Executive Summary / Key Takeaways

• Hello Group Inc. is undergoing a strategic transformation, pivoting from a domestic-centric, high-spending user model to a diversified, ROI-driven, and internationally focused growth engine. This shift is underpinned by significant AI innovation and a disciplined approach to profitability.
• The company's rapidly expanding overseas business, particularly in the MENA region and emerging dating markets, is becoming a primary growth catalyst, with overseas revenue surging 73% year-over-year in Q2 2025 and projected to grow around 70% for the full year 2025.
• AI integration within the Momo app, including personalized greetings and chat assistants, is enhancing user experience, driving engagement, and stabilizing the user base, with AI-generated greetings increasing response rates by a high single-digit percentage.
• While domestic operations face macroeconomic headwinds and a one-off withholding tax adjustment of RMB 547.9 million in Q2 2025, Hello Group is optimizing costs and refining strategies for its Momo and Tantan platforms to maintain profitability and improve efficiency.
• Despite near-term revenue pressures and a cautious outlook for domestic segments, the company's strong cash position and commitment to shareholder returns through share buybacks highlight a focus on long-term value creation.

A Strategic Pivot Towards Global Growth and AI Innovation

Hello Group Inc., originally established in 2011 as Momo Inc., has evolved from a pioneering mobile social and entertainment platform in China to a company strategically diversifying its revenue streams and geographical footprint. The company's core business, centered around the Momo app, has historically facilitated casual social interactions based on location and interests, while its Tantan app caters to the dating market. Over recent years, Hello Group has embarked on an ambitious international expansion, recognizing clear growth potential beyond its mature domestic market. This strategic pivot is now defining its investment narrative, emphasizing a disciplined, ROI-driven approach to growth and a significant investment in artificial intelligence to enhance user experience and monetization.

The company's overarching strategy for 2025 is clear: maintain the productivity of the Momo app as a cash cow with a healthy social ecosystem, improve Tantan's core dating experience for profitable growth, and deepen its presence in overseas markets to build a long-term growth engine. This multi-pronged approach is a direct response to evolving market dynamics, including a challenging domestic macroeconomic environment and increased regulatory scrutiny.

Technological Edge and Innovation

A cornerstone of Hello Group's strategy is its commitment to technological differentiation, particularly through advanced AI. The company has made significant strategic deployments and investments in AI since 2022, establishing a dedicated team for large model applications and continuously investing resources in research and model training tailored for the social sector.

On the Momo app, an in-house developed AI greeting feature has been fully rolled out, enabling male users to generate personalized greetings by analyzing female users' profiles. This innovation has tangibly improved user engagement, driving response rates up by a high single-digit percentage. Furthermore, Hello Group is testing an AI chat assistant feature that provides content suggestions during ongoing conversations. This assistant aims to increase the number of multi-round conversations and in-depth interactions, thereby improving user retention and stabilizing Momo's user base. The company has also replicated this AI technology in Tantan, extending its benefits to users seeking dates who may lack conversational skills.

Beyond integrating AI into existing products, Hello Group has launched a standalone AI character role-play chat app in Japan, which is performing well and has initiated preliminary monetization efforts. The stated goal of these AI initiatives is to significantly enhance the product and commercial value across Momo, Tantan, and new overseas social products, strengthening the company's competitive moat by addressing user pain points and fostering more engaging social interactions. For investors, these technological advancements translate into potential for higher ARPPU (Average Revenue Per Paying User), improved paying conversion rates, and sustained user loyalty, all contributing to long-term revenue stability and growth.

Competitive Landscape and Strategic Positioning

Hello Group operates in a highly competitive digital social and entertainment market, facing off against formidable players. Direct competitors include Tencent Holdings (TCEHY), Bilibili (BILI), and DouYu (DOYU), each with distinct strengths and market positioning.

Tencent, with its vast and integrated WeChat ecosystem, holds a dominant position, offering a broader range of services beyond social interactions. Tencent's Q2 2025 results showed robust performance, with total revenues up 15% year-over-year to RMB 184.5 billion and non-IFRS operating profit increasing 18% year-over-year. Its marketing services revenue surged 20% year-on-year, driven by AI-driven improvements to its advertising platform. Tencent's substantial user base and deeper ecosystem allow for stronger user retention and cross-selling, making it a powerful rival. Hello Group differentiates itself by focusing on specialized casual social interactions and dating, aiming for deeper engagement within these niches.

Bilibili, a video-sharing platform targeting younger demographics, also demonstrated strong Q2 2025 performance, achieving its first profitable quarter with total net revenues up 20% year-over-year to RMB 7.34 billion. Its gross profit margin improved significantly to 36.5% from 29.9% in Q2 2024, driven by mobile games revenue surging 60% and advertising revenue growing 20%. Bilibili excels in content variety and community depth, areas where Hello Group's platforms, while offering interactive real-time experiences, may lag. However, Hello Group's AI-powered features for icebreaking and chat assistance provide a unique value proposition in personalized social connections, potentially fostering deeper user loyalty in its specific segments.

DouYu, a game-centric live streaming platform, also returned to profitability in Q2 2025, reporting net income of RMB 37.8 million, a significant turnaround from a net loss in Q2 2024. Its total net revenues increased 2.1% year-over-year to RMB 1,053.9 million, with gross margin expanding to 13.5% from 8.2% in the same period last year due to cost optimization. While DouYu leads in specialized live streaming for gaming, Hello Group's broader social features, including dating and diverse audio/video interactions, offer a more diversified value proposition. Hello Group's competitive advantages, or "moats," include its established brand in social and dating apps, strong network effects that foster user loyalty, and proprietary technology for location-based matching. The ongoing AI integration further strengthens these moats by enhancing user experience and engagement.

Strategic Pillars and Operational Execution

Hello Group's operational strategy is meticulously aligned with its overarching goals. For the Momo app, the focus remains on maintaining its "cash cow" status. In Q2 2025, Momo's value-added service revenue reached RMB 1.85 billion, a decrease of 11% year-over-year, primarily due to soft spending sentiment among high-paying users amid a weak macro environment. However, it saw a 4% quarter-over-quarter increase, attributed to seasonal recovery. The company is proactively managing its user base by cutting user acquisition investments with negative ROI, leading to a sequential decrease of 0.6 million paying users to 3.5 million in Q2 2025. This strategic move, while reducing user count, has had a minimal negative impact on revenue and has contributed to improved profitability.

Tantan is undergoing a significant transformation, shifting from a monetization-first approach to prioritizing core dating experience and cost efficiency. Its onshore business revenue in Q2 2025 was RMB 160 million, down 18% year-over-year, with paying users decreasing to 740,000. However, ARPPU increased 18% year-over-year and 8% quarter-over-quarter, partially alleviating revenue pressure. The product upgrade, focusing on user authenticity and simplifying the UI, has improved user experience but caused short-term pressure on paying conversion. Organic user growth has shown a positive trend, offsetting declines from reduced marketing spend.

The overseas business is the most dynamic segment, positioned as a long-term growth engine. In Q2 2025, overseas revenue surged 73% year-over-year to RMB 442 million, accounting for 17% of the group's total revenue, up from 10% in the same period last year. This growth is driven by audio and video-based social products in the MENA region, such as Soulchill, and emerging brands like Yahale and Amar. Soulchill's product optimizations have boosted paying conversions and user accounts. Hello Group is also expanding its overseas dating presence, with Tantan International stabilizing its revenue and focusing on core dating experiences, particularly in overseas Chinese communities and Southeast Asia. The recent acquisition of an unnamed brand with significant potential in European dating markets further underscores this global ambition.

Financial Performance and Health

Hello Group's financial performance in Q2 2025 reflects a company in transition. Total group revenue was RMB 2.62 billion, a 3% year-over-year decrease, but a 4% quarter-over-quarter increase. Domestic revenue declined 11% year-over-year to RMB 2.18 billion, while overseas revenue demonstrated robust growth. Adjusted operating income was RMB 448 million, down 6% from Q2 2024, with a margin of 17%. Excluding a one-off withholding income tax accrual of RMB 547.9 million, non-GAAP net income for Q2 2025 would have been RMB 451.9 million, marking a 1% year-over-year increase and a 12% sequential increase. This tax accrual, stemming from a new interpretation by Chinese tax authorities on dividend withholding tax, is considered a non-recurring item.

The non-GAAP gross margin for Q2 2025 was 38.8%, a 2 percentage point decrease year-over-year. This decline is attributed to a structural shift towards overseas markets, which typically have higher payout ratios, workforce optimization, and increased payment channel costs in international operations. Despite these pressures, net cash provided by operating activities in Q2 2025 was RMB 250.1 million. As of June 30, 2025, Hello Group maintained a strong liquidity position with RMB 12.39 billion in cash, cash equivalents, and deposits, although this decreased from RMB 14.73 billion at the end of 2024 due to a RMB 1.76 billion bank loan repayment and RMB 346 million in cash dividends paid.

Outlook and Growth Trajectory

Hello Group's management has provided a forward-looking outlook that underscores its strategic priorities. For Q3 2025, the company anticipates total revenue in the range of RMB 2.59 billion to RMB 2.69 billion, representing a year-over-year change from a 3.2% decrease to a 0.6% increase. This guidance reflects an expectation for the PRC Mainland business to decrease by mid- to low teens year-over-year, while overseas revenue is projected to grow in the mid-60s.

For the full year 2025, domestic revenue is expected to see a low-teens year-over-year decline. However, this will be significantly offset by strong overseas growth, anticipated to be around 70% year-over-year, with overseas revenue reaching RMB 1.7 billion to RMB 2 billion, up from RMB 1 billion in 2024. This implies the group's top line could be flattish or experience a slight downtick compared to 2024. Non-social emerging brands are expected to accelerate at a triple-digit pace, becoming increasingly important growth drivers due to their higher-margin, subscription-based models. Management expects overseas growth to reaccelerate in Q4 2025 as ROI optimization takes effect.

Tantan's revenue is projected to decline by 20% to 30% year-over-year in 2025, but profitability for its domestic business is expected to improve due to aggressive cost optimization and a dramatic reduction in user acquisition spending to ensure positive ROI. The company aims for Tantan to remain profitable at a lower platform scale. Group-level gross margin for 2025 is expected to be at the lower end of the 36%-37% range, and the non-GAAP operating margin is projected to be in the lower end of the 13%-14% range, reflecting near-term gross margin pressure and increased overseas marketing investments.

Key Risks and Challenges

Hello Group faces several pertinent risks. New tax regulations affecting agents and broadcasters in China pose a potential pressure on domestic revenue and gross margins in the second half of 2025. The one-off withholding tax accrual in Q2 2025 highlights a broader industry-wide scrutiny, suggesting other companies with similar structures could face comparable reassessments. The weak macroeconomic environment continues to impact consumer sentiment, particularly among high-paying users in live streaming.

In its overseas expansion, Hello Group is adopting a prudent approach, moderating marketing spend due to increased unit acquisition costs in new apps and the need for better user segmentation in regions like the Gulf. Tantan's product upgrades, while enhancing user experience, have created short-term pressure on paying conversion and user base stability. The company's strategy to dramatically cut user acquisition costs for Tantan, while aimed at profitability, will likely lead to a faster decline in active users in the short term.

Conclusion

Hello Group Inc. is at a pivotal juncture, strategically transforming its business model to capitalize on international growth opportunities and technological innovation. The core investment thesis rests on the company's ability to successfully execute its pivot towards a diversified, ROI-driven, and AI-enhanced global social and entertainment platform. While domestic segments contend with macroeconomic headwinds and regulatory adjustments, the robust expansion of its overseas business, particularly in the MENA region and emerging dating markets, is poised to become the primary engine for future revenue and profit.

The company's commitment to AI integration, evident in features like personalized greetings and chat assistants, strengthens its competitive position by directly addressing user pain points and enhancing engagement. This technological leadership, coupled with a disciplined approach to capital allocation favoring share buybacks due to perceived undervaluation, underscores a clear focus on long-term shareholder value. Despite near-term challenges and a cautious outlook for its domestic segments, Hello Group's strategic clarity, operational adjustments, and burgeoning international footprint position it for a profitable and sustainable growth trajectory in the evolving global social landscape.