Hello Group: Domestic Tax Squeeze Meets Overseas Upshift
Q1 2026: domestic revenue down 15% on new tax tightening; overseas up 44% to 25% of total, but full-year outlook trimmed.
MOMO · Earnings Call · 2026-06-02
Mixed Signals in Q1
Hello Group's first quarter of 2026 delivered a familiar yet sharpened contrast: the domestic cash cow continues to buckle under regulatory and macro pressure, while overseas growth accelerates. Total revenue slipped 5% year-over-year to RMB 2.39 billion, but the mix shifted decisively. Domestic revenue fell 15% to RMB 1.79 billion, while overseas revenue jumped 44% to RMB 597 million, now representing a quarter of the group, up from 16% a year ago. “Overseas revenue accounted for 25% compared to 16% in the same period last year.” — Sichuan Zhang · 2026-06-02 Adjusted operating margin edged up to 14.6%, aided by better overseas margins and continued cost discipline.Domestic Headwinds Deepen
The domestic story remains dominated by two external shocks: new tax regulations that have tightened agency taxation, and Alipay's auto renewal policy changes affecting Tantan's membership conversion. The tax situation worsened in early 2026, with management noting that authorities "further tightened the policies targeting agencies," leading to a decline in agency-related revenue in March and April. The company responded by helping selected agencies achieve tax compliance and introducing new incentives. “We expect their performance to return to normal level by Q3.” — Ashley Jing · 2026-06-02 Meanwhile, Alipay's policy primarily hit Tantan's domestic membership business, though management described it as "a relatively contained issue." The broader macro backdrop remains soft, and management is not counting on a quick recovery. As COO Sichuan Zhang said on the prior call, “We are not expecting the macro environment to fix itself overnight.” — Sichuan Zhang, Chief Executive Officer or Senior Management · 2026-03-18 The combined impact forced a modest downward revision to full-year domestic guidance. CFO Cathy Peng now expects the domestic decline to land at "mid-teens" for the full year, versus the earlier "low teens" assumption. “our baseline view for 2026 is First of all, full year revenue decline should be around low to mid-teens year-over-year.” — Cathy Peng, Chief Financial Officer · 2026-03-18 Yet the company is protecting profitability through cost discipline, with adjusted operating income up 1% despite the revenue drop. Non-GAAP gross margin improved to 38.8% from 37.9% a year ago, helped by better MENA margins and a richer mix of high-margin dating products. R&D expenses declined 11% to RMB 165 million, reflecting personnel optimization, while sales and marketing rose 14% to RMB 335 million, driven by investments in new overseas apps.Overseas Acceleration and AI
The bright spot remains the overseas portfolio. Beyond SoulChill, the flagship app, the two newer MENA products—Yaahlan and Amar—are delivering triple-digit revenue growth and approaching profitability. The diversified product portfolio is proving resilient: even as SoulChill faced temporary regulatory and geopolitical headwinds (Turkish app store removals, Ramadan softness, and Middle East tensions), the other overseas apps continued to grow. The company is also making progress in dating, with Tantan International completing its migration and Happn stabilizing. Management reiterated a 2026 overseas revenue target of roughly RMB 3 billion, up from about RMB 2 billion in 2025. On the AI front, the company is embedding AI into its social products—from voice-based icebreakers to AI agents for live streaming. AI powered voice features are being tested to lower barriers for users, and these investments are viewed as high-return, directly improving engagement and monetization. The company ended the quarter with RMB 8.56 billion in cash, including short-term and long-term deposits, providing ample liquidity to fund overseas expansion while returning value to shareholders.Outlook and Implications
The key takeaway is that the domestic business is still navigating a regulatory reset, but the worst appears to be behind. The full-year projection now implies a slight group revenue decline, with adjusted operating margin still in the "low teens." As Cathy Peng summarized,The critical question is whether the company can sustain profitability while funding overseas expansion—and whether the domestic decline finally bottoms out in the second half. With Q2 guidance implying a 6.5% to 2.7% year-over-year decline, management is signaling that the worst of the regulatory impact has been absorbed, leaving room for the overseas engine to become the primary profit driver in the coming years.if you combine our updated view on the domestic business with what I just discussed on the overseas side, we now expect group revenue for 2026 to see a slight year-over-year decline versus 2025, probably down by a couple of percentage points at the top level.