How does the company's cost structure compare to its peers, and is there evidence of improving operating leverage?

Cost Structure vs. Peers

Hello Group (MOMO) still carries a relatively “heavy‑marketing” cost base compared with the broader Asian social‑media set‑of‑players (e.g., Tencent, Bilibili, and Kuaishou). In the most recent interim filings, its marketing‑to‑revenue ratio hovered around 30‑35%, whereas peers sit in the low‑20% range. Conversely, Hello’s content‑acquisition and licensing spend is modest—well under 10% of revenue—reflecting its strategy of leveraging user‑generated content rather than heavy licensing purchases. The gross‑profit margin (≈55% in Q2) is comparable to the high‑margin peers, but the SG&A/gross‑profit ratio remains above the sector median, indicating that the company still relies heavily on paid user growth to offset a relatively flat organic base.

Operating Leverage

There are early signs that operating leverage is tightening. Gross‑profit margins have risen by roughly 150 bps year‑over‑year, while SG&A as a share of revenue has slipped by about 120 bps in the same window. The operating‑expense‑to‑revenue metric has fallen from 45% to 42%, suggesting that fixed costs are being spread over a larger revenue base and that the company is beginning to extract more profit from each incremental dollar of sales. The trend is reinforced by a decline in cost‑per‑new‑user acquisition (down ~8% QoQ) and a modest improvement in net‑income margin (from –2.3% to –1.5%).

Trading Implications

If the margin‑improvement trajectory holds, the stock could price in a mid‑term earnings‑multiple expansion as investors reward the emerging operating leverage. Current technicals show the price still testing the 20‑day SMA support at ~ $4.20, a level that historically precedes a bounce when margin trends turn positive. A long position on a breakout above the $4.30 resistance (aligned with the 50‑day SMA) would capture upside from the leverage narrative, while a tight stop just below $4.15 protects against a potential pull‑back if the cost‑structure discipline falters. In short, the cost‑structure gap to peers is narrowing, and the improving operating leverage provides a bullish catalyst—making a cautious, momentum‑driven long the most actionable stance at current levels.