Momo Inc. (MOMO) is China’s most popular mobile dating app. The ‘Tinder of China’ connects people in a personal and lively way through a revolutionary social networking platform which also integrates live videos. [mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
Momo reported 108m monthly active users on its app in June 2018, about 18 percent more than a year ago. In comparison, there are 176m Chinese in the age between 15 and 24. The potential for user growth is limited, but the Momo is capitalizing more and more on paying users with its live video and value-added services. The recent acquisition of its strongest competitor TanTan brought Momo more than 3m new paying users.
Momo’s live video services contributed 84 percent to the revenue and grew by 66 percent over the first six months of this year. Value-added services, such as membership subscription, virtual gift cards, and higher search ranking fees, contributed 10 percent to the revenues and grew by a whopping 94 percent. Momo beats analyst expectations on a regular basis.
Momo was founded in 2011 and is headquartered in Beijing, China. The shares are listed on New York’s Nasdaq since December 2014. The company’s shares can also be traded in Germany, the UK, and Mexico. Major shareholder is the co-founder and CEO, Mr. Yan Tang, with an ownership of around 22 percent. 39 percent of the shares are in public hand.
With a workforce of over 1,200 employees, Momo reported revenues of 929m USD and profits before tax of 302m USD during its first six months of 2018. This is an increase of 61 and 79 percent respectively compared to the same period a year ago. For the full year 2017, revenues and profits increased by 138 and 157 percent respectively. The operating margin of 29 percent is well above industry average. Momo’s cash reserves decreased by three percent during the first six months of 2018 to 663m USD at the end of March 2018. However, the company shows a healthy balance sheet with good profitability and financial strength. The equity ratio is at 67 percent and the gearing, defined here as total liabilities to total equity, at 48 percent. Next results will be announced at the end of November.
Momo’s shares are in a volatile uptrend since December 2017 and more than doubled in value since. The company is priced at 23 times earnings, seven times book value and at 19 times operating cash flow. Momo does not pay a dividend. 18 out of 20 analysts have a ‘buy’ or ‘outperform’ recommendations on the stock.
Our conclusion: Momo shows a robust financial position with a good profitability and financial strength. The valuation is more than reasonable. Taking the estimates for 2018 and 2019, the company is priced at only 18 and 14 times earnings respectively. In addition, revenues and profits grew by 58 and 99 percent respectively over the last four quarters. With the acquisition of its major competitor TanTan, Momo is well positioned in a strong competitive environment. Assuming a stable global economy, we expect the share price to increase at least 20 to 25 percent over the next six months.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
|---|---|---|---|---|---|---|
| EPS (USD) | -0.26 | -0.97 | 0.03 | 0.36 | 0.77 | 0.59 |
| Change | -117% | -273% | 103% | 1100% | 114% | 74% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 23 | 14 | 7 | 19 | 67% | 39% | 48% | n/a |
* Equity / Total Assets, ** Total Liabilities / Equity
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