China-based social media, dating, and live-streaming company Hello Group (MOMO, Financial) faced challenges in its Q2 report. While MOMO exceeded EPS estimates with decent revenue upside, its Q3 sales outlook midpoint fell short of analyst expectations. Persistent economic issues in China have pressured sales among companies like MOMO that rely on discretionary spending. Additionally, some weaknesses in the quarter were due to MOMO's own operational adjustments.
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MOMO operates three primary businesses:
- Momo, its core social media app
- Tantan, its dating app
- Standalone apps, which saw positive year-over-year growth in Q2
- Spending softness amid a deflated economy was one underlying cause, restricting revenue growth for several quarters. Additionally, MOMO's operational adjustments, initiated since the end of 2023, aimed to maintain a healthy ecosystem.
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MOMO's goals for its Momo app included:
- Enhancing the female user experience by adjusting advertising materials
- Reducing large-scale competition events on the live-streaming side
- Advertising adjustments did not yield significant paying user gains, with the metric falling 9% year-over-year to 7.2 million, and only a slight sequential increase of 0.1 million.
- Live streaming revenue dropped by 50% year-over-year as large-scale competition events typically generate significant revenue. MOMO has increased incentives for non-event operations to address this issue.
- Tantan aimed to improve the core dating experience and profitability. Cost reduction strategies over the past two years have pushed Tantan to profitability. However, continued reductions in channel investments pressured Tantan's user base, leading to a 6% sequential decrease in monthly active users (MAUs) to 12.9 million.
- Looking ahead, MOMO expects near-term pressures to persist, projecting Q3 revenues of RMB 2.58-2.68 billion, a 14% year-over-year drop at the midpoint, similar to Q2. For 2025, management cited macroeconomic and regulatory headwinds as key factors influencing future performance.
Despite efforts to improve long-term growth, MOMO experienced another soft quarter. Investors may have been more forgiving if the initiatives did not hurt results longer than expected, as indicated by bearish Q3 guidance. If MOMO's actions do not yield meaningful benefits soon, investor impatience could trigger a more substantial correction.
