For most social media apps, business is booming in the year of Covid-19. There are always exceptions to the rule, however, and Momo (MOMO) is one such outlier; Shares of the Chinese social media player have dropped by 59% throughout the year.
The company has found it difficult to recover from a bout of 2019 fisticuffs with Chinese regulators; Momo was accused of publishing inappropriate content in its namesakeapp and Tinder-like Tantan app.
Last week’s Q3 earnings hasn’t helped matters, either. While Momo’s latest financial report beat analyst estimates on several metrics, it failed to impress with its forward guidance.
In Q3, Momo reported revenue of 3.77 billion yuan, indicating a 15.6% year-over-year drop, but still coming in ahead of the 3.71-billion-yuan consensus estimate. Additionally, Non-GAAP EPS of $2.98 yuan beat the analysts’ call for 2.47 yuan.
However, Monthly Active Users for the Momo app dropped from 114.1 million in 3Q19 to 113.6 million in 3Q20.
Looking ahead, Q4 revenue is expected to come in between 3.65 billion to 3.75 billion yuan, below the 3.91 billion yuan the Street had called for. At the midpoint, the forecast represents a year-over-year decline of 21%.
Investors weren’t impressed, sending the stock down nearly 8% since the earnings came out. Deutsche Bank analyst Leo Chiang attributes investors’ negative sentiment to a “softer Tantan outlook given 1) strategic management of live streaming monetization since September; and 2) slower user expansion due to a hike in user acquisition costs since 3Q.”
On the plus side, Tantan’s ARPU has been “growing sharply sequentially,” and for FY21, the analyst expects Tantan to “retain growth momentum on both VAS (value added services) and live broadcasting but in a moderate manner.” That said, Chiang anticipates a difficult first half of the year for the Momo app where “structural reforms will continue to drag on live streaming revenue in 1H, followed by a gradual turnaround in 2H.”
Overall, for FY21, Chiang models 2% year-over-year growth “driven by 43% yoy growth in Tantan, offset by a 5% yoy decline in the Momo app.”
To this end, the analyst rates MOMO a Buy, but cuts his price target from $25 to $22. Despite the haircut, there’s still potential for 65% of gains — at least according to Chiang. (To watch Chiang’s track record, click here)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
