Executive Summary / Key Takeaways

• Sound Group Inc. ($SOGP), formerly LIZHI INC., is undergoing a strategic transformation, leveraging its deep expertise in audio technology and AI to pivot towards a global audio-centric social and entertainment ecosystem, with a strong focus on AI chatbots and virtual companionship.
• The company's proprietary voice AI, AIGC, and real-time communication technologies, including its "MY AI FRIEND" chatbot and DOREME platform, are central to its competitive differentiation, enabling enhanced user engagement and new monetization avenues.
• While the company achieved a significant profitability turnaround in fiscal year 2022 and strong revenue growth in early 2023, recent performance in Q3 2023 showed a decline in revenue and a return to net loss, attributed to macro-headwinds and decreased user spending.
• Sound Group maintains a solid liquidity position, with RMB 615.8 million in cash and equivalents as of September 2023, and has initiated shareholder return programs including a special cash dividend and a share repurchase program in 2025.
• The long-term investment thesis hinges on the successful execution of its global expansion and AI commercialization strategies, alongside effective management of increasing regulatory scrutiny and intense competition from larger, more diversified technology giants.

The Sound of Transformation: Charting a Global Audio Future

Sound Group Inc. ($SOGP), a Singapore-based entity formerly known as LIZHI INC. until its rebranding in January 2024, is orchestrating a profound transformation within the digital audio landscape. Founded in 2010, the company has evolved from its roots as an audio-centric platform into a forward-looking enterprise, strategically pivoting towards a global audio-centric social and entertainment ecosystem. This evolution is deeply intertwined with its long-standing commitment to technological innovation, particularly in artificial intelligence. The company's journey, marked by its early foray into voice chatbot technology in 2018, has laid the groundwork for its current strategy: to empower domestic business innovation while aggressively expanding its global footprint through next-generation social networking products.

The competitive arena for Sound Group is dynamic and intensely contested. While it carves out a niche in social audio, particularly within Asian markets, it contends with formidable global players such as Spotify Technology S.A. (SPOT), Tencent Music Entertainment Group (TME), Apple Inc. (AAPL), and Alphabet Inc. (GOOGL). Sound Group differentiates itself by emphasizing specialized audio communication tools and fostering community-driven, real-time audio interactions. This focus aims to cultivate deeper user loyalty, offering a distinct value proposition compared to the broader entertainment mixes or ecosystem-dependent models of its larger rivals. However, Sound Group's smaller scale and market concentration present vulnerabilities, potentially leading to higher operational costs and a more challenging path to achieving the vast market presence and diversified revenue streams enjoyed by its global competitors.

Technological Resonance: The Core of SOGP's Competitive Edge

At the heart of Sound Group's strategic narrative is its robust and continuously evolving technological stack, which serves as a critical differentiator in the crowded digital audio space. The company's core technology encompasses advanced voice AI, AIGC (Artificial Intelligence Generated Content), Natural Language Processing (NLP), Automatic Speech Recognition (ASR), and Text-to-Speech (TTS) capabilities. These are seamlessly integrated into its in-house RTC (Real-Time Communication) platform, DOREME, and its IM (Instant Messaging) platform, VoderX.

The tangible benefits derived from these technologies are central to Sound Group's product innovation. For instance, the improved stability and performance of its ASR and TTS for both Chinese and English languages enable more natural and adaptable audio interactions across diverse scenarios. Breakthroughs in AI voice changing technology, integrated into DOREME, facilitate real-time audio and video streaming with enhanced creative possibilities. Furthermore, the VoderX platform is engineered for high performance, low latency, and scalable customized instant messaging, ensuring a superior communication experience for users.

A cornerstone of Sound Group's innovation is the "MY AI FRIEND" chatbot, launched within its global audio-based social networking product, the TIYA App. Leveraging advanced GPT models and the company's proprietary voice AI, this chatbot allows users to create and customize virtual AI companions, complete with expressive Animated Avatars and a share function for deeper emotional connections. This technology not only enriches the user experience but also fortifies Sound Group's AI assets through continuous motion-enhanced model training and algorithm optimization. The company's R&D initiatives are focused on deepening the integration of multi-model AIGC, exploring new audio-based AI chatbot applications, and developing innovative features that combine avatars, voice chat, and functional bots. These technological advancements are not merely features; they are foundational to Sound Group's competitive moat, driving enhanced user engagement, paving the way for new revenue streams through subscriptions and value-added services, and underpinning its long-term growth strategy.

Strategic Initiatives and Operational Dynamics

Sound Group's strategy unfolds across two primary segments: its established Audio Entertainment business and its burgeoning Global Innovative business. In Audio Entertainment, the company is committed to cultivating a healthy and sustainable ecosystem. This involves proactive optimization of operating strategies and meticulous refinement of content creator expansion and nurturing mechanisms. Initiatives like the "Starlight Challenge" aim to cultivate mid and long-term content creators, enhancing content quality and solidifying the platform's competitive edges. The company also enriches content offerings and iterates product design to improve user experience and attract high-quality users.

The Global Innovative business represents Sound Group's frontier, deeply invested in developing next-generation social networking products. This segment integrates advanced features such as cross-device functionality, real-time capabilities, and AIGC technologies to refine product interfaces and functionality. A key focus is boosting localization capabilities across product development and operations, adopting a collaborative, cross-team approach to product innovation. The TIYA App, with its "MY AI FRIEND" chatbot, virtual AI preset companions, and expressive Animated Avatars, exemplifies this global push. Management views technological advancements as the cornerstone of business development, consistently fortifying core technological capabilities to empower business growth. The company's consistent recognition as one of China's top 100 internet companies for five consecutive years underscores its comprehensive capabilities in the industry.

Financial Performance and Liquidity Profile

Sound Group's financial trajectory has been characterized by periods of robust growth and strategic investment, alongside recent challenges. The fiscal year 2022 marked a significant turnaround, with full-year revenue increasing to RMB 2.185 billion and gross margin improving by 400 basis points to 33%. Critically, the company achieved a net income of RMB 86.5 million, a substantial shift from a net loss of RMB 127.3 million in the prior year, demonstrating the sustainability of its business model. This positive momentum continued into Q1 2023, where net revenues reached a new high of RMB 631 million, representing a 22% year-over-year increase, driven by growth in average user spending and optimized marketing strategies. Net income in Q1 2023 surged by 194% year-over-year to RMB 48.3 million.

However, the company's performance in the latter half of 2023 presented a mixed picture. Q2 2023 saw net revenues increase by 15% year-over-year to RMB 592.9 million, but gross margin declined to 29% from 34% in the prior year period. The third quarter of 2023 witnessed a decline in net revenues to RMB 425.1 million, primarily due to a decrease in average paying users and user spending on audio entertainment products. Gross margin further compressed to 25%, and the company reported an operating loss of RMB 60.1 million and a net loss of RMB 62 million for the quarter. This shift was partially offset by decreased selling and marketing expenses, but research and development expenses increased by 7% year-over-year, reflecting ongoing investments in R&D efficiency optimization.

From a liquidity standpoint, Sound Group maintains a healthy cash position. As of September 13, 2023, the company held RMB 615.8 million in cash and cash equivalents and restricted cash. This strong cash balance provides a cushion for strategic investments and operational flexibility. The company has also demonstrated a commitment to shareholder returns, announcing a special cash dividend of US$0.005 per ordinary share (US$1.00 per ADS) in August 2025, with an ex-dividend date of October 1, 2025. Additionally, a $4 million share repurchase program was approved in June 2025. While Sound Group's TTM gross profit margin stands at 27.41%, and its operating and net profit margins are currently negative, this reflects the significant investments in its global and AI-centric growth initiatives, contrasting with the generally higher profitability of larger, more mature competitors.

Outlook and Growth Vectors

Sound Group's management remains steadfast in its long-term vision, emphasizing an "online audio-centric globalization strategy" underpinned by continuous technological innovation and operational efficiency. The company is committed to further enhancing organizational efficiency, developing globalization capabilities, and improving overall agility to deliver enduring value to stakeholders.

A key growth vector is the global expansion of its AI chatbot business. While management anticipated a "smaller proportion of the overseas revenue scale" in 2023 due to the early stage of monetization testing, they expect new revenue streams from AI chatbots, such as subscriptions and value-added services, to diversify overall revenue in the future. Investments in marketing and localized operations for the global business are planned to increase in line with business growth, but within a "well-managed range". The domestic online audio market is also seen as having "huge growth potential" with increasing user penetration. Management is confident in continuously improving profitability and profit margins in the long term, driven by refined user acquisition strategies, enhanced network effects for organic growth, and the empowerment of its versatile technology platform.

Risks and Regulatory Landscape

Despite its strategic vision, Sound Group operates amidst persistent macro-headwinds and market uncertainties. A significant risk factor highlighted by management is the evolving regulatory environment. The company has observed "strengthened regulatory efforts with stricter standards and regulations" impacting live-streaming peers. In response, Sound Group is reinforcing overall compliance management, with content safety and security being a top priority. This includes conducting regular self-examinations to meet compliance requirements.

Competition from larger, well-capitalized technology companies also poses a continuous challenge. While Sound Group's specialized audio technology offers a competitive edge in niche social audio interactions, its smaller scale could lead to higher customer acquisition costs and potentially lower efficiency compared to rivals. The need for substantial ongoing investment in AI and global expansion, while strategically necessary, could pressure short-term profitability and cash flow.

Conclusion

Sound Group Inc. is at a pivotal juncture, transforming from a domestic audio entertainment provider into a global player powered by cutting-edge AI. Its strategic focus on an online audio-centric globalization strategy, deeply rooted in proprietary voice AI and AIGC technologies, positions it to capitalize on the growing demand for online companionship and interactive audio experiences. While recent financial performance has shown some volatility, particularly a net loss in Q3 2023, the company's robust cash position and commitment to shareholder returns provide a degree of stability.

The long-term investment thesis for Sound Group hinges on its ability to successfully commercialize its AI chatbot initiatives globally and to effectively navigate the competitive landscape and evolving regulatory environment. The "so what" for investors lies in the potential for its differentiated technology to drive sustainable user engagement and diversify revenue streams, ultimately leading to improved profitability and market share in the burgeoning global audio social market. Continued execution on its technological roadmap and disciplined investment in its global expansion will be critical determinants of its future success.