MOMO's Split Screen: Domestic Pain Deepens as Overseas Engine Accelerates

Hello Group downgrades its second-half outlook for China as high net worth users retrench, even as MENA apps and acquisitions finally diversify the top line.

MOMO · Earnings Call · 2026-09-03

A Two-Speed Company

Hello Group’s second-quarter 2026 print was a study in contrast. Total revenue of RMB 2.49 billion fell 5% year-over-year, but the sequential rebound (+4% QoQ) was powered almost entirely by overseas—where revenue jumped 52% YoY and 13% QoQ to RMB 673 million, now 27% of the group versus 17% a year ago. That shift in mix is the central fact of this report. Management framed the quarter as proof that its three-year globalization push is working: “the synergy across our diversified product portfolio became increasingly evident.” — Jianhua Wen, Unknown · 2026-09-03 The new MENA products, Yahalan and Ammar, are scaling fast enough that combined revenue is set to overtake the legacy SoulChill app in Q3. Yahalan already hit net income breakeven, and Ammar is about half a year behind. These products are the new MENA product story that drove the overseas acceleration, alongside the consolidation of acquired dating brands like Happn. According to CFO Hui Peng, the company still sees a possible “RMB 3 billion target for overseas revenue for 2026” — Hui Peng, Chief Financial Officer · 2026-09-03 as achievable, though she trimmed it by a couple of hundred million. But the real headline is on the domestic side, where the earlier promise of a stabilizing second half has been broken. CEO Tang Yan described the problem bluntly: “the revenue pressure is concentrated mainly in consumption downgrading among high spending paying users.” — Yan Tang, Chief Executive Officer · 2026-09-03 The company now expects domestic revenue to decline “high teens” in Q3, a deterioration from the 17% drop in Q2 and a stark reversal from the previous call’s expectation that the decline would narrow to below 15% in the second half. CFO Hui Peng added that the high net worth users—those who spend hundreds of thousands of RMB a month—are “still paying; they are simply spending less.” — Hui Peng, Chief Financial Officer · 2026-09-03

What Changed?

The surprise isn’t just the magnitude of the slowdown; it’s that management’s own reading of the macro has shifted. On the March call, CFO Cathy Peng (as CFO then) had said, “we expect the year-over-year decline to moderate in the second half of ’26.” In June, she reaffirmed that “we still expect the year-over-year decline rate to narrow meaningfully.” — Unknown Executive · 2026-06-02 Now, less than a quarter later, the company has abandoned that view. The new culprit is not regulation—tax pressure on agencies has eased into a “stable” environment—but the wealth effect on the top spending cohort. The World Cup traffic helped mid-tier and long-tail paying users, but it couldn’t offset the retreat of whales. This is a classic “known issue, new depth” situation. The company has been fighting macro headwinds for years, but the insight that high net worth users are now actively downgrading their social entertainment spending is a distinct escalation. The response is a pivot toward cohort of users—they plan to double down on relationship depth with VIPs (offline events, exclusive content) while maintaining low-barrier features for the masses. It’s a rational play, but it also implicitly concedes that the old model of extracting outsized revenue from a thin slice of users is no longer reliable.

Margins Under Pressure, But Defense Possible

Gross margin declined 300 basis points YoY in Q2, though part of that is due to film production expenses (RMB 56.8 million). Excluding those, gross margin was 38.1%, down less than a point from a year ago. The drag came from payment channel costs on the overseas mix and higher payout ratios to domestic agencies. CFO Hui Peng remains committed to a “low teens” adjusted operating margin for the year, but that goal now hinges on aggressive cost control. “we still believe that margin target remains achievable provided that we execute well on the cost side.” — Hui Peng, Chief Financial Officer · 2026-09-03 That is a delicate balancing act—the revenue deterioration is real, and the company is simultaneously investing in the new overseas apps. Tantan’s own revenue fell 18% YoY, and domestic paying users on Momo only increased by 200k sequentially, a modest rebound. The most telling passage of the call came from CFO Hui Peng’s closing answer, where she forecast full-year group revenue down “mid-single-digit” and acknowledged that the overseas target might slip by RMB 100–200 million. That’s a meaningful downgrade from the original guide for roughly flat group revenue. Yet she also insisted the company would not “push the gas pedal harder” on overseas growth just to make up the shortfall—a disciplined stance that investors may eventually reward.

The Verdict

Hello Group has become a tale of two completely different businesses. The domestic cash cow is now a shrinking, tax-scrutinized, macro-sensitive asset that is being asked to fund a high-growth, loss-making overseas portfolio. The overseas story is real—revenue more than doubling on the new MENA apps and the diversified dating brands—but it is still not big enough to offset the domestic bleed, and the company itself is tapping the brakes on investment to protect margins. This quarter makes clear that the inflection point is not yet at hand. The stock will likely continue to trade on execution of the overseas pivot, while every domestic print will raise questions about how fast the cash cow is depleting.

SoulChill perhaps moved a little bit slower than we expected a quarter ago. We do have the potential to maybe compensate it by moving faster on expanding the other 2 MENA apps and the dating app. But given that we wanted to balance top line growth and bottom line target, we probably will not push the gas pedal harder than we previously planned.
Hui Peng, Chief Financial Officer · 2026-09-03

The market’s takeaway should be that Hello Group has a credible growth engine, but it is running on a sticky domestic base. The next few quarters will test whether the overseas business can reach enough scale to truly decouple from its home market.