Ladies and gentlemen, thank you for standing by and welcome to First Quarter of 2020 Momo Incorporated Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over the first speaker for today, Ms. Cathy Peng. Thank you. Please go ahead ma'am.

Cathy Peng - Director of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's first quarter 2020 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 the 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 US Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements 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.

Yan Tang - Chairman and Chief Executive Officer

[Foreign Speech]

Good morning and good evening everyone. Thank you for joining our conference call today. As you can imagine, Q1 was a challenging quarter for Momo as well as for many other companies who are operate in China amidst the difficulties caused by the COVID-19 outbreak. I'm proud that the team has been able to adapt well to the changing environment and navigate through these challenges with solid execution against our strategic goals. Today, my team and I will walk you through the key operating and financial results. We are also going to reiterate our priorities for the year and how we are going to approach them in the coming few quarters.

[Foreign Speech]

Firstly, a brief overview of the financial performance. For the first quarter 2020, total revenue was RMB3.59 billion, down 3.5% year-over-year. Adjusted operating income for the quarter was RMB801.0 million, representing a 22.3% profit margin. Excluding Tantan's loss, adjusted operating income for the core Momo was RMB901.5 million or a 28.1% profit margin.

[Foreign Speech]

Now a deeper dive into other aspects for the quarter. First on operating metrics. The core Momo app had a 108 million monthly actives for the first quarter 2020, down 6% year-over-year and representing a 6.5 million net decrease from the previous quarter. As said on our last earnings call, the COVID-19 outbreak has caused a significant portion of our users to delay their time to get back to the big cities for work. It has prolonged and amplified the negative Chinese New Year effect. In addition, the strict social distance in control and associated decline in outdoor activities have also limited the demand for using an open social app to discover new relationship. In response to such a situation, the team has quickly adjusted our strategy by redirecting the traffic from nearby people and one-to-one chatting which focus mostly on online to offline conversion toward other social entertainment experiences which provide broader online companionships to the users. As a result, per user time spent per day continue to rise on a sequential basis reaching a new record high since the beginning of 2018.

[Foreign Speech]

Due to the pressure on MAUs, number of paying users on Momo also saw a 700K [Phonetic] net decrease from Q4 to 8.6 million in Q1 2020. Paying users on Tantan saw 300K quarterly net decrease to 4.2 million in Q1 2020, also primarily due to the weak dating sentiment caused by the virus-related disruptions.

[Foreign Speech]

Active users on other engagement metrics on Momo has been gradually rebounding since March. As we move deeper in executing our product strategies and enhancing our user experience, we plan to step out our marketing efforts from June to drive the top of the funnel activities. Based on the current trajectory, we expect to see a full recovery on Momo within the coming few months. Customer traffic has been showing initial selling for recovery since early May as outdoor activities gradually picks up. We expected recovery to be a progressive process as the dating sentiment comes back on a graduated basis.

[Foreign Speech]

Despite a rough start of the year caused by the virus-related factors, we won't let these disruptions get in way of executing our user growth strategies, which we laid out at the beginning of the year. I would like to take a few minutes to reiterate here. First, continue to improve the social experience on our platform so that we can better satisfy the user demand we were not able to serve well in the past; second, penetrate into the lower tier markets more effectively through a specific product and marketing approach; third, drive Tantan's user growth more effectively; and lastly, enrich our product matrix with new applications.

[Foreign Speech]

During the past several months, we've been taking solid steps on all those fronts. In Q1, one of our big focus was to optimize the chat room experience. It was particularly important during the social distancing period because chat room enables people to stay connected and have fun together when they are physically isolated. Last year, our vast team introduced a very popular chat room experience called Lost Planet, which is a moderated dating experience that emulates some of the popular TV reality shows. This year, we brought in a couple of other similar moderated shows into the chat room experience. This new initiative turned out to be effective both in terms of driving engagements and in terms of revenue contribution. As a result, although the overall traffic was under pressure in Q1, the time spend in chat room ended up growing 20% on a sequential basis.

[Foreign Speech]

In April, we also started an experimental project called Social DNA. Under this project we assigned different tasks to the users that help them better express their personalities, personal image, social preferences, hobbies or other aspects that they would like other users to know about themselves. These tasks, also known as Social DNA on our platform are based on our big data analysis of user behavioral and profile information as well as users on choices. We are then building tasks into our algorithms, which will make more relevant recommendations of people and content accordingly. This project is a pioneering experiment that helps us better understand how people connect and interact effectively in open environment. It shows our commitment to improving the efficiency in helping our users discover new relationships and build meaningful interactions on Momo.

[Foreign Speech]

Now, the second area of focus penetrating into the lower tier market through tailor-made product and marketing approaches. In Q1, we launched Momo Lite, which is a standalone version of Momo that is fully connected on the back end to the core but loads much faster and requires much of data consumption than the main application. Although Q1 was relatively slow in development due to the constrain of resources caused by the stay at home order, we have been getting positive data feedbacks on Momo Lite. With the product productivity coming back, we are now speeding up on the iterations to enhance the user experience. On the main application, we also have started showing localized version with tailored content and activities that better appeal to the users in lower tier cities. Soon, we will be supporting these new product efforts with the promotion programs that are also tailor-made for the lower tier markets. We believe these initiatives will help us better satisfy the social demand in different geo regions and thus better seize the growth opportunities there.

[Foreign Speech]

On our last earnings call, I mentioned that due to the presentation of the open social space and the diversity of social preferences, we are adopting a portfolio approach to better serve the social demand of our users. This is also an important strategy for us to penetrate the market more effectively and strengthen our leadership in the open social space. During the past few months, we have made solid progress on that front. For example, for Heartz in English [Phonetic], an audio-faced dating application we launched last year have already scaled to a level where we can start monetizing and re-profit to support its own growth. In addition, we also have a number of other projects branching out to different sub sectors within the social and entertainment space. Some of these projects are starting to take shape. We look forward to sharing more information as the year progresses.

[Foreign Speech]

Overall, Q1 2020 has been a tough and yet very fruitful quarter for us. I'm glad that the team have been enabled to stick to our goals and keep pushing forward on the strategic front. Although the macroeconomic environment is probably going to remain as a headwind for the coming few months, we are seeing plenty of growth opportunities ahead of us. We will continue to pursue these opportunities and drive value for our shareholders. Thank you for trusting Momo. With that, I'm handing over to Wang Li for business review. Wang Li, please?

Wang Li - Director, President and Chief Operating Officer

[Foreign Speech]

Thanks. Now let me take you through the progresses we made across our key business lines.

[Foreign Speech]

Firstly on live broadcasting. Total revenue from live broadcasting business for the first quarter 2020 was RMB2.33 billion, down 13% from the same period last year. As we mentioned on the last earnings call, the pressure on live broadcasting business was due to the compound - a number of different factors, among which the two most important lines are, the economic impact of the COVID-19 adversely affecting the consumer sentiment, especially among the top of the [Indecipherable] users, and the pressure around the traffic in connection with virus outbreak.

[Foreign Speech]

In view of the challenging environment, the biggest priority of the team is to strengthen the product and operational efforts to mitigate the impact on revenue. After Chinese New Year holiday, the team rolled out a number of new game plays within live broadcasting to improve the paying experience. Many of these are interactive gifts, similar to the Penguin, which largely focused on improving the engagement and spending from the middle cohorts via mini game contents.

In the second quarter, we plan to continue to step up the operational efforts to drive the engagements and spending from the middle layers of the spending pyramid. Many of the planned efforts will revolve around building virtual content experience that appeal to the middle layer and long tail audience base.

[Foreign Speech]

The other thing that we believe is critical for driving middle cohort and long tail spending is to have an effective mechanism that discovers and supports new and entry-level performers. This is an area where we see a lot of opportunities for optimizations and improvements. It is also a key area of focus for the team in the coming few quarters.

[Foreign Speech]

For the high-paying users, given that most of them are private business owners whose financial conditions were pressured by the pandemic, we believe that our efforts should focus on keeping them engaged rather than letting them spend more. One of the key issues we had last year was that the top spenders were becoming less enthusiastic about the quarterly tournament events. So this year, we rebranded the experience into a new competition event that we call the producer program. The new program was created as an online version of [Indecipherable], which was a big success last year. It is called the producer program because we let the top spenders to play important roles in the event. They get to handpick their favorite performance to form their own task force and compete with others as a team. In early April, we held a first season of the producer program. Although the overall spending was lower than the prior 29 events [Phonetic] due to the negative - in connection with the pandemic, the level of participation from the top vendors improved meaningfully as compared with what we saw in the quarterly tournaments last year. We plan to continue to optimize on it and rollout a second season somewhere in summer.

[Foreign Speech]

Now turning to that. While we will talk about Tantan's business later, so I will be focusing on the VAT business for the quarter. Revenue from VAT on an ex-Tantan basis reached RMB801 million in the first quarter of 2020, a 31% increase on a year-over-year basis. The decrease in the number of active users and engagement levels had direct impact on that business. However, as compared with live broadcasting, VAT is still under monetized. In addition, because the paying user structure for VAT is long tail driven, it's much more resilience in a tough macro environment. Therefore, in order to alleviate the stress on overall revenues in Q1, we push the gas pedal a bit harder to drive revenue growth through operational events and virtual paying experiences.

[Foreign Speech]

As Tantan mentioned earlier in his remarks, in Q1 we introduced a couple of new moderated experiences in the chat rooms. These experiences are inspired by some of the popular dating reality shows and moderated by professional hosts in the commercial chat rooms. Our Momo users can not only enjoy the show as audience but also participate and become part of the show. We see a lot of potential in expanding this content genre of Momo because it takes - it makes a fun consumer experience that is compatible with our core user mentality. At the same time, it offers considerable commercial value based on a proven model. In Q1, the chat room experience shined both in terms of engagement growth and in terms of revenue contribution. We expected to continue to act as a key driver for the VAT business for the rest of the year.

[Foreign Speech] Other than the chat room experience, we are working on a number of new projects that have the potential to become future revenue drivers. For example, as Tang Yan mentioned, Hertz, which is an audio-based stating application is gaining traction with the younger demographic. We have already started monetizing the application and put the revenue back into marketing so that we can drive a virtuous cycle to grow it into a bigger scale.

In addition, Hongye or the matchmaking experience, which we started testing last year on the core momo is also making good progress. I'm very optimistic that these new projects will bring new revenue growth opportunities down the road.

[Foreign Speech]

Now briefly on other business lines. Mobile marketing revenue declined 29% year-over-year to RMB57.16 million due to the strong macro headwinds, as well as our strategy to underweight the line in terms of resource allocation. Jointly operated game business continued to trend down in Q1 and will likely fluctuate around the current revenue level for the coming few quarters.

[Foreign Speech]

That's the business review of the core Momo. Now, let me hand over to Mr Wang Yu for a review of Tantan's product and business development. Mr. Wang, please?

Wang Yu - Co-Founder & Chief Executive Officer of Tantan Limited

Thanks. So, let me briefly review Tantan's operational and business development in the past quarter in our next slides. First on user metrics. As many of you know, we had some issues around user retention, which caused the number of data active users to be under pressure since September last year.

Last December, through a series of product and algorithm optimizations, we fixed the issue and pushed retention back to where it was before the download suspension happened. As we stepped up the channel marketing efforts, in January, we saw the DAU grow rapidly during the two weeks period from late January to mid-February.

However since February 10, as the spread of COVID-19 continued beyond Wuhan and a nationwide lockdown kept getting innovated, we have seen the dating sentiments quickly waning, creating headwinds to new registration as well as the paying conversion on Tantan.

In response to these situations, we scaled back our marketing spending in March due to ROI considerations. The combination of the above-mentioned factors have caused the active users to trend down since mid-February, which led to a 300,000 net decrease in the number of paying users to 4.2 million at the end of Q1.

With the lockdowns lifted and outdoor activities gradually coming back, we expect to see dating sentiment start to recover gradually as well. However, we also believe this can be a progressive process as most of the people are still wearing masks outdoors, and you can take time for young people in China to completely let down the psychological barrier to meet someone they did not know well for - interactions.

The other thing worth mentioning is that although the number of active users were under pressure during Q1, the number of active female users and their engagements gradually grew on sequential basis. This tells us that female users are less focused on online to offline conversions are more into building deeper level online emotional connection. It confirms our belief that by adding richer online interactive features we can make Tantan appeal to a broader base of users.

Now briefly on revenues. Total revenue for the first quarter was RMB381.7 million, up 29% year-over-year and a slight uptick from the previous quarter. Although a number of paying users decreased meaningfully, the ARPPU grew significantly due to the outstanding performance of Flash Chat, and revenue mix shifting more towards higher ARPPU subscriptions. The growth thing to revenue conversion is another factor for the ARPPU increase.

Now let me give you an update on the progresses we've made against our key strategic priorities. First on product and operations. Our key focus here is to enrich the product experiences in order to drive the long-term user retention. In our early days, Tantan started from the metropolitan cities in China and focused on college students and people in late teens and early 20s. The simple swipe and match experience were quite effective for this demographic. As Tantan's user base grow and the demographic broaden, we need more features and experiences to better serve the increasing diversified social preferences.

In November last year we rolled out the Flash Chat experience on Tantan, which allows the opt-in users to get immediately connected with someone for a conversation before they focus too much on profile pictures. The new feature has been well received, driving immediate surge in a number of two-way messages. It also opens up new monetization opportunities. As Quick Chat continues to gain traction among users, revenue also ramped up rapidly in Q1, now representing more than 10% of our total revenues.

We believe there is still a lot of potential in this experience and we'll continue to optimize and drive growth from it. The success of Flash Chat proves that adding new feature is the right way can indeed benefit us both in terms of engagement and in terms of financials. In Q1 we also accelerated the rollout of the new version, which features nearby posts to allow users to share more aspects of their lives as well as make new discoveries based on contents. Up to now, the new version has already reached 100% coverage a month on users. Like many other social networking products, having a content community is very critical for driving meaningful interactions between users. The introduction of the nearby posts is an important step that we've taken to provide Tantan users richer ways to connect beyond our signature swiping experience.

We will continue to optimize the new version and has the community experience around it. In Q1, we also moved deeper with an internal testing of an important consumer experience, the live video service. We believe this has especially important - this was especially important during the social distancing period as it provides an alternative way to connect virtually and make people feel less isolated. In mid-April, we released more users into the testing group. As the number of users grow, we can now invite more quality broadcasters onto the platform and improve the quality of content, which will further drive improvements in user engagements as well as the monetization potentials.

Now a brief update on monetization efforts. Obviously, the testing of live video is not just an endeavor to improve user experience, but also an effort to optimize monetization value of the platform. We believe the Tantan users have strong willingness and motivation to pay for value-added services in order to enhance the social experience. However, this huge paying potential needs to be unleashed by a combination of subscription and ala carte features.

Live video is a proven monetization mechanism that drives ARPU and which if done correctly - carefully and in the right way can also contribute to user engagements. We intend to continue to testing with extreme prudence and carefully monitor the data to make sure we stay on the right track with Tantan's core mission, which is helping users build romantic relationships.

Other than live video, we also have a number of other priorities which include optimizing the Quick Chat experience and the existing subscription features, as well as testing the formula of other new revenue features. We will continue to give you guys updates as the year progresses. Those are the key things that I'd like to cover for today. Now, let me pass the call over to Mr Jonathan Zhang for financial review. Jon, please?

Jonathan Xiaosong Zhang - Chief Financial Officer

Thanks. Hello everyone and thank you for joining our conference call today. Now, let me briefly take you through the financial review. Total revenue for the first quarter of 2020 was RMB3.59 billion, down 3.5% year-on-year or 23% quarter-on-quarter, exceeding the high end of our revenue guidance.

Non-GAAP net income attributable to Momo was RMB736.3 million compared to RMB910.3 million from the same period 2019 or 19% decrease year-over-year. Let me jump into the review of cost and expenses items as revenue line items have been covered comprehensively by and Wang Li and Wang Yu earlier.

Our non-GAAP cost of revenue for the first quarter of 2020 was RMB1.85 billion, same as Q1 last year. Non-GAAP cost of revenue as a percentage of total revenue was 51.5%, an increase from 49.7% from Q1, 2019. The non-GAAP gross profit margin for Q1 2020 was down 1.8% year-on-year. The decrease was partially attributable to a higher payout which was primarily due to higher revenue contribution from agency representative broadcasters.

Secondly, certain fixed nature cost items such as headcount and depreciation of fixed assets related impacted the gross margin actively as total revenue declined and this items represent a higher percentage of total net revenue.

Non-GAAP R&D expenses for the first quarter was RMB217 million compared to RMB207.4 million for the same period last year, representing 6% and 5.6% of total revenue, respectively. The increase in R&D expenses was mainly due to the headcount increases during the year.

On a sequential basis, the non-GAAP R&D expenses decreased from RMB244.3 million in Q4 last year due to the year-end bonus incurred. We ended the quarter with 2,344 total employees, of which 725 from Tantan. R&D personnel as a percentage of total employees for the group was 56% compared to 54% last year.

Non-GAAP sales and marketing expenses for the first quarter was RMB645.3 million or 18% of total net revenue compared to RMB567.5 million or 15.2% of total revenue for the same period last year. The year-on-year increase in sales and marketing expenses was mainly due to higher marketing spending from Tantan and to a lesser degree from Momo as well.On a sequential basis, sales and marketing expenses decreased due to a less marketing spending from Tantan in response to the COVID-19 outbreak. Non-GAAP G&A expenses was RMB105.5 million for the first quarter 2020 compared to RMB92.9 million for the same quarter last year, representing 2.9% and 2.5% of total net revenue, respectively.

Non-GAAP operating income was RMB801 million, a decrease of 21% from Q1 2019, representing 22.3% non-GAAP operating margin for the quarter, down 5 percentage points from the same period of last year.

Now briefly on effective tax rates. Starting from the beginning of 2020, one of our major profit-making subsidiaries preferential income tax rates change from 12% to 15%. As a result, our consolidated non-GAAP effective tax rate was around 19% for the first quarter, up 3 percentage point from the same period last year.

Now turning to the balance sheet and cash flow items. As of 31, 2020, Momo's cash, cash equivalents and short-term deposits totaled RMB15.47 billion compared to RMB14.93 billion as of December 31, 2019. Net cash provided by operating activities during the first quarter was RMB543.5 million.

Lastly, for the second quarter of 2020 revenue guidance. We estimated our second quarter revenue come to the range from RMB3.8 billion to RMB3.9 billion, representing a decrease of 8.5% to 6.1% year-on-year and an increase of 5.7% to 8.5% quarter-over-quarter. Pleased to be mindful that the forecast represents the company's current and preliminary view on the market and operational conditions which are subject to changes.

The other thing worth mentioning here is that up to this moment, Momo has made special cash dividends for the past two consecutive years to replenish our US dollar funding consumed the company will repatriate RMB2.2 billion in total from our WUFE [Phonetic] in China to our offshore entity before the second quarter end.

In accordance with the respective taxation loss in China, the company will pay 10% or RMB220 million withholding tax to Chinese Tax Authorities, with the holding tax payments will be reported as income tax expenses for the company in the second quarter 2020. That concluded our prepared portion of today's discussion. With that let me turn the call back to Cathy to start Q&A. Cathy, Please.

Cathy Peng - Director of Investor Relations

Yes, just a quick reminder for those who can speak Chinese please ask the questions in Chinese first followed by English translation by yourself. And also please try to limit the number of questions to either one or two so that more people get to ask questions. Operator, we are ready for questions.

Question & Answers

Operator

[Operator Instructions] The first question comes from the line of Thomas Chong of Jefferies. Ask your question.

Thomas Chong - Jefferies - Analyst

[Foreign Speech] Thanks management for taking my questions. My question is on two halfs. First, it's about Q2 revenue guidance and the second half outlook. The management say more about the core Momo live streaming and Tantan business trends in the coming quarters. And my second question is more relating to the Tantan side, given that you have started testing for the live streaming services, can management say about what lessons we have learned from the testing, will that affect the Tantan ecosystem and any KPIs that we should expect for the live streaming revenue for the year. Thank you?

Yan Tang - Chairman and Chief Executive Officer

[Foreign Speech] So the first part of the - this part of the question on the Q2 guidance, the company's Q2 guidance is based on some of the recent trajectory that we have been seeing and also management's assumptions for the coming - couple of months. We can see it in several components. Firstly, for live broadcasting, based on some of the trends that we've seen so far into the second quarter, we believe that the macro conditions, especially the economic condition of the private business owners are going to continue to be a headwind to the consumer sentiment especially that among the higher paying cohorts.

And the other factor that we put into the assumption - put into the Q2 guidance is that, is the suspension of live broadcasting service during the National Mourning Day, that is also going to pressure the overall revenue by a couple of percentage. So the rates decrease [Phonetic] in the second Q for live broadcasting - it's going to be a little bit higher than what we saw in Q1, but on a sequential basis live broadcasting is still going to see a pretty nice rebound from the first quarter. And for VAS, I think because of the recovery of traffic, the pressure around revenue is going to ease up, at the same time, the team also has plan to scale back on some of the very ARPPU-oriented operational efforts, but overall we expect the YY growth rate for VAS to be able to maintain the same level as we saw in Q1.

Now for Tantan, our expectation is that we're going to see some acceleration, the YY growth rate is going to see some acceleration from Q1's level and the main driving factors would be the recovery of users as well as the contribution from new revenue projects. [Foreign Speech]

With regards to the revenue outlook for the second half of the year, currently we believe that the uncertainty at the macro level are probably going to be lingering for some time. Actually, we are still pretty optimistic about the revenue outlook in the second half. And here are some driving factors that we're looking at. Firstly, for live broadcasting, we're going to continue to roll out product and operational efforts. We believe that these efforts will take effect on a progressive basis. For VAS, it's not as deeply monetized. So we do see plenty of headroom for further growth. At the same time it is also going to be much more resilient in a tough macro environment. As we said on the four parts [Phonetic] of this call, based on where we are with the chat room experience and also based on where we are with a number of new projects that we're currently running under VAS, we think that VAS revenue is going to continue to grow very rapidly as we head into the second half of the year. And thirdly on Tantan, we have already been seeing recovering trend in Tantan's users and as we said it leads to new revenue engine - is also beginning to warm up.

Now even based on the very initial testing data, we can see that there is indeed huge monetization potential in Tantan's user base. Such potential will start to get released in the second half of the year in a graduated and methodical manner. So I guess based on these driving factors, we are pretty confident that the revenues in the second half of the year is going to see a pretty meaningful growth from the first half of the year. Now here is one for [Technical Issue].

Jonathan Xiaosong Zhang - Chief Financial Officer

So regarding the live video test results, the test results have been very encouraging so far. Several things are worth sharing here. What matters most to us in the testing is that we don't want to see any new monetization features adversely affecting the dating ecosystem metrics.

We've been testing live video for several months now. It's clear that it does not have any negative impact on dating. In fact, I'm happy to see several important dating metrics we follow having turning up and recently reached historical highs. For example, the amount of two-way messages for users, not only per user, but the total amount of two-way messages is at its historical peak right now. The number of matches - the amount of the match users. So if we do it the right way, it's possible that live video can even be positive to dating.

Second, after we release more users into the testing group, the different operating and revenue metrics around live video services, started to ramp up very rapidly. These metrics include the paying ratio ARPU high spend [Phonetic] etc.

The trajectories that we are seeing confirms our belief that Tantan's user base, there are huge paying potentials to be released. Well, what's more encouraging is that the current paying structure, extremely long-tail driven, which reflects the attributes of Tantan users. With regards to revenue outlook, we're still at testing phase and therefore do not want to be too prescriptive about the annual numbers. But based on the current trends, we believe that it can be a meaningful driver in the second half. Thanks.

Cathy Peng - Director of Investor Relations

Ready for next.

Operator

Thank you. The next question is from the line of Tian Hou of TH capital. Please go ahead.

Tian Hou - TH capital - Analyst

[Foreign Speech]

Cathy Peng - Director of Investor Relations

[Foreign Speech] So let me translate the first question on Momo Lite first. So far we haven't run any large-scale promotional campaigns around the live version, by this point it has already built up a pretty sizable user base. However, as compared with the main version, the overall user base on the Momo Lite version is still relatively small. Our plan is that starting from the third quarter, we are going to step up the marketing efforts around the Momo Lite.

Our expectation is that starting from the second half of the year, Momo Lite will start to make some meaningful contribution to the overall user base of the core application. With regards to the monetization potential, at this point, the Lite version only has membership in live broadcasting, but based on the live broadcasting data, the willingness to pay and the paying potential on Lite is not any weaker than that the users on the main app.

But at this point, there are just not as many core paying experiences on the Lite, as they are on the main versions because the focus, the team is still on improving user experience and building up the scale. I think where we're going to - we're going to start to open up more monetization opportunities at a pace that we deemed fit. So that's for the Lite version.

Regarding the second question on the e-commerce related live broadcasting. As management of the company, we've actually noted the rising trend and the rising popularity of the e-commerce related live broadcasting on some of the major e-commerce platforms, and this is indeed one of the areas that we have been closely monitoring and we are also pretty actively studying and exploring some of the potential opportunities that we can potentially seize. But at this point, we are not at this stage to share any deeper information publicly yet maybe later. So that's the answers to both of the questions. Operator. I think we're ready to take one last person and they're ready to close given time.

Operator

Sure. Yes. We are going next - last question from the line of Daniel Chen, JP Morgan. Please ask your question.

Daniel Chen - JP Morgan - Analyst

[Foreign Speech] I will translate myself. My first question is on Tantan. So we do see that many, - on the dating, market many other companies have launched a kind of a various dating products such as [Indecipherable] and Tantan has also launched some new products. So could management comment on the competitive landscape and how Tantan is going to cope with competition. The second one, second question is on the margin. Jonathan provided some update on the second quarter and it's like full quarter margin trend and also the trend of the key cost items. Thank you.

Jonathan Xiaosong Zhang - Chief Financial Officer

Okay. So regarding competition and competitors, like you mentioned, [Indecipherable] are probably the biggest ones other than Momo and Tantan at the moment. But as far as we know, they focus on very different areas. Well, we are committed to helping users build romantic relationships. And as I've mentioned earlier, enriching the services and features is very critical in our user growth strategy. So we will definitely be considering adding more features in order to further strengthening our product offering.

Hi, this is Jonathan. Let me address your margin questions. Let me answer that in two aspects. For core Momo, actually as Tang Yan mentioned, based on this sequential revenue growth, we are very confident that we're going to achieve for the - that the revenue sequential growth annual target, and at the same time, we are going to maintain disciplined in managing our costs and expenses to help us to achieve annual non-GAAP operating margin at 30% as I discussed last earnings conference call. So that's still our target, and also our operating gross margin will be relatively stable, the only variable factor is the payout.

So we do see couple of percentage pressure based on the - the higher percent of the revenue contributed by the agencies down the road. And also we had allocated certain budget for promotional events. So, and then we're going to - on a rolling basis to manage our selling, marketing expenses. The rest of the year, the operating expenses, R&D and G&A are relatively fixed in nature as the revenue continue to grow, we will see some operating leverage. So that's for core Momo.

For Tantan, we do see a potential for faster growth on Tantan's revenue, and however we believe at this stage Tantan's priority is still focusing on achieving a user base recovery and then acceleration of the user base growth. So they would like to reinvest some of the additional profits generated by the new revenue driver into the selling, marketing to support that initiative. And then for the rest, will help to further accelerate the acceleration - the deceleration on net loss.

So for the full year, net loss on Tantan will come down sequentially on a quarterly basis.

Cathy Peng - Director of Investor Relations

Great. Operator, we're ready to close.

Operator

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HELLO GROUP INC

Q1 2020

Earnings Transcript

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