Hello Group: A positive turnaround story?

Hello Group is one of China’s leading online social networking and dating companies, operating a portfolio of apps designed to help users form new relationships, engage in entertainment, and build social connections. Best known for its flagship platforms Momo and Tantan, the company combines social discovery, livestreaming, virtual gifting, and premium memberships within a diversified ecosystem of social and dating applications. With a growing international presence, particularly in the Middle East and North Africa region, expanding AI driven experiences, and a renewed focus on profitability and sustainable monetization, Hello Group aims to strengthen its core platforms while building new long term growth engines. The question remains: Does this social networking company deserve a spot in your portfolio?

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For full disclosure, I should mention that I do not own any shares in Hello Group at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Hello Group, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Hello Group was founded in 2011 in Beijing and has grown into one of China’s leading online social networking and dating platforms. Formerly known as Momo, the company changed its name to Hello Group in 2021 to reflect the broader nature of its business beyond a single app. The company operates a portfolio of mobile applications designed to help users discover new relationships, build social connections, and engage in digital entertainment experiences. Its ecosystem is centered around two flagship platforms, Momo and Tantan, while a growing collection of additional applications such as Soulchill, Hertz, Duidui, and Happn target specific user demographics and international markets. Through this multi-brand strategy, Hello Group seeks to address a broad range of social interaction needs, ranging from friendship discovery and entertainment to romantic relationships. Momo remains the company’s largest and most established platform. Originally launched as a location-based social networking app, Momo has evolved into a broad social entertainment ecosystem where users can connect through interests, location, and a variety of recreational activities. The platform includes features such as live streaming, mobile karaoke, short videos, online parties, audio chat rooms, and multimedia messaging tools. These experiences are designed to encourage interaction between users while keeping engagement high. Momo effectively combines elements of social networking, digital entertainment, and creator-driven content, making it more diversified than traditional social media or dating applications. The platform benefits from long user histories and established habits, which support recurring engagement and monetization. The company’s second core platform, Tantan, is often described as the Chinese equivalent of Tinder and focuses more directly on romantic discovery. Acquired in 2018, Tantan is designed around a swipe-and-match interface that enables users to discover new people and establish romantic connections. Users can access most core features for free, including browsing potential matches and chatting with connections, while premium subscription packages offer enhanced visibility, advanced matching tools, and additional features that improve the user experience. Tantan appeals to a younger demographic than Momo and serves a distinct social purpose, allowing Hello Group to address multiple customer segments rather than relying on a single platform. Beyond Momo and Tantan, Hello Group has increasingly expanded into international and niche markets. Since 2019, the company has incubated and acquired several applications targeting specific geographies and demographics. One of the most successful examples is Soulchill, a voice-based social entertainment platform that has gained traction in the Middle East and North Africa. Soulchill allows users to interact through voice chat rooms, social games, and virtual entertainment experiences, helping diversify Hello Group’s revenue away from China. International revenue has grown rapidly and accounted for approximately 19% of total revenue in 2025, up significantly from prior years. The acquisition of Happn in 2025 further strengthened Hello Group’s global dating footprint by adding a recognized European location-based dating platform. Hello Group operates a predominantly free-to-use business model where users can download and access its applications without charge. Revenue is generated primarily through value-added services, which account for almost all revenue. The company monetizes engagement through virtual gifting, subscriptions, and premium features. Virtual gifting is at the center of Hello Group’s monetization model and allows users to purchase digital gifts that can be sent to livestreamers or other users during interactions such as live broadcasts, audio chat rooms, online parties, or private conversations. Hello Group shares part of the proceeds with content creators or talent agencies while retaining the remainder as revenue. This model transforms social engagement into a highly scalable digital business with minimal incremental costs. Subscription services form the second important monetization pillar. On platforms such as Tantan, Momo, and Happn, users can pay for premium memberships that provide enhanced functionality, including greater profile visibility, improved matching efficiency, advanced search tools, and exclusive privileges. These features improve the likelihood of forming meaningful social or romantic connections and encourage recurring spending. Additional monetization opportunities include the sale of virtual items and a relatively small contribution from mobile marketing services such as banner advertisements, while gaming and other legacy services are no longer strategic priorities. Hello Group’s competitive moat is primarily built on network effects, brand recognition, monetization expertise, and a diversified multi-platform ecosystem. Network effects are arguably the company’s most important advantage. Social and dating platforms become more valuable as more users join because larger communities improve the likelihood of finding meaningful interactions, romantic partners, or engaging content. Momo’s long operating history since 2011 has enabled the platform to establish a meaningful user base and brand familiarity in China, making it more difficult for smaller competitors to replicate its scale and engagement. For many users, the platform becomes more valuable precisely because other users are already there. The company also benefits from a differentiated portfolio approach. Rather than depending entirely on one social app, Hello Group operates multiple platforms aimed at different demographics and use cases. Momo focuses on entertainment-driven social interaction, Tantan emphasizes romantic matching, Soulchill targets voice-based social entertainment in international markets, and Happn adds exposure to Western dating markets. This diversification reduces dependence on any single user behavior trend and allows Hello Group to capture multiple forms of digital social interaction. It also increases the company’s ability to cross-leverage technological capabilities, monetization infrastructure, and user acquisition expertise across platforms. Another important advantage lies in Hello Group’s content-driven engagement flywheel. The company’s platforms are built around user-generated content and social interaction. Livestreamers, broadcasters, and active users create entertainment experiences that attract engagement from other users. Higher engagement increases the likelihood of virtual gifting and subscriptions, which in turn incentivizes creators to remain active on the platform. This creates a self-reinforcing ecosystem where more content drives more interaction, leading to stronger monetization and further investment in platform quality. Because virtual interactions are digital and highly scalable, Hello Group benefits from attractive operating leverage once engagement reaches sufficient scale. Monetization expertise represents another layer of defensibility. Hello Group has spent more than a decade refining its virtual gifting and subscription infrastructure, enabling the company to monetize social interactions more effectively than many competitors. While attracting users is important, converting engagement into spending is often much harder in social platforms. Hello Group’s experience in designing digital economies, premium features, and virtual reward systems creates know-how that is difficult to replicate quickly. This capability has proven especially valuable as the company expands internationally into markets where virtual gifting and social entertainment are becoming increasingly popular. At the same time, Hello Group’s moat is not without challenges. The online dating and social networking industry remains highly competitive, particularly in China, where user preferences evolve quickly and switching costs are relatively low. The company also faces regulatory risks related to content moderation and internet oversight, which are especially important in China. In addition, declining paying users on Momo in recent years highlight the challenge of maintaining engagement on mature platforms. However, Hello Group’s combination of scale, monetization infrastructure, diversified brands, and growing international exposure provides structural advantages that smaller competitors may struggle to match. Over time, its ability to adapt to changing social behaviors while monetizing digital interaction efficiently will likely determine the durability of its competitive position.

Management

Yan Tang serves as the CEO of Hello Group, a role he resumed in 2022 after previously leading the company from its founding in 2011 through 2020. As a co founder, Yan Tang has played a central role in shaping Hello Group into one of China’s leading online social networking companies, best known for its flagship applications Momo and Tantan. His return to the CEO position followed the resignation of his successor, Li Wang, due to health reasons, and came at a time when the company was facing slowing growth, increasing competition, and a need to refocus on profitability and operational efficiency. Yan Tang’s return signaled a renewed emphasis on disciplined execution, shareholder returns, and strengthening the company’s core business. Before founding Hello Group, Yan Tang built his career in China’s internet sector and developed significant experience in digital content, online communities, and consumer engagement. He previously served as editor in chief at NetEase, one of China’s pioneering internet companies, where he gained firsthand experience in understanding online user behavior, digital ecosystems, and content monetization. This background helped shape the vision behind Momo, which was initially launched as a location based social discovery application before evolving into a broader social entertainment platform incorporating livestreaming, short videos, audio interactions, and digital communities. Yan Tang holds a Bachelor of Science degree from Chengdu University of Technology. Under Yan Tang’s leadership, Hello Group experienced rapid growth and transformed from a startup into one of China’s leading social platforms. The company completed its Nasdaq listing in 2014, providing access to global capital markets and establishing Hello Group as one of the more prominent Chinese internet companies listed in the United States. Yan Tang also oversaw the strategic acquisition of Tantan in 2018, expanding the company’s presence into online dating and broadening its demographic reach. Beyond acquisitions, Hello Group has increasingly relied on internal incubation to launch new applications targeting specific user segments and international markets, including the Middle East and North Africa through Soulchill. This combination of internal innovation and selective acquisitions demonstrates a willingness to adapt to changing consumer behavior while diversifying the company’s sources of growth. Yan Tang has been recognized by Forbes China as one of the country’s most influential business leaders under the age of 40, reflecting both Hello Group’s rapid rise and his role in shaping China’s digital social networking landscape. Despite maintaining a relatively low public profile compared to many Western technology founders, Yan Tang has built a reputation for operational discipline and a strong understanding of platform monetization. His leadership style appears pragmatic and financially disciplined, with an increasing emphasis on profitability and return on investment rather than growth at all costs. This has been visible in recent years through the company’s reduced spending on lower quality user acquisition and stronger focus on monetization efficiency. From a shareholder perspective, Yan Tang has demonstrated a relatively shareholder friendly approach to capital allocation. Hello Group has returned significant capital to shareholders through share repurchases and dividends while maintaining a strong balance sheet. This disciplined use of capital stands out among many technology companies that prioritize aggressive expansion without clear profitability. At the same time, Yan Tang has shown a willingness to make strategic acquisitions and investments when they strengthen Hello Group’s product portfolio or international reach. One aspect of governance that may raise some investor questions is the appointment of Yan Tang’s spouse, Sichuan Zhang, as Chief Operating Officer. While Sichuan Zhang may be highly qualified for the role and has experience within the organization, appointments involving close family members can create perceptions of governance risk and potential conflicts of interest. This is particularly relevant for international investors in Chinese companies where transparency and governance standards are often closely scrutinized. However, there is currently no evidence suggesting that this relationship has negatively affected operational performance or capital allocation decisions. Since returning as CEO, Yan Tang has focused Hello Group on improving profitability, strengthening its core products, and expanding internationally. Rather than aggressively pursuing user growth regardless of cost, the company has increasingly prioritized higher quality paying users and stronger monetization efficiency. International markets, particularly the Middle East and North Africa, have become increasingly important contributors to revenue growth under this strategy. Yan Tang has also emphasized maintaining flexibility through a diversified portfolio of applications rather than depending solely on Momo or Tantan. Given his deep operational experience, founder mindset, and long history with the business, Yan Tang appears well suited to lead Hello Group through its next phase. His understanding of digital communities, platform monetization, and changing consumer behavior provides continuity at a time when the social networking landscape continues to evolve rapidly. While governance considerations warrant monitoring, Yan Tang’s alignment as a founder and his demonstrated focus on profitability and shareholder returns suggest that he remains committed to rebuilding and sustaining long term shareholder value.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Hello Group historically generated strong ROIC before the pandemic, with returns comfortably above 10% from 2016 through 2019 and peaking at nearly 30% in 2017. These strong returns were largely driven by the economics of the company’s business model. As a digital platform company, Hello Group operates with relatively low capital intensity. Its applications can scale to millions of users without requiring significant physical infrastructure, while monetization through virtual gifts and subscriptions historically produced attractive margins. During Momo’s strongest years, user growth, high engagement, and rising spending per paying user allowed the company to generate high profits relative to the capital invested in the business. However, since 2020, ROIC has deteriorated significantly and has remained below the 10% threshold for most years, reaching just 6,8% in 2025. Several factors explain this decline. First, the social networking and online dating market in China has matured, making user growth more difficult and increasing competition for engagement. Momo in particular has experienced declining paying users, falling from 7,4 million in the fourth quarter of 2023 to just 3,9 million in the fourth quarter of 2025. This decline has had a direct impact on revenue and profitability because the company’s monetization model depends heavily on virtual gifting and premium services from engaged paying users. When spending intensity weakens, returns on capital naturally decline. Second, Hello Group has faced challenges in maintaining engagement across its platforms, particularly as user preferences in China’s social networking market evolve rapidly. Increased competition from newer social entertainment platforms, short video applications, and alternative forms of online interaction has made it more difficult to sustain engagement and monetization. This has contributed to weaker revenue growth and lower profitability compared to the company’s earlier years, reducing returns on invested capital. Third, Hello Group has been affected by a difficult macroeconomic backdrop in China. Slower economic growth, weaker consumer confidence, and lower discretionary spending have reduced willingness among users to spend on virtual gifts and premium digital experiences. Unlike essential products or subscription software, Hello Group’s monetization depends heavily on discretionary consumer spending, making it more vulnerable during periods of economic weakness. Regulatory scrutiny has also contributed to operational complexity, as Chinese internet platforms face ongoing content moderation requirements and restrictions that can impact engagement and monetization strategies. Fourth, the company has deliberately shifted its strategic focus from aggressive user growth toward profitability and efficiency. Management has increasingly emphasized acquiring higher quality users while reducing spending on low paying users with negative returns on investment. While this strategy appears rational from a profitability standpoint, it has contributed to a smaller paying user base and slower revenue growth, which weighs on ROIC in the near term. In other words, Hello Group is prioritizing better economics over headline user growth, even if that results in lower returns during the transition period. The decline in ROIC also partly reflects the nature of digital platform businesses after maturity. During periods of rapid expansion, platform companies can generate exceptionally high returns because revenue grows quickly while the capital base remains relatively stable. Once growth slows, margins compress, or user acquisition becomes more expensive, returns often normalize. This appears to be what Hello Group has experienced over the past several years. Looking ahead, I believe ROIC could improve from current levels, although a return to the exceptionally high returns seen before 2020 appears unlikely in the near term. Several factors could support higher returns over time. First, international expansion is becoming increasingly important, with overseas revenue growing to approximately 19% of total revenue in 2025, particularly driven by strong performance in the Middle East and North Africa through apps such as Soulchill. These markets may still offer stronger growth opportunities than China’s more mature social networking landscape. Second, management’s focus on profitability and higher quality paying users could eventually stabilize margins and improve monetization efficiency. Third, the company continues to benefit from an inherently asset light business model, meaning that even modest improvements in earnings can have a meaningful impact on ROIC. That said, a sustained recovery in ROIC will likely depend on whether Hello Group can stabilize engagement on Momo and successfully scale its international applications. Social and dating platforms are highly competitive, with relatively low switching costs, meaning user engagement must constantly be earned rather than taken for granted. If Hello Group succeeds in rebuilding growth while maintaining cost discipline, ROIC could gradually move back above 10% over time. However, without stronger user growth or improved monetization, returns may remain below the levels investors historically became accustomed to.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Hello Group’s equity development has been significantly more volatile than what we typically see in mature software or consumer businesses. From 2016 through 2020, equity grew strongly every year, increasing from RMB 634 million to RMB 2,273 billion. This period reflected the company’s strongest operating years, where high profitability, strong user engagement, and increasing monetization across Momo supported meaningful earnings growth. During this phase, Hello Group benefited from strong network effects, rapid platform expansion, and growing spending from paying users, allowing the company to build shareholder value at an impressive pace. The exceptionally high growth in 2017 and 2018 was largely driven by strong earnings generation as Momo reached peak monetization levels and scaled efficiently due to the asset light nature of the business. However, beginning in 2021, the picture changed considerably. Equity declined sharply in 2021 and continued to fluctuate in the following years, only recovering modestly in 2023 before declining again in 2024 and stabilizing in 2025. The main explanation for this volatility is weaker profitability. Hello Group’s net income has fallen materially from prior peak levels as the company faced declining paying users, lower engagement across key platforms, and a more competitive social networking landscape. Momo’s paying users have declined significantly over time, while monetization on newer platforms has not fully offset weakness in the core business. Since retained earnings are one of the most important drivers of equity growth, weaker profits naturally limit the company’s ability to build shareholder value through book value growth. Another important factor has been Hello Group’s transition from a high growth platform company to a more mature business. During its strongest years, revenue growth and user expansion allowed profitability to grow rapidly without requiring substantial additional investment. As growth slowed and competition intensified, earnings became more volatile, which in turn affected equity growth. The company has also deliberately prioritized profitability over aggressive user acquisition, reducing spending on lower quality users with negative returns on investment. While this strategy may improve efficiency over time, it has contributed to slower revenue growth and a smaller user base, limiting near term equity expansion. International expansion has also influenced equity development. Hello Group has increasingly invested in overseas markets, particularly in the Middle East and North Africa through applications such as Soulchill, as well as through acquisitions such as Happn. While these initiatives create potential long term growth opportunities, international expansion often requires upfront investment before meaningful profitability is achieved. As a result, these investments may temporarily weigh on earnings and therefore equity growth. Importantly, the volatility in Hello Group’s equity should not necessarily be interpreted as a sign of financial weakness. The company remains profitable, generates positive cash flow, and operates an inherently asset light business model that requires relatively limited capital investment. Unlike industrial or manufacturing businesses that need constant reinvestment into factories or equipment, Hello Group primarily invests in technology, product development, and user acquisition. This means that improvements in profitability can translate relatively quickly into stronger equity growth. Looking ahead, I expect equity growth to improve gradually, although likely not return to the exceptionally strong levels seen before 2020. Much will depend on Hello Group’s ability to stabilize engagement on Momo, improve monetization, and successfully scale its international applications. If management succeeds in rebuilding earnings while maintaining cost discipline, equity should begin growing more consistently again. However, given the mature nature of China’s social networking market and the competitive dynamics of the industry, investors should probably expect more moderate and somewhat volatile equity growth rather than the rapid compounding experienced during Hello Group’s earlier years.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Hello Group has historically been a strong generator of free cash flow, which is one of the attractive aspects of the business model. The company has remained free cash flow positive every year since becoming publicly listed, reflecting the relatively asset light nature of its operations. Unlike manufacturing or industrial companies that require substantial ongoing investments in factories and equipment, Hello Group primarily invests in technology, product development, content moderation, and user acquisition. This means that when profitability is strong, a large portion of earnings can be converted into cash. During the years leading up to the pandemic, Hello Group generated particularly strong free cash flow, growing from RMB 204 million in 2016 to RMB 756 million in 2019 while maintaining very healthy levered free cash flow margins, often above 30%. This reflected strong user engagement, rapid platform growth, and high monetization efficiency on Momo during its strongest years. However, the development over the past several years has been significantly weaker. Free cash flow has declined materially since peaking in 2019, reaching only RMB 99 million in 2025, while the levered free cash flow margin has fallen from above 30% to just 6,7%. The primary reason for this decline is weaker profitability. Hello Group has faced declining paying users on Momo, slower revenue growth, and increasing competition across China’s social networking and digital entertainment landscape. Because the company monetizes engagement through virtual gifting and premium subscriptions, weaker user activity and lower spending intensity have had a direct impact on operating cash generation. As revenue growth slowed and profitability declined, the amount of cash generated from operations naturally weakened as well. Another important reason for weaker free cash flow is the company’s strategic repositioning. In recent years, management has deliberately prioritized profitability and efficiency rather than pursuing aggressive user growth at any cost. This has included reducing spending on low quality users with unattractive returns on investment. While this strategy may improve long term economics, it has also resulted in a smaller paying user base and lower near term revenue growth, which has weighed on cash generation. In addition, Hello Group continues to invest in product development, technology infrastructure, content moderation, and international expansion. The company has increasingly focused on growing overseas markets, particularly in the Middle East and North Africa through Soulchill, while also strengthening its dating portfolio through acquisitions such as Happn. These initiatives require upfront investment and may temporarily reduce free cash flow before contributing meaningfully to earnings. The decline in free cash flow margin also partly reflects the nature of digital platform businesses after maturity. During periods of rapid growth, platform companies can scale revenue much faster than costs, resulting in very high cash generation and margins. As growth slows and competition increases, monetization becomes more difficult, user acquisition costs rise, and profitability often normalizes. This appears to be the phase Hello Group has entered in recent years. Looking ahead, I believe free cash flow is likely to improve gradually from current levels, although it may take time to return to the stronger levels seen before 2020. Several factors support this view. First, Hello Group still operates an asset light business model, meaning that even moderate improvements in profitability can have a meaningful impact on free cash flow. Second, international markets are becoming increasingly important and accounted for nearly one fifth of total revenue in 2025. If applications such as Soulchill and Happn continue to scale successfully, they could become meaningful contributors to cash generation. Third, management’s focus on higher quality paying users and monetization efficiency may eventually stabilize profitability and improve cash conversion. That said, a sustained recovery in free cash flow will depend heavily on Hello Group’s ability to stabilize engagement on Momo, improve monetization across its portfolio, and execute successfully in international markets. Given the competitive nature of social networking and online dating, user engagement can shift quickly, and there are relatively low switching costs for consumers. Therefore, investors should probably expect free cash flow to remain somewhat volatile rather than return immediately to historical peak levels. Hello Group primarily uses its free cash flow in two ways. First, the company reinvests cash into strengthening and expanding the business through product development, technology infrastructure, content moderation capabilities, and international growth initiatives. Second, Hello Group has consistently returned capital to shareholders. The company announced a special cash dividend of USD 0,28 per share for 2025, marking the eighth consecutive year of dividend payments. In addition, management continued repurchasing shares throughout 2025, reflecting a belief that the stock trades below its intrinsic value and a commitment to long term shareholder value creation. The free cash flow yield suggests that the shares may be trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three year period. We calculate this by dividing total long term debt by earnings. After performing the calculation on Hello Group, I found that the company has no long term debt. Hence, debt is not a concern for Hello Group. In fact, the company remains in a very strong financial position. As of the end of 2025, Hello Group still held a significant cash position of RMB 8,68 billion. While this was lower than the year before, the decline was mainly due to management actively using cash rather than any sign of financial weakness. During the year, the company returned money to shareholders through dividends and share repurchases, invested in acquisitions and growth opportunities, and paid certain taxes and loans. In other words, Hello Group chose to put part of its large cash pile to work while still maintaining a very strong financial position. Despite the reduction in cash reserves, Hello Group still maintains a very strong balance sheet and substantial financial flexibility. This is particularly valuable given the challenges the business has faced in recent years, including slower growth, declining paying users, and weaker profitability. Unlike highly leveraged companies that may be forced to reduce investments during periods of weakness, Hello Group has the financial strength to continue investing in product development, international expansion, and platform improvements while remaining financially secure. The company’s financial position also provides management with multiple strategic options. Hello Group can continue investing in overseas growth opportunities, pursue acquisitions to strengthen its product portfolio, or return excess capital to shareholders. In 2025, management announced the company’s eighth consecutive annual special dividend while continuing to repurchase shares throughout the year, reflecting a commitment to shareholder returns. For an online platform business operating in a rapidly evolving and competitive industry, having no long term debt and a significant cash position represents a meaningful advantage. Social networking trends can shift quickly, and companies occasionally need to invest aggressively to adapt to changing consumer behavior. Hello Group’s financial strength allows it to make such investments without placing pressure on the balance sheet. Therefore, I do not see debt or financial stability as a concern for Hello Group. In fact, the balance sheet remains one of the company’s strongest qualities.

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Risks

Competition is a risk for Hello Group because the social networking, online entertainment, and dating industries are highly competitive, fragmented, and constantly evolving. Unlike many traditional businesses where customer relationships can be sticky, switching costs in social and dating applications are extremely low. Users can easily download a competing app in seconds, experiment with new features, and abandon platforms that no longer feel engaging or relevant. This creates constant pressure on Hello Group to continuously improve its products, maintain user engagement, and adapt to changing consumer preferences, particularly among younger users who tend to adopt new digital trends more quickly. Hello Group competes across multiple categories, including social networking, livestreaming, online entertainment, and dating. Momo competes with a wide range of Chinese social and entertainment platforms, including short video applications, livestreaming services, voice-based social apps, and messaging ecosystems that increasingly incorporate social discovery features. Companies such as Tencent, ByteDance, and Kuaishou possess significantly greater financial resources, larger user ecosystems, stronger distribution channels, and greater access to technical talent. These competitors can invest aggressively in product development, artificial intelligence, content creation, and user acquisition, making it harder for Hello Group to maintain user attention and monetization levels. Even if Hello Group offers attractive features, competing platforms may have the ability to replicate those features quickly or integrate them into much larger ecosystems. Competition is especially relevant for Tantan, which operates in the highly fragmented online dating market. Dating applications depend heavily on network effects, where the attractiveness of the platform depends on the number and quality of users available. If users perceive that better matches can be found elsewhere, engagement can decline quickly. Tantan not only competes against local dating applications in China but also against broader social platforms where people increasingly form relationships organically. In addition, international expansion exposes Hello Group to local competitors that often possess stronger brand recognition or a deeper understanding of regional consumer behavior. In certain markets, competitors may already have entrenched positions among key demographics, making expansion more challenging. One of the biggest risks is that competitors may innovate faster or better anticipate changing consumer preferences. Social networking and entertainment trends can shift rapidly, particularly in digital industries where consumer tastes evolve constantly. New technologies, different recommendation algorithms, fresh user experiences, or novel ways of interacting online can quickly gain popularity. We have already seen how short form video transformed user behavior across social media globally. It is entirely possible that a new platform or format could emerge and gain traction at the expense of more established applications such as Momo or Tantan. If Hello Group fails to innovate or adapt quickly enough, users may gradually spend less time on its platforms, reducing engagement and monetization opportunities. Another competitive challenge relates to content creators and livestreamers. Hello Group’s monetization model depends heavily on user engagement and virtual gifting during live interactions. Popular broadcasters, entertainers, and creators are important because they attract traffic and encourage spending. However, these individuals often have multiple platform options and may migrate to competitors that offer better economics, stronger traffic, or superior monetization opportunities. If Hello Group struggles to attract or retain popular content creators, user engagement could weaken, negatively affecting revenue growth.

Laws and regulations are a risk for Hello Group because the company operates in one of the most heavily regulated parts of China’s internet industry. As an online social networking, dating, and livestreaming platform, Hello Group is subject to a wide range of laws governing content moderation, user behavior, virtual gifting, and youth protection. Unlike many Western markets where regulation tends to evolve gradually, China’s regulatory environment can change quickly, often with limited warning and broad interpretation by authorities. This creates uncertainty and makes long term planning more difficult. One of the biggest regulatory risks relates to Hello Group’s content-driven business model. Platforms such as Momo and Tantan rely heavily on user-generated content, livestreaming, chat rooms, and online interactions. Chinese authorities closely monitor online content and prohibit material deemed inappropriate, socially destabilizing, politically sensitive, obscene, misleading, or harmful to minors. If regulators determine that content hosted on Hello Group’s platforms violates these standards, the company could face penalties including fines, temporary suspensions, removal of features, reputational damage, or even the loss of licenses necessary to operate parts of the business. This is not merely a theoretical concern. Hello Group has previously been subject to regulatory actions, including temporary restrictions on certain platform functions, which negatively affected business performance. Content moderation requirements also create substantial operational burdens. Hello Group employs hundreds of personnel dedicated to monitoring and reviewing content while relying on both internal and third-party technologies to detect violations. However, given the sheer scale of user activity, it may not always be possible to identify problematic content before it appears on the platform. Even if the company removes objectionable material quickly, regulators may still hold Hello Group responsible. This means the company must continuously invest in moderation systems, compliance teams, and technology, increasing operating costs while potentially reducing user engagement if restrictions become too strict. Another important regulatory risk involves livestreaming and virtual gifting, which historically have been central to Hello Group’s monetization model. Chinese authorities have introduced increasing oversight of livestreaming activities in recent years, including real-name registration requirements for users and broadcasters, tighter rules for agencies and streamers, restrictions on minors, and limits on virtual gifting behavior. Regulators have also introduced measures designed to discourage excessive spending and reduce unhealthy online behaviors. For example, authorities have required platforms to impose spending reminders, cooling off periods, limits on gifting amounts, and restrictions on rankings tied to virtual gifting activity. This is particularly important because virtual gifting and value-added services account for nearly all of Hello Group’s revenue. Any regulatory action that reduces user willingness or ability to spend on livestreaming could have a direct impact on revenue and profitability. Management has already highlighted that increased tax scrutiny and tighter enforcement on livestreamers and agencies in 2025 negatively affected business momentum and reduced activity among high spending broadcasters and agencies. If future regulations further limit gifting activity or reduce broadcaster incentives, Hello Group’s earnings could come under additional pressure. Regulation may also limit Hello Group’s ability to innovate or expand into new areas. The company frequently launches new features, experiments with monetization models, and enters new markets to maintain user engagement. However, future regulations may impose restrictions on product features, monetization methods, broadcaster eligibility, or the types of interactions permitted on the platform. In an industry where innovation and rapid adaptation are critical, additional regulatory friction can slow product development and make it harder to respond to changing consumer preferences. The broader regulatory climate in China’s technology sector further increases uncertainty. Over the past several years, Chinese authorities have taken a much more active role in regulating internet platforms, with greater focus on youth protection, online behavior, financial transparency, and social stability. This suggests that Hello Group may face additional regulations in the future, even in areas that are not currently heavily restricted. Because many of these rules are introduced with limited advance notice and evolving enforcement standards, it can be difficult for management to anticipate their financial impact.

Macroeconomic factors are a risk for Hello Group because the company depends heavily on consumer spending and user engagement in areas that are largely discretionary rather than essential. Unlike businesses that sell necessities, Hello Group generates most of its revenue from virtual gifts, premium memberships, and paid social experiences. These purchases are optional and often among the first expenses consumers cut back on when economic conditions weaken or uncertainty increases. As a result, Hello Group is particularly exposed to changes in consumer confidence and spending behavior, especially in China where most of its business remains concentrated. A large part of Hello Group’s revenue comes from high spending users, particularly within livestreaming and social entertainment features. These users often spend money on virtual gifts, premium interactions, and subscriptions to enhance their experience on platforms such as Momo and Tantan. However, management has repeatedly highlighted that softer macroeconomic conditions have negatively affected spender sentiment, particularly among high value users. In recent years, China has faced several economic challenges, including the aftermath of the pandemic, weakness in the property sector, lower business confidence, and slower economic growth. Many affluent users, including business owners and professionals who historically contributed heavily to spending on social entertainment, have become more cautious with discretionary expenses. This has directly impacted Hello Group’s ability to monetize engagement and has contributed to weaker revenue growth. The impact is especially important because Hello Group’s livestreaming and virtual gifting business depends heavily on a relatively small group of highly engaged spenders. If these users reduce spending even modestly, the effect on revenue can be disproportionate. Management has already acknowledged that macro softness has weighed on spending behavior among higher value users and has stated that consumer sentiment remains soft entering 2026, potentially even softer than a year earlier. This suggests that Hello Group may continue to face pressure if economic conditions in China remain weak or fail to improve meaningfully. Macroeconomic conditions can also affect Hello Group in less direct ways. Weaker consumer confidence can make it more difficult to convert free users into paying subscribers or encourage casual users to spend on premium features. At the same time, a more difficult economic environment may intensify competition for paying users, forcing companies to invest more heavily in promotions, product development, or user acquisition to maintain engagement. This can pressure profitability and reduce returns on investment. Even Hello Group’s subscription and value added services, which have generally proven more resilient than livestreaming, are still ultimately dependent on consumers feeling comfortable spending on non-essential digital experiences. The Chinese economy presents additional risks because of its exposure to broader structural challenges. Ongoing weakness in the property sector and elevated debt levels have contributed to softer consumer sentiment and concerns about future economic growth. Since household wealth in China is often closely linked to property values, prolonged weakness in real estate can have an outsized impact on spending behavior. If consumers feel less financially secure, discretionary categories such as online entertainment and social spending are likely to remain under pressure.

Reasons to invest

The Momo app is a reason to invest in Hello Group because it remains the company’s core asset and primary profit engine despite the challenges of recent years. While paying users and revenue have declined from historical highs, Momo continues to generate meaningful cash flow and remains deeply embedded in China’s social networking landscape. For more than a decade, Momo has been one of China’s leading platforms for meeting new people, building social connections, and engaging through livestreaming, voice chat, games, and interactive features. The platform’s longevity is important because social applications tend to become more valuable over time as users become familiar with the ecosystem, establish habits, and develop social networks within the platform. Even after years of macroeconomic pressure and increased competition, Momo remains a highly relevant platform with millions of paying users and a demonstrated ability to monetize engagement. One reason Momo remains attractive is that management has deliberately repositioned the platform from prioritizing growth at any cost toward maximizing profitability and sustainability. Rather than aggressively pursuing low quality users through expensive marketing campaigns, Hello Group has increasingly focused on acquiring and retaining users with higher engagement and stronger monetization potential. Management has proactively reduced marketing spending with poor returns on investment and reallocated resources toward more profitable channels and dormant user reactivation. While this strategy initially contributed to lower paying user numbers, it also helped stabilize profitability and improve the economics of the business. For investors, this is important because it suggests management is treating Momo as a durable cash generating asset rather than sacrificing margins for short term growth. Another encouraging aspect is that Momo appears to have shown signs of stabilization. Management highlighted that paying user declines bottomed out during the second half of 2025 and that Momo added approximately 400.000 paying users during the latter half of the year. In the fourth quarter of 2025, paying users increased sequentially, supported by stronger subscription growth and improved monetization across new product scenarios. For a mature platform operating in a difficult macroeconomic environment, returning to paying user growth is an encouraging sign that the platform remains relevant and capable of adapting to changing consumer behavior. Product innovation also remains an important reason to believe in Momo’s long term durability. Management has increasingly integrated artificial intelligence into the user experience to improve engagement and make social interactions more natural. For example, Momo upgraded its AI greeting and AI chat assistance tools to help users break the ice with personalized conversation starters and maintain more engaging interactions. These tools are continuously refined to make conversations feel more human and diverse. By reducing friction in social interactions, these features may increase user retention and improve monetization over time. Management has indicated that adoption of these AI powered features increased significantly during 2025, suggesting users are responding positively to the enhancements. Momo has also improved the way users connect on the platform. By using historical behavioral data to identify users with higher chat intent, the company has made matching more accurate and interactions smoother. This has improved important engagement metrics, including the number of two way conversations and deeper user interactions. In social networking businesses, stronger engagement often leads to better monetization because users who spend more time on the platform are more likely to purchase subscriptions, virtual gifts, or other premium features. Another reason Momo remains compelling is the company’s strategic shift toward smaller ticket spending scenarios that appeal to a broader group of users rather than relying heavily on a smaller group of high spending “whales.” Historically, Momo’s monetization depended significantly on top spending users and livestreaming agencies, making revenue more vulnerable during periods of economic weakness. In response to softer macroeconomic conditions and weaker spending among high value users, management pivoted toward audio and video scenarios, social games, and direct chat features that appeal to mid tier and long tail users. This strategy appears to be working, helping offset some of the pressure from weaker spending among higher value users while also supporting higher margin revenue streams.

International growth is a reason to invest in Hello Group because it represents the company’s most important long term growth opportunity and provides a path toward reducing dependence on China’s slower growing and increasingly mature domestic market. While Momo remains the company’s primary profit engine, overseas operations have emerged as a meaningful new revenue contributor and are increasingly becoming Hello Group’s future growth engine. In recent years, management has successfully expanded the company’s international presence through a combination of internal product incubation and targeted acquisitions, allowing Hello Group to diversify geographically while leveraging its expertise in social networking, dating, and social entertainment. The early results have been highly encouraging. Overseas revenue grew more than 70% year over year in 2025, reaching RMB 2 billion and accounting for approximately 19% of total company revenue, up significantly from around 11% the previous year. This rapid growth is particularly important because Hello Group’s domestic business has faced slower growth due to macroeconomic weakness, regulatory pressures, and increased competition. International expansion therefore provides Hello Group with a second growth pillar that can offset some of the challenges facing its core Chinese operations. Management has explicitly identified overseas business as one of the company’s key strategic priorities and believes it will become an increasingly important contributor to both growth and long term shareholder value. One of the most attractive aspects of Hello Group’s international strategy is its strong positioning in the Middle East and North Africa region, often referred to as MENA. This region has become the company’s most successful international market, particularly through social entertainment applications focused on voice and video interactions. SoulChill, which enables users to connect through voice chat rooms and entertainment experiences, remains the company’s largest overseas contributor and has already surpassed RMB 1 billion in annual revenue. SoulChill has demonstrated that Hello Group’s expertise in social entertainment can travel beyond China and succeed in entirely different cultural environments. Importantly, SoulChill has also been profitable for some time, providing proof that international expansion can eventually generate attractive economics. Beyond SoulChill, Hello Group has begun successfully replicating its MENA playbook through newer applications such as Yaha Live and Amar. These products only began monetization toward the end of 2024 but have already become important growth drivers. Management highlighted that both applications are scaling rapidly, narrowing losses, and benefiting from the company’s prior experience with SoulChill. Yaha Live is expected to reach profitability during 2026, with Amar potentially following roughly six months later. This is encouraging because it suggests Hello Group is not dependent on a single international success story but is instead building a portfolio of scalable products with improving economics. Another reason international growth is compelling is the increasing diversification of Hello Group’s business model. Rather than relying solely on MENA social entertainment, the company is also building a global dating and artificial intelligence ecosystem. Tantan International was separated from the domestic Chinese version in the second half of 2025, allowing management to tailor the product experience more effectively for overseas users while removing historical technical and operational constraints. This creates a stronger foundation for long term international growth in online dating, especially in Asian markets where Hello Group already has relevant experience and brand recognition. The acquisition strategy also strengthens the international opportunity. In 2025, Hello Group acquired Happn, a well established European dating application originally launched in France. Happn adds local brand recognition and an existing user base while also providing entry points into markets such as Europe, Turkey, and South America. Management believes these acquired dating brands have significant untapped growth potential outside their original markets and intends to leverage Hello Group’s operational expertise to expand them further. Over time, management also sees opportunities to introduce these brands into Asian markets, creating synergies across its broader ecosystem. Artificial intelligence could also become an important growth driver internationally. Hello Group has launched MiraiMind in Japan, an AI powered anime style companion and romance application. Management highlighted strong user reception to the product’s AI driven character creation and conversational capabilities and sees opportunities to replicate this model in additional markets. While MiraiMind remains in investment mode today, it highlights Hello Group’s willingness to experiment with new categories and leverage emerging technologies to build future growth opportunities.

Tantan’s ongoing turnaround is an important reason to invest in Hello Group because it represents a meaningful source of upside if management succeeds in transforming the platform into a more efficient, profitable, and differentiated dating business. While Tantan has faced declining revenue and paying users in recent years, the investment case is increasingly shifting away from chasing short term growth and toward building a healthier platform with stronger retention, better monetization, and a clearer competitive position. In many ways, Tantan is moving from a growth at any cost model to a more sustainable business focused on long term value creation. One of the most encouraging aspects of the turnaround is management’s increasing focus on profitability and return on investment. Historically, Tantan relied heavily on paid user acquisition channels, which drove growth but often at unattractive economics. In recent years, Hello Group deliberately reduced expensive marketing channels with weak returns, even though this contributed to lower paying user numbers and weaker revenue. While the short term financial impact has been negative, the strategy appears to have significantly improved business quality. Management highlighted that Tantan achieved full payback on channel investments during 2025, with returns on marketing investment reaching record highs. For investors, this matters because it suggests Tantan is no longer dependent on spending aggressively to sustain engagement and instead is becoming a more self sustaining platform. Another encouraging sign is that Tantan appears increasingly reliant on organic growth rather than paid traffic. Management noted that the vast majority of new users now arrive organically, reducing dependence on expensive acquisition spending. Organic traffic is particularly valuable in dating applications because it usually signals stronger brand awareness, higher user trust, and healthier network effects. When users join because of word of mouth or brand recognition rather than marketing campaigns, customer acquisition costs fall and profitability tends to improve. This transition may also make Tantan more resilient during periods of economic weakness when marketing budgets become less efficient. Product improvements are another important part of the turnaround story. During 2025, Tantan launched a redesigned version of the application focused on improving trust, match quality, and the overall user experience. One important improvement was stronger real person verification, which helps reduce fake profiles and improve platform authenticity. Trust is especially important in online dating because poor experiences, scams, or low quality matches can quickly damage user retention and brand reputation. By improving verification and creating a cleaner interface, management aims to position Tantan as a higher quality dating platform tailored specifically to Asian users. Artificial intelligence is also becoming increasingly important to Tantan’s product strategy. Management has introduced AI powered profile enrichment and chat assistance tools designed to improve conversations and reduce friction between users. These tools can help users present themselves more effectively and maintain conversations after matching, potentially increasing engagement and match success rates. Tantan has also improved recommendation algorithms for female users, helping reduce poor quality matches and improve overall user satisfaction. Management noted that these efforts have already contributed to stronger retention among female users and higher engagement levels, which is particularly important because healthy gender balance is critical for long term success in dating platforms. Another attractive aspect of the turnaround is improving monetization despite declining user numbers. To offset lower paying users, management restructured membership tiers, increased visibility of premium features, and expanded lower cost subscription offerings. This has improved both pay conversion and average revenue per paying user. In other words, fewer users are generating more value, partially offsetting revenue pressure. This demonstrates that management is becoming more disciplined and sophisticated in how it monetizes the platform. Perhaps most importantly, management now appears focused on what ultimately determines success in dating applications: long term retention and user experience. Rather than prioritizing short term monetization, Hello Group has emphasized improving the quality of the dating experience and building a stronger brand identity around Tantan as a dating platform specifically designed for Asian users. This differentiation strategy could prove valuable because many global dating applications are built around Western user preferences and may not fully address local cultural dynamics. If Tantan succeeds in building a trusted and culturally relevant dating brand, it could strengthen retention and create a more durable competitive position over time.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,68, which is from the year 2025. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 10,7% over the next five years. Additionally, I have selected a projected future P/E ratio of 20, which is twice the growth rate. This decision is based on Hello Group's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $8,72. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Hello Group at a price of $4,36 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 169, and capital expenditures were 70. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 49 in our calculations. The tax provision was 121. We have 157,1 outstanding shares. Hence, the calculation will be as follows: (169 – 49 + 121) / 157,1 x 10 = $15,34 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Hello Group's Free Cash Flow Per Share at $0,63 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is $7,93.

Conclusion

I believe Hello Group is an intriguing company with capable management. The company has built its moat through network effects, brand recognition, monetization expertise, and a diversified multi platform ecosystem. Hello Group historically achieved a high ROIC, but returns have declined significantly since the pandemic due to lower user engagement, weaker spending, and macroeconomic pressures. While ROIC is expected to improve as management focuses on profitability and higher quality monetization, it is unlikely to return to historical levels anytime soon. Free cash flow has also deteriorated in recent years, reflecting lower profitability and weaker user spending. Although free cash flow and free cash flow margins are expected to improve, they are also not expected to return to previous highs in the foreseeable future. Competition remains a risk because the social networking and dating industries are highly competitive, fast moving, and characterized by very low switching costs, allowing users to easily migrate to competing platforms if they offer more engaging experiences or better features. At the same time, Hello Group competes against much larger companies with stronger ecosystems and greater resources to invest in innovation, user acquisition, and content creators, which may pressure engagement and monetization if Hello Group fails to adapt quickly enough. Laws and regulations are also a risk because Hello Group operates in one of China’s most heavily regulated internet sectors, where authorities closely monitor content, livestreaming, virtual gifting, and user behavior. Since nearly all revenue comes from value added services such as virtual gifts and subscriptions, sudden regulatory changes or stricter enforcement could reduce user spending, increase compliance costs, or limit the company’s ability to innovate and grow. Macroeconomic factors are another risk because Hello Group depends heavily on discretionary spending, particularly on virtual gifts, premium memberships, and paid social experiences that users can easily reduce during periods of economic uncertainty. Weaker consumer sentiment in China, driven by slower growth and property market weakness, has already pressured spending behavior and could continue to weigh on revenue and profitability. On the positive side, the Momo app remains a compelling reason to invest because it continues to serve as the company’s core profit engine and a durable cash generating asset despite recent challenges. Management has improved monetization, enhanced engagement through AI and product upgrades, and shown early signs of stabilization, with paying user growth returning in the second half of 2025 despite a difficult macroeconomic environment. International growth is another attractive aspect of the investment case because it has emerged as Hello Group’s most important long term growth engine, reducing reliance on China’s slower growing domestic market. Overseas revenue grew more than 70% in 2025, driven by strong momentum in the MENA region, successful products such as SoulChill, Yaha Live, and Amar, as well as expansion into global dating and AI driven applications. Tantan’s ongoing turnaround also provides upside potential as management transforms the platform into a more sustainable and profitable dating business focused on stronger retention, better monetization, and improved user experience rather than growth at any cost. Through product upgrades, AI driven features, stronger verification, and a shift toward more efficient organic growth, Tantan is becoming more self sustaining and could become a more valuable asset over time if the turnaround succeeds. While there are several things to like about Hello Group and the shares appear to trade at a very attractive valuation, it is worth noting that the company’s book value per share stood at $9.80 at the end of 2025. Nonetheless, despite the attractive valuation and turnaround potential, I believe there are better opportunities in the market and will not be investing in Hello Group at this time.

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