MOMO Q3 2025: Overseas Revenue Surges 69% as Domestic Headwinds Weigh on Margins

2025-12-10 | By EarningsIQ Research

Overseas expansion drove a 69% revenue jump, but domestic tax scrutiny and macro softness pressured profitability and muted group growth. Management signaled further margin compression into 2026, with international diversification now central to offsetting domestic contraction. Guidance points to ongoing domestic declines, but a multi-pillar global portfolio positions MOMO for more resilient long-term growth.

Summary

• International Diversification Accelerates: Overseas portfolio now contributes 20% of revenue, reshaping group risk profile.
• Domestic Profit Engine Faces Regulatory Drag: Tax scrutiny and macro pressure drive persistent domestic revenue and margin declines.
• 2026 Outlook Hinges on Overseas Scale: Margin structure and group profit depend on mix shift toward higher-margin international dating brands.

Performance Analysis

MOMO’s Q3 2025 results underscore a business in transition: while total group revenue slipped 1% year-over-year, the headline was a 69% surge in overseas revenue (now 20% of group revenue, up from 12% last year), offsetting persistent contraction in the domestic segment. Domestic revenue, which remains the bulk of the business, fell 10% year-over-year, weighed by new tax policies impacting broadcasters and agencies, and ongoing macro softness in China.

Adjusted operating income declined 11% YoY, with margins compressed to 15.2% as the company raised revenue sharing to support supply-side partners affected by tax changes. Value-added services (VAS), the group’s core monetization engine, saw a 1% YoY decline, masking the underlying volatility: domestic VAS fell 11% while overseas VAS grew 69%. Gross margin contracted 1.7 points YoY, reflecting both higher payouts domestically and a structural mix shift toward lower-margin overseas social entertainment products. Operating expenses stayed flat as a percentage of revenue, with R&D and marketing spend tightly managed.

• Cash Cow Under Strain: Momo app’s revenue fell 11% YoY, with broadcaster supply disruption and reduced user acquisition spend impacting scale and monetization.
• Overseas Growth Engines: Audio/video social products in MENA and new dating brands (e.g., Happn, Tantan International) drove international outperformance.
• Profitability Compression: Group gross margin declined due to a combination of higher domestic payouts and a revenue mix shift to lower-margin international businesses.

Cash reserves declined sharply, largely due to loan repayment, special dividend, and a one-off withholding tax. Operating cash flow, though positive, was muted by these outflows. The group’s financial posture remains sound, but margin pressures and domestic headwinds are expected to persist into 2026.

Executive Commentary

Strategic Positioning

1. Domestic Cash Cow Under Regulatory Pressure

Momo, the core cash-generating social platform, is now structurally challenged by regulatory and tax changes. Management’s strategy is to preserve profitability through cost control and product innovation (notably AI chat tools and curated experiences), but the business is unlikely to return to growth without a macro or regulatory tailwind. The company’s decision to increase revenue sharing with broadcasters is a necessary but margin-dilutive response, with management guiding to a 1–2 percentage point margin hit in the second half.

2. Overseas Portfolio as Growth Hedge

International expansion is now the central growth lever, with MENA audio/video social apps (e.g., Yaha Land, Amar, SoChill) and dating brands (notably the newly acquired Happn and Tantan International) driving outperformance. Management emphasized a “multi-pillar” approach: social entertainment in emerging markets, and subscription-based dating in developed markets. This strategy diversifies revenue and margin risk, but also introduces new cost structures and competitive dynamics.

3. M&A and Brand Diversification

Acquisitions have become a core element of MOMO’s overseas strategy, with management seeking targets that offer cultural fit, sustainable profitability, and reasonable valuations. The company is flexible in its integration approach, either empowering local teams or taking a more hands-on role as needed. The addition of Happn extends MOMO’s geographic reach into Europe and enhances its dating portfolio, positioning the group for cross-regional synergies and future localization opportunities in Asia-Pacific.

4. Technology and Product Innovation

Investment in AI-driven chat and dating features is driving improved engagement and monetization, particularly among high-value user cohorts. The company’s ability to deploy new features (AI chat assistants, curated match pools, and algorithmic recommendation) is central to user retention and ARPU growth, especially as user acquisition budgets are tightly managed.

5. Cost Discipline and Capital Allocation

Management remains committed to strict ROI thresholds, especially in overseas user acquisition. While overseas investments are ongoing, the group is not sacrificing profitability for top-line growth and continues to weigh M&A, shareholder returns, and liquidity needs carefully.

Key Considerations

The quarter reflects a business at a strategic crossroads: domestic contraction is now being actively counterbalanced by aggressive international expansion and product diversification, but profitability and cash flow are under pressure as the revenue mix shifts.

Key Considerations:

• Tax Policy and Regulatory Risk: New tax scrutiny has a direct, material impact on domestic broadcaster supply and margin structure.
• Overseas Revenue Mix: Growth is increasingly reliant on international social entertainment and dating brands, each with distinct margin profiles and competitive risks.
• Product Innovation as Differentiator: AI-driven features and curated experiences are central to user engagement and monetization resilience.
• Capital Allocation Flexibility: Cash outflows for loan repayment, dividends, and M&A reflect a balancing act between growth and shareholder returns.

Risks

Regulatory and tax policy volatility remain the most significant risks, particularly in the domestic market, where further scrutiny could exacerbate revenue and margin declines. Overseas, competitive intensity and shifting user acquisition costs could pressure ROI, while mix shift toward lower-margin products may limit profit recovery. Macro softness in China and uncertain consumer sentiment also cloud the outlook for the core cash cow business.

Forward Outlook

For Q4 2025, Hello Group guided to:

• Revenue of 2.52–2.62 billion RMB (down 4.4% to 0.6% YoY)
• Domestic revenue expected to decline mid to low teens YoY; overseas revenue to maintain Q3’s robust growth rate

For full-year 2025, management expects:

• Domestic business to exit with a ~13% YoY decline

Management highlighted:

• Domestic margin compression will persist into 2026
• Overseas growth likely to continue, but not fully offset domestic profit pressure in the near term

Takeaways

Investors should focus on MOMO’s evolving revenue mix and the sustainability of international growth engines as the domestic market faces structural headwinds.

• Margin Compression Is Structural: Regulatory and tax changes have reset profitability expectations for the core domestic business, with further risk into 2026.
• International Growth Is Now Multi-Pillar: Success in both social entertainment and dating brands is critical for offsetting home market contraction, but margin and cost structures differ materially.
• 2026 Will Be a Test of Overseas Scale: The group’s ability to stabilize and grow profitably depends on scaling higher-margin international dating brands and maintaining cost discipline amid global expansion.

Conclusion

MOMO’s Q3 2025 results highlight a decisive pivot: international diversification is now essential as domestic headwinds persist. Margin compression and regulatory risk remain key challenges, but a multi-brand, multi-region portfolio offers a credible path to long-term resilience if execution remains disciplined.

Industry Read-Through

MOMO’s experience signals that Chinese social and entertainment platforms face mounting regulatory and tax risk domestically, pushing industry leaders to accelerate global expansion and M&A. The success of multi-pillar growth—combining social entertainment in emerging markets with subscription dating in developed economies—may serve as a blueprint for peers. However, as revenue mix shifts overseas, margin structures and competitive dynamics will become increasingly complex, making capital allocation and ROI discipline critical for sustained profitability across the sector.

MOMO Communication Services Social Media International Expansion Regulation Dating Apps Margin Tax Policy