Jonathan Zhang
Thank you, Cathy. Good morning and good evening everyone. Thanks for joining our conference call today. I will be hosting today's call and give you an update of our business operations during the second quarter 2015, followed by a financial highlights review. Starting from operating metrics, our monthly active users or MAUs grew 47% year-on-year to 78.4 million at the end of June, 2015. The number of location-based interest groups increased to 5.7 million at the end of June, 58% higher than that for the same quarter 2014. Daily time spent per active users remained relatively stable during the quarter, around 30 minutes. In April 2015 the Company launched a major product upgrade, 6.0 version. In this new version we put a newly designed message board as the default page and moved the nearby function, the previous default page, to a secondary page under the Discovery tab. We also introduced virtual chat rooms in Momo 6.0. Through this lighter social interaction features, we aimed at lowering the pressure our new users encounter before they establish adequate relationships on the platform. Such functions would help drive more diversified social behaviors on Momo and achieve our long-term growth target of user base. Although we have observed some progress on those set goals, the performance of the new features has not fully met our expectations. Our analysis after the new version launch showed that message board as the new default page had its limitations. The biggest one was that only a portion of our active users post messages on message board, limiting the scope of potential connections that can be found by our users on the new default page. Other areas for improvement included quality of postings, logic of recommendation algorithm, authenticity of user tags etcetera. Due to these limitations, the message board as a new default page has not fully covered the social user case, as Nearby People function did in the past. Therefore, part of our users, especially those who had not yet established friend relationships at Momo, had found it difficult to adapt to these changes introduced by Momo 6.0, which led to a slower than anticipated sequential user growth during the quarter. We have acted swiftly since June and released two follow-up upgrades, 6.2, 6.3 so far to address the issues observed. We integrated two other main functionalities, Nearby People and Groups, into the default page called nearby, as a complement to the message board. On the revamped default page simply sweep left and right to navigate across the three most frequently used features on the platform. Other upgrades include adjustments to user recommendation algorithm, simplifying the interface of chat rooms and launch of group events. Since these measures were put in place, we have seen some preliminary signs of improvement and we'll keep close eyes on user trend to further evaluate the ongoing performance of the upgrades. We believe that we are heading to the right direction in terms of developing our products to enhance user experience and make the platform more suitable for a wider range of users. We have strengthened our user behavior data analysis capabilities and intensified interaction efforts with our users. For next steps down the path of optimizing our products, we will continue to refine the existing features and functionalities according to better understanding of our users' needs and behavior patterns. Furthermore, revolving around the location-based information accumulated on our platform, we will deep-mining our new ways for users to connect and socialize more efficiently and effectively. In addition, in order to keep growing the scale of Momo platform, we will also be building other innovative forms of social and entertainment activities on our platform, for instance, the soon-be-launched live music show broadcasting service, which will promote higher engagements to our existing user base and attract users to join as well. Now, turning to the financials, total net revenues reached $30.7 million in the second quarter of 2015, up 264% year over year and 17% sequentially. It fell short by $0.3 million against the low end of our net revenue guidance range at $31 million for the second quarter of 2015, which was primarily attributable from lower than expected revenue generated from marketing services due to less inventory available to our business partners after the launch of our Momo 6.0. I will now review each of the subcategories of the net revenue to elaborate on that. Membership subscription revenues were $14.8 million in the second quarter of 2015, an increase of 166% over the same period last year and 14% from last quarter. The year-over-year increase in membership subscription revenues were primarily driven by the growth in the number of Momo members, which was in turn powered by the growth of our overall user base growth, as well as the launch of our new membership privileges to drive the adoption rate. Paying members reached 3.5 million as of June 30, 2015, compared to 1.7 million as of June 30, 2014 and 3.1 million at the end of last quarter. Additionally, in June we launched RMB30 per month premium membership package, we called it Super VIP, which was well-received by our users and contributed to the overall revenue growth. Mobile games revenue were 7.7 million in the second quarter of 2015, up 210% year over year and 25% sequentially. The growth in game revenues was mainly due to the increase in number of games operated on the platform, as well as the growing number of active game players on Momo platform, which was 8.1 million during the quarter compared to 6.2 million a quarter ago. Overall we are happy with the performance of our game business during the second quarter. Moving deeper into the year we will continue to invest in beefing up the team's capability in game operations. As one of the very few mobile social platforms for game distribution, we are optimistic about the potential of our platform. Mobile marketing revenue were 6.7 million in the second quarter of 2015, compared with 6 million in the previous quarter. Mobile marketing revenues for the same period last year were immaterial. The sequential growth in mobile marketing revenues were primarily driven by our proprietary marketing products, including brand display ads and in-feed native marketing solutions such as app downloads and our Dao Dian Tong services. On the other hand, marketing revenues from third-party partnerships underperformed against our expectations during the quarter, offsetting part of the sequential growth contributed by our self-operated marketing products. During the quarter the company launched a performance-based native marketing system to support self-service ad placement in the feeds on message board and Nearby People. The in-feed marketing system is now powering the company's native marketing solution, serving a wide range of marketers, including application developers, local businesses and brand ad customers. Starting from July 1st, the system was enabled with a real-time billing mechanism, further improving the efficiency of traffic monetization. With the back-end system ready, on the front end we have also stepped up our efforts to connect a broader base of marketers to our ad system. Started it from June, we launched app download services, which is a form of in-feed ad unit that converts user interests to direct downloads. This product has been well-received by the market and now one of the major engine to drive our marketing business growth. In the second quarter we have also started it to work with regional distributors, with the purpose of covering more local businesses and better serving them for our Dao Dian Tong business. All these efforts contributed to an improvement of efficiency in traffic monetization. Thus, we have been seeing an impressive growth in effective CPM from our in-feed marketing products. As a result, the Company's proprietary marketing services, which include both display and in-feed marketing products, together with our brand ads business, grew significantly during the second quarter of 2015, representing a majority of our mobile marketing revenue for the quarter. Mobile marketing revenue from third-party partnerships, including Alibaba and 58.com, while still a significant part of our marketing business, decreased on a sequential basis. For the partnership with Alibaba, the decrease in revenue was mainly due to the movement of two banners for Ali's advertising from Nearby People to message board after the launch of Momo 6.0, resulting in a decline in the total number of PVs that we delivered to Ali in Q2. In addition, our self-operated marketing services, Dao Dian Tong and app downloads, have the priority in terms of display and consumed higher volume of inventory of the first ad banner on the default page during the quarter. That also reduced the ad inventory allocated to Ali. As for our cooperation with 58.com, our main focus for the team in Q2 was still on fine-tuning the product. A new interface and four enhanced functions were rolled out in later part of the quarter. At the same time, promotion efforts from our side, such as screen opening has scaled back due to higher utilization of proprietary brand ads during the quarter, which caused the revenue to fall below the amount we originally built into our guidance. Looking at our future strategies for mobile marketing business, we will be stepping up our efforts in promoting our proprietary marketing services. The efficiencies of our native marketing system has been ramping up steadily and we are seeing vast amount of demand for that. We will make it our key concentration area in mobile marketing going forward. For the third-party partnerships, we value the strategic importance of our partnerships with both Ali and 58. Based on lessons learned from the past two quarters of cooperations, instead of focusing on simple traffic direction targets, we will like to give our team and teams from our partners the time they need at least for the rest of the year to explore deeper integration opportunities to better serve the business needs from all parties. Revenues from other services, which mainly consisted of paid emoticons and revenues from our gifting services, was 1.5 million in the second quarter of 2015, a substantial increase from 0.3 million during the second quarter a year ago. The increase in other services revenue was primarily driven by the gradual ramp-up of revenues from gifting services. During the second quarter we shifted the backend system of our Gift Mall from Taobao to our proprietary platform, to enable a smoother business process and better user experience. We've also been seeing a steady ramping up in GMVs from the Gift Mall. However, at this stage our focus is still on optimizing the use case through product development and building more compelling social experiences around it. Overall this is still at learning phase for our team. Before it reaches to our internal expectations on user experience and engagement level, we won't be pushing aggressively in terms of financial target setting. Now, turning to costs and expenses, for the second quarter of 2015, our cost and expenses on a non-GAAP basis totaled $27.2 million, up 95% year on year and 45% sequentially. The year-over-year increase in costs and expenses was primarily due to the continuing expansion of our business. By the end of June 2015 our total number of employees reached 693 compared to 293 a year ago and 547 at the end of last quarter, making personnel-related costs the largest cost driver on a year-over-year basis. The increased headcount on a sequential basis were mainly to support our self-developed mobile games and development of our live video products to be launched soon. Increase in payments to channels was in proportion to the growth of revenue. Higher infrastructures spending, which include bandwidth costs, SMS costs and server depreciation, directly relates to the growth of our user base. Similar to 2014, during the second quarter this year we kicked off our branding campaign for 2015 by working with selected online video website such as Youku Tudou, LeTV, Sohu and [iQiyi]. As a result, marketing expenditures came in as one of the key incremental expenses drivers on a sequential basis. Our non-GAAP net income attributable to Momo, Inc. was $6 million in the second quarter of 2015, compared to a non-GAAP net loss of $5.4 million in the same period last year and $9.4 million last quarter. Our scale efficiency allowed us to achieve profitability for two consecutive quarters. The lower net profit in this quarter on a sequential basis was mainly attributable from a higher marketing spending, as mentioned above. Quickly on key balance sheet and cash flow items, as of June 30, 2015, we have cash, cash equivalent and time deposits totaled US$453.1 million, compared to $451 million at the end of December 31, 2014. Over 85% of our cash, cash equivalent balances are deposited offshore in terms of US dollar and, thus, we don't anticipate recent volatility in foreign exchange rates to have material impact on the value of our cash assets. In the second quarter of 2015 we generated a positive operating cash flow of 9.3 million compared to 2.1 million for the same period last year and 8.7 million last quarter. Now I'd like to spend a few seconds on our business outlook. We are currently in the process of adjusting our products, business initiatives in order to sharpen the team's concentration to achieve long-term goals. This would also give the team more leeway in balancing various priorities and business drivers and thus benefit the Company over a long run. Our business will continue to be generating healthy growth and management is confident about the long-term potential of the platform. However, in light of the dynamics in our business and above-mentioned considerations, we will no longer provide quantitative revenue estimates in our earnings release. With that, I'd like to conclude our conference call today. Thank you very much once again. Goodbye everyone.
