Q1 2019 Momo Inc Earnings Call
May 28, 2019 PM UTC
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MOMO - Momo Inc
Q1 2019 Momo Inc Earnings Call
May 28, 2019 / 12:00PM GMT
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Corporate Participants
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* Cathy Peng
Momo Inc. - Head of IR
* Li Wang
Momo Inc. - COO, President & Director
* Wang Yu
Tantan Limited - Co-Founder & CEO
* Xiaosong Zhang
Momo Inc. - CFO
* Yan Tang
Momo Inc. - Chairman & CEO
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Conference Call Participants
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* Jialong Shi
Nomura Securities Co. Ltd., Research Division - Head of China Internet & Media Research and VP
* Qi Chen
JP Morgan Chase & Co, Research Division - Research Analyst
* Tianxiao Hou
T.H. Capital, LLC - Founder, CEO & Senior Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, thank you for standing by, and welcome to First Quarter 2019 Momo Incorporation Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded today. I would now hand the conference over to your first speaker, Ms. Cathy Peng. Thank you. Please go ahead, ma'am.
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Cathy Peng, Momo Inc. - Head of IR [2]
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Thank you, operator. Hello, everyone, and thank you for joining us today for Momo's First Quarter 2019 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 U.S. 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.
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Yan Tang, Momo Inc. - Chairman & CEO [3]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [4]
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[Interpreted] Good morning, and good evening, everyone. Thank you for joining our conference call today. Q1 was a solid quarter and a good start to the year 2019. Now my team and I will take you through the details.
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Yan Tang, Momo Inc. - Chairman & CEO [5]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [6]
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[Interpreted] Firstly, an overview of the financial performance. For the first quarter 2019, total revenue reached CNY 3.72 billion, up 35% year-on-year, driven by the rapid growth of Momo's virtual gifting service as well as Tantan subscription business. The revenue mix of the company continue to diversify. I'm happy to see that VAS revenue for the first quarter of 2019 already represented more than 1/3 of the revenue contribution from live broadcasting service.
With the VAS business getting increasingly sizable and the initiative that we took in live broadcasting service to drive the middle cohort spending, our revenue structure is becoming healthier and more defensive to macro uncertainty. Wang Li is going to elaborate a little bit more in his remarks. Adjusted operating income for the quarter was CNY 1.01 billion. Excluding Tantan's financial impact, our adjusted operating income for the quarter would have been CNY 1.09 billion, representing a 32% adjusted operating margin.
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Yan Tang, Momo Inc. - Chairman & CEO [7]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [8]
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[Interpreted] Now turning to the progresses that we've made on the user growth and product front. Firstly, our community continued to grow. The core Momo app had 114.4 million monthly active for the first quarter, up 11% year-on-year and representing a 1.1 million net addition from the previous quarter. The slowdown in quarterly net add in Q1 was mainly due to the negative impact from Chinese New Year, which Momo platform experiences almost every year.
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Yan Tang, Momo Inc. - Chairman & CEO [9]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [10]
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[Interpreted] Total paying users for the core Momo platform was 9.0 million in Q1 2019, up 12% year-on-year. The number of paying users on Momo was slightly down by 0.5% from the previous quarter due to the seasonality around Chinese New Year and to a lesser extent negative macro impact on our live streaming business. The 1 month self-inspection that we are currently undertaking may have a temporary adverse effect on the number of paying users of VAS business, particularly on the number of membership subscribers. However, we do expect the paying user account on Momo platform to bottom out and start to rebound once we complete the self-inspection procedures.
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Yan Tang, Momo Inc. - Chairman & CEO [11]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [12]
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[Interpreted] Now briefly on Tantan's community growth. We'll leave more -- I will leave more detail discussion to Wang Li later in his remarks. In the first quarter 2019, Tantan reached an important milestone with its total paying users hitting 5 million for the quarter, representing a 1.1 million net addition from Q4 last year. Tantan's MAU growth significantly accelerated in Q1, which was the primary reason for the big jump in the paying user account. The paying conversion ratio also saw a meaningful improvement, driven by the continuous optimization of its premium features. The impressive growth in its user base and paying user count has validated the effectiveness of our strategy to use value-added services to enhance user experience and thus drive better retention and faster user growth.
Obviously, the growing revenue from VAS also significantly improves the ROI of the user acquisition efforts allowing us to continue to invest in a big way to expand the user base. I'm happy to see that such virtuous cycle is clearly forming on Tantan. Although Tantan recently had some regulatory issue that we need to work hard to address according to government directives and will have a negative impact on user and business growth in the near term. We believe that the self-inspection process is going to be helpful in making sure that the Tantan community develops in a healthy environment. I'm confident that after the temporary challenges get passed, Tantan will continue to grow larger and stronger to be the platform of choice for dating in China. We still have high conviction that Tantan will become a significant growth driver of the company in the coming few years.
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Yan Tang, Momo Inc. - Chairman & CEO [13]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [14]
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[Interpreted] Now back to the core Momo platform. In the year 2017 and 2018, we spend a lot of our resources on testing and introducing new social experiences, and we've made a number of important progresses last year. Today, Momo users are connecting and interacting based on location, interest and a variety of recreational activities, including live talent shows, short videos, social games as well as other video and audio-based interactive experiences such as live chats and mobile karaoke experience.
Going into 2019, there is another area that we will focus on and that is to enhance the basic social experience so that Momo users can more effectively discover new relationships and build meaningful interaction. These efforts will range from more fundamental changes such as making our matching algorithm better to improving the basic social infrastructure, such as instant messenger, news feeds, push notifications, et cetera, and also to smaller details such as taking more care of the user on-boarding experience.
For example, in Q1, one of our key efforts was to make the low frequency users more active. Our approach is to analyze their usage behaviors and try to bring them back more frequently through a push notification showing them the social activities that they are likely to be interested in based on our big data analysis. In addition, we also made a few upgrades to the algorithm of the nearby recommendation engine. The goal is to optimize for more 2-way interactions and to drive decentralization so that average Momo users can improve their chances of building meaningful interactions as well.
As a result of these efforts, although the MAU only grew slightly quarter-over-quarter due to seasonal factors, many important engagement metrics such as total time spent, number of interactions and number of 2-way relationships formed grew much faster than the overall MAU growth. Optimizing the basic social experience and improving the efficiency for users to discover relationship and build meaningful interaction will continue to be one of the key areas of focus for Momo product team this year.
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Yan Tang, Momo Inc. - Chairman & CEO [15]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [16]
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[Interpreted] Next, I would like to give an update on the recent regulatory issue that we announced earlier this quarter. Since May 11, Momo has been conducting a thorough self-inspection and implementing certain internal measures to strengthen our content review and monitoring system. The measures that we have been taking included suspending the user's ability to post new feeds for 1 month starting May 11 and some other actions to beef up our content monitoring system. These measures taken by Momo have had some degree of impact on our user engagements, which we currently expect to be quite manageable and transitory. The impact from the above-mentioned regulatory issues of Momo and Tantan user engagement can be directly or indirectly translated into revenue line, which have been fully reflected in our Q2 revenue guidance.
Despite of the short-term negative impact that we've seen, we feel that it is necessary for us to go through the process to make sure that our whole ecosystem and communities develop in a healthy environment. Again, we expect the negative impact through the users and revenues to be temporary. We, as the management of Momo and Tantan, are confident that we will be able to continue to deliver growth and create value for our shareholders.
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Yan Tang, Momo Inc. - Chairman & CEO [17]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [18]
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[Interpreted] With that, I'm handing over to Wang Li for a business review. Wang Li, please.
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Li Wang, Momo Inc. - COO, President & Director [19]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [20]
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[Interpreted] As this is the review of the first quarter 2019 business results, before we get into the details, I would like to reiterate the priorities that we currently have on the business front. For the coming few quarters, we will be focusing on the following key things: Number one, drive steady and healthy growth from live broadcasting business through product innovations and operational efforts. Number two, cultivate a paying potential from the middle cohort and the long-tail users through richer VAS experience. Number three, drive monetization growth of Tantan through optimization of existing premium features and the introduction of new paying experiences. Wang Yu will elaborate on the third one later in his remarks. So next I'm going to take you through what we've done and the future plans regarding the first 2 priorities.
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Li Wang, Momo Inc. - COO, President & Director [21]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [22]
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[Interpreted] Firstly, on live broadcasting business. Total revenue from live broadcasting business for the quarter was CNY 2.69 billion, an increase of 14% from the same period last year. During our last earnings call, we shared the mixed revenue performance among different cohorts of paying users during the CNY holiday. During the 7 days holiday period, the tipping revenue from the top 100 live broadcasting paying users only showed a slight uptick as compared with the same period 2018, while the middle and the long tail cohorts contributed nearly all of the year-over-year growth. It also took longer as compared with last year for the top users to recover from the CNY weakness. That made us believe that the macro headwind still had some lingering impact on the top level spending in Q1.
Therefore, we had decided not to push too hard in the Q1 competition events. For example, we remained fairly disciplined in terms of stimulating the top spending in the March tournament. Such kind of operational strategy has led to lower payout ratio, which was reflected in the improvement in the company's Q1 gross margin as compared with the previous quarter. Instead, in Q1, we focused on the product and operational efforts in driving better-paying experience for the middle cohort users.
In January, we rolled out an interactive virtual gift called Penguin, which has proven to be very effective in driving the middle and long-tail spending. Moreover, the embedded game element also lowered the barrier for some of the entry and middle-level broadcasters to interact with their audience. Therefore, we've prepared a series of these mini games to allow the broadcasters and the users to have fun and socialize together. A few days ago, we tested another interactive gift called [Gold Miners], initial data that we are seeing has been encouraging. Penguin and Gold Miners are similar interactive gifts, in that they facilitate simple interactions between the user and the machine. Putting these simple mini games in the showroom and setting them upon a competition structure among the fellow viewers can make this standalone game a unique social experience on Momo. We believe that we can make the experience much better and more revenue generative, if different users can play concurrently together and the interaction can go beyond user versus machine to user versus user. We're working on it and hopefully, we'll have something more fun for the users soon.
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Li Wang, Momo Inc. - COO, President & Director [23]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [24]
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[Interpreted] Although for the first quarter 2019, the strategic focus was more on the middle cohorts, we still believe that over the longer run, there are plenty of opportunities to grow the top user spending as well. Therefore, in the second quarter, we're going to step up the efforts to drive more top user spending. This would involve organizing some of the offline and online promotional events targeting hard-core paying users as well as revamping the paying user ranking system to better stimulate spending. We firmly believe that live broadcasting, as a new form of entertainment and interaction, still have ample room to penetrate deeper into the wealthier classes in China. Our team is going to continue to pursue these opportunities in the future.
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Li Wang, Momo Inc. - COO, President & Director [25]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [26]
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[Interpreted] Now turning to VAS. Revenue from value-added services, or VAS, continue to ramp up fast and reached CNY 903.8 million in the first quarter 2019, a 285% growth on a year-over-year basis. Wang Yu will talk about Tantan's business later, so I will be focusing on the VAS business for the core Momo part. Excluding Tantan, Momo's VAS revenue was CNY 608.5 million, a 159% year-over-year increase. Despite the seasonality in user activities on Momo around Chinese New Year, VAS revenue at Tantan still grew very strongly by 22% from Q4 last year. Q1 was also the fifth consecutive quarter where Momo's VAS revenue accelerated its YoY growth rate, driven by the strong performance of virtual gifting service outside of the live broadcasting channels. In Q1, the growth of the virtual gifting business came in pretty much across board from all key revenue contributors. Although we lowered the overall payout ratio pretty meaningfully for the Quick Chat and Party experience in early Q1, I'm glad to see that the revenues from Quick Chat and Party continue to ramp up at a solid pace growing 24% sequentially. The growth was on the back of Momo's -- Momo users' strong social mentality and the team's solid innovation and execution capability.
In Q1, we took the idea from a popular Korean TV dating reality show and applied it to VAS, creating a new group dating party experience called the Heart Signal. The experience was an immediate success and acted as a meaningful driver to both user engagements and virtual gifting revenues. In addition, virtual gifting revenues from traditional and social use cases, including greetings, one-to-one IM chatting and interest groups also increased significantly, growing by 30% from an already sizable base in Q4 last year. The growth was mainly driven by a number of interactive gifts that we launched during Q1 that enhanced the chatting experience, especially in the interest groups. Werewolf showed good level of growth from Q4 last year due to the ongoing optimizations of the gamification.
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Li Wang, Momo Inc. - COO, President & Director [27]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [28]
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[Interpreted] We believe that there is still a great deal of potential in the VAS business because this was an area that have been under-monetized prior to the year 2017. Today, around 70% of our DAU and more than 80% of our total time spent were on non-talent show related use cases. These non-talent show related users also have strong inclination to pay for services. However, prior to the year 2017, there really had not been anything for them to pay for other than the CNY 10 or CNY 30 per month membership subscription services. Although during the year 2017 and 2018, we have made a lot of progresses in diversifying the paying experience for VAS, we believe we still have a long way to go. For example, the chat room experience, which is the biggest in terms of consumer penetration among interest group, Quick Chat and Party as well as Werewolf is currently under -- is still currently under-monetized. We will keep testing different paid services that truly enhances the social experience for the users. As we do so, Momo's VAS revenue will continue to grow as well.
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Li Wang, Momo Inc. - COO, President & Director [29]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [30]
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[Interpreted] As Tang Yan mentioned, our efforts to drive the middle cohort spending in live broadcasting and rapid growth of VAS have enabled us to have a healthier revenue growth pattern. If you look at the paying users across live streaming and VAS on Momo in Q1, the middle cohorts grew significantly faster year-on-year than the top 500 paying users. In March 2018, the top 500 contributed more than 30% of the year-over-year growth. In March 2019, that number has dropped to low teens, substantially lowering our risk exposure to the macro uncertainty.
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Li Wang, Momo Inc. - COO, President & Director [31]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [32]
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[Interpreted] Now briefly on other business lines. Momo's marketing revenue was CNY 80.7 million, a 32% year-on-year decrease. Similar to what happened in Q4 last year, the decline was mainly caused by the challenging macro environment and the regulatory changes in some of our big ad sectors. Mobile gaming revenue was CNY 39.0 million for the quarter, an 8% year-over-year decline. As said in our March earnings call, this year our strategy for these 2 business lines would be to optimize on internal operating efficiency rather than actively pursuing the growth opportunities.
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Li Wang, Momo Inc. - COO, President & Director [33]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [34]
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[Interpreted] That's the review of the key business lines. At a very high level, Q1 was a fruitful quarter. We're making remarkable progresses in growing our communities and business and also laying solid foundation to build future growth drivers. I'm looking forward to sharing more with the investors in the coming few quarters.
Now let me hand over to Mr. Wang Yu to review Tantan's product and business development. Mr. Wang, please.
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Wang Yu, Tantan Limited - Co-Founder & CEO [35]
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Thanks. So let me briefly review Tantan's operational and business development in the last quarter and our next step plans. First, on user growth. In Q1, 2019, the growth of the Tantan community accelerated significantly. Total paying users reached 5 million for the quarter, a net addition of 1.1 million from 3 months ago compared to a quarterly net add of 0.3 million in the fourth quarter last year. Impressive paying user growth into Q1 was on the back of the strong user expansion, particularly in February and March. The user acceleration in Q1 was due to a combination of seasonal factor as well as our initiatives on the product and marketing side.
Let me share some more details. Number one, Q1 has historically been a strong quarter for user growth on Tantan, especially during the period after Chinese New Year's holiday. We believe that this has something to do with the uniqueness of Chinese culture and family tradition as well as the fact that Tantan is increasingly recognized by young Chinese singles as a platform of choice for dating. Number two, with ARPU and paying conversion continuing to improve, we've stepped up our efforts with the paid marketing channels for user acquisition. And number three, in Q1, we initiated an effort called real photo verification and made remarkable progress with it. Such initiative has substantially improved the social experience for the Tantan users. We believe that these concerted efforts have boosted the user growth in Q1. Other than this acceleration in user growth, which we believe is the primary reason for the big jump in the number of paying users, the paying conversion also meaningfully improved in the first quarter due to the optimizations we made to the premium features.
Next, turning to monetization. Total revenue for the quarter was CNY 295 million, up 32% sequentially, driven by both paying user growth and the increase in ARPU -- ARPPU, which was in turn due to the greater adoption of the See Who Likes Me feature. In Q1, we rolled out an optimization of the See feature, which has improved the paying conversion ratio by 2 percentage points.
As Wang Li mentioned in his remarks just now, one of the key priorities for Tantan this year is to drive a monetization growth through optimization of existing premium features and the introduction of new subscription and non-subscription features. I'm glad that in Q1, we delivered well on that front.
As we move deeper into the year, while we will continue to optimize existing premium features to drive with adoption and revenue growth, we are also going to step up the efforts on testing and introducing new monetization features. We now have a clear roadmap to move beyond the subscription model into à la carte sales. In a way, this is not as simple as a monetization tool for Tantan, but also an effort to drive the user experience and engagements.
As the Tantan community continues to expand, we do realize that we have an increasing number of users who have strong willingness to pay more for better social experience that are currently underserved on that front. We believe that having a good à la carte paying experience is important for providing better user -- consumer experience to those users. If we can figure out the right à la carte paying experience for them, the ARPPU ceiling will be removed and the monetization potential of the Tantan community can be fully unleashed. As compared with a few months ago, we now have better idea in how to make that happen. Our plan on that front will gradually unfold after the regulatory issues are resolved and different operational data is back on a growth track.
Now an update on the product front. As mentioned in earlier -- in Q1, we kicked off an important project called real photo verification. One of the key success factors of Tantan is that we take the user screening process extremely seriously. Among all our peers that we know of, we believe Tantan applies the most stringent standards in reviewing and approving the registration applications. That has given us a high-quality user base with genuine intention to make romantic connections.
We believe that we can do better on that front by encouraging users to verify the authenticity of their profile pictures. By mid-April, 60% of our DAU had already passed the real photo verification. We intend to keep pushing forward on that initiative in order to build a healthy social environment in Tantan.
Lastly, let me give you an update on the issue that we recently have had on the regulation side. As the company announced earlier this quarter, Tantan has been removed from the application stores in China on direction of certain government authority, pending a thorough self-inspection and certain other corrective measures, we need to make to our content review system. We have been conducting a comprehensive self-inspection by thoroughly reviewing the content offered on the platform. Since we received the notice, we have also substantially strengthened the content review system to ensure that Tantan service offerings are in compliance with the respective regulations.
Before the application is fully restored at the app stores, our ability to attract new users will be adversely affected. We expect a number of active users to decrease materially during the suspension period. In addition, in early May, Apple also suspended that -- in-app purchase services for the iOS version of Tantan. As most of the subscribers had an auto-renewed subscription on a monthly basis, the suspension of the payment service on iOS is going to have a pretty meaningful impact on a net number of paying users and revenues for the second quarter of 2019.
As we currently do not have full clarity on when Tantan's download service can be restored, while making Q2's revenue estimates, we tend to lean on the conservative side by assuming that the suspension of download service and the in-app purchase on iOS will last through the second quarter. Negative impact to revenue based on such assumptions have been fully reflected in the company's guidance. We're fully cooperating with the government authorities and proactively taking self inspective measures according to the directives from the regulators in order to restore the download service as soon as possible.
The challenges that we now have are temporary. Currently, we are still seeing very strong user demand for our service in terms of strategic equity and the team's execution capabilities have been proven by the strong growth we achieved in Q1. We have a high conviction that Tantan will have a healthier ecosystem and resume rapid growth after the short-term challenges behind us.
With that, I'm passing the call to Mr. Jonathan Zhang for financial review. Jon, please.
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Xiaosong Zhang, Momo Inc. - CFO [36]
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Thanks, Wang Yu. Hello, everyone. Thank you for joining our conference call today. Now let me briefly take you through the financial review. Total revenue for the first quarter 2019 was RMB 3.72 billion, up 35% year-on-year and exceeding the high-end of our revenue guidance. Non-GAAP net income attributable to Momo was RMB 910.3 million compared to RMB 903.8 million for the same period 2018.
Now let me talk about our paying users metrics. Total number of paying users across the core Momo platform was 9 million for the first quarter 2019 compared to 8.1 million from the same period last year, and 1.9 million -- 9.1 million a quarter ago. As of March 31, Tantan had 5 million subscribers, up from 3.9 million a quarter ago or a 1.1 million quarterly net addition.
As Tang and Wang mentioned in their remarks, we do expect the self inspected measures that Momo and Tantan are currently undertaking to negatively affect the number of paying users for Momo and Tantan. This number should get back to the growth track after the temporary challenges gets behind us. In the interest of time, I'm not going to review the revenue lines in detail, which has been covered comprehensively by Wang Li.
Now on the cost and expense items, our non-GAAP cost of revenue for the first quarter of 2019 was RMB 1.85 billion compared to CNY 1.33 billion for the same period last year.
Non-GAAP cost of revenue as a percentage of total revenue was 49.7%, an increase of 1.6% from Q1 2018, a decrease of 4.3% from the previous quarter. On a year-over-year basis, the lower non-GAAP gross margin in Q1 2019 was mainly caused by the higher payout ratio for our live streaming business and the fast ramping virtual gifting business under VAS, partially offset by a positive contribution from Tantan revenue, which bears a higher gross margin than the core Momo business.
On a sequential basis, non-GAAP gross margin improved by 4.3% from 46% in Q4 2018 to 50.3% in Q1 2019. The quarter-over-quarter improvement in gross margin was primarily attributable to lower payout ratio from live streaming business as well as certain VAS services, and then to a lesser extent the fact that the Phanta City impact is completely behind us in Q1 2019. The lower payout ratio for live streaming and virtual gifting businesses from VAS demonstrate that Momo management team not only care about top line growth, but also focus on the quality of the revenue growth. The fact that we were able to lower the payout ratio and still drove impressive revenue growth reflects Momo's strong competitive position and the team's solid execution capabilities, especially given that we operate in a market where many players are trying to compete with the higher payouts.
Non-GAAP R&D expenses for the first quarter was RMB 207.4 million compared to RMB 94 million for the same period last year, representing 5.6% and 3.4% of total revenue, respectively. The year-over-year increase reflected our strategy to step up our investment in R&D area throughout 2018, mainly to expand R&D talent pool in order to support our various product innovation initiatives as well as the consolidation of Tantan.
We entered the quarter with 2,053 total employees, of which 457 are from Tantan. The R&D personnel as a percentage of total employees for the group was 54% compared to 46% Q1 last year. Overall, we feel that in terms of size of the engineering talent pool, we are in adequate position now to support our product innovations going forward.
Non-GAAP sales and marketing expenses for the first quarter was RMB 567.5 million or 15.2% of total revenue compared to RMB 260.8 million or 9.4% of total revenue for the same period last year. On a year-over-year basis, the increase in sales and marketing expense as a percentage of total revenue was mainly due to the consolidation of Tantan, while the core Momo non-GAAP sales marketing expenses as a percentage of revenue remained relatively stable.
Our non-GAAP G&A expenses was RMB 92.9 million for the first quarter 2019 compared to RMB 71.1 million for the same quarter last year, representing 2.5% and 2.6% of total revenue, respectively. The GAAP G&A expenses was RMB 602.6 million for the quarter compared to RMB 109.5 million for the first quarter last year. The big jump in the GAAP G&A expenses was mainly due to a special share-based compensation item. The company recognized a share-based compensation of RMB 593.1 million in the first quarter of 2019 compared to CNY 78.7 million in the same period of last year.
As disclosed in our 2018 20-F, in August 2018, Tantan Limited granted 3,578,205 shares options to its founders with a four year vesting period, representing approximately 12% of Tantan's shares on a fully diluted basis. The vesting can be accelerated based on achievement of certain performance conditions.
According to relevant U.S. GAAP literature, a share-based compensation expense of RMB 466.9 million was amortized during the first quarter of 2019 based on the progress of achievements of the performance conditions as of March 31, 2019. We currently expect that the remaining RMB 273 million would be fully amortized into the second quarter of 2019.
The amortization of the share-based compensation expense in connection with this option rewards will have no further impact from Q3 2019 onwards. Non-GAAP operating income was RMB 1.01 billion, representing 27.3% non-GAAP operating margin for the quarter. Excluding Tantan consolidation impact, core Momo adjusted operating income for the first quarter of 2019 would have been RMB 1.09 billion or 31.9% adjusted operating margin.
Now turning to the balance sheet and cash flow items. As of March 31, 2019, Momo's cash, cash equivalents, term deposits and short-term investment totaled RMB 12 billion compared to RMB 11.3 billion as of December 31, 2018. Net cash provided by operating activities in the first quarter was RMB 1.2 billion compared to RMB 825.5 million for the same quarter last year.
Lastly, for the second quarter 2019 revenue guidance. We estimated our second quarter revenue to come in a range from RMB 4 billion to RMB 4.1 billion, representing an increase of 27% to 30% year-on-year and an increase of 7% to 10% quarter-over-quarter. Such estimates is based on the assumption that our live streaming and Momo's core VAS businesses will continue to increase on a sequential basis, while the Momo marketing business and Tantan's revenue will decrease quarter-over-quarter due to the self-inspections that we are currently undertaking.
Mobile gaming will continue to be downsized due to the shift of the company's strategic focus. Please be mindful that the forecast represents the company's current and preliminary view on the market and operational conditions, which are subject to changes.
That concluded our prepared portion of today's discussion. With that, let me turn the call back to Cathy to start Q&A. Cathy?
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Cathy Peng, Momo Inc. - Head of IR [37]
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Operator, before we begin, just a quick reminder to the analysts waiting in the queue. For those who can speak Chinese, please ask the questions in Chinese first, followed by English translation by yourself. And also please limit the number of questions to a maximum of 2 so that more people can get the opportunity to ask questions. Operator, we are ready for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from the line of Shi Jialong from Nomura.
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Jialong Shi, Nomura Securities Co. Ltd., Research Division - Head of China Internet & Media Research and VP [2]
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I will first ask my question in Chinese and then I'll translate it. (foreign language)
[Interpreted] I have 2 questions, both related to regulation. Just wonder if management can provide any updates on Tantan app following your recent communication with regulators. And can management give more colors about the potential impact from the suspension of Momo's news feed service and the Tantan's app downloads. And what are the impacts you have monitored on your business from these suspensions? And also just wonder whether this suspension may have any impact on your expenses and profit this year? And secondly, just wonder if the tightening regulations -- regulator environment may have any impact on your product and operation plans?
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Yan Tang, Momo Inc. - Chairman & CEO [3]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [4]
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[Interpreted] I'll be focused on Momo's situation and I'll pass the call to Wang Yu to talk about Tantan later. Momo has been undertaking a comprehensive self-inspection on direction from certain government authority. At the same time, we have been strengthening our content reviewing team and beefing up our content monitoring capabilities to eradicate any noncompliant content from the platform. And so far we have been very proactively driving the self-inspection process as according to the requirements from the regulators, and we are moving forward in a very solid manner. And at the same time, we have also been maintaining very smooth communication with the regulators.
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Yan Tang, Momo Inc. - Chairman & CEO [5]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [6]
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[Interpreted] On the user side, for the core Momo app, our self-inspection mainly involves the suspension of user posting for a month. Other than that during the 1-month inspection period, certain other product modules are also going to see some negative impact, but the magnitude of the impact from other corrective measures is going to be much, much smaller as compared to the impact from the user posting. And based on our observation and based on the data that we've seen from the past 2 weeks after the inspection started, we do expect that user engagements mainly represented by total time spent, number of interactions and number of relationships formed to see pretty meaningful decrease during the inspection period. DAU is also going to see some level of decrease, but to a much less degree than total time spent. And of course, the decrease in user engagement and DAU is also going to cause the paying users of the platform, especially the VAS paying users to decrease during the inspection period; however, we do expect these engagement measures to gradually start to resume growth after inspection period is over.
With regards to the impact on MAU, we are going to be reporting future MAU based on the data that we see in the month of June, and we do have plan to step up our channel marketing efforts after the inspection is over to make up for the losses in user engagement and users. And hopefully, through these efforts, we can build a larger user base based on which we can continue to drive user engagement growth for Q3.
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Yan Tang, Momo Inc. - Chairman & CEO [7]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [8]
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[Interpreted] For the impact on the revenue side, the suspension of posting is obviously going to cause us to lose 1 month advertising revenue, but because most of our advertising inventory reside in the news feed, but advertising represents somewhere around 3% to -- 2% to 3% of the total revenue. So any sort of ad revenue loss that we're talking about here is really just around 1/3 of that very, very small piece within the total revenue base. And also the decrease in user engagement is obviously going to be directly and indirectly translated into the decrease in VAS revenue and VAS paying users, but VAS has been very showing very strong growth momentum in the past few quarters, and we do expect such momentum to make up for the losses to a very large extent. Currently, we still expect VAS revenue to see sequential growth in Q2 from Q1's level.
Now it looks like that live streaming is either not affected or the impact should be very, very small and indirect. And all of the impact that we're talking about here have been fully reflected in our Q2 revenue guidance already.
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Yan Tang, Momo Inc. - Chairman & CEO [9]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [10]
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[Interpreted] On the expenses side, obviously we're going to increase our spending in strengthening the content reviewing system both in terms of personnel investment and in terms of technological upgrades. But given the size of our P&L, the negative impact to margins from such sort of spending should not be very significant. On the channel marketing side, we do have plan to increase our spending through the channels to make up for the losses in user and user engagement. And in particular, we're looking to step up the user call back efforts. But again, given the size of our P&L, the drag to margins from such sort of spending should be quite limited.
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Yan Tang, Momo Inc. - Chairman & CEO [11]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [12]
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[Interpreted] Now here is Wang Yu to talk about impact on Tantan.
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Wang Yu, Tantan Limited - Co-Founder & CEO [13]
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Okay. Let me first elaborate a little bit more on progresses we made so far. We have an open dialogue window with the government authority and have been maintaining a smooth communication. Since the download suspension happened, we have thoroughly reviewed the content on the platform and also substantially strengthened our content monitoring system as according to government's directives. For example, during the past months, we've doubled our content review personnel, strengthened the training program and significantly increased our investment on tech front to beef up the content review and monitoring capabilities. We have also been reporting these progresses to the government authority on regular basis to make sure that we're doing things the right way. We're confident that we'll be able to assume rapid growth in a healthier environment after our download service gets restored at the app stores.
Regarding the impact on users and paying subscribers, as we've said in the prepared remarks, because the download suspension did have a negative impact on new users, we do expect the active users to take a pretty meaningful hits before Tantan gets back on the app stores. And due to the suspension of payment on iOS, we expect paying users to decrease more than active users. However, as said, these challenges are temporary. The fact that we hit 5 million paying users demonstrated the strong user demand for the service we provide and solid execution capabilities.
On the revenue side, by making a conservative assumption, which is that the download suspension and the iOS paying suspension lasts throughout the quarter, we expect Tantan's total revenue to decrease from low- to mid-teen percentage points in Q2 compared to Q1. Regarding expenses and bottom line, during the total -- during the download suspension period, we've substantially scaled back our marketing efforts and thus a significant saving on the marketing expenses. However, we do plan to increase the marketing spending after the regulatory issue gets passed so that we can get back to on the growth track as soon as possible. So the cadence of our marketing spending will shift from our original plan depending on when the download service can be restored. And because the revenue may take some time to recover, it's likely that the net loss for Q3 will widen from Q2's level.
Regarding impact on new feature launches and other strategic goals, we'll defer the new feature launches and some of the revenue optimizations till access in terms of download is restored on app stores. So there is going to be some delay on that front. But we're committed to our strategy -- strategic plan and moving forward in a methodical way. The temporary challenges may cause some short-term disruption, but won't change our long-term strategy.
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Cathy Peng, Momo Inc. - Head of IR [14]
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I think both of the questions have been answered. Operator, can we take the next one in.
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Operator [15]
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Our next question comes from the line of Daniel Chen from JPMorgan.
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Qi Chen, JP Morgan Chase & Co, Research Division - Research Analyst [16]
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(foreign language)
[Interpreted] I would translate myself. So my question is on the live streaming segment. So we are doing some of the new value accretive methods lately such as some offline events and also a new way of ranking system, et cetera. So how are these measures working recently?
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Yan Tang, Momo Inc. - Chairman & CEO [17]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [18]
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[Interpreted] We believe that we still have a lot of growth opportunities for live broadcasting service this year for -- through product innovations as well as operational efforts. Currently, we have several priorities that the live broadcasting teams have been working on. Number one is that we are going to stimulate the middle cohort spending through the introduction of the interactive gifts and mini games. And the interactive gifts that we've introduced so far have been very effective in driving user engagements as well as monetization growth. But the experiences that we've introduced so far are -- it's fair to say that they are quite preliminary in terms of the underlying technology and also the form of interaction that we can offer to the users. So we do see opportunities for improvement and optimization. So we've prepared a series of upgraded experiences to be launched later. We believe that these new experiences that we're going to be introducing are going to be more fun and thus making bigger contribution to drive the interactions and also the monetization growth.
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Yan Tang, Momo Inc. - Chairman & CEO [19]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [20]
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[Interpreted] And the second priority is that similar to what we did to the broadcasters ranking system in Q1, starting from next month, we are going to start making changes to the paying user ranking system, specifically targeting the high-paying users. And in that new system, we are going to be putting in that emotional factor in order to better stimulate the top spending -- the spending from the top users.
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Yan Tang, Momo Inc. - Chairman & CEO [21]
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(foreign language)
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Cathy Peng, Momo Inc. - Head of IR [22]
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[Interpreted] And the third priority is that starting from the second quarter, we have started to introduce some online and offline promotional events targeting the hardcore paying users. For example, on May 18, we held our first offline music tour in Shanghai. In that event, we let some of our highest paying users invite their local friends to join us in the party and together they could experience what they could resonate with what makes live streaming such a unique and gratifying entertaining experience for them. We -- so far the -- our first offline music tour has been pretty well received. So we do have plan to roll out more of these promotional events in order to expand the pool of high-paying users on the platform. We believe that by pulling these products and operational levers, this year, we're still looking at -- will be looking at a very steady and healthy growth from live broadcasting business both from the middle and long tail and from the high-paying users.
Operator, given the time, we -- let's take the last question from the other one, and then we are ready to close.
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Operator [23]
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Our last question comes from the line Tian Hou from T.H. Capital.
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Tianxiao Hou, T.H. Capital, LLC - Founder, CEO & Senior Analyst [24]
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(foreign language)
[Interpreted] We have witnessed the good performance of Tantan in Indian market. So it is the trend for many international as well as Chinese companies to go to the markets where they are not currently in. So in overseas expansion strategy, what's company's thoughts on that? Are you planning to go abroad? And how are you going to go abroad if you plan so? Is it going to burn a lot of cash or some other ways? That's my question.
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Wang Yu, Tantan Limited - Co-Founder & CEO [25]
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So we have been taking initiatives in some of the Asian markets for some time and things have been progressing quite well. The progresses we've made so far in overseas markets prove our earlier belief that some products can resonate well with different Asian cultures. We do see a lot of growth opportunities in overseas markets, especially in Asia. As a Chinese social company, Tantan does have a very unique advantage in seizing these opportunities. But at this point, bigger focus is still on China because we're still early in penetrating the domestic market and the opportunities are huge here. In terms of the spending, just to answer that, our thoughts is basically that we'll manage the ROI of our spending in marketing, so that whatever we spend overseas, we will maintain the same or better ROI than we do domestically in China. Thank you.
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Cathy Peng, Momo Inc. - Head of IR [26]
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Operator, we're ready to close. Well, why don't I just close on our end. That's all for this quarter's earnings conference call. Thank you for joining us. We look forward to speaking with you guys next quarter. Operator, back to you.
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Operator [27]
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Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.
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