Hello Group Inc. (Nasdaq: MOMO) — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a report limited to 2021 Q4. Financial statements are prepared under U.S. GAAP; amounts below are RMB unless otherwise noted.
Business context
Hello Group operates China-focused social and entertainment platforms, principally Momo and Tantan. It is a Cayman Islands holding company whose China operations are conducted through subsidiaries and variable interest entities (VIEs) under contractual arrangements. VIEs generated 98.4% of 2021 revenue; investors own the holding company, not the VIEs directly.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | RMB14.576bn | RMB15.024bn |
| Operating income (loss) | RMB(2.390)bn | RMB2.531bn |
| Net income (loss) | RMB(2.926)bn | RMB2.100bn |
| Net loss attributable to Hello Group shareholders | RMB(2.914)bn | Net income RMB2.103bn |
| Basic and diluted EPS | RMB(7.20) per share | RMB5.05 basic; RMB4.83 diluted |
| Net cash from operating activities | RMB1.559bn | RMB3.081bn |
| Cash and cash equivalents at year-end | RMB5.571bn | RMB3.364bn |
| Total assets / total liabilities | RMB18.111bn / RMB7.526bn | RMB23.221bn / RMB8.385bn |
Revenue less cost of revenues implies a gross margin of approximately 42.5%, down from 46.9% in 2020. The company recorded a RMB4.397bn impairment of goodwill and intangible assets in 2021, including RMB3.971bn of Tantan goodwill impairment. The impairment was a principal driver of the reported operating and net losses.
Revenue mix shifted: live video revenue fell 13.1% to RMB8.379bn, while value-added services grew 16.8% to RMB5.972bn. Live video represented 57.5% of revenue, versus 64.1% in 2020; value-added services rose to 41.0% from 34.0%. Mobile marketing revenue declined 19.8% to RMB159m; mobile games increased 20.6% to RMB48m.
Operating cash flow was positive but fell about 49% year over year. Investing activities provided RMB2.550bn, largely reflecting deposit maturities, while financing activities used RMB1.787bn, including dividends and share repurchases. Cash, cash equivalents, restricted cash, and short- and long-term deposits totaled RMB15.631bn at year-end. Current assets were RMB9.411bn and current liabilities RMB2.516bn.
Convertible senior notes had a carrying amount of RMB4.565bn at year-end; the stated contractual obligation, including estimated interest, was RMB4.822bn. The notes bear 1.25% interest and mature in 2025; holders may require cash repurchase on July 1, 2023 or following specified fundamental changes. Operating lease obligations were RMB276m.
Material changes versus prior year
- Revenue declined 3.0%, following a 11.7% decline in 2020. Management attributed the 2021 decrease mainly to lower live video revenue amid structural changes to Momo’s core live-video business and reduced Tantan monetization to improve user experience and retention.
- Operating results swung from profit to loss, primarily because of the impairment charge. Before the impairment, ordinary operating costs were lower in several areas: sales and marketing fell 7.4%, R&D fell 3.1%, and general and administrative expense fell 18.1%.
- Momo revenue edged down to RMB12.541bn; Tantan revenue declined 14.3% to RMB2.029bn. Momo MAUs were 114.1m in December 2021, compared with 113.8m a year earlier; Tantan had 27.0m MAUs.
- Cash and cash equivalents rose, while short-term deposits declined. Total assets fell RMB5.109bn, reflecting the impairment and changes in cash and deposits.
- Shareholder distributions included a US$132m special dividend paid in 2021. The company announced a further approximately US$127m special dividend for payment in April 2022.
Outlook, commentary, risks and unusual items
- Outlook: No quantitative revenue or earnings guidance is provided. Management said cash and cash equivalents and expected operating cash flows should cover working capital and capital expenditure for the next 12 months. It plans continued spending on technology, product development, user experience, marketing, and infrastructure.
- Tantan: Management lowered monetization to support user experience and retention; near-term revenue and loss expectations worsened. The impairment valuation relied on forecasts and significant assumptions, including a 20% discount rate and 3% terminal growth rate.
- China regulatory exposure: Evolving rules for data privacy, cybersecurity, online content, live streaming, minors, competition, and overseas listings could raise costs, constrain services, or trigger sanctions. The filing said the company had not been subject to a CAC cybersecurity review as of its report date.
- VIE and cash-transfer risk: Contractual control is not direct ownership and may be difficult to enforce. PRC rules restrict transfers and dividends; RMB1.509bn of net assets was restricted at year-end. VIE deconsolidation could materially affect reported operations and asset access.
- Audit and listing risk: The filing disclosed that the PCAOB was unable to inspect the China-based auditor and warned of potential trading prohibition under the HFCA Act. The auditor issued an unqualified opinion on the financial statements and internal controls, but the inspection limitation remains a separate risk.
- Liquidity contingency: In February 2022, RMB95.4m of bank funds was restricted by a local authority in connection with suspected illegal activity by a user. The company reported no suspected wrongdoing by itself; the outcome and potential loss were not reasonably estimable at the filing date.
- Other items: A U.S. shareholder class action was settled for US$5.5m, including US$3.5m covered by insurance, without admission of liability; final approval was granted in August 2021. The filing also states the company believed it was a PFIC for U.S. tax purposes in 2021.
Investor facts to verify
- Review the impairment assumptions and remaining Tantan goodwill/intangible asset carrying values; the balance sheet reported no goodwill at December 31, 2021.
- Track live-video revenue, value-added-service growth, and user engagement to test whether revenue diversification offsets continued live-video declines.
- Assess operating cash flow durability, deposit availability and maturity profile, and the 2023 put and 2025 maturity obligations on the convertible notes.
- Monitor PRC data, content, live-streaming, foreign-listing, and VIE regulatory developments, plus PCAOB inspection and HFCA Act status.
- Confirm the status and duration of the RMB95.4m restricted bank balance and any subsequent resolution or loss estimate.
- Evaluate dividend capacity in light of PRC distribution limits and note that future dividends are discretionary, not committed.