Cathy Peng - IR Director Jonathan Zhang - CFO.

Analysts:.

Ladies and gentlemen, thank you for standing by, and welcome to the Momo Third Quarter 2015 Earnings Conference Call. I must advise that this conference is being recorded today, Friday 20, November 2015. I would now like to hand the conference over to your first speaker today, Ms. Cathy Peng. Thank you. Please go ahead..

Thank you, Operator. Hello everyone and thank you for joining us today for Momo's third quarter 2015 earnings conference call. The company's results were released earlier today and are available on the company's IR Web site. Joining me today is our Chief Financial Officer, Mr. Jonathan Zhang. Mr.

Zhang will discuss Momo's business operations, followed by financial review. Due to the pending going-private transaction, we will not be hosting a Q&A session following the end of the call. If you have any additional questions, please contact us at ir@immomo.com or 861-057-310-538.

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.

With that, I would like to pass the call over to Mr. Zhang, who will now go over the business and financial highlights for the quarter. Mr. Zhang, please..

Thank you, Cathy. Good morning and good evening everyone. Thanks for joining our conference call today. In absence of our CEO, Mr. Tang Yen, I will be covering both business updates and financial review. Looking at the company from a high level, we had a good quarter with a net revenue growing 204% year-on-year to $37.5 million.

Non-GAAP net income for the quarter reached $3.9 million. Diving deeper into our business; let me now start with operating metrics. Monthly active users or MAUs, grew 21% year-on-year to 73 million in September 2015. The number of location-based interest groups increased to 5.9 million at the end of September up from 4.9 million a year ago.

The growth of smartphone users in China has been slowing down meaningfully during the past couple of quarters. We believe such macro environment has created challenges for many mobile Internet players including ourselves.

In such an operating environment, it becomes even more important for our team to stay focused on product innovations and building compiling user experience. During the third quarter, we continued to experiment on new features and functionalities as well as optimize the existing ones.

For example, we revamped the group function making it easier for our users to connect their online group chats to offline events. We have also released a customizable privacy setting in order to satisfy a more personalized user demand in privacy protection area.

During the national holiday season, we took advantage of the large group of golden week vacationers to test out an interesting new feature through which users can share their itineraries and see recommended users, who travel to the same city at the same time.

Looking into the quarters ahead, we intended to continue our explorations in creating new ways for Momo users to socialize and have fun on our platform. More importantly, in September, we officially unveiled Momo Life, our interactive live music service.

Through an entry point embedded in the discovery page, Momo users are able to enjoy live music shows performed by professional singers at Momo. We currently run two to four hours of live sessions from 8 pm to Midnight on a daily basis.

Although, we're already seeing some preliminary data points that are encouraging, I would say that Momo Life is still a pioneering initiative at its experimental stage. We have a lot of opportunities to optimize in terms of formats quality of content as well as marketing.

We are seeing significant potential and synergies in the combination of a social platform and online entertainment service, which in itself is ramping up at accelerating pace due to the meaningful improvement of mobile infrastructures.

However, figuring out the best way to connect those social and entertainment elements and building a scalable business on top of those require explorations.

What we are doing now marks our first step into this fast growing market; we are currently collecting and analyzing user data and feedbacks based on the past two months of operations and developing our road maps accordingly. You will see our plans unfold gradually in quarters ahead.

Apart from the above mentioned product experiments and optimizations, we are devoting a significant amount of time and resources to improve the healthiness of our ecosystem as an open SNS platform connecting 10s of millions of users each day. It is crucial for us to make sure that different cohorts of users feel safe to socialize our Momo.

Account security and anti-spam are two important elements in the healthiness of our ecosystem. Delivering the right kind of user experience on that front involves big database technological innovations as well as compromising short-term user growth targets.

During the third quarter, we stepped up our efforts in detecting and plotting spam accounts and tighten up the security policies to curb account hacking. As a result, we have seen a substantial decline in our users' exposure to spamming activities and at the same time improvement in account securities.

On the other hand such stringent practices may have negatively impacted the activeness of some normal accounts suspected to be spammed or hacked, pending further investigation. Now, turning on to monetization, total revenues reached $37.5 million in the third quarter of 2015 up 204% year-over-year.

Membership subscription revenues were $16 million in the third quarter of 2015, an increase of 76% over the same period last year. Paying members totaled 3.3 million as of September 30, 2015 up from 2.3 million as of September 30, 2014.

During the third quarter, we shifted our focus from short-term aiming promotional campaigns to work longer term driven endeavors. For example, we have smoothened the payment process in order to increase the renewal rate for our paying members.

We also introduced two premium features for our super VIP members to check out visitors to their message board and to remove advertisings in their feeds. These two super VIP only privileges were well received by our users and the number of super VIPs who pays more than normal member does rapidly ramps up to 370,000 at the end of September.

As a result, we saw a meaningful increase in ARPU during the third quarter driving the overall membership revenue higher. Mobile game revenues were $9.5 million in the third quarter 2015, up 287% year-over-year. Active game players for the quarter totaled $6.4 million up from $3.1 million for the same quarter last year.

During the past few quarters, we have already established our position as one of the key channels for mobile game distribution. In the third quarter 2015, we started to pilot field projects in the broader game publishing area. As one of the top mobile SNS platform in China, we have significant leverage in game developing, publishing and operations.

Our current focus is horning our team's capability and developing expertise in all those areas in order to further enhance our market position in the mobile game industry in China. Mobile marketing revenues were $10.8 million in the third quarter of 2015 compared to $0.3 million in the same quarter last year.

The growth in mobile marketing revenues were attributable to brand marketing as well as native marketing products. For brand marketing services, during the quarter, we experienced continuing growth in our customer base as well as per customer spending. We have been making strides in building our proprietary marketing products.

Over the past three quarters, we successfully transformed ourselves from a simple traffic generator for third party partners to a well rounded marketing platform covering a broad range of marketing spectrum including brand oriented display ads to action driven ad products such as app downloads.

In July, we upgraded our native in-feed marketing system with a real-time bidding mechanism. While, we are still at the learning stage to relatively -- we believe we have a large room for further optimization.

We are already seeing the system driving a significant increase in effective CPM, excluding the hourly ad units, which bears a fixed pricing, effective CPM for our proprietary in-feed that unit nearly doubled during the third quarter that has allowed the mobile marketing revenue to grow rapidly and became our second largest revenue segments in Q3.

As the effectiveness of our ad products continue to gain customer recognition across different marketing segments, we are seeing strong momentum from the demand side of the equation. Compared with our industry peers, we believe our pricing is extremely competitive and ad growth remains low providing us with ample room for further growth.

These factors give us the confidence to build mobile marketing into a powerful growth engine going forward. As we keep shifting our focus to owning self-operated ad products from traffic directions with third parties. The weight of the revenue contribution from Ali and 58.com continued to go down during the third quarter.

We expect that trend to continue in the near future. Now, I will turn to costs and expenses. For the third quarter 2015, our cost and expenses on a non-GAAP basis totaled $35.4 million up 39% year-on-year. The year-over-year increase in costs and expenses was primarily due to the continuing expansion of our business.

By the end of September 2015, our total number of employees reached 784 compared to 358 a year ago, making personnel related cost the largest cost driver on the year-over-year basis. Higher infrastructure spending which includes bandwidth cost, SMS cost and depreciation on servers can be directly attributed to the growth of our user base.

Increase in revenue sharing with payment channels was in proportion to the growth of revenues. Part of the incremental costs were in connection with our newly launched Momo Life, the video service, which involved spending in production, facility, personnel, bandwidth as well as promotions.

Costs and expenses as a percentage of revenue went down significantly on a year-over-year basis reflecting the scale and efficiency of our business. Same as last year, the third quarter was the peak season for Momo in terms of marketing spending.

In the past, third quarter, our branding efforts included various TV commercials, product placements in top ranking TV shows as well as banners leading video portals. Apart from the branding advertising, we also invested moderately in paid user acquisition channels and gain promotions.

The timing of our marketing campaigns has caused fluctuations in our operating margins in between quarters. We expect to scale back our marketing spending in the fourth quarter particularly in branding advertising.

Non-GAAP net income attributable to Momo Inc., was $3.9 million in the third quarter 2015 compared to a non-GAAP net loss of $13 million in the same period last year.

Quickly on key balance sheet and cash flow items, as of September 30, 2015 Momo's cash, cash equivalents and time deposits totaled $445.6 million compared to $451 million at the end of December 31, 2014.

In the third quarter of 2015 we generated a positive operating cash flow of $7.5 million compared to a negative cash flow of $12 million for the same period last year. Capital expenditures and cash used in investing activities were around $13.5 million for the quarter.

To sum up, we are pleased that we continue to deliver solid financial results in the third quarter 2015. Looking ahead, we will continue to execute against our -- priorities in order to drive further growth in our user base, revenues and profit margins. With that, I would like to turn back to the operator to close out today's earning conference call.

Operator, please..

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect..

End of Q&A:.