Momo Inc. (NASDAQ:MOMO) Q2 2019 Results Earnings Conference Call August 27, 2019 8:00 AM ET

Company Participants

Cathy Peng - Director of Investor Relations
Tang Yan - Co-Founder, Chairman and Chief Executive Officer
Wang Li - President and Chief Operating Officer
Wang Yu - Founder and Chief Executive Officer, Tantan
Jonathan Zhang - Chief Financial Officer

Conference Call Participants

Thomas Chong - Jefferies
Jialong Shi - Nomura
Lei Zhang - Bank of America Merrill Lynch
Tian Hou - TH Capital

Operator

Ladies and gentlemen, thank you for standing by and welcome to Second Quarter 2019 Momo Inc. Earnings Conference Call. Please note, this conference is being recorded today.

I’d now like hand the conference over to your first speaker today Ms. Cathy Peng. Thank you. Please go ahead, ma'am.

Cathy Peng

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's second quarter 2019 earnings conference call. The company's results were released earlier today and are available on the company's IR website. On the call today from Momo are Mr. Tang Yan, Co-Founder, Chairman and Chief Executive Officer; Mr. Wang Li, President and Chief Operating Officer; Mr. Wang Yu, Founder and Chief Executive Officer of Tantan; and Mr. Jonathan Zhang, Chief Financial Officer. They will discuss the company's business operations and highlights, as well as the financials and guidance. They will all 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 these 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 statement as a result of new information, future events or otherwise, except as required under law.

I will now pass the call over to Mr. Tang. I will translate for him. Mr. Tang, please.

Tang Yan

Good morning and good evening everyone. Thank you for joining our conference call today, Q2 was a good quarter, despite the challenges caused by the homepage suspension, the team was able to navigate through them with solid executions and came out stronger and poised for further growth in a healthier shape. At that the same time, I'm proud that we still delivered strong financial results amid those challenges. Now, my team and I will take you through the details.

Firstly, an overview of the financial performance. For the second of 2019 total revenue reached RMB4.15 billion, up 32% year-over-year. Adjusted operating income for the quarter was RMB1.45 billion, representing a 35% adjusted operating margin. Excluding Tantan's financial impact, core Momo's adjusted operating income for the quarter was RMB1.5 billion, representing a 39% adjusted operating margin, up from 35% from the same period last year. The consistent record of profit growth, coupled with a strong operating cash flow from the core Momo business positions the company well to continue to deliver return to our shareholders while making investments to build long-term growth drivers.

Now, a deeper look into the quarter. Firstly, the growth of our community, the core Momo app had 113.5 million monthly actives for the second quarter, up 5% year-on-year, but down by 1% from the previous quarter. Due to the suspension of the user posting and the homepage news feed update since the beginning of May, the number of active users on core Momo saw a downward trend in May and in the first half of June. User posting and the new feeds are basic social infrastructures on the platform. Many users rely on these features to make discoveries of new relationships and build interactions with their connections. Therefore, the suspension of the posting function and the news feed update had caused the user engagement to decrease more than the overall active user count did.

For the month of June, total user time spent decreased by 12% from the month of March. After Momo's posting suspension was lifted on June 21, we undertook a major campaign to call back the users. By mid-August, DAU has gone back to the level that we saw before the inspection period. The gap between the current time spent and the daily average time spent in March has narrowed to low single-digit percentage.

Total paying users for the core Momo platform was 8.6 million in Q2 2019, down by 400,000 from the previous quarter due to the significant decrease in the number of membership subscribers on the core Momo.

For those who are not quite familiar with Momo's paid features, there are three different groups of paying users paying for different services on core Momo. The first group; are membership subscribers who pay a fixed monthly fee for some premium features. The second and the third groups of paying users are those who pay for virtual gifting and live streaming businesses, respectively. Since the beginning of 2017, we've shifted the focus of VAS business more towards virtual gifting and thus the membership subscription business has now grown much since then.

One of the key premium features offered to paying subscribers hinges upon user posting function which was suspended in May and most part of June. In addition, due to the suspension, we have also seized to run promotions around the membership subscription. These factors have caused a number of subscription members to decrease significantly in the second quarter.

The number of paying users for virtual gifting business and the live streaming business also saw some negative impact from the self-inspection. However, paying users for these two businesses still saw decent sequential growth in the second quarter as the impact from the suspension got largely absorbed by the natural growth momentum of these two businesses. In summary, the decrease in the paying users in the second quarter solely came from the decline in the paying member accounts, which we view as a non-issue as far as Momo's core fundamentals and future growth prospects are concerned. We have plan to gradually convert these current paying subscription members, whose ARPPU was extremely low in the past into higher ARPPU VAS paying users going forward.

With the issue around the homepage suspension behind us, we are confident that the total number of paying users on the core Momo will get back on the growth track from Q3 onward.

Now, turning to Tantan, due to the download suspension and the related in-app purchase ban on iPhone users, Tantan's paying users decreased to 3.2 million for the quarter. Tantan's download and payment service had been fully restored by mid July, since then we've started to see a strong rebound in all the core metrics, including the number of active users, paying subscribers, as well as the daily grossing. By August 25th, the paying users already went back to 4.1 million.

The robustness of Tantan's recovery demonstrated the strong demand for online dating service in China and Tantan's irreplaceable position in this sector. There are hundreds of millions of millennials and the so called Gen Z in China.

Unlike in the western world, in Asian culture, people do not have as many offline options when it comes to discovering new relationships, making Internet dating service a more important source for romantic discoveries.

At the same time, we also noticed that the stigma attached to online dating is gradually fading away among younger generations. These factors make us believe that Tantan has ample room to drive further growth in China.

On top of the addressable market domestically, we are now also seeing huge growth opportunities in the oversea markets. The team will continue to penetrate into these addressable markets through products and marketing endeavors. Our goal is to build Tantan into an important driver of the company in the coming years.

As we put the temporary disruptions behind us and started second half of the year, I would like to reiterate on the four strategic priorities that we laid out at the beginning of the year: number one, continue to grow the user base and engagements through product innovations and effective marketing approaches; number two, drive steady and healthy growth from live broadcasting business through product and operational efforts; number three, cultivate a paying potential from middle cohort and long-tail users through richer VAS experience; and number four, drive monetization growth from Tantan through the optimization of existing premium features and the introduction of new paying experiences.

I'm glad that we made good progresses across all these priority areas during the past quarter. I am going to elaborate a little bit more on the first priority, which is primarily related to user growth and product innovation. Wang Li will cover the second and the third, which are more monetization related and Wang Yu will be talking about Tantan's product and monetization endeavors later.

On the product side, I'm very happy to say that two of our earlier product experiments The Parking Lot and The Farm gradually rose to popularity in the second quarter due to continuous upgrades and optimizations. These two experiences enabled the users to break the ice and interact non-synchronously via mini game experiences. For example, with The Parking Lot experience, if you do not feel comfortable with directly saying hi to a person nearby, you can park your car in her backyard to draw attention and potentially start a conversation, or you can issue a ticket to the users who have unduly parked into your backyard.

Alternatively, if you want to show a nice gesture, you can send a virtual car as a gift as well. The Farm experience largely works under the same logic. These virtual community experiences allow the users to establish virtual identities and interact with other people in a less pressured way. Today, over 40% of our users connect with others via these two virtual community experiences each day, and the team has already started to build value-added services elements into The Parking Lot experience. These are interesting new experiments on the core Momo platform. If we continue our success in these experiences, they can make meaningful contributions to both user engagements and monetization.

In addition to the progresses we made on the product side, in the second quarter, we also took strides in making our business ecosystem stronger and building new growth drivers that can continuously pump gas into the engine.

Now, here is Wang Li to give you a detailed review on those assets.

Wang Li

Thanks. Now, let me review the progresses we've made across our priorities on the monetization side: number one, drive steady and healthy growth from live broadcasting business through product innovations and operational efforts; number two, cultivate a paying potential from the middle cohort and long-tail users through richer VAS experience; number three, drive monetization growth of Tantan through optimization of existing premium features and the introduction of new paying experiences. Wang Yu will elaborate on the third one later in his remarks.

So next, I'm going to take you through what we've done and the future plans regarding the first two priorities.

Firstly, our live broadcasting business. Total revenue from live broadcasting business for the quarter was RMB3.1 billion, an increase of 18% from the same period last year. Unlike in the previous quarter, were most of the year-over-year growth came from the middle cohort of users, the second quarter saw the growth coming pretty much across the board from both the middle and the top spenders. The re-acceleration in live streaming business growth shows the effectiveness of our strategy to apply different product and operational efforts to drive spending from different cohorts of users.

For the middle layers, we continue to leverage the interactive gifts to drive the spending. In the second quarter, we launched a couple of new interactive gifts experiences, similar to the Penguin, which have been well received by the users. A few weeks ago, we launched a new interactive gift called Snowball Fight. This new experience is fully integrated with the [landing] PK feature, which means one-to-one broadcaster knockout match with connected channels. The broadcasters can organize the team offense to battle against the enemy camp in a snowball fight.

Unlike the Penguin like experience, whereby the users pretty much play on standalone basis, the Snowball Fight allows the users to enjoy the interactive experience in a team work environment, so that users can have stronger feeling about being part of the show. We will continue to go down that path in order to provide better entertaining and interactive experience for the middle and longer-tailed users.

As I mentioned on our last earnings call, although the top spender spending fairly grew on a year-over-year basis in Q1, we actually believe that live broadcasting business still has plenty of growth opportunities within the wealthier class if we can come up with effective promotional and operational efforts.

In the second quarter the team starting to pull the levers they have in hand in a methodical way. In May, we held our first offline music tour in Shanghai. At the event, we let some of our high paying users invite their friends, who had not previously been exposed to live streaming shows to join them in the party. Together, they could resonate with what makes live streaming shows a unique entertaining experience. The main event turned out to be more successful than we originally anticipated. Therefore, we had a second one in June in Quanzhou, Fujian Province and the third one in Chengdu two days ago. The purpose of the offline music tour is to enhance the top spenders' experience as well as to expand the pool of high paying users. I'm glad that the tours have proven to be effective in achieving these goals.

Other than the offline tours, we also rolled out the long-awaited nobility system in late June. As many investors know, one of the key issues with our old user ranking system is that it lasts the promoting mechanism, which is crucial in keeping the paying users, especially new ones motivated.

In the new system, we solve that issue by assigning different titles to the hardcore users based on their spending levels. The titles and their attached privileges need to be re-determined on monthly basis based on user spending level. The nobility system almost immediately started to take effect giving a boost to the spending from the top of the pyramid paying users.

In the third quarter, we will continue to optimize the new ranking system and plan further connect it with the competition experience and make it more compelling.

Due to these concerted efforts to improve the experience from different layers of paying users, we were able to achieve a re-acceleration of live broadcasting business with growth coming across the board from both the top and the middle cohorts. More importantly, many of the new growth drivers that we have built this year focus on long-term structural improvements rather than simply throwing economic stimulus. Therefore the growth in the first half of 2019 happened with an improved margin trend, which is something the management feels proud of given the highly competitive environment in live broadcasting industry today.

Now, turning to VAS, revenue from value-added service, or VAS, continued to grow decently, reaching RMB948.4 million in the second quarter of 2019, a 169% growth on a year-over-year basis. Wang Yu will talk about Tantan's business later, so I will be focusing on the VAS business for the core Momo part. Excluding Tantan, Momo's VAS revenue was RMB663.6 million, a 106% increase from last year. Despite the headwind from the posting suspension and associated decline in traffic, VAS revenue ex-Tantan still grew by 9% from the previous quarter, as the regulatory impacts have largely being absorbed by the robust growth momentum of the virtual gifting business, as well as the new products and operational initiatives that the team has taken. In the second quarter, the virtual gifting revenue in the traditional social experiences, including interest groups, greetings and IM chatting continued its rapid ramp, with a sequential growth rate of over 20%. The growth was mostly driven by an operational event called The Romance Car that we ran in the interest group. We are currently working on some optimizations and intend to repeat experience in Q3.

In addition to the growth from the traditional use cases, the quick chat and party experience also contributed meaningfully to the growth of virtual gifting business. For the chat room experience, in Q2, we opened up more traffic to the monetization testing, so there has been a decent ramp up in revenue. However, at this point, chat room remains at a testing phase and small in terms of overall revenue contribution.

Other than these existing paying experiences within VAS, as Tang Yan mentioned earlier, we have also started to experiment on monetization in one of the new community experiences The Parking Lot. Unlike a virtual gifting service whereby the users purchase gifts to send to someone else, the paying experience that we are testing within The Parking Lot, allows the users to purchase items to establish their own virtual identity or interact with other users in a playful manner. While it is still early in its development, we are hopeful that it can activate a different paying mentality and thus appeal to a new cohort of users. This is a new ground that we are plowing into, and the team will continue to explore different possibilities here. As Tang Yan mentioned earlier, if our success continues in this new area, it can open up new opportunities for both engagement growth and monetization growth.

Now, briefly on other business lines. Mobile marketing revenue was RMB76.2 million, a 46% year-over-year decrease. Because most of the ad units reside in the news feeds, the user posting situation have caused us to lose a substantial portion of the marketing revenues during the second quarter. We currently expect mobile marketing revenue to rebound in Q3. However, given the headwind in the overall ad market, mobile marketing will remain as a lower priority effort for us this year. Mobile gaming business continued to shrink, bringing in only RMB23.2 million for the quarter. Our expectation is that the jointly operated games as a business will gradually phase out on our platform.

That's the review of the key business lines. Now, let me hand over to Mr. Wang Yu to review Tantan's product and business development. Mr. Wang Yu?

Wang Yu

Thanks. So, let me briefly review Tantan's operational and business development in the past quarter and our next steps ahead. First, on user growth. Due to the removal of the download service from all the China app stores since late April, in the second quarter, we experienced a substantial decline in the number of monthly and daily active users.

In addition, from the 1st of May to 13th July, ioS suspended the payment service for all iPhone users in China as an extended measure to download suspension. As a result, the number of paying users decreased more than the number of active users did, because the majority of the existing iPhone paying users were unable to renew their subscription due to the in-app purchase suspension. As a result, in the second quarter, we had 3.2 million paying users compared to 5 million a quarter ago.

By mid-July, Tantan's download and payment service had been fully restored at all application stores in China. After the resumption, we have significantly stepped up the marketing efforts to make up for the losses during the inspection period. I am happy to see a rapid recovery to trajectory across all the major operating and revenue metrics.

By August 25th, the number of paying users has already rebounded to approximately 4.1 million. So briefly on financials, total revenue for the second quarter was RMB284.8 million, a 4% decrease from previous quarter. Due to the deferred revenue in connection with the subscriptions from multiple arms, there is a lag between the change in total grossing trajectory and the change in revenue trajectory.

For the second quarter, the 4% sequential decrease in revenue was a result of 24% decrease in total grossing and the revenue grossing from deferred revenues of prior periods. The decline in total grossing in the second quarter was roughly in line with the decrease in average paying user accounts for the quarter.

Due to the above mentioned lagging effect in total grossing and revenue recognition, we expect Q3 revenue to rebound to a less degree than in total grossing growth. Such effect has been reflected in our Q3 revenue estimate equivalent.

Next, I'm going to briefly review what we've done on our future plans against our strategic priorities. Our top priority is to expand the size of Tantan community through product innovations and marketing efforts. First and foremost, we have to make sure that our community grows in a healthy and sustainable environment.

During the second quarter, we devoted substantial resources into strengthening our content reviewing and anti-spam system. We made significant investment in human resources, technologies, as well as infrastructures to build a multi-layer content review and monitoring mechanism, which is to ensure that harmful content and spamming activities are captured and removed in time.

As a result of these efforts, Tantan users can now enjoy our product and services in a much healthier environment. Other than the anti-spam endeavors, in the second quarter, we also took initiatives to enhance the social experiences for Tantan users. We continue to push forward with our real photo verification process.

In Q2, we focused on improving the accuracy rates of the verification and made good progress. We are also working with the Momo team to leverage their face recognition technology in order to further improve the accuracy of verification and lower the cost associated with the process.

Real photo verification has improved the dating experience for users in a meaningful way. At the same time, it also substantially increases the cost of conducting spamming activities on the platform.

In Q2, we also made encouraging progress with a few experimental product experiences that we've been testing. The core performance indicators around these new features are improving and we plan to gradually roll them out to a larger user base of users in Q3. We believe these new features will enable Tantan users to discover, interact with new connections in diversified ways with much more fun. Together, they also provide richer community experience to users on top of the swiping and chatting experience. Enriching the product experiences is important for Tantan to obtain new users and drive user engagement. Moreover, the richer consumer experiences will also open up doors to future monetization opportunities.

Now, a quick update on our second priority, which is to drive monetization through the optimization of existing premium features and the introduction of new paying experiences. During the download suspension period, our team continued with their efforts to test the optimizations for the VIP and fee features. Thanks to their focus and effort, we now have a few readily available optimizations in the pipeline. We're going to roll them out in a methodical way to drive continuous revenue growth in the remainder of the year.

Other than these optimizations, we have also been testing new paid features that could potentially become future revenue drivers. Some of these are subscription-based and some of them will move beyond subscription model to create the ARPPU ceiling.

As I mentioned in previous calls, having good a la carte paying experiences is crucially important not only to unleash the monetization potential, but also to provide better experience to users who are willing to spend more on dating. We're currently making strides with the project and looking to test launch a test launching service with a small user base in Q4.

Lastly, I would like to take a few minutes talking about Tantan's overseas development. It is becoming increasingly clear that there are huge growth opportunities for dating services in oversea markets. We've been working on this area for a while. In the recent several months we've made impressive progress in user growth, product improvements as well as driving market ROI.

Our approach in overseas market is centric heavily upon return on investments. It means that when tapping into new markets, briefly, we will evaluate ROI by comparing the user acquisition costs within modernization opportunities. If we have the assurance with the cost can be recovered within a reasonable period of time, we will get more aggressive in the marketing as far as office. Otherwise, we'll pull back from that specific market and try to find other alternative markets that make better sense in terms of ROI.

Now with prior few proven successful cases and getting into new markets in the first half of this year, we now feel well poised to pursue overseas opportunities in a bigger way as of now approximately 15% to 20% of our active users come to all the key markets. Currently, the revenue contribution is over in that percentage as overseas user base is still under monetized. With opportunities as we're currently seeing in our assessment of the advantages that Tantan bears, I am confident that the overseas market will become much more meaningful revenue and profit contributor in the coming three years.

With that, I am passing the call to Mr. Jonathan Zhang for financial review. Jon, please.

Jonathan Zhang

Thank you. Hello everyone. Thank you for joining our conference call today. Now, let me briefly take you through the financial review. Our total revenue for the second quarter of 2019 was RMB4.15 billion, up 32% year-over-year and exceeding the high-end of our revenue guidance. Non-GAAP net income executable to Momo was RMB1.24 billion, compared to RMB893.2 million for the same period 2018 or 39% increased year-over-year.

Let me directly jump into the review of cost and the expense items. As revenue line items have been covered comprehensively by Wang Li and Wang Yu earlier, our non-GAAP cost of revenue for the second quarter 2019 was RMB2.04 billion compared to RMB1.71 billion for the same period last year.

The non-GAAP cost of revenue as a percentage of total revenue was 49.1%, a decrease from 54.2% for the second quarter 2018. Non-GAAP cost of revenue for the second quarter 2018 included the production cost of Phanta City, which was a RMB158 million. Excluding the Phanta City, the impact non-GAAP gross margin for the second quarter of 2019 remained stable over the same period last year.

On a quarter-over-quarter basis, the non-GAAP gross margin for the quarter improved slightly by 1 percentage due to the lower payout ratio from both live broadcasting and the VAS businesses. The lower payout ratio for live broadcasting business was from the fact that there was no quarter and term event in the second quarter and some savings on the promotional costs. In the second quarter of 2019, the VAS service team continues to scale back from the promotional efforts around the virtual gifting business. Therefore, the margins for VAS business also improved on a sequential basis.

Non-GAAP R&D expenses for the second quarter was RMB204.8 million compared to RMB116.1 million for the same period last year, representing 4.9% and 3.7% of total revenue respectively. The year-over-year increase reflected our strategy to invest in R&D area throughout 2018, mainly to recruit additional engineering talents to support our various product innovation initiatives as well as the full quarter consolidation of Tantan in second quarter of 2019 verses only June month for the second quarter of 2018.

We ended the quarter with 2,075 total employees of which 528 are from Tantan. The R&D personnel as a percentage of total employees for the group was 54% compared to 45% in Q2 last year. Non-GAAP sales and marketing expenses for the second quarter was RMB502.3 million or 12.1% of total revenue compared to RMB308.9 million or 9.8% of total revenue for the same period of last year.

On a year-over-year basis, the increase in the sales and marketing expenses as a percentage of revenue was due to the full quarter consolidation of Tantan, while the core Momo non-GAAP sales marketing expenses as a percentage of total revenue remained stable. Our non-GAAP G&A expenses was RMB119.4 million for the second quarter 2019 compared to RMB78.6 million for the same quarter last year, representing 2.9% and 2.5% of total net revenue respectively.

The GAAP G&A expenses was RMB500.7 million for the quarter compared to RMB127.7 million for the second quarter last year. The Company recognized a G&A related share based compensation of RMB381.3 million in the second quarter 2019 compared to RMB49.1 million in the second quarter of 2018. The big jump in the share base compensation expense was due to the same one-off events that we discussed on our last earnings conference call.

Let me give a quick recap here. As we disclosed in our 2018 20-F, in August 2018, Tantan Limited granted 3,578,205 shares options to its founders with a full year vesting period, representing 12% of Tantan's shares on a fully diluted basis. The vesting can be accelerated based on achievement of certain performance conditions.

According to relevant U.S. GAAP literature, a share based compensation expense of RMB466.9 million was amortized in the first quarter 2019 based on the progress of achievements of the performance conditions as of March 31, 2019. During the second quarter of 2149, the performance conditions were fully met. And accordingly, we recognized a stock-based compensation expense of RMB323.7 million in connection with above mentioned option grants.

The amortization of the stock-based compensation expense in connection with this option grants will have no future impacts from Q3 onwards. Non-GAAP operating income was RMB1.45 billion, representing 35% non-GAAP operating margin for the quarter. Excluding Tantan consolidation impact, the core Momo adjusted operating income for the second quarter 2019 would have been RMB1.5 billion or 39% non-GAAP operating margins.

Now, turning to the balance sheet and cash flow items, as of June 30, 2019, Momo's cash, cash equivalents, term deposits and short-term investments totaled RMB12.5 billion compared to RMB11.3 billion as of December 31, 2018. Net cash provided by operating activities in the second quarter was RMB1.4 billion compared to RMB992.4 million for the same quarter last year.

Lastly, for the third quarter revenue guidance, we estimated our third quarter revenue to come in the range from RMB4.25 billion to RMB4.35 billion, representing an increase of 17% to 19% year-on-year. Excluding Phanta City revenue contribution in third quarter 2018, our third quarter revenue guidance on an apple-to-apple basis represents a year-on-year increase of 22% to 25%.

Please be mindful that the forecast represents the Company's current and preliminary view on the market and operational conditions, which are subject to changes. That concludes our prepared portion of today's discussion.

With that, let me turn the call back to Cathy for Q&A.

Cathy Peng

Yes, actually, just one quick reminder. For those who can speak Chinese, please ask your question in Chinese first, followed by English translation by yourself.

Operator, ready for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Your first question comes from the line of Thomas Chong of Jefferies. Please go ahead.

Thomas Chong

Thanks management for taking my questions and congratulations on a solid set of results. My question is about Tantan. Can management give us some color about the revenue and the bottom line outlook for Tantan in the second half and also if there is any timing on profitability? Thank you.

Wang Yu

Okay. So I've spoken quite a lot about second half monetization strategies already. The growth will be driven by both optimization of existing premium features and the intro of new ones. Our quarter-on-quarter grossing increase is actually better than our expectations. It's around 30% to 40% as we can see right now, but since there is a lagging effect between grossing and revenue that we talked about earlier, the revenue guidance assumes a sequential growth of around 10%.

Now, this positive momentum we expect it to extend into Q4. In terms of profitability, we expect to reach a domestic breakeven on a monthly basis somewhere around mid next year. If we manage to do it on a whole Company basis, including domestic and overseas market depends on how aggressive we will be in overseas expansion during this year.

Operator

Thank you.

Cathy Peng

Actually, just a quick reminder before we take next person in. Given the time constraint, we may need to limit one question to one analyst. Please be mindful of that. Operator, ready for next.

Operator

Yes. The next question is from the line of Jialong Shi of Nomura. Please go ahead.

Jialong Shi

So I would translate my questions. My questions is about the industry outlook. From time to time, we were told by some of Momo's Chinese Internet peers that China's Internet population is already saturated and therefore, it is increasingly difficult to acquire new users. As a result, we thought some of your peers are turning their attention to lower-tier markets where the Internet penetration is relatively lower. So I just wonder what will be Momo's strategies to cope with these industry-wide challenges and what will be your MAU target for Momo app by end of this year, and where do you think is the sealing for Momo MAU in the long term? And also, I have a quick follow-up on Tantan. I just wonder what are the key overseas markets for Tantan? Thank you.

Wang Yu

Okay. So this is Yu Wang, I'll first quickly answer the question on Tantan. So, our primary user base overseas are in Southeast Asia and India. And we are doing quite well in terms of all the markets we have tried out overseas. We meet the primary competitors in all of these markets, but the dating market has an appetite for multiple apps, so we don't think that established players in new markets for us actually affect us that much in terms of our expansion potential. Thank you.

Cathy Peng

Okay. Now, we are ready to answer the question about the MAU outlook and the TAM question.

Yan Tang

Okay. After the homepage suspension on the core Momo was lifted up to now all the user and engagement metrics have been showing a very positive trajectory, and that gave us the confidence that the MAU for the Momo core should see continuous growth in the future. At the same time, we do see pretty ample -- we do see huge growth in the open social space and the broader entertainment space.

Right now, we are seeing many newly emerging growth opportunities in China and also in oversea markets. Based on our rough estimation specifically in the open social space, China plus Asia should give us a total addressable market of somewhere around 600 million people for us to penetrate. And if you look at the MAU of Momo and Tantan combined together, we probably represent somewhere around one-fourth of that TAM.

At this point, Tantan is going through a phase where its users and paying users are ascending very, very rapidly. We believe that such hyper growth phase for Tantan is going to continue in the coming couple of years. On top of the core Momo app and Tantan, we also have other deployments, either through internal incubation or external co-operations to continue to penetrate into that addressable market. So that's kind of my basic view on how Momo as a Company is going to continue to drive user growth in the future. Operator, next.

Operator

Yes. Thank you. And next question comes from the line of Lei Zhang of Bank of America Merrill Lynch. Please go ahead.

Lei Zhang

My question is mainly about Tantan. We saw that ARPPU growth in second quarter is very strong, any key feature to drive this and how should we think about ARPPU trend in the second half? And in second half, Tantan's revenue is mainly driven by paying user or ARPPU and any color on the new features, you will launch, such as the timing you can share with us? Thank you.

Wang Yu

Okay. Thank you. So the thing is that, we have increased ARPPU somewhat with our optimizations. But the primary reason Q2's revenue was reasonably high was because there is a lagging effect between grossing and revenues. So grossing actually decreased quiet a lot while revenues did not. So, revenues actually will be affected quite significantly in Q3 even though grossing increased, like I said, 30% to 40%.

And in terms of the total bottom line, in Q2, we actually spent much less than we planned. So even though revenues decreased, we ended up with a much smaller net loss in Q2 than we projected, and because of this, we are making up for it by increasing marketing spending significantly in Q3.

So the three factors of us spending less in Q2, us spending more in Q3, and also the negative impact on revenues will make the net loss in Q3 widen significantly from Q2, but this is the short-term factor. So moving into Q4, as revenues continue to increase and marketing cost domestically come down significantly, we expect net loss to decrease significantly from Q3

Cathy Peng

Operator, next.

Operator

Yes. Thank you. And next question is from Tian Hou of TH Capital. Please go ahead.

Tian Hou

So in the market this year, password is TikTok, Toutiao or all of its apps, they have many apps. So ByteDance Group has already caused a negative impact on some verticals like advertising, short radio, et cetera. But from Momo's second quarter results, we saw no impact whatsoever. So I wonder can management give us, how to say it, insights, what is exactly the uniqueness of Momo, enable you to avoid this content kind of a titanic how much give you pressure? So, going forward if the ByteDance in your vision is going to give you any negative impact? And what's your strategy to cope from the potential -- if there is any potential pressure? Thank you.

Yan Tang

Okay. Let me quickly translate. That question, I remember I've answered like countless times in the past. Every single time from the investor point of view things may seem a little bit different. But actually, from our standpoint, we really haven't seen any substantial change in the competitive environment lately. Our observation is that the live broadcasting business from Toutiao and whole Kuaishou system has been growing very rapidly for quite some time, but we really haven't seen any serious threat by these two players.

With regards to what kind of uniqueness about the products or the ecosystem really help us to achieve that, I guess, it's important that a lot of those live streaming platforms for these platforms live streaming is really just a monetization future attached their respective core use case. If you want to understand what makes us unique, what makes us different from those traffic platforms, you have to understand what's the difference between the core use case of Momo, which is a social use case and the core use case on Kuaishou and Toutiao, I guess that's very crucial for investors to understand what makes the live streaming service on Momo different from the live streaming services from all the big traffic.

And about my view that the bigger players have not posted any threats to our ecosystem, I think it's supported by hard data. If you look at the second quarter data from paying user side, you saw pretty good growth. And on the lives broadcasting and the agencies, during the past few quarters Momo's content supply ecosystem has been strengthening. For example, if you look at the number of professional broadcasters and compare the second quarter of 2019 with toward end of 2017, before we rolled out the talent incentive program, the number of professional broadcasters during that period of time grew by 80%. And if you look at the number of quality agencies who can bring in sizable monthly grossings, In the second quarter, that number also grew somewhere around 50%.

On the revenue side in the second quarter, we also saw a reacceleration in the live broadcasting worldwide growth rate, and we achieved that during a time where there was a homepage suspension on the core Momo platform. So I really don't think that investors need to worry much about the competitive environment that we're in at this point.

Cathy Peng

So, given the time, we will make this the last question of this earnings call. Thank you for joining us. We will see you next quarter. Operator, we're ready to close.

Operator

Thank you. Ladies and gentlemen, this does conclude the conference for today and thank you for participating. You may now all disconnect.