Hello Group, Inc. (MOMO) Q4 2021 Earnings Call Transcript

Hello Group, Inc. (NASDAQ: MOMO) Q4 2021 earnings call dated Mar. 24, 2022

Corporate Participants:

Ashley Jing — Head of Investor Relations

Li Wang — Director and Chief Executive Officer

Jonathan Xiaosong Zhang — Chief Financial Officer

Analysts:

Thomas Chong — Jefferies — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter and Fiscal Year 2021 Hello, Group, Inc. Earnings Conference Call. [Operator Instructions] Please note that today’s conference is being recorded.

I would now like to hand the conference over to your first speaker today Ms. Ashley Jing. Please go ahead.

Ashley Jing — Head of Investor Relations

Thank you, operator. Good morning and good evening, everyone. Thank you for joining us today for Hello Group’s fourth quarter and fiscal 2021 earnings conference call. The company’s results were released earlier today and are available on the company’s IR website. On the call today are Mr. Wang Li, CEO of the company; And Mr. Jonathan Zhang, CFO of the company. They will discuss the company’s business operations and highlights, as well as the financials and guidance. They will both be available to answer your questions during the Q&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 provisions of the Private Securities 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 to Mr. Wang. I will translate for him. Mr. Wang.

Li Wang — Director and Chief Executive Officer

[Foreign Speech]

Good day, everyone. Thank you for joining our conference call today. 2021 was a busy year for us. Despite a variety of external challenges, our team was able to methodically execute our strategic priorities set at the beginning of the year and delivered solid results. In my remarks today, I will begin by reviewing the key operational and business results for the fourth quarter and fiscal year 2021, followed by outlining our strategic priorities for FY 2022, and our execution plan.

[Foreign Speech]

I will start with a brief overview of our financial performance. For the fourth quarter of 2021, total revenue at the Group level was RMB3.67 million [Phonetic] down 3% year-over-year and 2% quarter-over-quarter. Adjusted operating income for the quarter was RMB507 million, representing a 14% profit margin. For the core Momo business, total revenue was RMB3.24 billion, up 6% from Q4 last year and flattish from last quarter. Adjusted operating income was RMB652 million with a 20% margin. Tantan’s total revenue for the quarter came in RMB437 million and 41% year-over-year and 14% sequentially. The decrease was due to the demonetization process to improve user experience and retention. Adjusted net loss from Tantan was RMB130 million for the quarter compared with RMB8.84 million in for the year ago period.

[Foreign Speech]

For fiscal 2021, total revenue at the Group level was RMB14.6 million compared with RMB15 million in 2020. The year-over-year revenue decrease was due to our strategic decision to lower Tantan’s has monetization level in the second half of the year to improve user experience and retention to drive overall user growth. Excluding Tantan, revenue for the core Momo was slightly down 1% from last year with the second half of 2021 back on to the year-over-year growth track. Adjusted operating income at the Group level was RMB2.59 billion with 18% margin. Excluding Tantan, operating income for the core Momo was RMB2.92 billion [Phonetic] with a 23% margin. Adjusted net loss for Tantan was RMB337 million.

[Foreign Speech]

Now, a deeper dive into other aspects of the year. I’m going to focus on the core Momo business and move on to Tantan later. As for the key operating matrix, core Momo had 114.1 million monthly actives for Q4 ’21, up slightly from a year ago and down slightly from the previous quarter. The sequential decline was due to COVID-19 resurgence and related control measures in various regions in China towards the end of the year. This had a clear negative impact on user social sentiment. In addition, the peak e-commerce season drove up unit acquisition cost for channel marketing. As a result, we lowered our channel investments for our considerations. The number of paying users for the quarter was 8.9 million compared with 9.0 million a year ago. On a sequential basis, paying user count decreased 400,000. This was mainly due to the decrease in MAUs and on top of that, COVID-19 having a negative impact on paying conversion. Despite external challenges, our product team managed to enhance user engagement by improving the basic social experiences on the platform. The number of two-way interactions grew meaningfully from the year ago period and the number of greetings and response rate also increased or continued to trend up. Product organization [Phonetic] together with channel strategy refinement led new user retention to hit a record high since the beginning of the pandemic while the overall retention ratio reached a year high in Q4. This shows that the fundamentals of the core Momo as a social platform continue to remain stable.

[Foreign Speech]

Next, let me walk you through the progress we made with our strategic priorities for the financial year 2021.

[Foreign Speech]

Firstly, on core Momo’s user front. COVID-19 related control measures surprised the overall open social sentiment throughout 2021, especially in the second half of the year. Meanwhile, Tantan traffic became increasingly concentrated on a few platforms, resulting in a more intensive competition for channel resources and driving up unit acquisition cost for new users. Our goal has been to maximize ROI by giving favorable marketing windows to step up user acquisition efforts. We have been certainly adjusting the allocation of marketing spend for new user acquisition and reactivation of dormant users. We offset the overall cost pressure caused by the increase in the unit price of new users by shifting resources to reactivate dormant users because the retention ratio and paying conversion of dormant users are considerably higher than that of new users and the unit price is meaningfully lower. Thanks to the continued improvement in channel ROI and product efforts, we were able to achieve our strategic goal for core Momo users to deliver a moderate increase in MAU at a slightly lower cost compared to last year. This has proven to be an effective way for us to maintain a stable user base in 2022.

[Foreign Speech]

On the product side, the core Momo product team made good progress in optimizing call user experience, while making continuous product innovation throughout 2021. The introduction of the [Indecipherable] was experienced in the first half of the year, allows users to share their relationship stories and express their feelings without releasing their profile information. It played a positive role in enhancing female users engagement and retention. The revamp of the nearby people list in the second half of the year has also enhanced the users experience by decentralizing the distribution of traffic, improving the efficiency of relationship discovery within the call experiences and introducing new features that provide incremental value to previously underserved users are key means for the product team to improve retention and ultimately drive user, steady user growth.

[Foreign Speech]

In addition to core Momo, in 2021 we continuef to execute our strategic priorities of enriching our product portfolio and pushing the boundaries beyond Momo and Tantan. One highlight here is Sochio, a voice-based social app targeting the MENA area. Our teams leveraged our reach product experience accumulated in China and combined it with the so-called localized operational approach with user retention and ROI gradually improving, we stepped up our marketing efforts in the second half of the year. As a result, user scale and revenue showed record growth. Although Sochio is still in the early stages of user and monetization, its monthly revenue has already caught up to the level of [Indecipherable] combined.

In the second half of the year, we launched [Indecipherable] like simulation game specifically targeting overseas female users. As we stepped up our marketing efforts during the holiday season, revenue grew rapidly in Q4 and ROI continued to improve steadily.

[Foreign Speech]

In addition to Sochio, the audio and video based social apps targeting domestic markets also made impressive progress in 2021. For these two relatively mature apps, our strategy was focused on reducing cost and improving efficiency during the second half of the year. As a result, both apps turned profitable within Q4.

[Foreign Speech]

Next, I will review the progress that we’ve made regarding our priority of bringing the cash cow business back on to the growth track.

[Foreign Speech]

Firstly, with respect to live streaming, core Momo live streaming business revenue totaled RMB1.95 billion for the first quarter, up 1% year-on-year and flattish sequentially. For fiscal 2021, revenue from live streaming totaled RMB7.48 and 13% compared with 2020. During the last year, we continued to focus on the improvement of the content ecosystem by beefing up the supply end. Revenue entered a sequential growth track after Chinese New Year low seasonality and this growth momentum was maintained until mid Q3. The non-event days daily gross revenue came down quite a bit in Q4 compared with the summer peak due to the increasingly challenging macro headwinds starting in September. In order to overcome spending softness, we hosted a series of small scale promotional events to keep various cohort of standards and performance well engaged so that we could keep daily gross revenue at a decent level through relatively mild stimulative measures. Although the related costs associated with these additional events put some pressure on gross margin, we believe it was a necessary expense to help our content ecosystem partners with a tough economic condition.

[Foreign Speech]

Despite the macro challenges, the overall company ecosystem continue to show steady improvement. The new incentive program continues to take effect in enabling us to secure the supply of high growth revenue broadcasters and making us more attractive when recruiting new talents. The amount of high quality new talents grew 60% compared to the beginning of the year and the retention and share of revenue contribution increased significantly.

[Foreign Speech]

Now turning to VAS. Revenue from value-added service excluding Tantan totaled RMB1.24 billion for the fourth quarter, up 16% year-over-year and down 1% sequentially. The sequential decrease was mainly due to the pandemic induced suppression of users social sentiment and propensity to pay, resulting in the number of long tail virtual gifting paying users, particularly in the interest group declining significantly. The number of membership subscriptions also showed a slight sequential decrease. Core Momo VAS revenue was RMB1.14, up 11% from the same period last year. Revenue from the new [Indecipherable] apps totaled RMB97.84 million, up 142% from Q4 last year, making a more meaningful contribution to our top line.

[Foreign Speech]

For fiscal 2021, revenue from VAS excluding Tantan totaled RMB4.85 billion, up 39% year-over-year. Core Momo VAS revenue totaled RMB4.54 billion, up 24% year-over-year. The rapid growth from a high base was mainly driven by the introduction of simplified features and operational events into the audio and video social entertainment experiences. For instance, in Q2 we brought in the find my experience in the chat room, where each grassroot talents are concurrently available and users can send virtual gifts to request performances ranging from singing to script rating. In Q3, we introduced [Indecipherable] feature in the chat room. These features were well received by users across the board. In addition to audio, video social entertainment, the team also introduced innovations into the traditional gifting category. To illustrate this, we made seasonal gifts available in the interest group at the beginning of the year, where we periodically reinvented gift ideas that effectively stimulated spending enthusiasm amongst users. Furthermore, [Indecipherable] is a good example of how we keep users fresh and engaged through operational events.

[Foreign Speech]

Now, briefly about the new apps. For fiscal 2021 revenue from the new bucket totaled RMB304 million, almost tripled that of last year, driven by both users and ARPU growth. The performance was collectively driven by Sochio, Qool [Indecipherable] and the performance of each of these apps were already reviewed in the previous product session. So I’ll quickly skip here.

[Foreign Speech]

Now turning to Tantan, I will start with user trend and overall financials. The COVID resurgence had a clear negative impact on people’s staging sentiments, which made large scale marketing campaign less effective. We therefore took a moderate approach in terms of marketing investments. User scale decreased significantly in regions where COVID containment measures was severe. Internally, we focused our efforts on product adjustments and improving user experience through rapid iterations. The steady product improvement led to an upward trend in user scale in regions that were free off pandemic and the control was more relaxed. Tantan had 27 million monthly active users for the fourth quarter, up 1% from September and 8% from June, a lower than our media expectation. Tantan paying user count came in at 2.5 million at the end of Q4 ’21, down from 2.9 million last quarter. The 400,000 net decrease was mainly attributable to three factors. First, the demonetization process to improve user experience and retention had a negative impact on paying conversion and ARPPU. Second, the pandemic surprised the user staging sentiments and inclination to pay. Third, our current product efforts mainly focus on experiences beyond the swipe and match mechanism which diverts traffic away from the existing VAS paying features. This is obviously a negative factor to the membership paying conversion and revenues. However, this is a temporary problem, which can be addressed by introducing new VAS features beyond swipe and match system.

[Foreign Speech]

Now, let me briefly review Tantan’s financial performance. Total revenue for the fourth quarter was RMB437 million and 41% year-on-year and 14% quarter-over-quarter. VAS revenue decreased 14% sequentially to RMB236 million. The sequential decrease was due to the decrease in both paying user count and ARPPU for reasons explained earlier. Live streaming revenue decreased 14% sequentially to RMB201 million. The sequential decrease was due to the decline in paying user count, as we substantially deemphasized live streaming in the September product upgrade. ARPPU grew on a sequential basis, driven by the promotional events held at the end of 2021.

[Foreign Speech]

For fiscal 2021, total revenue for Tantan was RMB2.03 billion and 14% year-on-year. Adjusted net loss was RMB337 million compared with a net loss of RMB250 million in 2020. The decrease in the top line and bottom line was mainly caused by our initiatives to improve user experience and retention, including marketing strategy adjustments to increase the female ratio at the beginning of the year and the demonetization process in the second half. In addition, the COVID-19 resurgent in Q4 also had a further negative impact on revenue. ARPPU improved partially, improvement — partially offset the impact of a decrease in paying user count. VAS revenue for fiscal ’21 decreased 18% year-on-year to RMB1.13 million [Phonetic]. Total revenue from live streaming business decreased to 10% to RMB903 million.

[Foreign Speech]

Now, I’ll quickly recap Tantan’s execution of strategic priorities in FY ’21. The single most important goal for Tantan during the year was to deliver solid user growth by improving marketing efficiency and coordinating experience. Several external and internal challenges over the past few years led to a decline in Tantan’s user base from its peak in the first half of 2019. The external challenges mainly came from the ongoing COVID-19 pandemic since the beginning of 2020 and other factors that were out of the company’s control. In retrospect, we could have done much better in important areas, including core product experience, channel marketing efficiency and [Indecipherable]. As a result, we haven’t been able to take full advantage of the tremendous market opportunities that we were seeing in the past few years. Our most important move in 2021 was to put Tantan back on track by deploying a viable strategic target together with an execution plan as well as assembling a fully competent team after Group realignment. In this process, we encountered and expected obstacles, but also achieved encouraging results. Now I’ll go through the details.

[Foreign Speech]

First of all, let me talk about the aspects that we didn’t do well enough. During the management transition, our assessments about how fast we can push forward the product out and operational reform was a bit too optimistic. This compounded with the COVID-19 resurgence in Q4 have caused us to meet the user growth target I set in mid 2021.

[Foreign Speech]

Although user growth was lower than we originally hoped for, we were pleased to see that the entire management and execution team was in place by the end of the year. Before that, we had spent two quarters thoroughly reviewing Tantan’s product experience, marketing strategy and funding plans. Based on large scale research surveys and in-depth studies of user behavior, we identified key problems in these three areas and formulated corresponding solutions.

[Foreign Speech]

On the marketing side, the most important area of progress we’ve made was to adjust an increasingly unbalanced user structure. In the past few years, in order to control our paying conversion to meet quarterly numbers in paying user count and revenue, Tantan compromised the quality of new users acquired through channels. Marketing efforts were routed towards male users with a strong propensity to pay, resulting in a gradual deterioration of the gender mix. We believe our balanced gender ratio is crucial to the overall user experience in the dating community and the long-term healthiness of the ecosystem. The percentage of female users acquired through channels increased significantly since we introduced new ad materials, specifically targeting women. We managed to keep the proportion of female users from channels within a reasonable range of 40% to 50%. After several months of adjustments, Tantan’s overall gender ratio returned to early 2018 level with a stable outlook trend.

[Foreign Speech]

On the product side, one of the most important areas of progress made in 2021 was that we determined that the key to increasing user retention is to improve the experience of female users and users without qualified photos. Our survey showed that due to the passive nature of Asian women, 40% of female users on Tantan swipe in an extremely selectively way, resulting in some hardly getting any matches or interactions. In addition, for those who failed to provide qualified photos were therefore denied access to the swiping system, 60% of them expressed their genuine desire to use Tantan staging service. Currently, this group of people represents around 1/3rd of average daily new registrations. The swipe and match product mechanism tends to be less effective in terms of addressing the needs of these two categories of users. That’s why the retention has always been significantly lower than the average. We believe providing reacher alternative features can help improve the dating experience and retention, ultimately making a significant incremental contribution to MAUs. while the team has yet to make a breakthrough in this aspect, we have seen some encouraging test results. We will continue to explore this with rapid iteration in 2022.

[Foreign Speech]

On the product side, in addition to clarifying that, the key to drive user growth is to provide reacher alternative dating experience on top of the spiking mechanism. The other important initiatives that we undertook in the Q3 product upgrade was to remove the excess paywall features and merchandising tactics across the customer complaints. Such as demonetization process had led to a decrease in commercial metrics, including paying conversion, paying user counts ARPPU and revenue in the short run. However, in the months following the product upgrade, the membership renewal rate showed a substantial increase and the retention ratio also improved in January and February, overall paying conversion returns to a steady improvement track. The improvement in membership renewal rate laid a solid foundation for us to balance user adherence and further grow revenues.

[Foreign Speech]

In parallel with our domestic efforts, our team made impressive progress in overseas expansion since taking over Tantan’s execution. We made a foray back into the Indonesian market in Q2 by introducing audio and video based real time interactive features on top of the swiping experience. We were able to leverage live streaming and the non-membership monetization model to breakthrough the ARPPU celling that is often seen in developing countries. The combination of innovative consumer and monetization products, both steady improvement in channel marketing ROI. Meanwhile, engagement on the supply side, user penetration and [Indecipherable] continue to trend up as well. Statistics from data showed that Tantan’s user and revenue scale in Indonesia was ahead of [Indecipherable] throughout the second half of the year, and its December revenue was 1.4 times that of [Indecipherable].

[Foreign Speech]

The more favorable gender ratio improved the subscription renewal rates and solid progress was made in Indonesia, have collectively contributed to the user growth during the latter half of FY ’21. These positive changes has given us firm confidence that small yet solid steps in the right direction can be an effective rate towards user growth. The journey won’t be easy, but will be an extremely rewarding one in the end. Along that journey, commitment matters, patience matters, perseverance matters, perhaps the most important of all of focused on the long-term matters.

[Foreign Speech]

This concludes the business updates. Now I will move onto the most important part of my speech today, the group level strategic priorities for 2022 and how we plan to achieve that.

[Foreign Speech]

For core Momo, our goal continues to be able to maintain a stable user base with a limited marketing budget and try to seek user growth on top of that. Our action plan consists of two pillars. First, we will continue to optimize user acquisition model and increase the proportion of domain users to balance all the ROI. Second, on the product side, we’ll continue to identify underserved users needs and optimize female-oriented social experiences to improve retention and leverage new technologies to push forward product innovations to meet the needs of young generation and our attract new users.

[Foreign Speech]

On the other hand, we need to continue to enrich our product portfolio and push the boundaries beyond Momo and Tantan, in to addition to [Indecipherable] and Sochio, whereby profitability has already improved, we plan to replicate this model in other apps, although we still have a dozen profitable apps that can take leading positions in niche markets in the next 3 to 5 years.

[Foreign Speech]

In addition to this vertical app, I’d like to share my views on something bigger. As technology evolves, we can see a clear long-term trend of people screen time shifting from mobile devices to other types of small hardware. Technological breakthroughs bring new opportunities for open social experiences in terms of how people can connect and interact with each other. We have been paying close attention to the development of technologies such as 3D rendering, motion capturing, AI and XR devices, all of which can help enhance social experiences in multiple dimensions and we are making good explorations on this front. As a leading company with over a decade of experience in dating and open social space that help more than 100 million users discover new relationships, expand their social connections and build meaningful interactions on a monthly basis. This is the core value of our business. I look forward to helping users better meet the most basic human need through technological advancements.

[Foreign Speech]

For the Momo team, the third strategic goal for the year is to ensure the cash cow business remain stable. For ’22, the biggest uncertainty will arise from the impact of the macro economy and pandemic on consumer sentiments, which bring significant challenges to achieving this specific goal. Our plan is to enhance commercial product innovation, while ramping up the monetization level of new apps to drive overall growth of VAS.

[Foreign Speech]

With respect to Tantan, the strategic goal is to remains to deliver solid user growth by improving marketing efficiency and the core dating experience.

[Foreign Speech]

On the product side, we’ll will continue to focus on improving the retention ratio of female users and those without qualified photos. We are currently trying to resolve these two issues through efforts mainly in two areas. Number one, in reaching user profile information as well as other contents that can review personality. Number two, expanding the ways people connect and interact with one another.

[Foreign Speech]

In terms of improving marketing efficiency, three key areas are crucially important for us to achieve our goals, optimizing unit acquisition cost in reaching as content and accounting for an equity. Our China marketing experience over the past few months made us realize that driving user growth by simply allowing user acquisition cost to go up is costly and inefficient. On the contrary, improving ad material can bring considerably more high quality new users. This will be the key directions for channel marketing optimization this year. In addition, we are seeing huge potential for Tantan [Indecipherable] equity. The key to creating a virtuous cycle in user growth is to increase organic portion of new users as opposed to those coming from paid channels. These goal can be achieved only through continuous investment into branding, which also needs to go hand in hand with genuine improvements in product experience. This is going to be so much more efficient that simply pouring money into marketing channels. This year, we will further explore opportunities and invest in Tantan’s spending. We will time the branding efforts with progress on the, on the product side.

[Foreign Speech]

Lastly, I would like to conclude by announcing that our Board has declared a cash dividend in the amount of $0.64 per ADS, which will amount to a total cash payment of approximately $127 million or 40% of adjusted net income attributable to Hello Group, Inc. in 2021. This is the fourth consecutive year that we’ve shared our work with our shareholders. It demonstrate management’s confidence in the fundamentals of the company as well as our commitment to creating and delivering shareholder value for the long term. Thank you for your faith in The Hello Group team.

[Foreign Speech]

This is what I’d like to cover today. Now, let me pass the call over to Mr. Jonathan Zhang for financial review.

Jonathan Xiaosong Zhang — Chief Financial Officer

Thanks. Hello, everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the fourth quarter of 2021 was RMB3.6 billion, a 3% year-on-year or 2% quarter-over-quarter. Non-GAAP net income attributable to Hello Group was RMB280.9 million compared to RMB836.4 million from the same period of 2020, or a 66% decrease year-over-year.

During the fourth quarter, the company accrued RMB207.4 million withholding tax on undistributed earnings generated in 2021 by our wholly owned foreign enterprise. Due to our plan, we continue to repatriate profit from the whole fee to support our capital allocation demands, including but not limited to, returning cash to our shareholders and overseas business investments, etc. Excluding this special item, non-GAAP net income for the quarter would have been RMB488.3 million.

As Wang Li has covered revenue analysis in a great level of details, in the interest of time I will skip it and dive directly into the cost and the expenses items for the quarter. Our non-GAAP cost of revenue for the fourth quarter of 2021 was RMB2.19 billion compared to RMB2.02 billion for the same period last year. The non-GAAP cost of revenue as a percentage of total revenue was 59.6%, an increase from 53.2% from the Q4 2020. The non-GAAP gross profit margin for the quarter was found at 6.3 percentage point from a year ago. The decrease was attributed to the following factors. Number one, which is the biggest one. Higher paying payout ratio from core Momo live broadcasting business on the year-over-year basis due to our adjustments to the broadcaster and agency incentive program. And number two, Tantan accounted for a smaller percentage of the Group’s total revenue as its gross margin is higher than core Momo. Number three, fixed nature cost items such as headcount and IDC CDN expenses represented a higher percentage of revenue as total revenue declined, particularly on Tantan’s side, which was due to the demonetization plan.

On a sequential basis, the non-GAAP gross profit margin for the quarter was down by 2.2% from Q3. The cost of revenue in Q3 2021 included RMB49 million production costs. Excluding this quarterly specific item, we would have seen a 3.4% sequential decrease in the non-GAAP gross margin for the quarter, which was primarily attributable to the higher payout ratio in connection with the year-end gala and more promotional events to help the agencies and broadcasters weather through the macro headwind. We currently expected and non-GAAP gross margin to see a rebound of a couple of percentage points from Q1 onwards due to less competition events related costs as well as positive revenue mix change as we expect VAS revenue to represent a high — increasingly higher percentage of total revenue.

The non-GAAP R&D expenses for the fourth quarter was RMB479.7 million compared to RMB486.5 million for the same period last year, representing 7.6% and 7.5% of total revenue respectively. The decrease was mainly due to decrease in employee salaries and social welfare resulting from a reduction in headcount. We ended the quarter with 2051 total employees, of which 552 are from Tantan. R&D personnel as a percentage of total employees for the Group was 62% compared to 57% Q4 last year. Non-GAAP sales and marketing expenses for the fourth quarter was RMB648.6 or 17.7% of the total revenue compared to RMB651 million 17.2% of total revenue for the same period last year.

The year-over-year decrease in sales and marketing expense in RMB amount was mainly due to a lower user acquisition investment for Tantan as Wang Li mentioned earlier. The decrease was also partially offset by our stepped up marketing efforts to promote a recent launched simulation game [Indecipherable] The non-GAAP G&A expenses was RMB89.4 million for the fourth quarter on the 2021 compared to RMB134.5 million for the same period last year, representing 2.4% and 3.5% of total net revenue respectively.

It’s worth mentioning here due to the fact that the Group fair market value as indicated by its market cap has been significantly below its net book value of equity for competitive — conservative perspective, we recorded a RMB4.397 billion as a impairment loss during the quarter, which represented a total value of all goodwill and intangible assets, with the exception of the Group’s operational licenses and permits on the consolidated statements of operations for the year ended December 31, 2021. This impairment resulted in a RMB4.02 billion operating loss for the Q4 2021.

Now briefly on income tax expenses. As I mentioned at the beginning, in Q4 we accrued withholding income tax of RMB207.4 million on undistributed earnings generated in the year of 2021 for WFOE. This amount was recorded as income tax expenses for the company. In the past, we recorded withholding income taxes in connection with the repatriation of WFOEs profit whenever it’s actually happened, as we intended permanently reinvest the undistributed earnings from our WFOEs in China.

Starting from Q4 2021, all undistributed profit generated by WFOE will be subject to 10% withholding tax accrual based on the company’s repatriation history and expected ongoing demand for U.S. dollar funding needs, including but not limited to returning cash to our shareholders, as well as offshore business development. Therefore going forward on a quarterly basis, we will approve 10% of net income for WFOE for the quarter and report as income tax expenses.

Now turning to our balance sheet and cash flow items. As of December 31, 2021, Hello Groups cash, cash equivalents, short-term deposits, long-term deposits restricted cash and long-term restricted cash totaled RMB15.71 billion compared to RMB16.48 billion as of December 31, 2020. Net cash provided by operating activities in the fourth quarter 2021 was RMB665.5 million.

Lastly, on the business outlook, we estimated our first quarter of 2022 revenue to come in the range from RMB3.1 billion to RMB3.2 billion, representing a decrease of 10.7% to 7.8% year-on-year or a decrease of 15.6% to 12.9% quarter-over-quarter. The Q1 2022 — for Q1 2022, we expect total revenue for core Momo to decrease in mid single digit from Q1 last year due to macro weakness and the pandemic control negatively impact users spending sentiment.

On Tantan side, we expect the revenue to be in the trough in Q1 mainly due to the combination of factors, including resurgence in COVID, lacking VAS revenue impact from the demonetization process last year as well as restructuring of our Tantan’s live streaming business, which could translate into a similar level of year-over-year decrease rate as seen in Q4 2021. However, we do expect Tantan’s revenue to improve from Q1’s level as the year progresses. Please be mindful that this forecast represents the company’s current and preliminary view on the market condition and operational conditions which are subject to changes. That concluded our prepared portion of today’s discussion.

With that, let me turn the call back to Ashley to start Q&A.

Questions and Answers:

Ashley Jing — Head of Investor Relations

Thanks, John. Just a quick reminder before we take in the questions. For those specifically Chinese, please ask your questions in Chinese first followed by English translation, and also please limit the number of questions to maximum two. Thank you. Operator, we’re ready for questions.

Operator

[Operator Instructions] Our first question comes from Thomas Chong with Jefferies.

Thomas Chong — Jefferies — Analyst

[Foreign Speech]

Thanks management for taking my questions. I have two questions. The first question is about core Momo. Can management share about the 2022 user growth expectations, and the revenue trend for VAS and live streaming together with the full year profitability overall.

And the second question is about Tantan. Can management comment about the user trend revenue as well as earnings overall. Thank you.

Li Wang — Director and Chief Executive Officer

[Foreign Speech]

So, Thomas, to answer your question on the core Momo part. Our user growth target for the core Momo in 2022 remains the same as last year, which is to remain a stable user base with a flattish marketing budget and try to seek user growth on top of that. And as far as the current channel marketing environment is concerned, to achieve this goal we need to continue to optimize our strategy for reactivating government users and expanding marketing channels. However, MAU in Q1 may experience a decline due to the impact of the pandemic and the negative seasonality.

In terms of revenue outlook, there are few factors that need to be taken into consideration. First of all is the macroeconomy. Our Q1 guidance reflects there is severe challenges to our live streaming business from the macro headwinds, and besides changes in the external environments have had quite an impact on the engagement of agencies. So if the macro and other external conditions ease in the second half, the live streaming business may very well improve, otherwise the downward pressure will continue. To address this, we will try to make more efforts on the product and operational sites to enhance user experience and ensure stable content supply.

And in terms of value-added service, the macro environment and pandemic have had a negative impact on the core Momo more value-added service. But compared with live streaming business, that is a lot more resilience to the economic cycles. So, in particular, as the new bucket of [Indecipherable] apps is taking off. So we will moderate and ramp up monetization efforts this year to drive overall user growth of VAS. We expect value-added service to grow as a whole in the double-digit in 2022.

As for the revenue structure, revenue contribution from value-added service will continue to increase while the proportion of live streaming will further decrease. At the Group level, we expect live streaming revenue contribution to drop from 60% at the end of last year to around 50% at the end of this year. Given the net income in Q1 will be quite low due to negative seasonality in revenue, here I would like to provide a bit more color about profitability this year.

In response to current pressure on revenue from macro uncertainties, management has a strong focus on optimizing operating expenses. We expect opex to reduce significantly this year. Although there are some uncertainties on the revenue front, we expect profits to rebound after Q1 and excluding Tantan, the annual profit margin for the core Momo is expected to remain above 20%, which is about the same as last year.

[Foreign Speech]

I think Tantan’s user growth in the upcoming year will depend on both external and internal factors. The external factors include when the pandemic and the related control measures will ease. In Q1, the COVID-19 resurgence has been quite serious and the related control measures were very strict. As a result, active user base decreased significantly in areas where COVID resurgence was severe. However, the steady product and marketing improvement led to an upward trend in user scale in regions where COVID-19 containment measures we’re relatively relaxed. On the whole, we need to wait until the pandemic situation becomes clearer before we can make a more realistic estimate of the user growth.

The internal factors come from progress on the product side and the pace of our marketing efforts. Last year, the target we set at which how fast we should push forward the product and operational plans was a little bit too aggressive, yet user growth has bottomed out and returned to a growth track. As for now, we are making steady progress in various product iterations and channel marketing optimization. We expect to see a steady upward trend in MAUs when the pandemic subsides. Our target is to deliver a steady CAGR growth of 20% for MAUs over the next three years.

[Foreign Speech]

On the revenue front, we expect VAS revenue to be in the trough in Q1 mainly due to the pandemic impact and revenue deferral, however, VAS revenue should gradually pick up after Q1 mainly due to the following factors. First one is the steady recovery of MAUs after the pandemic is up. Second factor is that we should benefit from a stable paying conversion, with demonetization initiatives and paying conversion is back on the steady growth track in Q1. Here, I will share some recent developments to give you more insight on the situation.

Although COVID resurgence led to a sequential decrease in MAUs in the first couple of months of the year. And thanks to the improvement in paying conversion, the number of paying users in February remained pretty much stable compared to last December. And the third driving factor for revenue growth is the contribution of new value-added service products. For example, flash chat room and some other new membership based paying features are very much likely to bring in incremental revenue and steady growth in overseas market will also make incremental contribution to the topline. Although we expect VAS revenue to be only a sequential upward trend after the trough in Q1, a total VAS revenue for the year 2022 will still be lower than last year due to our substantial demonetization strategy in the second half of ’21.

As for live streaming, since this not contains the current business focus, we expect its revenue to further decline significantly in Q1. We will shift our strategic focus to multiple live video, which fits better with the overall social atmosphere on Tantan.

[Foreign Speech]

In terms of cost and expenses, according to our annual budget, we will make measures to optimize — we’ll take measures to optimize cost controls across various areas, including labor cost and expenses for IDC and CDN. However, since we will start to invest in Tantan’s spending, brand building as planned this year, marketing expenses will go up depending on the effectiveness of the campaigns. We will control the annual net loss to be somewhere around RMB500 million and revenue in the first half of the year will be relatively low. So net loss will widen from Q4 level. However, we expect the net loss to narrow as revenue growth in the second half. So I think I hope we’ve answered your question, Thomas.

I think in the interest of time, we are getting quite close to market open. So maybe we’re just going to wrap up here for today’s call. And thank you all for participating to our Q4 earnings conference call and we will see you next quarter.

Operator

[Operator Closing Remarks]