Hello Group Reports Second Quarter 2025 Net Loss, Shares Decline on EPS Miss

Q2 2025 Earnings Overview and Market Response

Hello Group (NASDAQ:MOMO) announced its Second Quarter 2025 financial results, revealing a shift to a net loss and a decline in revenue, which precipitated a negative market reaction. The company reported a net loss of CN¥140.2 million for the quarter, a substantial decrease from the CN¥397.8 million profit recorded in the same period of 2024. Revenue for Q2 2025 totaled CN¥2.62 billion, representing a 2.6% decline year-over-year. Earnings per share (EPS) registered a loss of CN¥0.84, significantly missing analyst expectations which had forecasted a profit. Following the announcement, Hello Group's shares declined by 8.5% over the past week, with premarket trading indicating an initial drop of 12.56%.

Detailed Financial Performance and Contributing Factors

The reported CN¥2.62 billion in total revenue reflected a 3% year-over-year decline, though it marked a 4% increase from the prior quarter. Domestic revenue, primarily from the Chinese mainland, experienced an 11% year-over-year decrease, falling from CN¥2.43 billion in Q2 2024 to CN¥2.18 billion in Q2 2025. This downturn is attributed to soft consumer sentiment among top users of the Momo app and a decline in Tantan's paying users. In contrast, overseas revenue demonstrated robust growth, increasing by 72.7% year-over-year to CN¥442.4 million. This growth was driven by the performance of Souchill and contributions from emerging brands, highlighting the potential in international markets.

The net loss attributable to Hello Group Inc. was CN¥140.2 million. However, the non-GAAP net loss was narrower at CN¥96.0 million, an improvement from CN¥449.2 million in Q2 2024. A significant factor impacting the reported net loss was an additional withholding tax accrual of CN¥547.9 million. This accrual, related to past dividends paid by its Chinese mainland entity to its Hong Kong parent, was clarified by CFO Cathy Peng as a "one-off in nature" expense not reflective of current or future normal business operations. Excluding this tax impact, non-GAAP net income would have been approximately CN¥451.9 million. Adjusted operating income for the quarter stood at CN¥448 million, down 6% from Q2 2024, with an operating margin of 17.1%. Cash reserves as of June 30, 2025, totaled CN¥12.39 billion, down from CN¥14.73 billion at the end of 2024, primarily due to bank loan repayment and dividends.

Market Sentiment and Broader Context

The market's negative reaction primarily stemmed from the significant EPS miss and the reported net loss, signaling investor concerns about the company's profitability despite revenue largely meeting expectations. Hello Group's forecasted revenue growth of 3.0% per annum over the next three years is notably lower than the 11% growth forecast for the broader Interactive Media and Services industry in the U.S., suggesting a slower expansion trajectory compared to peers. Despite the domestic challenges, the strong performance in overseas markets presents a counterbalance. Management indicated a target of up to 70% overseas revenue growth for the full year 2025, underscoring a strategic pivot towards international expansion.

Management Outlook and Future Considerations

Management outlined a strategic focus on maintaining the Momo app as a core cash generator, enhancing the Tantan app's dating experience and profitability, and deepening its presence in overseas markets. COO Sichuan Zhang noted positive trends in both domestic and overseas businesses, emphasizing the impact of AI-driven innovations, such as an in-house developed AI greeting feature and an AI chat assistant within the Momo app, aimed at improving user retention and engagement. For the third quarter of 2025, Hello Group estimates revenue to be in the range of CN¥2.59 billion to CN¥2.69 billion, projecting a year-over-year decrease of 3.2% to an increase of 0.6%. This guidance anticipates a mid- to low teens decrease in mainland China business, offset by mid-60s growth in overseas revenue. For the full year 2025, domestic revenue is expected to decline in the "low teens," while overseas revenue is projected to grow "around 70%." The company anticipates the group's top line in 2025 to either see a "slight downtick from or remain flattish versus 2024." Key risks highlighted by management include ongoing macroeconomic uncertainty and regulatory scrutiny, in addition to the impact of the adjusted withholding tax policies. Analysts also voiced concerns regarding the sustainability of revenue growth and potential margin pressure.