20-F 1 d439130d20f.htm FORM 20-F Form 20-F
Table of Contents
falseFY0001610601Deposits with third-party payment channels are mainly the cash deposited in certain third-party payment channels by the Group for the broadcasters and the gift recipients who received the virtual items in the value-added service to withdraw their revenue sharing and the customer payment to the Group’s account through the third-party payment channels.Advance to suppliers were primarily for advertising fees and related service fees.Input VAT mainly occurred from the purchasing of goods or other services, property and equipment and advertising activities. It is subject to verification by related tax authorities before offsetting the VAT output.The sales to Hunan Qindao Network Media Technology Co., Ltd. represented mobile marketing services provided.The purchases from Hunan Qindao Network Media Technology Co., Ltd. and Beijing Shiyue Haofeng Media Co., Ltd. mainly represented the Revenue Sharing.The purchases from Beijing Santi Cloud Union Technology Co., Ltd. and Beijing Santi Cloud Time Technology Co., Ltd. were mainly related to its bandwidth services.On January 9, 2015, the Group entered into a partnership agreement to subscribe partnership interest, as a limited partner, in Jingwei Chuangteng (Hangzhou) L.P. (“Jingwei”). According to the partnership agreement, the Group committed to subscribe 4.9% partnership interest in Jingwei for RMB30,000. Due to Jingwei’s further rounds of financing, the Group’s partnership interest was diluted to 2.4% as of December 31, 2021 and 2022. The Group recognized its share of partnership profit or (loss) in Jingwei of RMB4,964, RMB(5,147) and RMB397 during the years ended December 31, 2020, 2021 and 2022, respectively.On September 12, 2018, the Group entered into a partnership agreement to subscribe partnership interest, as a limited partner, in Chengdu Tianfu Qianshi Equity Investment Partnership L.P. (“Tianfu”). According to the partnership agreement, the Group committed to subscribe 5.1% partnership interest for RMB30,000, which had been fully paid as of December 31, 2020. The Group recognized its share of partnership profit in Tianfu of RMB237, RMB2,453 and RMB286 during the years ended December 31, 2020, 2021 and 2022, respectively.Others represent equity method investments or equity securities without readily determinable fair values that are individually insignificant.On August 18, 2015, the Group entered into a partnership agreement to subscribe partnership interest, as a limited partner, in Hangzhou Aqua Ventures Investment Management L.P. (“Aqua”). According to the partnership agreement, the Group committed to subscribe 42.7% partnership interest for RMB50,000. The Group recognized its share of partnership loss in Aqua of RMB42,458, RMB11,013 and RMB3,752 for the years ended December 31, 2020, 2021 and 2022, respectively. The Group received distribution from Aqua of RMB1,153 during the year ended December 31, 2020.The Group invested in certain preferred shares of private companies. On April 9, 2021, the Group entered into a preferred share subscription agreement with 58 Daojia Ltd. for a consideration of RMB300 million. The transaction was completed in April 2021. On March 31, 2022, the Group entered into a share purchase agreement with Shenzhen INMO Technology Co., Ltd for a consideration of RMB55,343. The transaction was completed in April 2022. As the investments were neither debt security nor in-substance common stock, they were accounted as equity securities without readily determinable fair values and measured at fair value using the measurement alternative. There has been no orderly transactions for the identical or a similar investment of the same issuer noted during the years ended December 31, 2021, and 2022.In October 2021, the Group completed an investment in an open mutual fund named “AEZ Capital Feeder Fund” (“AEZ”), which is redeemable on a quarterly basis. The Group, as a limited partner, subscribed Class A participating shares with capital contribution of RMB114,707. The Group has significant influence on AEZ and elected the fair value option to account for this investment using the NAV practical expedient whereby the change in fair value of RMB779 and RMB19,010 was recognized during the year ended December 31, 2021 and 2022. 0001610601 2022-01-01 2022-12-31 0001610601 2021-01-01 2021-12-31 0001610601 2020-01-01 2020-12-31 0001610601 2022-12-31 0001610601 2021-12-31 0001610601 2019-01-01 2019-12-31 0001610601 2020-12-31 0001610601 2021-01-01 2021-01-01 0001610601 2022-01-01 2022-01-01 0001610601 2019-12-31 0001610601 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2021-12-31 0001610601 us-gaap:FairValueMeasurementsRecurringMember 2021-12-31 0001610601 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2021-12-31 0001610601 momo:OtherRelatedPartiesMember 2021-12-31 0001610601 momo:HunanQindaoNetworkMediaTechnologyCompanyLimitedMember 2021-12-31 0001610601 momo:UnpaidRevenueMember 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form
20-F
 
 
(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
or
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
or
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from
                    
to
                    
Commission file number:
001-36765
 
 
Hello Group Inc.
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
20th Floor, Block B
Tower 2, Wangjing SOHO
No. 1 Futongdong Street
Chaoyang District, Beijing 100102
People’s Republic of China
(Address of principal executive offices)
Cathy Hui Peng, Chief Financial Officer
Telephone:
+86-10-5731-0567
Email: ir@immomo.com
20th Floor, Block B
Tower 2, Wangjing SOHO
No. 1 Futongdong Street
Chaoyang District, Beijing 100102
People’s Republic of China
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Trading Symbol(s)
  
Name of Each Exchange on Which Registered
American depositary shares
(each American depositary share representing two Class A ordinary shares, par value US$0.0001 per share)
  
MOMO
  
The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)
Class A ordinary shares, par value US$0.0001 per share*
     
The Nasdaq Stock Market LLC
(The Nasdaq Global Select Market)
 
*
Not
for trading, but only in connection with the listing on The Nasdaq Global Select Market of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
 
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
296,606,870 Class A ordinary shares and
80,364,466
Class B ordinary shares, par value US$0.0001 per share, as of December 31, 2022.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 
Large accelerated filer      Accelerated filer  
Non-accelerated
filer
     Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.      Yes    ☐  No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).  ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒   International Financial Reporting Standards as issued  ☐         Other  ☐
  by the International Accounting Standards Board     
  
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes      No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐  Yes    ☐  No
 
 
 


Table of Contents

TABLE OF CONTENTS

 

INTRODUCTION

     1  

FORWARD-LOOKING INFORMATION

     1  

Part I

     2  

Item 1.         Identity of Directors, Senior Management and Advisers

     2  

Item 2.         Offer Statistics and Expected Timetable

     2  

Item 3.         Key Information

     2  

Item 4.         Information on the Company

     60  

Item 4A.      Unresolved Staff Comments

     94  

Item 5.         Operating and Financial Review and Prospects

     94  

Item 6.         Directors, Senior Management and Employees

     117  

Item 7.         Major Shareholders and Related Party Transactions

     127  

Item 8.         Financial Information

     130  

Item 9.         The Offer and Listing

     132  

Item 10.       Additional Information

     132  

Item 11.       Quantitative and Qualitative Disclosures about Market Risk

     148  

Item 12.       Description of Securities Other than Equity Securities

     149  

Part II

     150  

Item 13.       Defaults, Dividend Arrearages and Delinquencies

     150  

Item 14.       Material Modifications to the Rights of Security Holders and Use of Proceeds

     150  

Item 15.       Controls and Procedures

     150  

Item 16A.    Audit Committee Financial Expert

     152  

Item 16B.    Code of Ethics

     152  

Item 16C.    Principal Accountant Fees and Services

     153  

Item 16D.    Exemptions from the Listing Standards for Audit Committees

     154  

Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     154  

Item 16F.    Change in Registrant’s Certifying Accountant

     155  

Item 16G.    Corporate Governance

     155  

Item 16H.    Mine Safety Disclosure

     155  

Item 16I.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

     155  

Part III

     156  

Item 17.       Financial Statements

     156  

Item 18.       Financial Statements

     156  

Item 19.       Exhibits

     156  

SIGNATURES

     161  

 

 

i


Table of Contents

INTRODUCTION

In this annual report, except where the context otherwise requires and for purposes of this annual report only:

 

   

“$,” “dollars,” “US$” or “U.S. dollars” refers to the legal currency of the United States;

 

   

“ADSs” refers to our American depositary shares, each representing two Class A ordinary shares, par value US$0.0001 per share;

 

   

“MAUs” refers to monthly active users. We define Momo MAUs during a given calendar month as Momo users who were daily active users for at least one day during the 30-day period counting back from the last day of such calendar month. Momo daily active users are users who accessed our platform through mobile devices and utilized any of the functions on our platform on a given day;

 

   

“Hello Group,” “we,” “us,” “our company,” or “our” refers to our holding company Hello Group Inc., previously named “Momo Inc.,” its subsidiaries and in the context of describing our operations and consolidated financial information, the consolidated affiliated entities and their subsidiaries;

 

   

“ordinary shares” refers to our Class A and Class B ordinary shares, par value US$0.0001 per share; and

 

   

“RMB” or “Renminbi” refers to the legal currency of mainland China.

FORWARD-LOOKING INFORMATION

This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words or phrases such as “may,” “could,” “should,” “would,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to,” “project,” “continue,” “potential” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

 

   

our goals and strategies;

 

   

our future business development, financial condition and results of operations;

 

   

the expected growth of mobile social networking platforms, live video services, mobile marketing services, mobile games and online entertainment services in mainland China;

 

   

our expectations regarding demand for and market acceptance of our services;

 

   

our expectations regarding our user base and level of user engagement;

 

   

our monetization strategies;

 

   

our plans to invest in our technology infrastructure;

 

   

competition in our industry; and

 

   

relevant government policies and regulations relating to our industry.


Table of Contents

You should not place undue reliance on these forward-looking statements and you should read these statements in conjunction other sections of this annual report, in particular the risk factors disclosed in “Item 3. Key Information—D. Risk Factors.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Moreover, we operate in a rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

Current period amounts in this annual report are translated into U.S. dollars for the convenience of the readers. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at the rate at RMB6.8972 to US$1.0000, the exchange rate as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System in effect as of December 30, 2022. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The mainland China government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade.

PART I

 

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

 

Item 3.

Key Information

Our Holding Company Structure and Contractual Arrangements with the Consolidated Affiliated Entities

Hello Group Inc. is not a mainland China operating company, but rather a Cayman Islands holding company with no equity ownership in its consolidated affiliated entities. Our Cayman Islands holding company does not conduct business operations directly. We conduct our operations in mainland China through (i) our mainland China subsidiaries and (ii) the consolidated affiliated entities with which we have maintained contractual arrangements and their subsidiaries in mainland China. Mainland China laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in certain value-added telecommunication services, internet audio-video program services and certain other businesses. Accordingly, we operate these businesses in mainland China through the consolidated affiliated entities and their subsidiaries, and rely on contractual arrangements among our mainland China subsidiaries, the consolidated affiliated entities and their nominee shareholders to control the business operations of the consolidated affiliated entities. The consolidated affiliated entities are consolidated for accounting purposes, but are not entities in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the consolidated affiliated entities accounted for 99.2%, 98.4% and 95.7% of our total revenues for the years ended December 31, 2020, 2021 and 2022, respectively. As used in this annual report, “we,” “us,” “our company,” “our,” or “Hello Group” refers to Hello Group Inc., its subsidiaries, and, in the context of describing our operations and consolidated financial information, the consolidated affiliated entities and their subsidiaries in mainland China, including but not limited to Beijing Momo Technology Co., Ltd. (“Beijing Momo”), Tianjin Heer Technology Co., Ltd. ( “Tianjin Heer”), Loudi Momo Technology Co. Ltd. (“Loudi Momo”), Chengdu Momo Technology Co. Ltd. (“Chengdu Momo”), Hainan Yilingliuer Network Technology Co., Ltd. (“Hainan Yilingliuer”), Hainan Miaoka Network Technology Co., Ltd. (“Hainan Miaoka”), Tantan Culture Development (Beijing) Co., Ltd. (“Tantan Culture”), Tianjin Apollo Exploration Culture Co., Ltd.(“Tianjin Apollo”), QOOL Media (Tianjin) Co., Ltd (“Tianjin QOOL Media”), Beijing Top Maker Technology Co., Ltd. (“Beijing Top Maker,” formerly known as Beijing Fancy Reader Technology Co., Ltd.), Beijing Perfect Match Technology Co., Ltd. (“Beijing Perfect Match”), SpaceTime (Beijing) Technology Co., Ltd. (“SpaceTime Beijing”) and Tianjin Nishuodedoudui Technology Co., Ltd. (“Tianjin Nishuodedoudui”). Investors in our ADSs are not purchasing equity interest in the consolidated affiliated entities in mainland China, but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.

 

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Our subsidiaries, the consolidated affiliated entities and their shareholders have entered into a series of contractual agreements. These contractual arrangements enable us to:

 

   

receive the economic benefits that could potentially be significant to the consolidated affiliated entities in consideration for the services provided by our subsidiaries;

 

   

exercise effective control over the consolidated affiliated entities; and

 

   

hold an exclusive option to purchase all or part of the equity interests in the consolidated affiliated entities when and to the extent permitted by mainland China law.

A series of contractual agreements, including business operation agreements, exclusive call option agreements, equity interest pledge agreements, exclusive cooperation agreements, power of attorney and spousal consent letters, have been entered into by and among our subsidiaries, the consolidated affiliated entities and their respective shareholders. Terms contained in each set of contractual arrangements with the consolidated affiliated entities and their respective shareholders are substantially similar. Despite the lack of legal majority ownership, our Cayman Island holding company is considered the primary beneficiary of the consolidated affiliated entities and consolidates the consolidated affiliated entities and their subsidiaries as required by Accounting Standards Codification (“ASC”) topic 810, Consolidation. Accordingly, we treat the consolidated affiliated entities as the consolidated entities under the accounting principles generally accepted in the United States, or U.S. GAAP, and we consolidate the financial results of the consolidated affiliated entities in the consolidated financial statements in accordance with U.S. GAAP. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the Consolidated Affiliated Entities and Their Respective Shareholders.”

However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the consolidated affiliated entities and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the mainland China legal system may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to whether contractual arrangements would be judged to form effective control over the relevant consolidated affiliated entities through the contractual arrangements, or how contractual arrangements in the context of a consolidated affiliated entity should be interpreted or enforced by the mainland China courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the consolidated affiliated entity contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the consolidated affiliated entities, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the consolidated affiliated entities and their respective shareholders for our operations in mainland China, which may not be as effective in providing operational control as direct ownership” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the consolidated affiliated entities may have potential conflicts of interest with us, which may materially and adversely affect our business.”

 

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There are also substantial uncertainties regarding the interpretation and application of current and future mainland China laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the consolidated affiliated entities and their nominee shareholders. It is uncertain whether any new mainland China laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of the consolidated affiliated entities is found to be in violation of any existing or future mainland China laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant mainland China regulatory authorities would have broad discretion to take action in dealing with such violations or failures. If the mainland China government deems that our contractual arrangements with the consolidated affiliated entities do not comply with mainland China regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Since mainland China administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. Our Cayman Islands holding company, our mainland China subsidiaries and consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the consolidated affiliated entities and, consequently, significantly affect the financial performance of the consolidated affiliated entities and our company as a whole. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the mainland China government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—We face uncertainties with respect to the implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

Our corporate structure is subject to risks associated with our contractual arrangements with the consolidated affiliated entities. The company and its investors may never have a direct ownership interest in the businesses that are conducted by the consolidated affiliated entities. Uncertainties in the mainland China legal system could limit our ability to enforce these contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the mainland China government finds that the agreements that establish the structure for operating our business in mainland China do not comply with mainland China laws and regulations, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the consolidated affiliated entities could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in the consolidated affiliated entities being deconsolidated. The majority of our assets, including the necessary licenses to conduct business in mainland China, are held by the consolidated affiliated entities. A significant part of our revenues are generated by the consolidated affiliated entities. An event that results in the deconsolidation of the consolidated affiliated entities would have a material effect on our operations and result in the value of the securities of our company diminish substantially or even become worthless. Our company, our mainland China subsidiaries and consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the consolidated affiliated entities and, consequently, significantly affect the financial performance of the consolidated affiliated entities and our company as a whole. Hello Group Inc. may not be able to repay its indebtedness, and the Class A ordinary shares or ADSs of our company may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets of our mainland China subsidiaries and consolidated affiliated entities that conduct all or substantially all of our operations. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

Other Risks related to Our Mainland China Operations

We face various risks and uncertainties related to doing business in mainland China. Our business operations are primarily conducted in mainland China, and we are subject to complex and evolving mainland China laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability to conduct certain businesses, accept foreign investments or financing, or list on a United States exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks related to doing business in mainland China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China.”

Mainland China government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, mainland China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—The mainland China government’s significant oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs.”

 

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Risks and uncertainties arising from the legal system in mainland China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in mainland China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China— Uncertainties in the interpretation and enforcement of mainland China laws and regulations could limit the legal protections available to you and us.”

The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board (United States), or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of the annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” And “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Cash Flow through Our Organization

Hello Group Inc. is a holding company with no operations of its own. We conduct our operations primarily through our mainland China subsidiaries, the consolidated affiliated entities and their subsidiaries in mainland China. As a result, Hello Group Inc.’s ability to pay dividends depends upon dividends paid by our mainland China subsidiaries. If our existing mainland China subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, current mainland China regulations permit our mainland China subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with mainland China accounting standards and regulations. Furthermore, each of our mainland China subsidiaries and the consolidated affiliated entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entities in mainland China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. These reserves are not distributable as cash dividends. For more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.” Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings.

 

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Under mainland China laws and regulations, our mainland China subsidiaries and consolidated affiliated entities are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of mainland China is also subject to examination by the banks designated by State Administration of Foreign Exchange, or SAFE. The amounts restricted include the paid-up capital and the statutory reserve funds of our mainland China subsidiaries and the net assets of the consolidated affiliated entities in which we have no legal ownership, totaling RMB1.5 billion, RMB1.5 billion and RMB1.5 billion (US$0.2 billion) as of December 31, 2020, 2021 and 2022, respectively. For risks relating to the fund flows of our operations in mainland China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.”

For the years ended December 31, 2020, 2021 and 2022, the Company declared and distributed cash dividends with amount of US$158.6 million, US$132.0 million and US$127.3 million to its investors, respectively, which was funded by surplus cash on our balance sheet.

For the years ended December 31, 2020, 2021 and 2022, Beijing Momo IT declared and distributed dividends with amount of RMB2,200.0 million, RMB1,300.0 million and RMB3,600.0 million (US$522.0 million), respectively, to its offshore parent company, Momo HK. Withholding taxes of RMB220.0 million, RMB130.0 million and RMB360.0 million (US$52.2 million) in connection with the dividends were fully paid during the years ended December 31, 2020, 2021 and 2022, respectively.

Under mainland China law, Hello Group Inc. may provide funding to our mainland China subsidiaries only through capital contributions or loans, and to the consolidated affiliated entities only through loans, subject to satisfaction of applicable government registration and approval requirements. Hello Group Inc., its subsidiaries and the consolidated affiliated entities may also transfer cash through intra-group transactions.

For the years ended December 31, 2020, 2021 and 2022, Hello Group Inc. provided loans with principal amount of RMB118.2 million, RMB820.9 million and RMB6.6 million (US$1.0 million), respectively, to its subsidiaries, and there was no repayment from the subsidiaries to Hello Group Inc.

For the years ended December 31, 2020, 2021 and 2022, Hello Group Inc. provided capital contributions with the amount of RMB142,000.0, RMB nil and RMB nil, respectively, to its subsidiaries.

For the years ended December 31, 2020, 2021 and 2022, the subsidiaries of Hello Group Inc. did not provide loans to Hello Group Inc., and there was no repayment from Hello Group Inc. to its subsidiaries.

For the years ended December 31, 2020, 2021 and 2022, subsidiaries of Hello Group Inc. provided loans with principal amount of RMB nil, RMB799.8 million and RMB nil, respectively, to the consolidated affiliated entities and there was no repayment from the consolidated affiliated entities to our subsidiaries.

For the years ended December 31, 2020, 2021 and 2022, the consolidated affiliated entities provided loans with principal amount of RMB71.9 million, RMB nil and RMB1,232.9 million (US$178.7 million), respectively, to our mainland China subsidiaries and there was no repayment from our mainland China subsidiaries to the consolidated affiliated entities.

The consolidated affiliated entities may transfer cash to the subsidiaries of Hello Group Inc. by paying service fees and license fees pursuant to certain contractual arrangements among them, and we intend to settle the services fees and license fees through such contractual arrangements going forward. For the years ended December 31, 2020, 2021 and 2022, subsidiaries of Hello Group Inc. received license fee, technical service fees and non-technical services fees with amount of RMB6,317.8 million, RMB5,616.2 million and RMB4,369.7 million (US$633.6 million), respectively, from the consolidated affiliated entities.

For the years ended December 31, 2020, 2021 and 2022, cash paid by the consolidated affiliated entities to the subsidiaries of Hello Group Inc. for other operation service fees were RMB23.0 million, RMB64.5 million and RMB49.4 million (US$7.2 million), respectively. For the years ended December 31, 2020, 2021 and 2022, cash paid by the subsidiaries of Hello Group Inc. to consolidated affiliated entities for other operation service fees were RMB12.0 million, RMB nil and RMB nil, respectively.

 

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Our mainland China subsidiaries may charge the consolidated affiliated entities for services provided to the consolidated affiliated entities. These service fees shall be recognized as expenses of the consolidated affiliated entities, with a corresponding amount as service income by our mainland China subsidiaries and eliminate in consolidation. For income tax purposes, our mainland China subsidiaries and the consolidated affiliated entities file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the consolidated affiliated entities and as income by our mainland China subsidiaries and are tax neutral.

Permissions Required from the Mainland China Authorities for Our Operations

We conduct our business primarily through our subsidiaries and consolidated affiliated entities in mainland China. Our operations in mainland China are governed by mainland China laws and regulations. As of the date of this annual report, our mainland China subsidiaries, consolidated affiliated entities and their subsidiaries have obtained the requisite licenses and permits from the mainland China government authorities that are material for the business operations of our holding company, the consolidated affiliated entities in mainland China, including, among others, the Value-added Telecommunications Business Operation License for information services via internet, or ICP License, and the Internet Culture Operation License and the Internet Audio/Video Program Transmission License. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future, and may not be able to maintain or renew our current licenses, permits, filings or approvals. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in mainland China, or if we are required to take compliance actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and adversely affected.”

Furthermore, under current mainland China laws, regulations and regulatory rules, we, our mainland China subsidiaries and the consolidated affiliated entities may be required to obtain permissions from or complete filings with the mainland China Securities Regulatory Commission, or the CSRC, and may be required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, in connection with any future offering and listing in an overseas market. As of the date of this annual report, we have not been subject to any cybersecurity review made by the CAC. If we fail to obtain the relevant approval or complete other review or filing procedures for any future offshore offering or listing, we may face sanctions by the CSRC or other mainland China regulatory authorities, which may include fines and penalties on our operations in mainland China, limitations on our operating privileges in mainland China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in mainland China, restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—The approval of or filing with the CSRC or other mainland China government authorities may be required in connection with our offshore offerings under mainland China law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—mainland China regulation of loans to, and direct investment in, mainland China entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using offshore funds to make loans to our mainland China subsidiaries and consolidated affiliated entities and their subsidiaries, or to make additional capital contributions to our mainland China subsidiaries.”

Financial Information Related to the Consolidated Affiliated Entities

The following table presents the condensed consolidating schedule of financial position for Hello Group Inc., its wholly-owned subsidiaries that are the primary beneficiaries of the consolidated affiliated entities under U.S. GAAP and their subsidiaries (the “Primary Beneficiaries of Consolidated Affiliated Entities and Their Subsidiaries”), its other subsidiaries that are not the Primary Beneficiaries of the consolidated affiliated entities (the “Other Subsidiaries”), and the consolidated affiliated entities and their subsidiaries as of the dates presented.

 

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Selected Condensed Consolidating Statements of Income Information

 

     For the Year Ended December 31, 2022  
     Hello Group
Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Third-party revenues

     —         549,310       1,865       12,152,997       —         12,704,172  

Inter-company revenues(1)

     —         —         4,134,173       —         (4,134,173     —    

Total costs and expenses

     (237,702     (539,969     (2,906,256     (11,547,507     4,134,173       (11,097,261

Income (loss) from subsidiaries and VIEs(2)

     1,616,391       1,768,959       463,592       —         (3,848,942     —    

Other income

     86,582       2,364       284,091       51,269       —         424,306  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense and share of loss on equity method investments

     1,465,271       1,780,664       1,977,465       656,759       (3,848,942     2,031,217  

Income tax expenses

     —         (164,290     (208,425     (189,566     —         (562,281

Share of income (loss) on equity method investments

     19,012       (1     (82     (7,856     —         11,073  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,484,283       1,616,373       1,768,958       459,337       (3,848,942     1,480,009  

Less: net loss attributable to non-controlling interests

     —         (18     —         (4,256     —         (4,274
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Hello Group’s shareholders

     1,484,283       1,616,391       1,768,958       463,593       (3,848,942     1,484,283  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the Year Ended December 31, 2021  
     Hello
Group Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Third-party revenues

     —         238,224       956       14,336,539       —         14,575,719  

Inter-company revenues(1)

     —         —         5,100,060       1,352       (5,101,412     —    

Total costs and expenses

     (248,609     (6,257,292     (2,025,730     (13,711,014     5,101,412       (17,141,233

(Loss) income from subsidiaries and VIEs(2)

     (2,629,002     3,424,401       587,892       —         (1,383,291     —    

Other (loss) income

     (36,876     240,061       84,452       182,813       —         470,450  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense and share of loss on equity method investments

     (2,914,487     (2,354,606     3,747,630       809,690       (1,383,291     (2,095,064

Income tax expenses

     —         (274,404     (323,224     (224,928     —         (822,556

Share of income (loss) on equity method investments

     779       —         —         (8,863     —         (8,084
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2,913,708     (2,629,010     3,424,406       575,899       (1,383,291     (2,925,704

Less: net loss attributable to non-controlling interests

     —         (14     —         (11,982     —         (11,996
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Hello Group’s shareholders

     (2,913,708     (2,628,996     3,424,406       587,881       (1,383,291     (2,913,708
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the Year Ended December 31, 2020  
     Hello Group
Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Third-party revenues

     —         121,370       127       14,902,691       —         15,024,188  

Inter-company revenues(1)

     —         —         6,257,010       6,580       (6,263,590     —    

Total costs and expenses

     (340,519     (448,435     (3,804,640     (14,391,526     6,263,590       (12,721,530

Income (loss) from subsidiaries and VIEs(2)

     2,467,172       2,975,491       501,180       —         (5,943,843     —    

Other (loss) income

     (23,169     267       366,969       251,809       —         595,876  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense and share of loss on equity method investments

     2,103,484       2,648,693       3,320,646       769,554       (5,943,843     2,898,534  

Income tax expenses

     —         (181,767     (345,155     (228,698     —         (755,620

Share of income (loss) on equity method investments

     —         233       —         (42,755     —         (42,522
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,103,484       2,467,159       2,975,491       498,101       (5,943,843     2,100,392  

Less: net loss attributable to non-controlling interests

     —         (13     —         (3,079     —         (3,092
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Hello Group’s shareholders

     2,103,484       2,467,172       2,975,491       501,180       (5,943,843     2,103,484  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

Selected Condensed Consolidating Balance Sheets Information

 

     As of December 31, 2022  
     Hello Group
Inc.
     Other
Subsidiaries
     Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
     Eliminating
Adjustments
    Consolidated
Totals
 
                                         
     (in RMB thousands)        

Cash and cash equivalents

     578,935        136,570        2,194,376       2,108,248        —         5,018,129  

Short-term deposits

     —          —          4,450,000       850,000        —         5,300,000  

Restricted cash

     —          —          —         97,706        —         97,706  

Short-term investment

     —          —          300,240       —          —         300,240  

Accounts receivable

     —          34,011        —         154,700        —         188,711  

Amount due from Group companies(3)

     686,429        —          236,695       631,607        (1,554,731     —    

Other current assets

     20,683        11,396        406,869       401,702        (20,889     819,761  

Long-term deposits

     —          —          2,600,000       —          —         2,600,000  

Investment in subsidiaries and VIEs(2)

     11,794,110        11,430,678        3,522,496       —          (26,747,284     —    

Long-term investments

     143,540        300,000        70,261       380,187        —         893,988  

Other non-current assets

     82,766        16        236,428       291,842        —         611,052  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

     13,306,463        11,912,671        14,017,365       4,915,992        (28,322,904     15,829,587  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Accounts payable

     —          25,010        82,970       509,042        —         617,022  

Deferred revenue

     —          15,711        (12     469,076        —         484,775  

Amount due to Group companies(3)

     —          1,554,731        —         —          (1,554,731     —    

Other current liabilities

     2,699,230        57,449        427,978       451,793        —         3,636,450  

Non-current liabilities

     22,644        94,449        9,550       34,059        —         160,702  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Liabilities

     2,721,874        1,747,350        520,486       1,463,970        (1,554,731     4,898,949  

Total shareholders’ equity

     10,584,589        10,165,321        13,496,879       3,452,022        (26,768,173     10,930,638  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

     13,306,463        11,912,671        14,017,365       4,915,992        (28,322,904     15,829,587  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

9


Table of Contents
     As of December 31, 2021  
     Hello Group
Inc.
     Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
     Consolidated
Affiliated
Entities and
Their
Subsidiaries
     Eliminating
Adjustments
    Consolidated
Totals
 
                                         
     (in RMB thousands)        

Cash and cash equivalents

     876,917        62,188       2,156,484        2,474,974        —         5,570,563  

Short-term deposits

     —          —         2,310,000        550,000        —         2,860,000  

Accounts receivable

     —          28,916       —          176,309        —         205,225  

Amount due from Group companies(3)

     1,523,429        —         689,195        —          (2,212,624     —    

Other current assets

     16,875        9,897       355,476        413,713        (20,889     775,072  

Long-term deposits

     —          —         6,450,000        750,000        —         7,200,000  

Investment in subsidiaries and VIEs(2)

     12,051,913        14,658,461       3,058,502        —          (29,768,876     —    

Long-term investments

     115,482        300,000       —          404,524        —         820,006  

Other non-current assets

     76,471        (5     362,406        241,500        —         680,372  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

     14,661,087        15,059,457       15,382,063        5,011,020        (32,002,389     18,111,238  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Accounts payable

     —          17,477       73,095        635,635        —         726,207  

Deferred revenue

     —          19,531       1,199        519,237        —         539,967  

Amount due to Group companies(3)

     —          1,792,937       —          419,687        (2,212,624     —    

Other current liabilities

     77,958        99,599       672,348        399,686        —         1,249,591  

Non-current liabilities

     4,588,608        311,583       46,590        63,095        —         5,009,876  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     4,666,566        2,241,127       793,232        2,037,340        (2,212,624     7,525,641  

Total shareholders’ equity

     9,994,521        12,818,330       14,588,831        2,973,680        (29,789,765     10,585,597  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

     14,661,087        15,059,457       15,382,063        5,011,020        (32,002,389     18,111,238  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

10


Table of Contents

Selected Condensed Consolidating Cash Flows Information

 

     For the Year Ended December 31, 2022  
     Hello Group
Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Net cash (used in) provided by operating activities(4)

     (61,675     (364,460     108,819       1,544,207       —         1,226,891  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans to Hello Group companies

     (6,636     —         —         (1,232,857     1,239,493       —    

Cash dividends received from subsidiaries

     3,075,912       3,600,000       —         —         (6,675,912     —    

Payment for short-term investments

     —         —         (300,000     —         —         (300,000

Purchase of short-term deposits

     —         —         (900,000     (800,000     —         (1,700,000

Cash received on maturity of short-term deposits

     —         —         4,860,000       550,000       —         5,410,000  

Purchase of long-term deposits

     —         —         (2,750,000     —         —         (2,750,000

Cash received on maturity of long-term deposits

     —         —         500,000       700,000       —         1,200,000  

Other investing activities

     —         —         (146,083     1,928       —         (144,155
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     3,069,276       3,600,000       1,263,917       (780,929     (5,436,419     1,715,845  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings under loan from Hello Group companies

     —         6,636       1,232,857       —         (1,239,493     —    

Dividends payment to Hello Group Inc.

     —         (3,075,912     (3,600,000     —         6,675,912       —    

Payment for redemption of convertible bonds

     (2,136,987     —         —         —         —         (2,136,987

Repurchase of ordinary shares

     (392,374     —         —         —         —         (392,374

Dividends payment to Hello Group’s shareholders

     (840,997     —         —         —         —         (840,997

Other financing activities

     (21,258     (40,943     —         —         —         (62,201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (3,391,616     (3,110,219     (2,367,143     —         5,436,419       (3,432,559
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the Year Ended December 31, 2021  
     Hello Group
Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Net cash provided by (used in) operating activities(4)

     25,346       (600,005     2,283,830       (149,973     —         1,559,198  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans to Hello Group companies

     (820,897     —         (799,794     —         1,620,691       —    

Capital injection to subsidiaries

     —         (32,293     —         —         32,293       —    

Cash dividends received from subsidiaries

     1,153,506       1,300,000       —         —         (2,453,506     —    

Purchase of short-term deposits

     (516,688     —         (3,910,000     (550,000     —         (4,976,688

Cash received on maturity of short-term deposits

     2,263,070       —         6,800,000       604,500       —         9,667,570  

Purchase of long-term deposits

     —         —         (1,850,000     —         —         (1,850,000

Other investing activities

     (115,052     (302,336     (72,745     199,593       —         (290,540
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     1,963,939       965,371       167,461       254,093       (800,522     2,550,342  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings under loan from Hello Group companies

     —         820,897       —         799,794       (1,620,691     —    

Capital injection from parent company

     —         —         32,293       —         (32,293     —    

Dividends payment to Hello Group Inc.

     —         (1,153,506     (1,300,000     —         2,453,506       —    

Repurchase of ordinary shares

     (862,865     —         —         —         —         (862,865

Dividends payment to Hello Group’s shareholders

     (852,743     —         —         —         —         (852,743

Other financing activities

     (12,181     (59,120     —         —         —         (71,301
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (1,727,789     (391,729     (1,267,707     799,794       800,522       (1,786,909
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

11


Table of Contents
     For the Year Ended December 31, 2020  
     Hello Group
Inc.
    Other
Subsidiaries
    Primary
Beneficiaries
of
Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Consolidated
Affiliated
Entities and
Their
Subsidiaries
    Eliminating
Adjustments
    Consolidated
Totals
 
                                      
     (in RMB thousands)        

Net cash (used in) provided by operating activities(4)

     (70,022     (46,946     2,456,429       741,428       —         3,080,889  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans to Hello Group companies

     (118,159     —         —         (71,860     190,019       —    

Capital injection to subsidiaries

     (142     —         (1,000     —         1,142       —    

Cash dividends received from subsidiaries

     1,976,631       2,200,000       —         —         (4,176,631     —    

Purchase of short-term deposits

     (1,890,665     —         (12,444,500     (614,500     —         (14,949,665

Cash received on maturity of short-term deposits

     2,272,659       —         16,494,500       810,000       —         19,577,159  

Purchase of long-term deposits

     —         —         (4,300,000     (950,000     —         (5,250,000

Other investing activities

     —         —         (122,511     (3,449     —         (125,960
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     2,240,324       2,200,000       (373,511     (829,809     (3,985,470     (748,466
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Borrowings under loan from Hello Group companies

     —         118,159       71,860       —         (190,019     —    

Capital injection from parent company

     —         142       —         1,000       (1,142     —    

Dividends payment to Hello Group Inc.

     —         (1,976,631     (2,200,000     —         4,176,631       —    

Repurchase of ordinary shares

     (330,207     —         —         —         —         (330,207

Dividends payment to Hello Group’s shareholders

     (1,123,983     —         —         —         —         (1,123,983

Other financing activities

     (18,128     (25,744     (88     —         —         (43,960
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (1,472,318     (1,884,074     (2,128,228     1,000       3,985,470       (1,498,150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Notes:

(1)

Represents the elimination of the intercompany service charge at the consolidation level.

(2)

Represents the elimination of the investment among Hello Group Inc., other subsidiaries, the primary beneficiaries and consolidated affiliated entities and their subsidiaries.

(3)

Represents the elimination of intercompany balances among Hello Group Inc., other subsidiaries, the primary beneficiaries and consolidated affiliated entities and their subsidiaries.

(4)

For the years ended December 31, 2020, 2021 and 2022, cash paid by the consolidated affiliated entities to the primary beneficiaries for license fee, technical service fees and non-technical service fees were RMB6,317.8 million, RMB5,616.2 million and RMB4,369.7 million (US$633.6 million), respectively. For the years ended December 31, 2020, 2021 and 2022, cash paid by the consolidated affiliated entities to the primary beneficiaries for other operation service fee were RMB23.0 million, RMB64.5 million and RMB49.4 million (US$7.2 million), respectively. For the years ended December 31, 2020, 2021 and 2022, cash paid by the primary beneficiaries to consolidated affiliated entities for other operation service fees were RMB12.0 million, RMB nil and RMB nil, respectively.

 

A.

Selected Consolidated Financial Data

The following table presents the selected consolidated financial information of our company. The selected consolidated statements of comprehensive income data for the years ended December 31, 2020, 2021 and 2022 and the selected consolidated balance sheets data as of December 31, 2021 and 2022 have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1.

The selected consolidated statements of comprehensive income data for the years ended December 31, 2018 and 2019 and the selected consolidated balance sheets data as of December 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements not included in this annual report. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future period. You should read the following selected financial data in conjunction with the consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.

 

12


Table of Contents
     Year Ended December 31,  
     2018
RMB
    2019
RMB
    2020
RMB
    2021
RMB
    2022
RMB
    2022
US$
 
                                      
     (in thousands, except share and share-related data)  

Selected Data of Consolidated Statements of Operations

            

Net Revenues(1)

     13,408,421       17,015,089       15,024,188       14,575,719       12,704,172       1,841,932  

Cost and expenses(2)

            

Cost of revenues

     (7,182,897     (8,492,096     (7,976,781     (8,383,431     (7,421,419     (1,076,005

Research and development expenses

     (760,644     (1,095,031     (1,167,677     (1,131,781     (1,006,219     (145,888

Sales and marketing expenses

     (1,812,262     (2,690,824     (2,813,922     (2,604,309     (2,073,617     (300,646

General and administrative expenses

     (640,023     (1,527,282     (763,150     (624,700     (596,006     (86,413

Impairment loss on goodwill and intangible assets

     —         —         —         (4,397,012     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and expenses

     (10,395,826     (13,805,233     (12,721,530     (17,141,233     (11,097,261     (1,608,952
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating income

     253,697       344,843       228,777       175,947       20,632       2,991  

Income (loss) from operations

     3,266,292       3,554,699       2,531,435       (2,389,567     1,627,543       235,971  

Interest income

     272,946       407,542       444,471       384,279       368,879       53,482  

Interest expense

     (56,503     (78,611     (78,872     (73,776     (83,530     (12,111

Other gain or loss, net

     (43,200     (15,711     1,500       (16,000     118,325       17,156  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax and share of income on equity method investments

     3,439,535       3,867,919       2,898,534       (2,095,064     2,031,217       294,498  

Income tax expenses

     (699,648     (883,801     (755,620     (822,556     (562,281     (81,523
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before share of income (loss) on equity method investments

     2,739,887       2,984,118       2,142,914       (2,917,620     1,468,936       212,975  

Share of income (loss) on equity method investments

     48,660       (23,350     (42,522     (8,084     11,073       1,605  

Net income (loss)

     2,788,547       2,960,768       2,100,392       (2,925,704     1,480,009       214,580  

Less: net loss attributable to non-controlling interest

     (27,228     (10,122     (3,092     (11,996     (4,274     (620
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Hello Group Inc.

     2,815,775       2,970,890       2,103,484       (2,913,708     1,484,283       215,200  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Year Ended December 31,  
     2018
RMB
     2019
RMB
     2020
RMB
     2021
RMB
    2022
RMB
     2022
US$
 
                                          
     (in thousands, except share and share-related data)  

Net income attributable to ordinary shareholders

     2,815,775        2,970,890        2,103,484        (2,913,708     1,484,283        215,200  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) per share attributable to ordinary shareholders

                

Basic

     6.92        7.15        5.05        (7.20     3.80        0.55  

Diluted

     6.59        6.76        4.83        (7.20     3.65        0.53  

Weighted average shares used in computing net income per ordinary share

                

Basic

     407,009,875        415,316,627        416,914,898        404,701,910       390,176,367        390,176,367  

Diluted

     433,083,643        451,206,091        452,081,642        404,701,910       423,810,279        423,810,279  

 

(1)

Components of our net revenues are presented in the following table:

 

 

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     Year Ended December 31,  
     2018
RMB
     2019
RMB
     2020
RMB
     2021
RMB
     2022
RMB
     2022
US$
 
                                           
     (in thousands)  

Live video service

     10,709,491        12,448,131        9,637,579        8,378,945        6,510,460        943,928  

Value-added service

     1,883,150        4,105,963        5,112,182        5,971,792        6,007,018        870,936  

Mobile marketing

     500,321        331,822        198,197        159,010        124,956        18,117  

Mobile games

     130,392        92,451        39,564        47,712        55,732        8,080  

Other services

     185,067        36,722        36,666        18,260        6,006        871  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     13,408,421        17,015,089        15,024,188        14,575,719        12,704,172        1,841,932  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

Share-based compensation expenses were allocated in cost and expenses as follows:

 

     Year Ended December 31,  
     2018
RMB
     2019
RMB
     2020
RMB
     2021
RMB
     2022
RMB
     2022
US$
 
                                           
     (in thousands)  

Cost of revenues

     21,661        23,972        18,449        17,941        14,195        2,058  

Research and development expenses

     152,806        175,053        175,870        139,571        88,797        12,874  

Sales and marketing expenses

     142,927        196,311        158,902        70,821        38,432        5,572  

General and administrative expenses

     263,419        1,012,896        325,465        247,438        260,060        37,705  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     580,813        1,408,232        678,686        475,771        401,484        58,209  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents our selected consolidated balance sheet data as of December 31, 2018, 2019, 2020, 2021 and 2022.

 

     As of December 31,  
     2018
RMB
     2019
RMB
     2020
RMB
     2021
RMB
     2022
RMB
     2022
US$
 
                                           
     (in thousands)  

Selected Consolidated Balance Sheet Data:

                 

Cash and cash equivalents

     2,468,034        2,612,743        3,363,942        5,570,563        5,018,129        727,560  

Total assets

     18,965,538        22,483,681        23,220,556        18,111,238        15,829,587        2,295,075  

Total liabilities

     7,942,679        8,764,899        8,385,227        7,525,641        4,898,949        710,281  

Total equity

     11,022,859        13,718,782        14,835,329        10,585,597        10,930,638        1,584,794  

 

B.

Capitalization and Indebtedness

Not applicable.

 

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

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D.

Risk Factors

Summary of Risk Factors

An investment in our ADSs or Class A ordinary shares involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in Item 3. Key Information—D. Risk Factors.

Risks Related to Our Business and Industry

 

   

If we fail to retain our existing users, further grow our user base, or if user engagement on our platform declines, our business and operating results may be materially and adversely affected.;

 

   

We cannot guarantee that the monetization strategies we have adopted will be successfully implemented or generate sustainable revenues and profits;

 

   

We operate in a highly dynamic market, which makes it difficult to evaluate our future prospects;

 

   

We currently generate a substantial majority of our revenues from our live video service. We may not be able to continue to grow or continue to achieve profitability from such service;

 

   

We may not be able to successfully maintain and increase the number of paying users for the various services we offer on our platform;

 

   

Our business is dependent on the strength of our brands and market perception of our brand;

 

   

Our business is subject to complex and evolving Chinese and international laws and regulations regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in user base or engagement, or otherwise harm our business;

 

   

Content posted or displayed on our social networking platform, including the live video shows hosted by us or our users, has been and may again be found objectionable by mainland China regulatory authorities and may subject us to penalties and other serious consequences;

Risks Related to Our Corporate Structure

 

   

We are a Cayman Islands holding company with no equity ownership in the consolidated affiliated entities and we conduct our operations in mainland China through (i) our mainland China subsidiaries and (ii) the consolidated affiliated entities with which we have maintained contractual arrangements and their subsidiaries. Investors in our Class A ordinary shares or the ADSs thus are not purchasing equity interest in the consolidated affiliated entities in mainland China but instead are purchasing equity interest in a Cayman Islands holding company. If the mainland China government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company in the Cayman Islands, the consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the consolidated affiliated entities and, consequently, significantly affect the financial performance of the consolidated affiliated entities and our company as a group;

 

   

We rely on contractual arrangements with the consolidated affiliated entities and their respective shareholders for our operations in mainland China, which may not be as effective in providing operational control as direct ownership; and

 

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We may lose the ability to use and enjoy assets held by the consolidated affiliated entities that are important to the operation of our business if the consolidated affiliated entities declare bankruptcy or become subject to a dissolution or liquidation proceeding.

Risks Related to Doing Business in mainland China

 

   

The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections;

 

   

Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment;

 

   

The mainland China government’s significant oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs.

 

   

Uncertainties in the interpretation and enforcement of mainland China laws and regulations could limit the legal protections available to you and us;

 

   

We face uncertainties with respect to the implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations;

 

   

Mainland China’s M&A Rules and certain other mainland China regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in mainland China; and

 

   

The approval of or filing with the CSRC or other mainland China government authorities may be required in connection with our offshore offerings under mainland China law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.

Risks Related to our ADSs

 

   

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors;

 

   

We believe that we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year ended December 31, 2022, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or ordinary shares;

 

   

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline; and

 

   

Substantial future sales or the expectation of substantial sales of our ADSs in the public market could cause the price of our ADSs to decline.

Risks Related to Our Business and Industry

If we fail to retain our existing users, further grow our user base, or if user engagement on our platform declines, our business and operating results may be materially and adversely affected.

The size of our user base and the level of our user engagement are critical to our success. There have been times when our user base failed to grow or even declined. There is no guarantee that our MAUs will grow at a desirable rate or at all. Growing our user base and increasing the overall level of user engagement on our social networking platform and in particular our live video service, which currently contributes a majority of our revenues, are critical to our business. If our user growth rate slows down or becomes negative, our success will become increasingly dependent on our ability to retain existing users and enhance user engagement on our platform. If our Momo and Tantan mobile applications are no longer one of the social networking tools that people frequently use, or if people do not perceive our services to be interesting or useful, we may not be able to attract users or increase the frequency or degree of their engagement. A number of user-oriented instant communication products that achieved early popularity have since seen the size of their user base or level of user engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or user engagement level in the future. A number of factors could negatively affect user retention, growth and engagement, including if:

 

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we are unable to attract new users to our platform or retain existing ones;

 

   

we fail to introduce new and improved services, or if we introduce services that are not favorably received by users;

 

   

we are unable to combat spam on or inappropriate or abusive use of our platform, which may lead to negative public perception of us and our brand;

 

   

technical or other problems prevent us from delivering our services in a rapid and reliable manner or otherwise adversely affect the user experience;

 

   

we suffer from negative publicity, fail to maintain our brand or if our reputation is damaged;

 

   

we fail to address user concerns related to privacy and communication, safety, security or other factors;

 

   

there are adverse changes in our services that are mandated by, or that we elect to make to address, legislation, regulations or government policies; and

 

   

the growth of the number of smartphone users in mainland China stalls.

If we are unable to grow our user base or enhance user engagement, our platform will become less attractive to our users, customers and platform partners, which would have a material and adverse impact on our business and operating results.

We cannot guarantee that the monetization strategies we have adopted will be successfully implemented or generate sustainable revenues and profits.

As the online social networking industry in mainland China is relatively young, prevailing monetization models similar to ours have yet to be proven to be sustainable, and it may be more difficult to predict user and customer behaviors and demands compared to other established industries. Our monetization model has been evolving. We began to generate revenues in the second half of 2013 primarily through membership subscriptions and also game publishing and other services, but we continue to explore and implement new monetization models. While membership subscriptions contributed a majority of our revenues prior to 2016, live video service, which we launched in September 2015 and adopted a virtual items-based revenue model, has replaced membership subscription as our major source of revenues in after 2016. The services that we currently provide, including live video service, value-added service (comprising membership subscriptions and virtual gift service), mobile marketing services, mobile games, and other services, contributed approximately 51.2%, 47.3%, 1.0%, 0.4% and 0.1%, respectively, of our net revenues in 2022. Apart from live video services, from time to time we have launched new services on our platform, explored new monetization models and broadened our revenue sources, and we expect to continue to do so. For example, in the fourth quarter of 2016, we launched a virtual gift service which allows our users to purchase and send virtual gifts to other users outside of live video service. In 2018, we co-produced a TV variety show. In 2018, Tantan launched membership subscriptions and some other premium features on a pay-per-use basis. In 2019, Tantan introduced Quick Chat, which has services based on both the subscription model and the pay-per-use model. In 2020, Tantan launched its live video services with a virtual item-based revenue model. Tantan is also experimenting other monetization models in order to improve its revenues and profits. In 2021, Tantan launched a virtual gift-based Chatroom experience as part of its value-added service. However, there is no assurance that any of these and other new monetization models would be profitable or sustainable. If our strategic initiatives do not enhance our ability to monetize our existing services or enable us to develop new approaches to monetization, we may not be able to maintain or increase our revenues and profits or recover any associated costs.

 

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We may in the future introduce new services to further diversify our revenue streams, including services with which we have little or no prior development or operating experience. If these new or enhanced services fail to engage users, customers or platform partners, we may fail to attract or retain users or to generate sufficient revenues to justify our investments, and our business and operating results may suffer as a result.

We operate in a highly dynamic market, which makes it difficult to evaluate our future prospects.

The market for social networking platforms is relatively new, highly dynamic and may not develop as expected. Our users, customers and platform partners may not fully understand the value of our services, and potential new users, customers and platform partners may have difficulty distinguishing our services from those of our competitors. Convincing potential users, customers and platform partners of the value of our services is critical to the growth of our user base and the success of our business.

We launched our Momo mobile application in August 2011 and acquired our Tantan mobile application in May 2018. The evolving monetization strategies make it difficult to assess our future prospects or forecast our future results. You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving market. These risks and challenges include our ability to, among other things:

 

   

expand our paying user base for the various services offered by our platforms, including live video service, value-added service, mobile games and others;

 

   

develop and deploy diversified and distinguishable products, features and services for our users, customers and platform partners;

 

   

convince customers of the benefits of our marketing services compared to alternative forms of marketing, and continue to increase the efficiency of our mobile marketing solutions and expand our network of marketers;

 

   

develop or implement strategic initiatives to monetize our platforms;

 

   

develop beneficial relationship with key strategic partners, talented broadcasters and talent agencies for our live video service;

 

   

develop a reliable, scalable, secure, high-performance technology infrastructure that can efficiently handle increased usage;

 

   

successfully compete with other companies, some of which have substantially greater resources and market power than us, that are currently in, or may in the future enter, our industry, or duplicate the features of our services;

 

   

attract, retain and motivate talented employees; and

 

   

defend ourselves against litigation, regulatory, intellectual property, privacy or other claims.

If we fail to educate potential users, customers and platform partners about the value of our products and services, if the market for our platforms does not develop as we expect or if we fail to address the needs of this dynamic market, our business will be harmed. Failure to adequately address these or other risks and challenges could harm our business and cause our operating results to suffer.

We currently generate a substantial majority of our revenues from our live video service. We may not be able to continue to grow or continue to achieve profitability from such service.

In September 2015, Momo launched our live video service with a virtual items-based revenue model, whereby users can enjoy live performances and interact with the broadcasters for free, and have the option of purchasing in-show virtual items. In 2020, Tantan launched its live video services and contributed to our live video service revenue. While we had initial success with this service, which contributed RMB10,709.5 million and RMB12,448.1 million to, or 79.9% and 73.2% of, our net revenues in 2018 and 2019, respectively, this contribution dropped to RMB9,637.6 million, RMB8,378.9 million and RMB6,510.5 million (US$943.9 million) in 2020, 2021 and 2022, respectively, or 64.1%, 57.5% and 51.2% of our net revenues, respectively. While we plan to continue to invest significantly in expanding our live video service, we may not be able to continue to achieve our historical levels of profitability based on the virtual items-based revenue model. In addition, popular broadcasters or talent agencies may cease to use our service and we may be unable to attract new talents that can attract users or cause such users to increase the amount of time spent on our platform or the amount of money spent on in-show virtual items.

 

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Although we believe we have a large and diversified pool of talented broadcasters, talent agencies as well as paying users and have entered into multi-year exclusivity agreements with popular broadcasters and talent agencies, if a large number of our broadcasters, particularly popular broadcasters, were to leave our platform for competing platforms at the same time, if we are unable to negotiate acceptable business terms with popular broadcasters or talent agencies, or if a large number of our users decided to use live video services provided by our competitors, we might not be able to expand the user base of our live video service and achieve or maintain the level of revenues and profitability as we currently anticipate. Broadcasters provide live video service on our platform as an individual or as a member of a talent agency. The talent agencies recruit, train and retain the broadcasters. We are committed to provide strong support and resources to broadcasters and talent agencies to offer high-quality content. We are also committed to closely cooperate and develop long-term relationship with broadcasters and talent agencies. Under our current arrangements with our broadcasters and talent agencies, we share with them a portion of the revenues we derive from the sales of in-show virtual items in our live video service. Payments of revenue sharing to broadcasters and talent agencies for our live video service constitute a major portion of our cost of revenues. If we are required to share a larger portion of our revenues with the broadcasters and talent agencies for competition purpose, our results of operations may be adversely impacted.

We may not be able to successfully maintain and increase the number of paying users for the various services we offer on our platform.

Our future growth depends on our ability to convert our users into paying users of our services, including live video service, value-added service, mobile games and other services, and our ability to retain our existing paying users. However, we cannot assure you that we will be successful in any of the foregoing initiatives, nor can we assure you that we will be able to successfully compete with current and new competitors on attracting paying users. Our efforts to provide greater incentives for our users to pay for our various services may not continue to succeed. Our paying users may discontinue their spending on our services because they may no longer serve our paying users’ needs, or simply because the interests and preferences of these users shift. If we cannot successfully maintain or increase the number of our paying users, our business, results of operations and prospects will be adversely affected.

Our business is dependent on the strength of our brands and market perception of our brand.

In mainland China, we market our services primarily under the brands “陌陌” or “Momo” and “探探” or “Tantan.” Our business and financial performance are highly dependent on the strength and the market perception of our brands and services. A well-recognized brand is critical to increasing our user base and, in turn, facilitating our efforts to monetize our services and enhancing our attractiveness to customers. From time to time, we conduct marketing activities across various media to enhance our brands and to guide public perception of our brands and services. In order to create and maintain brand awareness and brand loyalty, to influence public perception and to retain existing and attract new mobile users, customers and platform partners, we may need to substantially increase our marketing expenditures. We cannot assure you, however, that these activities will be successful or that we will be able to achieve the brand promotion effect we expect.

In addition, people may not understand the value of our platform, and there may be a misperception that Momo is used solely as a tool to randomly meet or date strangers. Convincing potential new users, customers and platform partners of the value of our services is critical to increasing the number of our users, customers and platform partners and to the success of our business.

 

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Our business is subject to complex and evolving Chinese and international laws and regulations regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in user base or engagement, or otherwise harm our business.

Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:

 

   

protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees;

 

   

addressing concerns related to privacy and sharing, safety, security and other factors; and

 

   

complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data.

In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators, both domestically and globally, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.

The mainland China regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different mainland China regulatory bodies, including the Standing Committee of the National People’s Congress, or the NPC, the Ministry of Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security, or the MPS, and the State Administration for Market Regulation, or the SAMR, have enforced data privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Internet Content and Information Security” and “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Privacy Protection.” The following are examples of certain recent mainland China regulatory activities in this area:

Data Security

 

   

In June 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In July 2021, the State Council promulgated the Regulations on Security and Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance, public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services, and operators of network platforms conducting data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. Given that the Cybersecurity Review Measures was recently promulgated, there are substantial uncertainties as to its interpretation, application, and enforcement. On November 14, 2021, the CAC published a draft of the Administrative Regulations for Internet Data Security, or the Draft Data Security Regulations, for public comments. The Draft Data Security Regulations provides that data processors conducting the following activities must apply for cybersecurity review: (i) merger, reorganization, or division of internet platform operators that have acquired a large number of data resources related to national security, economic development, or public interests, which affects or may affect national security; (ii) a foreign listing by a data processor processing personal information of over one million users; (iii) a listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. There have been no further clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may affect national security.” The period for which the CAC solicited comments on this draft ended on December 13, 2021, but there is no timetable as to when the draft regulations will be enacted. As such, substantial uncertainties exist with respect to the enactment timetable, final content, interpretation, and implementation of the draft regulations, including the standards for determining activities that “affects or may affect national security.” As the Draft Data Security Regulations has not been adopted and it remains unclear whether the formal version adopted in the future will have any further material changes, it is uncertain how the draft regulations will be enacted, interpreted or implemented and how they will affect us.

 

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On July 7, 2022, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer, effective from September 1, 2022, or the Security Assessment Measures, to regulate outbound data transfer activities, protect the information rights and interests of individuals, safeguard national security and social public interests, and promote the safe and free cross-border flow of data. Furthermore, the Security Assessment Measures provide that the security assessment for outbound data transfers shall follow principles of the combination of pre-assessment and continuous supervision and the combination of risk self-assessment and security assessment, so as to prevent the security risks arising from outbound data transfers and ensure the orderly and free flow of data according to the law. For outbound data transfers activities that have been carried out prior to the implementation of the Security Assessment Measures, and not in compliance with the Security Assessment Measures, rectification shall be completed within six months from the implementation of the Security Assessment Measures. The Security Assessment Measures further provide that a data processor intending to implement outbound data transfer under the following circumstances shall apply for security assessment to the CAC: (a) a data processor intending to provide critical data abroad; (b) a critical information infrastructure operator or a data processor processing the personal information of more than one million individuals intending to provide personal information abroad; (c) a data processor, who has cumulatively provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals abroad since January 1st of the previous year, intending to provide personal information abroad; and (d) other circumstances prescribed by the CAC for which application for security assessment for outbound data transfers is required. Furthermore, on August 31, 2022, the CAC promulgated the Guidelines for Application for the Outbound Data Transfer Security Assessment, which provides that activities of outbound data transfer shall also include: (i) overseas transmission and storage by data processors of data collected and generated during mainland China domestic operations; (ii) granting the access to, visiting, acquiring, downloading or exporting the data collected and generated by data processors and stored in mainland China to overseas institutions, organizations or individuals; and (iii) other activities as specified by the CAC.

 

   

On December 8, 2022, the MIIT released the Administrative Measures for Data Security in Industry and Information Technology Sectors (Trial), or the MIIT Measures, which came into effect on January 1, 2023. The measures apply to data management in certain industries, including telecommunication sectors. The MIIT Measures set out three categories of data: ordinary data, important data and core data. The processing of important data and core data is subject to certain filing and reporting obligations. Since the categories of important data and core data have not been released, it is uncertain how the measures will be interpreted and implemented.

 

   

On December 2, 2022, the Central Committee of the Communist Party of China and the State Council jointly issued Opinions on Establishing Fundamental System to Better Play the Role of Data, which provides that, among others, the governance system of data shall be improved, and security of development shall be ensured. The opinion further requires that the administrator shall coordinate development and security, implement the comprehensive national security concept, strengthen the development of a data security protection system, and ensure security throughout the entire process of data supply, transaction, and use.

 

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Personal Information and Privacy

 

   

The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective on February 7, 2021, prohibits collection of user information through coercive means by online platforms operators.

 

   

In August 2021, the Standing Committee of the NPC promulgated the PRC Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy policies from time to time to meet the latest regulatory requirements of mainland China government authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the PRC Personal Information Protection Law elevates the protection requirements for personal information processing, and many specific requirements of this law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations.

Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators. If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for protection and management of such data. The Cybersecurity Review Measures and the Draft Data Security Regulations remain unclear on whether the relevant requirements will be applicable to companies that are already listed in the United States, such as us, if we were to pursue another listing outside of the mainland China. We cannot predict the impact of the Cybersecurity Review Measures and the Draft Data Security Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Cybersecurity Review Measures and the enacted version of the Draft Data Security Regulations mandate clearance of cybersecurity review and other specific actions to be taken by issuers like us, we face uncertainties as to whether these additional procedures can be completed by us timely, or at all, which may delay or disallow our future listings (should we decide to pursue them), subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our apps from the relevant application stores, and materially and adversely affect our business and results of operations. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis.

In general, compliance with the existing mainland China laws and regulations, as well as additional laws and regulations that mainland China regulatory bodies may enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, and subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice.

Our practices may become inconsistent with new laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux. If so, in addition to the possibility of fines, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and operating results. For example, the European Union General Data Protection Regulation (“GDPR”), which came into effect on May 25, 2018, includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new requirements applicable to the processing of personal data, affords new data protection rights to individuals and imposes penalties for serious data breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our platform and input protected information, we may become subject to provisions of the GDPR. Additionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the U.S. Known as the California Consumer Privacy Act, or CCPA, it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosures to California consumers, and provides such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. With some other conditions, the CCPA requires companies “doing business in California” to follow the CCPA. However, the phrase “doing business in California” is not defined in the CCPA. With reference to the California tax code, the phrase “doing business in California” is described as “ actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” We are currently not actively doing business in California, and thus, there is still uncertainty regarding whether the CCPA will apply to us. If further interpretations or court decisions render us “doing business in California,” the CCPA will apply to us and it may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

 

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Intensified government regulations, rules or guidelines of the internet industry in mainland China could restrict our ability to maintain or increase the level of user traffic to, and user willingness to spend on, our platform as well as our ability to tap into other market opportunities, and negatively impact our businesses, results of operations, or financial condition.

The mainland China government has promulgated, in recent years, intensified regulations, rules, or guidelines on various aspects of the internet industry in mainland China. For example, in August 2018, the National Office of Anti-Pornography and Illegal Publication, or the NOAPIP, the MIIT, the MPS, the Ministry of Culture and Tourism, or MCT (previously known as the Ministry of Culture), the National Radio and Television Administration, or the NRTA, and the CAC jointly issued the Notice on Strengthen the Management of Online Live Broadcast Service, which required the real-name registration system for users to be put in place by online live broadcast service providers. On November 12, 2020, the NRTA promulgated the Circular on Strengthening the Administration of the Online Show Live Broadcast and Online E-commerce Live Broadcast (“Notice 78”), which sets forth registration requirements for platforms providing online show live broadcast or online e-commerce live broadcast to have their information and business operations registered by November 30, 2020. Notice 78 also sets forth requirements for certain online live broadcast businesses with respect to real-name registration, limits on user spending on virtual gifting, restrictions on minors on virtual gifting, online live broadcast review personnel requirements, content tagging requirements, and other requirements. For example, Notice 78 requires online live broadcast platforms to set a limit to the number of virtual gifts a user can send per day and per month, as well as the amount that can be gifted at any one time. However, there is currently no clear guidance as to what limits on virtual gifting spending will be imposed by the NRTA pursuant to Notice 78 and it is unclear how and to what degree any such limits would be imposed on different platforms.

Furthermore, on February 9, 2021, the NOAPIP, the MIIT, the MPS, the MCT, the NRTA, the CAC and the SAMR jointly issued the Guiding Opinions on Strengthening the Administration of Online Live Broadcast (“Opinions 3”), which strengthens the positive guidance and management of the online broadcast industry, including standardizing the behavior of virtual gifting and promoting the classification of the online live broadcast accounts. For example, Opinions 3 requires online live broadcast platforms to reasonably limit the maximum amount of a single virtual gift and a single virtual gifting per time to remind the users whose daily consumption amount has triggered the corresponding threshold, and to set necessary cooling off period and deferred payment period. We are still in the process of obtaining further guidance from regulatory authorities and evaluating the applicability and effect of the various requirements under Notice 78 and Opinions 3 on our business. Any limits on user spending on virtual gifting ultimately imposed may negatively impact our revenues derived from virtual gifting and our results of operations. Any further rulemaking under Notice 78, Opinions 3 or other intensified regulation with respect to online live broadcast may increase our compliance burden, and may have an adverse impact on our business and results of operations. On March 25, 2022, the CAC, the State Administration of Taxation, or the SAT, and the SAMR jointly issued the Opinions on Further Rectifying the Profit-making Online Live Broadcast to Promote the Healthy Development of the Industry, which enhances the online live broadcast accounts registration management, strengthens tax collection and punishes tax evasions and frauds in connection with online live broadcast.

On May 7, 2022, the Central Commission for Guiding Cultural and Ethical Progress of the Communist Party of China, the MCT, NRTA and the CAC promulgated the Opinions on Regulating Virtual Gifting during Online Live Broadcasting and Strengthening the Protection of Minors, or the May 7 Opinions. According to the May 7 Opinions, online live broadcasting platforms shall, among others (1) prohibit minors from virtual gifting, and strength the implementation of real-name registration; (2) not provide online live broadcaster account registration service to minors under 16 and shall obtain the consent from guardians before allowing minors between 16 and 18 to register as a broadcaster on their platforms; (3) continue to upgrade the youth mode of the platform and establish an exclusive customer service team for minors to prioritize the settlement of complaints and disputes related to minors; (4) strengthen the administration on key functions of the platform and prohibit virtual gifting amount from being the sole criteria for the ranking of broadcasters or the criteria for the ranking of users; and (5) suspend all services under youth mode after 10:00 p.m. every day to ensure the rest time of minors.

 

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The NRTA and the MCT jointly issued the Code of Conduct for Online Live Broadcasters on June 8, 2022, to regulate the conduct of broadcasters who provide online live broadcasting programs and audio/video program services through the Internet, including those who live broadcast on the online platforms, conduct real-time interactions with users, and perform through pre-uploaded audio or video programs. For live broadcasting content that requires a high level of professionalism (such as medical and healthcare, finance, law, education), the broadcasters should obtain corresponding qualifications and report to the live broadcasting platform, and the live broadcasting platform shall review and record the qualifications of the broadcasters.

In addition, as the internet industry in mainland China is still at a relatively early stage of development, new laws and regulations, rules or guidelines may be adopted from time to time to address new issues that come to the authorities’ attention. Some new laws, regulations, rules, or guidelines have or may in the future put additional restrictions on our users, broadcasters, content, product or service offerings, and may negatively impact our businesses, results of operations, or financial condition. For example, we are subject to a variety of regulatory restrictions concerning the age limit for broadcasters, as well as restrictions on our products’ features. The existing and future regulations rules and guidelines that could affect us are beyond our control, and their potential impact on us is difficult to predict. We may incur substantial financial, operational and managerial costs in response to and in anticipation to the relevant regulatory and policy risks, and we may not be able to effectively predict, estimate or manage those risks in a timely and cost-efficient manner. Furthermore, we may not timely obtain or maintain all the required licenses or approvals or to satisfy all the requirements posed by the authorities in the future. We also cannot assure you that we will be able to obtain the required licenses or approvals or to satisfy all the requirements posed by the authorities if we plan to expand into other internet businesses. If we fail to timely obtain or maintain any of the required licenses or approvals, we may be subject to various penalties, which may disrupt our business operations or derail our business strategy, and materially and adversely affect our business, financial condition and results of operations.

Content posted or displayed on our social networking platform, including the live video shows hosted by us or our users, has been and may again be found objectionable by mainland China regulatory authorities and may subject us to penalties and other serious consequences.

The mainland China government has adopted regulations governing internet and wireless access and the distribution of information over the internet and wireless telecommunications networks. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet or wireless networks content that, among other things, violates the principle of the PRC Constitution, laws and regulations, impairs the national dignity of mainland China or the public interest, or is obscene, superstitious, fraudulent or defamatory. Furthermore, internet content providers are also prohibited from displaying content that may be deemed by relevant government authorities as instigating ethnical hatred and harming ethnical unity, harming the national religious policy, “socially destabilizing” or leaking “state secrets” of the mainland China. Failure to comply with these requirements may result in the revocation of licenses to provide internet content or other licenses, the closure of the concerned platforms and reputational harm. The operator may also be held liable for any censored information displayed on or linked to their platform.

On December 15, 2019, the CAC released the Provisions on Ecological Governance of Network Information Content, or PEGNIC, which came into force on March 1, 2020. The PEGNIC is one of the latest regulations governing the distribution of information over the internet and wireless telecommunications networks in which it classifies the network information into three categories, namely the “encouraged information,” the “illegal information” and the “undesirable information.” While illegal information is strictly prohibited from distribution, the internet content providers are required to take relevant measures to prevent and resist the production and distribution of undesirable information. PEGNIC further clarifies the duties owed by the internet content providers in preventing the display of content that against the PEGNIC, such as obligations to improve the systems for users registration, accounts management, information release review, follow-up comments review, websites ecological management, real-time inspection, emergency response and disposal mechanism for cyber rumor and black industry chain information.

 

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On April 12, 2022, the Online Audio/Video Program Administration Division of the NRTA and the Publishing Bureau of the Publicity Department of the Central Committee of the Communist Party of China jointly promulgated the Notice on Strengthening the Administration of Live Broadcasting of Game-Playing on the Online Audio/Video Program Platforms, which stipulated that, among other things, (i) it is not allowed to live broadcast online games that have not been approved by the competent authorities in online audio/video programs or attract users to such games by any means, including through online live broadcasting, (ii) all online live broadcast platforms shall strengthen the management of online game live broadcast programs in terms of content and publicity, shall establish and improve management systems for information release, comments, and emergency response related to game-playing live broadcast program, and shall improve program monitoring and public opinion monitoring mechanisms, (iii) the online live broadcast platforms shall strengthen the management of the behavior of game broadcasters and those who conducted illegal and immoral behaviors are not allowed to be shown to the public through live broadcasting, (iv) the online live broadcast platforms are urged to establish and implement mechanisms for the protection of minors, and (v) the launch, broadcasting and layout of game-playing live broadcast programs shall be submitted to relevant radio and television administrative department in accordance with the relevant requirements of live broadcast programs, and online live broadcast platforms’ (including various domestic and overseas individual and institution accounts registered on relevant platforms) live broadcasting overseas game-playing programs or competitions shall be approved in advance.

The Administrative Provisions on Comment Threading Services on the Internet, or the Comment Threading Services Provisions, was amended by the CAC on November 16, 2022, and was effective on December 15, 2022. The Comment Threading Services Provisions requires that the comment threading service providers shall (1) verify the real identity information of the registered users under the principle of “using real name at back end and using alias or real name voluntarily at front end” and not provide comment threading services to users who have not verified their real identity information or fraudulently use the identity information of organizations or others; (2) establish and improve the system for the protection of the personal information of users, follow the principles of “legitimacy, appropriateness, necessity and good faith” in the processing of the personal information of users, disclose the rules for processing personal information, inform the users of the purpose and method of processing, type of personal information to be processed, storage period and other matters, and obtain individuals’ consents according to the law, unless otherwise provided for by laws or administrative regulations; (3) establish the system of “censorship before release” for comment threading services provided for news information; (4) provide the corresponding static version of information content at the same time on the same platform and page if the comment threading services are provided by way of bullet screens; (5) establish and improve a system of review and management of comments posted, real-time inspection, emergency response and reporting acceptance and other information security management systems, timely identify and dispose of illegal and negative information, and report to the cyberspace administration; (6) innovate the management methods for comments posted, research and develop information security management technology for comments posted and improve the ability to dispose of illegal and negative information, timely identify risks such as security defects and loopholes in the comment threading services, take remedial measures and report the same to the cyberspace administrations; (7) be staffed with a review editorial team that adapts to the scale of service, strengthen the review trainings and improve the professionalism of review editors; (8) cooperate with the cyberspace administrations in conducting supervision and inspection in accordance with the law and provide necessary technical and data support and assistance.

We have designed and implemented procedures to monitor content on our social networking platform, including the live video shows hosted by us or our users, in order to comply with relevant laws and regulations. However, it may not be possible to determine in all cases the types of content that could result in our liability as a distributor of such content and, if any of the content posted or displayed on our social networking platform is deemed by the mainland China government to violate any content restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations.

Regulatory authorities may conduct various reviews and inspections on our business operations, especially those related to content distribution, from time to time. If any non-compliance incidents in our business operations are identified, we may be required to take certain rectification measures in accordance with applicable laws and regulations, or we may be subject to other regulatory actions such as administrative penalties. We have been subject to administrative measures for the content posted or displayed on our platforms, which has negatively affected our business operations and financial results. We cannot guarantee that such inspections and administrative measures will not happen again in the future, the occurrence of which will adversely affect our business, financial condition and results of operations.

 

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We may also be subject to potential liability for any unlawful actions by our users on our platform. It may be difficult to determine the type of content or actions that may result in liability to us and, if we are found to be liable, we may be prevented from operating our business in mainland China. Moreover, staying in compliance with relevant regulatory requirements may result in limitation to our scope of service, reduction in user engagement or loss of users, diversion of our management team’s attention and increased operational costs and expenses. The costs of compliance with these regulations may continue to increase as a result of more content being made available by an increasing number of users of our social networking platform, which may adversely affect our results of operations. Although we have adopted internal procedures to monitor content and to remove offending content once we become aware of any potential or alleged violation, we may not be able to identify all the content that may violate relevant laws and regulations or third-party intellectual property rights. Even if we manage to identify and remove offensive content, we may still be held liable.

Our acquisition of Tantan, and the subsequent integration of Tantan into our business, creates significant challenges which may affect our ability to realize the benefits of the acquisition and have a material adverse effect on our business, reputation, results of operations and financial condition.

In May 2018, we completed the acquisition of Tantan, a Chinese social and dating app for approximately 5.3 million newly issued Class A ordinary shares of our company and US$613.2 million in cash. While we currently expect Tantan to remain a stand-alone brand and to largely operate independently, the process of integrating certain aspects of Tantan’s operations into our own operations is still continuing and could result in unforeseen operating difficulties, divert significant management attention and require significant resources that would otherwise have been available for the ongoing development of our existing operations. Challenges and risks from the Tantan acquisition include, among others:

 

   

the difficulty in retaining Tantan’s users following the acquisition;

 

   

the need to integrate certain operations, systems, technologies, and personnel of Tantan, the inefficiencies that may result if such integration is delayed or not implemented as expected, and unforeseen difficulties and expenditures that may arise in connection with such integration;

 

   

the difficulty in successfully evaluating and utilizing Tantan’s technology and features;

 

   

the difficulty in integrating potentially contrasting corporate cultures and management philosophies;

 

   

diversion of our management’s and personnel’s attention from our existing businesses and initiatives;

 

   

the difficulties relating to achieving the expected synergies of the transaction; and

 

   

the incurrence of unforeseen obligations or liabilities, which may entail significant expense.

Moreover, we may not be able to achieve our intended strategic goals or attain the synergies from the transaction.

The mobile social and dating industry is an evolving and competitive market, with low switching costs and a consistent stream of new products and entrants, and innovation by Tantan’s competitors may disrupt its business.

The mobile social and dating industry in mainland China is evolving and competitive, and has experienced a consistent stream of new products and market entrants within recent years. Tantan’s competitors may hold stronger competitive positions in certain geographical regions or with certain user demographics that we currently serve or may serve in the future. These advantages could enable these competitors to offer features and services that are more appealing to current users and potential users than our features and services or to respond more quickly and/or cost-effectively than us to new or changing opportunities.

In addition, within the mobile social and dating industry generally, costs for consumers to switch between products and apps are low, and consumers have demonstrated a propensity to try new approaches to connecting with people. As a result, new products, entrants and business models are likely to continue to emerge. It is possible that a new app could gain rapid scale at the expense of existing brands through harnessing a new technology or distribution channel, creating a new approach to connecting people or some other means. If we are not able to compete effectively against our current or future competitors and other apps, products and services that may emerge, the size and level of engagement of our user base may decrease, which could have a material adverse effect on our business, financial condition and results of operations.

We may be unsuccessful in monetizing Tantan’s social and dating services.

We may be unable to successfully monetize Tantan’s social and dating services due to, among other reasons, COVID-19’s negative impact on Tantan’s user retention and engagement, Tantan’s users ceasing to use mobile technology for dating and socializing, Tantan’s users opting to forgo paid services on the app, perceived or actual privacy concerns, the introduction of new regulations on the use and monetization of user data, any interruption of Tantan’s business operations from the inspection and administrative measures taken by relevant governmental authorities, and the introduction of competition offering services at lower cost or additional or different features. If we are unable to successfully monetize Tantan’s business, our business, reputation, results of operations and financial condition could be materially adversely affected.

 

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Tantan’s growth and profitability rely, in part, on its ability to attract and retain users, which involves considerable expenditure. Any failure in these efforts could adversely affect our business, financial condition and results of operations.

Tantan commenced monetization of its business in July 2017, and historically has not been profitable. In order to continue to grow its business and eventually become profitable, Tantan will need to continue to attract and retain users for Tantan’s app, which will involve considerable expenditures.

Tantan’s marketing expenditures consist primarily of investments in paid marketing channels to acquire more users and drive traffic to the app. To continue to reach potential users and grow the Tantan business, we must identify and invest in evolving marketing channels. The opportunities in and effectiveness of new marketing channels are relatively unproven, making it difficult to assess returns on investment associated with such channels, and there can be no assurance that we will be able to continue to appropriately manage and fine-tune our marketing efforts in response to these and other trends in the industry. Any failure to do so could have a material adverse effect on our business, results of operations and financial condition.

Negative publicity may harm our brand and reputation and have a material adverse effect on our business and operating results.

Negative publicity involving us, our users, our management, our social networking platform or our business model may tarnish our reputation and materially and adversely harm our brand and our business. We cannot assure you that we will be able to defuse negative publicity about us, our management and/or our services to the satisfaction of our investors, users, customers and platform partners. There has been negative publicity about our company and the misuse of our services, which has adversely affected our brand, public image and reputation. Such negative publicity, especially when it is directly addressed against us, may also require us to engage in defensive media campaigns. This may cause us to increase our marketing expenses and divert our management’s attention and may adversely impact our business and results of operations.

Any legal action, regardless of its merits, could be time consuming and could divert the attention of our management away from our business and a failure of any legal action may bring negative impact on our reputation and cause a loss of our brand equity, which would reduce the use of our platform and demand for our services. Moreover, any attempts to rebuild our reputation and restore the value of our brand may be costly and time consuming, and such efforts may not ultimately be successful.

User misconduct and misuse of our platform may adversely impact our brand image, and we may be held liable for information or content displayed on, retrieved from or linked to our platform, which may materially and adversely affect our business and operating results.

Our platform allows mobile users to freely contact and communicate with people nearby, and our live video service allows users to host and view live shows. Because we do not have full control over how and what users will use our platform to communicate, our platform may be misused by individuals or groups of individuals to engage in immoral, disrespectful, fraudulent or illegal activities. For example, on a daily basis we detect spam accounts through which illegal or inappropriate content is posted and illegal or fraudulent activities are conducted. Media reports and internet forums have covered some of these incidents, which have in some cases generated negative publicity about our brand and platform. We have implemented control procedures to detect and block illegal or inappropriate content and illegal or fraudulent activities conducted through the misuse of our platform, but such procedures may not prevent all such content from being broadcasted or posted or activities from being carried out. Moreover, as we have limited control over real-time and offline behaviors of our users, to the extent such behaviors are associated with our platform, our ability to protect our brand image and reputation may be limited. Our business and the public perception of our brand may be materially and adversely affected by misuse of our platform.

In addition, if any of our users suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platform, we may face civil lawsuits or other liabilities initiated by the affected user, or governmental or regulatory actions against us. For example, we are or may continue to be involved in disputes relating to refunding to users’ spouses all or part of funds consumed by users for purchase of in-show virtual items in our mobile applications based on claim of unauthorized disposition of commonwealth property. We believe such type of claims is groundless and lacks merit, because from a contractual perspective, users purchase and send virtual gifts to broadcasters in exchange for the live performance delivered to them or for the interaction between them and the broadcasters, and it is entirely up to the users to purchase in-show virtual items. We therefore will defend against such claims vigorously.

 

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In response to allegations of illegal or inappropriate activities conducted through our platform or any negative media coverage about us, mainland China government authorities may intervene and hold us liable for non-compliance with mainland China laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our mobile application. Therefore, our business may be subject to investigations or subsequent penalties if contents generated by our users are deemed to be illegal or inappropriate under mainland China laws and regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our businesses in mainland China, or if we are required to take compliance actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and adversely affected.” As a result, our business may suffer, our user base, revenues and profitability may be materially and adversely affected, and the price of our ADSs may decline.

The market in which we operate is fragmented and highly competitive. If we are unable to compete effectively for users or user engagement, our business and operating results may be materially and adversely affected.

As a social networking platform that provides multiple services, including live video service, value-added service, mobile marketing services and other services, we are subject to intense competition from providers of similar services, as well as potential new types of online services. Our competitors may have substantially more cash, traffic, technical, broadcasters, business networks and other resources, as well as broader product or service offerings and can leverage their relationships based on other products or services to gain a larger share of marketing budgets. We may be unable to compete successfully against these competitors or new market entrants, which may adversely affect our business and financial performance.

We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including:

 

   

the popularity, usefulness, ease of use, performance and reliability of our services compared to those of our competitors, and the research and development abilities of us and our competitors;

 

   

changes mandated by, or that we elect to make to address, legislation, regulations or government policies, some of which may have a disproportionate effect on us;

 

   

acquisitions or consolidation within our industry, which may result in more formidable competitors;

 

   

our ability to monetize our services;

 

   

our ability to attract, retain, and motivate talented employees;

 

   

our ability to manage and grow our operations cost-effectively; and

 

   

our reputation and brand strength relative to our competitors.

We have limited experience in international markets. If we fail to meet the challenges presented by our international operations, our business, financial condition and results of operations may be adversely affected.

We have limited experience in international markets and we expect to enter into and expand our operations into international markets. For example, our Soulchill currently has footprint in overseas markets such as Middle East and North Africa. Tantan also has footprint beyond mainland China such as Southeast Asia, East Asia and North America. Our international operations may expose us to a number of risks, including:

 

   

lack of acceptance of our product and service offerings, and challenges of localizing our offerings to appeal to local tastes;

 

   

compliance with applicable laws and regulations in multiple jurisdictions, including, but not limited to, internet content provider licenses and other applicable licenses or governmental authorizations;

 

   

challenges in commercializing our platforms in international markets without infringing, misappropriating or otherwise violating the intellectual property rights of third parties;

 

   

challenges in formulating effective marketing strategies targeting users from various jurisdictions and cultures, who have a diverse range of preferences and demands;

 

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challenges in replicating or adapting our company policies and procedures to operating environments that are different from each other, including technology infrastructure;

 

   

challenges in managing compliance with local labor regulations and risks associated with labor dispute across different jurisdictions;

 

   

fluctuations in currency exchange rates;

 

   

increased competition with local players in different markets and sub-markets;

 

   

political instability and general economic or political conditions in particular countries or regions, including territorial or trade disputes, war and terrorism;

 

   

exposure to different tax jurisdictions that may subject us to greater fluctuations in our effective tax rate and assessments in multiple jurisdictions on various tax-related assertions, including transfer pricing adjustments and permanent establishment;

 

   

compliance with privacy laws and data security laws, including heightened restrictions and barriers on the transfer of data between different jurisdictions; and

 

   

increased costs associated with doing business in multiple jurisdictions.

There is no assurance we will be able to manage these risks and challenges as we continue to grow our international businesses. Failure to manage these risks and challenges could negatively affect our ability to expand our international and cross-border businesses and operations as well as materially and adversely affect our business, financial condition and results of operations.

If we fail to keep up with technological developments and evolving user expectations, we may fail to maintain or attract users, customers or platform partners, and our business and operating results may be materially and adversely affected.

We operate in a market characterized by rapidly changing technologies, evolving industry standards, new product and service announcements, new generations of product enhancements and changing user expectations. Accordingly, our performance and the ability to further monetize the services on our platform will depend on our ability to adapt to these rapidly changing technologies and industry standards, and our ability to continually innovate in response to both evolving demands of the marketplace and competitive services. There may be occasions when we may not be as responsive as our competitors in adapting our services to changing industry standards and the needs of our users. Historically, new features may be introduced by one player in the industry, and if they are perceived as attractive to users, they are often quickly copied and improved upon by others.

Introducing new technologies into our systems involves numerous technical challenges, substantial amounts of capital and personnel resources and often takes many months to complete. For example, the market for mobile devices in mainland China is highly fragmented, and the lower resolution, functionality, operating system compatibility and memory currently associated with the kaleidoscopic models of mobile devices in the Chinese marketplace may make the use of our services through these devices more difficult and impair the user experience. We intend to continue to devote resources to the development of additional technologies and services. We may not be able to effectively integrate new technologies on a timely basis or at all, which may decrease user satisfaction with our services. Such technologies, even if integrated, may not function as expected or may be unable to attract and retain a substantial number of mobile device users to use our Momo mobile app. We also may not be able to protect such technology from being copied by our competitors. Our failure to keep pace with rapid technological changes may cause us to fail to retain or attract users or generate revenues, and could have a material and adverse effect on our business and operating results.

 

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If we fail to effectively control our costs and expenses, our business and operating results could be harmed.

Given the rapidly evolving market in which we compete, we may encounter difficulties as we establish and manage our operations, product development, sales and marketing, and general and administrative capabilities. We face significant competition for talented employees from other high-growth companies, which include both publicly traded and privately held companies, and we may not be able to hire new talents quickly enough to meet our needs and support our operations. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.

Due to the ever-evolving market that we operate in, our costs and expenses may increase in the future as we seek to broaden our user base and increase user engagement, and develop and implement new features and services. We may also have difficulties in maintaining reliable service levels for our users and customers, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. If we are unable to generate adequate revenues and to manage our expenses, we may again incur significant losses in the future and may not be able to regain profitability. Our expenses may grow faster than our revenues, and our expenses may be greater than we anticipate. Managing our business in the evolving and developing market will require significant expenditures and the allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as we adapt, our business, operating results and financial condition could be harmed.

We may not be able to regain profitability, and the consolidation of the results of operations of Tantan with ours may negatively impact our financial performance and results of operations.

We believe that our future revenue growth will depend on, among other factors, the popularity of social networking applications and our ability to attract new users, increase user engagement, effectively design and implement monetization strategies, develop new services and compete effectively and successfully, as well as our ability to successfully monetize Tantan’s operations. In addition, our ability to sustain profitability is affected by various factors, many of which are beyond our control, such as the continuous development of social networking, live video services, mobile marketing services, and mobile games in mainland China. We may again incur losses in the near future due to our continued investments in services, technologies, research and development and our continued sales and marketing initiatives. Changes in the macroeconomic and regulatory environment or competitive dynamics and our inability to respond to these changes in a timely and effective manner may also impact our profitability. Furthermore, we completed our acquisition of Tantan in May 2018, and consolidated Tantan’s results starting in the second quarter of 2018. Tantan commenced monetization of its business in July 2017 and has not been profitable historically. If Tantan continues to incur losses, this may also affect our ability to remain at our current profitability level. Accordingly, you should not rely on the revenues of any prior quarterly or annual period as an indication of our future performance.

Techniques employed by short sellers may drive down the market price of our listed securities.

Short selling is the practice of selling securities that a seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. Short sellers hope to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as short sellers expect to pay less in that purchase than they received in the sale. As it is in short sellers’ interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions and allegations regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

Public companies listed in the United States that have substantially all of their operations in mainland China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

 

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Any allegations or reports published by short sellers against our company may be followed by periods of instability in the market price of our ADSs and negative publicity. Regardless of whether such allegations and information in such reports are proven to be true or untrue, we may have to expend a significant amount of resources to investigate such allegations and/or defend ourselves against negative information in such reports, including in connection with class actions or regulatory enforcement actions derivative of such allegations. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short sellers by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could divert management’s attention from the day-to-day operations of our company. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact the market price of our securities and our business operations.

The continuing and collaborative efforts of our senior management and key employees are crucial to our success, and our business may be harmed if we were to lose their services.

We depend on the continued contributions of our senior management, especially the executive officers listed in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management” section of this annual report, and other key employees, many of whom are difficult to replace. The loss of the services of any of our executive officers or other key employees could materially harm our business. Competition for qualified talents in mainland China is intense. Our future success is dependent on our ability to attract a significant number of qualified employees and retain existing key employees. If we are unable to do so, our business and growth may be materially and adversely affected and the trading price of our ADSs could suffer. Our need to significantly increase the number of our qualified employees and retain key employees may cause us to materially increase compensation-related costs, including stock-based compensation.

We may not be able to adequately protect our intellectual property, which could cause us to be less competitive and third-party infringements of our intellectual property rights may adversely affect our business.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. See also “Item 4. Information on the Company—B. Business Overview.” Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. The legal regime relating to the recognition and enforcement of intellectual property rights in mainland China is particularly limited, and does not protect intellectual property rights to the same extent as federal and state laws in the United States. Legal proceedings to enforce our intellectual property in mainland China may progress slowly, during which time infringement may continue largely unimpeded.

We have been and may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.

We have been, and may in the future be, subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.

Companies in the internet, technology and media industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, particularly in mainland China, are uncertain and still evolving. We have faced, from time to time, and expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including our competitors, or allegations that we are involved in unfair trade practices. See “Item 8. Financial Information— A. Consolidated Statements and Other Financial Information—Legal Proceedings.” As we face increasing competition and as litigation becomes a more common method for resolving commercial disputes in mainland China, we face a higher risk of being the subject of intellectual property infringement claims.

 

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We allow users to upload text, graphics, audio, video and other content to our platform and download, share, link to and otherwise access games and other content on our platform. We have procedures designed to reduce the likelihood that content might be used without proper licenses or third-party consents. However, these procedures may not be effective in preventing the unauthorized posting of copyrighted content. Therefore, we may face liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence, and other claims based on the nature and content of the materials that are delivered, shared or otherwise accessed through our platform.

Defending intellectual property litigation is costly and can impose a significant burden on our management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our platform to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.

User base and engagement depend upon effective interoperation with mobile operating systems, networks, mobile devices and standards that we do not control.

We make our services available across a variety of mobile operating systems and devices. We are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android, iOS and Windows. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if the number of platforms for which we develop our services increases, which is typically seen in a dynamic and fragmented mobile services market such as mainland China, it will result in an increase in our costs and expenses. In order to deliver high-quality services, it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our users to access and use our services, particularly on their mobile devices, our user base and user engagement could be harmed, and our business and operating results could be adversely affected.

Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in mainland China.

Almost all access to the internet in mainland China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. Moreover, we primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with mainland China’s internet infrastructure or the fixed telecommunications networks provided by telecommunications service providers. Web traffic in mainland China has experienced significant growth during the past few years. Effective bandwidth and server storage at internet data centers in large cities such as Beijing are scarce. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in mainland China will be able to support the demands associated with the continued growth in internet usage. If we cannot increase our capacity to deliver our online services, we may not be able to keep up with the increases in traffic we anticipate from our expanding user base, and the adoption of our services may be hindered, which could adversely impact our business and our ADS price.

In addition, we have no control over the costs of the services provided by telecommunications service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet users increase, some users may be prevented from accessing the mobile internet and thus cause the growth of mobile internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base.

Our business and operating results may be harmed by service disruptions, cybersecurity related threats or by our failure to timely and effectively scale and adapt our existing technology and infrastructure.

People use our platform for real-time communication, socializing, entertainment and information. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes and cybersecurity related threats as follows:

 

   

our technology, system, networks and our users’ devices have been subject to, and may continue to be the target of, cyber-attacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in an unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees or sensitive information provided by our users, or otherwise disrupt our, our users’ or other third parties’ business operations;

 

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we periodically encounter attempts to create false accounts or use our platform to send targeted and untargeted spam messages to our users, or take other actions on our platform for purposes such as spamming or spreading misinformation, and we may not be able to repel spamming attacks;

 

   

the use of encryption and other security measures intended to protect our systems and confidential data may not provide absolute security, and losses or unauthorized access to or releases of confidential information may still occur;

 

   

our security measures may be breached due to employee error, malfeasance or unauthorized access to sensitive information by our employees, who may be induced by outside third parties, and we may not be able to anticipate any breach of our security or to implement adequate preventative measures; and

 

   

we may be subject to information technology system failures or network disruptions caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or other events or disruptions.

Any disruption or failure in our services and infrastructure could also hinder our ability to handle existing or increased traffic on our platform or cause us to lose content stored on our platform, which could significantly harm our business and our ability to retain existing users and attract new users.

As the number of our users increases and our users generate more content on our platform, we may be required to expand and adapt our technology and infrastructure to continue to reliably store and analyze this content. It may become increasingly difficult to maintain and improve the performance of our services, especially during peak usage times, as our services become more complex and our user traffic increases. If our users are unable to access our mobile application in a timely fashion, or at all, our user experience may be compromised and the users may seek other mobile social networking tools to meet their needs, and may not return to our platform or use our services as often in the future, or at all. This would negatively impact our ability to attract users and maintain the level of user engagement.

Existing or future strategic alliances, long-term investments and acquisitions may have a material and adverse effect on our business, reputation and results of operations.

We have made and intend to continue to make long-term investments in third-party companies. From time to time we evaluate and enter into discussions regarding potential long-term investments. Our existing and any future long-term investments could have a material impact on our financial condition and results of operations. If our long-term investments are unable to implement or remediate the necessary controls, procedures and policies, do not perform as we have expected or become less valuable to our business due to a change in our overall business strategy or other reasons, we may not be able to realize the anticipated benefits of investments and we may have to incur unanticipated liabilities, expenses, impairment charges or write-offs.

We may also in the future enter into strategic alliances with various third parties. Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by a counterparty and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have little ability to control or monitor their actions and to the extent strategic third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties.

 

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In addition, we may acquire additional assets, technologies or businesses that are complementary to our existing business. Future acquisitions and the subsequent integration of new assets and businesses into our own would require significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial or operating results we expect. Moreover, the costs of identifying and consummating acquisitions may be significant. In addition to possible shareholders’ approval, we may also have to obtain approvals and licenses from the governmental authorities in the mainland China for the acquisitions and comply with applicable mainland China laws and regulations, which could result in increased costs and delays. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the incurrence of debt, the incurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired business. Such use of cash may add significant liquidity pressure on us by materially reducing our existing cash balance and adversely affecting our working capital. The sale of equity or equity linked securities may further dilute our existing shareholders. Debt financings may subject us to restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

We rely on assumptions and estimates to calculate certain key operating metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

The respective number of monthly active users and paying users of Momo and Tantan is calculated using internal company data that has not been independently verified. While these metrics are based on what we believe to be reasonable calculations for the applicable periods of measurement, there are inherent challenges in measuring usage and user engagement across our large user base. For example, there exist a number of false or spam accounts on our platforms. Although we constantly combat spam by suspending or terminating these accounts, our active user number may include a number of false or spam accounts and therefore may not accurately represent the actual number of active accounts. In addition, we treat each account as a separate user for the purposes of calculating our active and paying users, because it may not always be possible to identify people that have set up more than one account. Accordingly, the calculations of our monthly active users and paying users may not accurately reflect the actual number of people using Momo and Tantan, or paying for their services.

Our measures of user base and user engagement may differ from estimates published by third parties or from similarly titled metrics used by our competitors due to differences in methodology. If customers or platform partners do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and customers and platform partners may be less willing to allocate their resources or spending to Momo or Tantan, which could negatively affect our business and operating results.

We have granted, and expect to continue to grant, share options under our share incentive plans, which may result in increased share-based compensation expenses.

We have adopted several share incentive plans as of the date of this annual report for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. In November 2012, we adopted a share incentive plan, or the 2012 Plan, which was amended and restated in October 2013. In November 2014, we adopted the 2014 share incentive plan, or the 2014 Plan, pursuant to which a maximum aggregate of 14,031,194 Class A ordinary shares may be issued pursuant to all awards granted thereunder. Beginning in 2017, the number of shares reserved for future issuances under the 2014 Plan would be increased by a number equal to 1.5% of the total number of outstanding shares on the last day of the immediately preceding calendar year, or such lesser number of Class A ordinary shares as determined by our board of directors on the first day of each calendar year during the term of the 2014 Plan. With the adoption of the 2014 Plan, we will no longer grant any incentive shares under the 2012 Plan. In March 2015, Tantan adopted the 2015 Share Incentive Plan, or the Tantan 2015 Plan, and in July 2018, Tantan adopted the 2018 Share Incentive Plan, or the Tantan 2018 Plan. With the adoption of the Tantan 2018 Plan, we will no longer grant any incentive awards under the Tantan 2015 Plan. As of March 31, 2023, options to purchase 28,731,914 Class A ordinary shares (excluding those already forfeited) had been granted under the 2012 Plan, 3,525,676 of which remained outstanding. In addition, as of March 31, 2023, options to purchase 44,919,207 Class A ordinary shares (excluding those already forfeited and canceled) and 960,001 restricted share units had been granted under the 2014 Plan, of which 23,842,913 options and 251,875 restricted share units remained outstanding. As of March 31, 2023, options to purchase 955,998 ordinary shares of Tantan (adjusted retrospectively for share split and excluding those that have been forfeited or redeemed) remained outstanding under the Tantan 2015 Plan and options to purchase 3,073,826 ordinary shares of Tantan (adjusted retrospectively for share split and excluding those that have been forfeited or redeemed) remained outstanding under the Tantan 2018 Plan. See “Item 6. Directors, Senior Management and Employees—B. Compensation” for a detailed discussion. We expect to incur share-based compensation expenses of RMB226.8 million, RMB126.0 million and RMB65.2 million in 2023, 2024, and after 2024, respectively, in connection with the currently outstanding share-based awards, and we may grant additional share-based awards under our share incentive plans, which will further increase our share-based compensation expenses. We believe the granting of share-based awards is of significant importance to our ability to attract and retain our employees, and we will continue to grant share-based awards to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.

 

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If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a report of management in its annual report that contains management’s assessment of the effectiveness of such company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting.

Our management has concluded that our internal controls over financial reporting were effective as of December 31, 2022. Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was effective in all material aspects as of December 31, 2022. However, if we fail to maintain effective internal controls over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. This could result in a loss of investor confidence in the reliability of our financial conditions which in turn could negatively impact the trading price of our ADSs and result in lawsuits being filed against us by our shareholders or otherwise harm our reputation. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Our business, financial condition and results of operations may continue to be adversely affected by the effects of the COVID-19 pandemic in mainland China.

Beginning in 2020, outbreaks of COVID-19 resulted in the temporary closure of many corporate offices, retail stores, and manufacturing facilities across mainland China. Normal economic life throughout mainland China was sharply curtailed. We took a series of measures to protect our employees, including temporarily closing our offices, facilitating remote working arrangements for our employees, and canceling business meetings and travels. The operations of our suppliers were also impacted. The population in most of the major cities was locked down to a greater or lesser extent at various times and opportunities for discretionary consumption were extremely limited. In particular, our users’ demand for social network platforms, such as Momo and Tantan, had been negatively impacted by the emergency measures, which consequently impacted our user retention and engagement. These events have negatively affected our business since 2020 and contributed to the decrease in revenues from live video service in 2020, 2021 and 2022.

Mainland China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December. There were surges of cases in many cities during this time which caused occasional interruptions to our operations due to lower employee attendance, and there remains uncertainty as to the future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. The subsequent outbreaks of COVID-19 may continue to affect our business, which will in turn adversely affect our operating metrics, revenue and financial conditions. For example, if a COVID-19 variant strikes in a future wave, the prolonged social distancing control and the associated decline in outdoor activities may limit our users’ urge to use services from social network platforms, such as our Momo and Tantan mobile applications, and some of our users may not be able to leave their hometown or may delay the time they get back to the big cities for work due to quarantine measures. Consequently, our user base may decrease and our user retention and engagement may be negatively impacted under such as scenario. In addition, the economic impact of COVID-19 may also cause the sentiment, willingness and ability to spend of our paying users, especially our high paying users, to deteriorate. Consequently, the COVID-19 pandemic may continue to negatively affect our business, financial condition and results of operations in the current and future years.

 

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Increasing focus with respect to environmental, social and governance matters may impose additional costs on us or expose us to additional risks. Failure to comply with the laws and regulations on environmental, social and governance matters may subject us to penalties and adversely affect our business, financial condition and results of operations.

The mainland China government and public advocacy groups have been increasingly focused on environment, social and governance, or ESG, issues in recent years, making our business more sensitive to ESG issues and changes in governmental policies and laws and regulations associated with environment protection and other ESG-related matters. Investor advocacy groups, certain institutional investors, investment funds, and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, increased focus from investors and the mainland China government on ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Any ESG concern or issue could increase our regulatory compliance costs. If we do not adapt to or comply with the evolving expectations and standards on ESG matters from investors and the mainland China government or are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition, and the price of our ADSs could be materially and adversely effected.

We face risks related to health epidemics and natural disasters.

In addition to the impact of COVID-19, our business could be adversely affected by the effects of natural disasters, other health epidemics or other public safety concerns affecting the mainland China. In recent years, there have been outbreaks of epidemics in mainland China and globally. Our business operations could be disrupted if one of our employees is suspected of having COVID-19, H1N1 flu, H7N9 flu, severe acute respiratory syndrome or SARS, Zika virus, Ebola virus, avian flu or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that the epidemic outbreaks harm the Chinese economy in general and the mobile internet industry in particular.

We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services on our platform.

We have limited insurance coverage.

The insurance industry in mainland China is still at an early stage of development and business and litigation insurance products offered in mainland China are limited. Other than the directors and officers liability insurance, we do not maintain any third-party liability, property, business interruption or key-man life insurance. The costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. In addition, any insurance policies that we maintain may not adequately cover our actual loss and we may not be able to successfully claim our losses under the insurance policies at all or on a timely basis. Any business disruption, litigation or natural disaster may cause us to incur substantial costs and divert our resources.

 

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Risks Related to Our Corporate Structure

If the mainland China government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Foreign ownership of telecommunication businesses and certain other businesses, such as provision of internet video and online game services, is subject to restrictions under current mainland China laws and regulations. For example, foreign investors are generally not allowed to own more than 50% of the equity interests in a commercial internet content provider or other value-added telecommunication service provider (other than operating e-commerce, domestic multi-party communication, store-and-forward, and call center).

In addition, foreign investors are prohibited from investing in companies engaged in internet video, culture (other than music) and publishing business and film/radio and television drama production and operation (including importation) business. We are a Cayman Islands company and our mainland China subsidiaries are considered as foreign-invested enterprises. Accordingly, none of our mainland China subsidiaries are eligible to operate internet video and other businesses which foreign-owned companies are prohibited or restricted from conducting in mainland China. To comply with mainland China laws and regulations, we conduct such business activities through the consolidated affiliated entities in mainland China, including Beijing Momo, Tantan Culture, Hainan Miaoka, Hainan Yilingliuer, Tianjin QOOL Media, Beijing Top Maker, Beijing Perfect Match, SpaceTime Beijing and Tianjin Nishuodedoudui, and their respective subsidiaries. Our wholly-owned subsidiaries, Beijing Momo IT, QOOL Media Technology (Tianjin) Co., Ltd., Beijing Yiliulinger Information Technology Co., Ltd., Tantan Technology (Beijing) Co., Ltd. and Beijing Wozaixiangxiang have entered into contractual arrangements with the consolidated affiliated entities and their respective shareholders, and such contractual arrangements enable us to exercise effective control over, receive substantially all of the economic benefits of, and have an exclusive option to purchase all or part of the equity interest and assets in the consolidated affiliated entities when and to the extent permitted by mainland China law. Because of these contractual arrangements, we are the primary beneficiary of the consolidated affiliated entities in mainland China and hence consolidate their financial results as our variable interest entities under U.S. GAAP. We conduct our operations in mainland China through (i) our mainland China subsidiaries and (ii) the consolidated affiliated entities with which we maintained these contractual arrangements and their subsidiaries in mainland China. Investors in our ADSs thus are not purchasing equity interest in the consolidated affiliated entities in mainland China but instead are purchasing equity interest in a Cayman Islands holding company with no equity ownership in the consolidated affiliated entities.

Our holding company in the Cayman Islands, the consolidated affiliated entities, and investments in our Company face uncertainty about potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the consolidated affiliated entities and, consequently, the business, financial condition, and results of operations of the consolidated affiliated entities and our Company as a group. In addition, our ADSs may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the consolidated affiliated entities which contributed 95.7% of our revenues in 2022. If the mainland China government finds that our contractual arrangements do not comply with its restrictions on foreign investment in internet content and online game providers and other foreign-restricted services, or if the mainland China government otherwise finds that we, the consolidated affiliated entities, or any of their subsidiaries are in violation of mainland China laws or regulations or lack the necessary permits or licenses to operate our business, the relevant mainland China regulatory authorities, including but not limited to the CAC, the MIIT, the NRTA, the State Film Bureau, or the SFB, the National Press and Publication Administration, or the NPPA (formerly known as the General Administration of Press and Publication, or GAPP), the MCT and the Ministry of Commerce, or the MOFCOM, would have broad discretion in dealing with such violations or failures.

In the opinion of our mainland China counsel, Han Kun Law Offices, the ownership structure of our mainland China subsidiaries and consolidated affiliated entities are in compliance with existing mainland China laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future mainland China laws and regulations. Thus, we cannot assure you that the mainland China government will not ultimately take a view contrary to the opinion of our mainland China counsel. If we are found to be in violation of any mainland China laws or regulations or if the contractual arrangements among our mainland China subsidiaries, the consolidated affiliated entities and their respective shareholders are determined to be illegal or invalid by the mainland China court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

 

   

revoke our business and operating licenses;

 

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require us to discontinue or restrict operations;

 

   

restrict our right to collect revenues;

 

   

block our websites;

 

   

require us to restructure the operations in such a way as to compel us to establish a new enterprise, re-apply for the necessary licenses or relocate our businesses, staff and assets;

 

   

requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the consolidated affiliated entities and deregistering the equity pledges of the consolidated affiliated entities, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the consolidated affiliated entities;

 

   

restricting or prohibiting our use of the proceeds of any of our offshore financings to finance our business and operations in mainland China;

 

   

impose additional conditions or requirements with which we may not be able to comply; or

 

   

take other regulatory or enforcement actions against us that could be harmful to our business.

If the mainland China government determines that the contractual arrangements constituting part of our ownership structure do not comply with mainland China regulations, or if these regulations change or are interpreted differently in the future, our ADSs may decline in value if we are unable to assert our contractual control rights over the assets of the consolidated affiliated entities, which conducts substantially all our business operations that generate external revenues. Our holding company in the Cayman Islands, the consolidated affiliated entities, and investors of our company face uncertainty about potential future actions by the mainland China government that could affect the enforceability of the contractual arrangements with the consolidated affiliated entities and, consequently, significantly affect the financial performance of our company.

Any of the aforementioned events or penalties could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If occurrences of any of these events results in our inability to direct the activities of the consolidated affiliated entities in mainland China that most significantly impact their economic performance, or our failure to receive the economic benefits from the consolidated affiliated entities, we may not be able to consolidate the entity in the consolidated financial statements in accordance with U.S. GAAP.

On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023. Officials from the CSRC clarified that, as for companies seeking overseas listings with contractual arrangements, the CSRC will solicit opinions from relevant regulatory authorities and complete the filings of the overseas listings of such companies if they duly meet the compliance requirements, and support the development and growth of these companies by enabling them to utilize two markets and two kinds of resources. If we fail to complete filings with the CSRC in a timely manner or at all, for any future offshore offering or listing, or any other capital raising activities, our ability to raise or utilize funds could be materially and adversely affected, and we may even need to unwind our contractual arrangements or restructure our business operations in order to complete such filings. However, given that the Overseas Listing Trial Measures were recently promulgated, there remains substantial uncertainties as to their interpretation, application, and enforcement and how they will affect our operations and our future financing.

 

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We rely on contractual arrangements with the consolidated affiliated entities and their respective shareholders for our operations in mainland China, which may not be as effective in providing operational control as direct ownership.

Due to the mainland China restrictions or prohibitions on foreign ownership of internet and other related businesses in mainland China, we operate our business in mainland China through a number of the consolidated affiliated entities, in which we have no ownership interest. We rely on a series of contractual arrangements with the consolidated affiliated entities and their respective shareholders, including the powers of attorney, to control and operate the business.

Our ability to control the consolidated affiliated entities depends on the powers of attorney, pursuant to which our mainland China subsidiaries can vote on all matters requiring shareholder approval in the consolidated affiliated entities. We believe these powers of attorney are legally enforceable but may not be as effective as direct equity ownership. These contractual arrangements are intended to provide us with effective control over the consolidated affiliated entities and allow us to obtain economic benefits from them. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the Consolidated Affiliated Entities and Their Respective Shareholders” for more details about these contractual arrangements.

Although we have been advised by our mainland China counsel, Han Kun Law Offices, that these contractual arrangements are valid, binding and enforceable under existing mainland China laws and regulations, these contractual arrangements may not be as effective in providing control over the consolidated affiliated entities as direct ownership. If the consolidated affiliated entities or their respective shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of these contractual arrangements are governed by and interpreted in accordance with mainland China law, and disputes arising from these contractual arrangements will be resolved through arbitration in mainland China. However, the legal system in mainland China, particularly as it relates to arbitration proceedings, is not as developed as in other jurisdictions, such as the United States. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in Mainland China—Uncertainties in the interpretation and enforcement of mainland China laws and regulations could limit the legal protections available to you and us.” There are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity, or a consolidated affiliated entity, should be interpreted or enforced under mainland China law. There remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. These uncertainties could limit our ability to enforce these contractual arrangements. In addition, arbitration awards are final and can only be enforced in mainland China courts through arbitration award recognition proceedings, which could cause additional expenses and delays. In the event we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over the consolidated affiliated entities and may lose control over the assets owned by the consolidated affiliated entities. As a result, we may be unable to consolidate the consolidated affiliated entities in the consolidated financial statements, our ability to conduct our business may be negatively affected, and our business operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition.

We may lose the ability to use and enjoy assets held by the consolidated affiliated entities that are important to the operation of the business if the consolidated affiliated entities declare bankruptcy or become subject to a dissolution or liquidation proceeding.

The consolidated affiliated entities hold certain assets that are important to our business operations, including the ICP license, the internet culture operation license and the internet audio/video program transmission license. Under our contractual arrangements, the respective shareholders of the consolidated affiliated entities may not voluntarily liquidate the consolidated affiliated entities or approve them to sell, transfer, mortgage or dispose of their respective assets or legal or beneficial interests exceeding certain threshold in the business in any manner without our prior consent. However, in the event that the shareholders breach this obligation and voluntarily liquidate the consolidated affiliated entities, or the consolidated affiliated entities declare bankruptcy, or all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if the consolidated affiliated entities undergo a voluntary or involuntary liquidation proceeding, their respective shareholders or unrelated third-party creditors may claim rights to some or all of its assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

 

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Contractual arrangements we have entered into with the consolidated affiliated entities may be subject to scrutiny by the mainland China tax authorities. A finding that we owe additional taxes could significantly reduce the consolidated net income and the value of your investment.

Pursuant to applicable mainland China laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the mainland China tax authorities. We may be subject to adverse tax consequences if the mainland China tax authorities determine that the contractual arrangements among our mainland China subsidiaries, the consolidated affiliated entities and their respective shareholders are not on an arm’s length basis and therefore constitute favorable transfer pricing. As a result, the mainland China tax authorities could require that the consolidated affiliated entities adjust their taxable income upward for mainland China tax purposes. Such an adjustment could adversely affect us by increasing the consolidated affiliated entities’ tax expenses without reducing the tax expenses of our mainland China subsidiaries, subjecting the consolidated affiliated entities to late payment fees and other penalties for under-payment of taxes, and resulting in our mainland China subsidiaries’ loss of their preferential tax treatment. The consolidated results of operations may be adversely affected if the consolidated affiliated entities’ tax liabilities increase or if they are subject to late payment fees or other penalties.

If the chops of our mainland China subsidiaries and the consolidated affiliated entities are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In mainland China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in mainland China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our mainland China subsidiaries and the consolidated affiliated entities are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.

The shareholders of the consolidated affiliated entities may have potential conflicts of interest with us, which may materially and adversely affect our business.

Some of the shareholders of the consolidated affiliated entities are also our directors or officers. Conflicts of interest may arise between the roles of these individuals as directors or officers of our company and as shareholders of the consolidated affiliated entities. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions for personal gain. The shareholders of the consolidated affiliated entities have executed powers of attorney to appoint our mainland China subsidiaries, or a person designated by our mainland China subsidiaries to vote on their behalf and exercise voting rights as shareholders of the consolidated affiliated entities. We cannot assure you that when conflicts arise, shareholders of the consolidated affiliated entities will act in the best interest of our company or that conflicts will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.

We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of the ADSs and our ordinary shares.

We are a holding company, and we may rely on dividends to be paid by our mainland China subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of the ADSs and our ordinary shares and service any debt we may incur. If our mainland China subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

 

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Under mainland China laws and regulations, a foreign-invested enterprise in the mainland China, such as Beijing Momo Information Technology Co., Ltd., or Beijing Momo IT, may pay dividends only out of its accumulated profits as determined in accordance with mainland China accounting standards and regulations. In addition, any company, including a foreign-invested enterprise is required to set aside 10% of its after-tax profits each year to fund certain statutory common reserve funds, until the aggregate amount of such funds reach 50% of its registered capital. If the statutory common reserve funds are not sufficient to make up its losses in previous years (if any), the company shall use the profits of the current year to make up the losses before accruing the statutory common reserve funds. At the discretion of the shareholders of a foreign-invested enterprise, it may, after accruing the statutory common reserve funds, allocate a portion of its after-tax profits based on mainland China accounting standards to discretionary common reserve funds. These statutory common reserve funds and discretionary common reserve funds are not distributable as cash dividends. Any limitation on the ability of our wholly-owned mainland China subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Risks Related to Doing Business in Mainland China

The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in mainland China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of mainland China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our auditor’s audit procedures and reported financial information and the quality of our financial statements.

Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.

On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.

 

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Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United State