payment collection delays on one of our apps as well as higher higher other current liabilities from the accrual of year end bonuses and the 13th month payroll. Lastly, on business outlook, we estimated our second quarter revenue to come in the range from 2.45 billion renbi to 2.55 billion RMB representing a decrease of 6.1 6.5% to 2.7% year on year. This is based on the assumption that at midpoint on a year over year basis, revenue from our mainland China business would decline by high teens percentage wise while overseas revenue is expected to grow by high 50s percentage wise. Please be mindful that this forecast represents the Company's current and preliminary view on the market and operational conditions which are subject to change. That concluded our prepared portion of today's discussion. With that, let me turn the call back to Ashley to start Q and A. Ashley, please
OPERATOR
just A quick reminder for those who can speak Chinese, please ask your questions in Chinese first and followed by English translation by yourself. And please also limit the number of questions to maximum two. Operator, we're ready for questions. Please. Thank you. If you wish to ask a question, please press Star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Sir King Zhang with cicc. Please go ahead.
Matthew
Like I should conjure questions in meetings here I see here. Thanks Matthew for taking my question and my question about the overseas business regarding the MENA designation in her prepared remarks, the Socho faced some challenges from external factors in the first quarter. Could management provide more details on what happened and would this have any impact on the full year revenue of Book for the overseas business? In addition, Sichuan also mentioned that the two new products continue to see repeat revenue growth while the losses kept narrowing. So could management share when this new business is expected to turn profitable going forward? Will the company continue to increase marketing investment to scale these products or will you focus more on narrowing losses and moving toward profitability? Thank you.
Tang Yan (CEO)
Let me start with what was dragging socio down in Q1 so the sequential revenue decline came down to three main things. Number one is the Turkish government tightened regulation on social and streaming apps which temporarily resulted in blanket removal of all related products across the industry that created a headwind for us in terms of new user appreciation in Turkey. And number two is seasonality. Consumer sentiment in the MENA region during Ramadan was relatively softer as the large and rather mature product Sochio was more noticeably impacted by these seasonal kind of headwinds. And number three is the ongoing conflict in the Middle east that has also had some drag on Socio's revenue in the Gulf region. We are confident that Sochio fully complies with all applicable Turkish laws and regulations and regulations governing social platforms. Our team is actively working with the relevant authorities to bring the app back to the App Store as soon as possible. In the meantime, we are accelerating localization efforts in other markets to offset the temporary impact from Turkey. Sochiel's business has already began to see a steady recovery from the Q1 low and we do not believe investors need to be overly concerned about it.
Zhang Sichuan
So the other two new MENA products had strong Q1 triple digit year over year revenue growth with losses narrowing rapidly as the business has scaled the team has been able to gradually adjust the revenue sharing structure, driving meaningful and sustained gross margin improvement over the past year year we have selectively increasing marketing spend where ROI targets are being met and actively testing new markets while keeping the losses the loss trajectory moving in the right direction each quarter. Our path for these two mana products is pretty clear. Build scale first, optimize the gross margin structure, keep marketing ROI marketing ROI driven and let net profitability flow naturally. Yahalan should keep net profitability within a quarter. Amar is about half a year behind on that trajectory and for the full
Cassie
year Overseas Revenue Outlook I will hand it over to Cassie. Okay, Let me first break the overseas outlook into three separate pieces. First is our flagship overseas app Sochio. As Tang Yan mentioned earlier, Sochio was under some pressure in Q1, mainly due to regulatory changes in Turkey as well as the prolonged geopolitical tensions in parts of the Middle East. That said, I think the team has adapted reasonably well to the changing environment. While revenue in Turkey remained somewhat pressured, performance in other Middle Eastern markets has actually been quite solid. So overall I would say that Socio, particularly in the first half of the year is likely to come in a bit below our original expectations, but the business itself remains fundamentally healthy. And if you look at the second piece for the two newer social entertainment apps we've been scaling in the MENA region, their trends are actually developing very much in line with our plans. And third, for the dating and membership oriented business outside of the MENA region, that part of the portfolio has remained very much on track. And honestly that's one of the things that makes dating and membership business model pretty attractive. Compared with entertainment driven platforms. The revenue visibility and forecasting clarity are generally much higher. So putting these three pieces together, if you recall what we said on the last earnings call, we mentioned that overseas revenue for 2025 was I think somewhere around 2 billion renminbi this year for 2026 we are likely to hit 3 billion renminbi milestone. this point, our overall view really hasn't changed materially. Depending on how market expansion progresses across different regions, there could still be somewhere around 100 million renminbi variation either to the upside or to the downside of that 3 billion renminbi number. But based on what we see today, we remain pretty comfortable with that original range. So hopefully that answers your question. Back to Ashley for the question.
OPERATOR
Hi operator, next question please. Thank you. Our next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
Hi, good evening. Thanks management for taking my question. In Q1 we saw domestic revenue declined by 15% year on year and the year on year decline widened versus 2025. Management Comments this is related to the new tax rules which affect momo. May I understand when should we expect these external factors to be fully digested? On the other hand Management Comments Alipay automatic renewal has some changes which lead to short term impact to Tantan paying conversion. Can management comment about the scope for this adjustment and how long will it last and should we expect this will affect MOMO and other subscription products as well? Lastly, how should we think about the full year outlook for the domestic revenue? Thank you. So.
Tang Yan (CEO)
So Let me first address the impact of tax policies on MOMO. New tax regulations introduced in the second half of 2025 combined with stricter local tax collection and enforcement Affected agencies Operating Chat Room Scenario to elevate the pressure on the supply side, we moderately adjusted the revenue sharing ratios for for key agencies in the latter half of last year, which yield positive results for those impacted. However, tax authorities further tightened their policies targeting agencies in early 2026, resulting a decline in agency related revenue during March and April. In response, we selected a group of high quality agencies in mid May and began assisting them with tax compliance. To help offset the profit pressure caused by additional compliance costs, we introduced a new incentive program and provided further financial support to these selected agencies. And since late May, both operational enthusiasm and revenue among these agencies have rebounded actually rapidly. We expect their performance to return to normal level by Q3. So as for when MOMO Vas will return to year over year growth beyond the tax issue, it also depends on when broader consumer sentiment picks back up. What we can control is making sure the product fundamentals are rock solid and operating efficiency is maximized. We are very confident in momo's modernization capabilities. So on the Alipay auto renewal policy changes yes, this did impact Ten Ten's membership business in Q1, primarily manifesting as a temporary decline in renewal rates and resulting in some subscriber churn. The team actually responded swiftly. On the monetization side, we launched an unbundling strategy separating high frequency perks that were previously bundled into membership packages such as Super Likes and Boosts and offering them as standalone purchases. We have also enhanced our a la carte pairs you go features like Flash chats to help offset the headwinds in membership renewals. In addition, we are diversifying payment channels, encouraging users to shift towards less affected options and promoting longer term membership plans. So in terms of scope, the Alipay policy changes primarily affected subscription or membership products. MOMO'S core payment model is based on consumable virtual gifts which do not rely on auto renewal, so the impact is actually quite minimal. Our overseas business uses App Store or Google Play payments channels which remain unaffected. Overall, this is a relatively contained issue, primarily impacting only Tantan's domestic membership business. On timing, we expect the impact to be concentrated in the first half of the year, with the situation gradually improving in the second half as we diversify payment channels and membership structures. So for the full year Domestic Revenue Outlook I will hand it over to Cassie.
Cassie
Okay, time for an update on how we are thinking about the revenue outlook for the rest of 2026. I will, as in previous quarters, use the same framework which which is set upon three key elements, the macro environment, the regulatory environment, and our own platform fundamentals. Along those lines, starting with the macro side, honestly, consumer sentiment looks largely unchanged from what we saw at the end of last year and through Q1. It remains relatively soft. But importantly, we are not seeing any meaningful deterioration either on the regulatory front. This is really where most of the incremental pressure came from in Q1 and Q2. You are right that the year over year decline in Q1 widened versus last year, and if we look at our Q2 guidance, the domestic revenue decline is expected to widen further from Q1's level. The main reason is tighter tax scrutiny on some of the small and medium sized agencies in our ecosystem, which hit March, April and early May particularly hard. In response, we rolled out new agency incentive policies to encourage tax compliance. The goal here is very straightforward. We want to maintain the long term health and stability of the content ecosystem and continue supporting the agencies that create the most value on the platform. Since rolling out these measures in late May, we've already started seeing encouraging feedback and some improvement in operating trends, and we do expect June performance to benefit from these adjustments. That said, April and May were clearly impacted by the tightened regulatory environment and that pressure is reflected in our Q2 guidance. Some of the impact could still carry into Q3, but at this stage we believe the most difficult period is likely behind us already now turning to platform fundamentals. As Sig mentioned in the prepared remarks, the core business itself remains very solid. So outside of the regulatory pressure there really hasn't been any material change in the underlying business fundamentals compared with what we saw in Q1. Looking into the second half of the year, we still expect a year over year decline rate to narrow meaningfully. Part of this is because the regulatory impact should gradually normalize as the year progresses, and part of it is simply because the comparison base becomes significantly easier in the second half of 2025. So for the second half we still expect the domestic business decline rate to improve to somewhere below 15% year over year. That said, given the additional disruption that we saw in the first half from tax tightening, we are modestly adjusting our full year outlook. Previously we were guiding to a low teens decline for the domestic business. Based on what we see so far happen in the first half, we now expect the full year decline to be closer to somewhere around mid teens year over year. So that's how we are currently thinking about the domestic revenue outlook. Back to Ashley maybe for one more question.
OPERATOR
Yeah, so in the interest of time, let's just take one last question before we close the line and we're ready. Thank you operator.
Jenny Yuan
Thank you. Your next question comes from Jenny Yuan with ubs. Please go ahead.
Tang Yan (CEO)
For the intransm itself so management has highlighted AI driven product innovation in several earnings releases over past year ranging from AI powered AI sprinting feature AI System chat feature to a newly launched AI voice message photo this quarter. So could you please share more details on the group's AI product roadmap going forward and more broadly, how do you view the contribution of AI innovation to our longer term earnings growth and should we expect any meaningful impact on near term profitability from AI investments? And given the external challenges set by both domestic and overseas business at the beginning of the year, how should we assess the group's four year profit outlook and margin trajectory for the full year? Thank you. AI is particularly meaningful for a company like ours where social products are of the core. The essence of our product features and recommendation logic is to lower the barriers for users to form connections and enable long term and effective interactions and deliver emotional value. AI is a tool that can genuinely transform the user experience in this space. Based on what we have built so far, AI is advancing in two distinct directions on the product side. First, enhancing connections between users by breaking the ice and lowering social barriers. Examples include our AI assisted chat features and the AI Voice Drift bottle which we are currently testing. The concept is that AI guides users provide basic profile information through voice input and then automatically generates more vivid and engaging self introduction and greetings using the user's actual voice and this is then published on the platform as a drift bottle. So these AI tools are particularly valuable for users who have dating needs but relatively weaker social skills and second, enabling new products formats. For example like Donut, is fully AI powered voice social product that has already begun monetization in China and on the overseas side, our AI role play dating app Milan Mind, has shown solid early traction in Japan and is now expanding to other Asian markets. These products represent our exploration of what next generation social experience can look like. Regarding the impact of AI investment on profitability, our view is that AI spending is high return in nature. It directly improves user experience and drives higher propensity to pay. From an execution standpoint, AI's penetration across our products is still in a rapid expansion space. Over the past year we focused on refining the AI greeting and AI assisted chat algorithm on the Momo platform. Going forward we will be replicating that tech stack across more use cases including AI agents for more and more live streaming AI short dramas generation based on broadcasters images as well as smarter matching and content distribution content and AI assisted chatting features. This kind of horizontal reuse of the tech stack helps maximize the return on AI investment For the group's three year
Cassie
profitability outlook, I will pass it over to Cassie. Okay, on profitability outlook, I would just go back to the framework that we laid out at the beginning of the year on our March earnings call starting from the top line. If you combine our updated view on the domestic business with what I just discussed on the overseas side, we now expect group revenue for 2026 to see a slight year over year decline versus 2025, probably down by a couple of percentage points at the top level at the beginning of the year. We also said that we were targeting adjusted operating margin in the low teens and based on what we see today, that target still looks quite achievable. That said, because the domestic business faced additional pressure from the tax related disruption in Q1 and the early part of Q2, our full year revenue outlook in absolute dollar terms is now somewhat lower than where we started the year. Naturally that creates more pressure in terms of absolute profit amount. So internally we are looking at additional opportunities to optimize spending wherever appropriate and necessary, whether on personnel side, marketing efficiency or other operating areas where we believe we can improve productivity without affecting long term growth initiatives. So overall I would say that we remain broadly on track to achieve the profitability targets that we laid out at the beginning of the year. So I think that wraps up the call.
OPERATOR
I'm handing back to Ashley for closing remarks. Well, so thank you for participating today and that's going to be the end of the call and we will see you next quarter. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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