How Much Higher Can MOMO Inc (ADR) (NASDAQ:MOMO) Stock Go?

- June 28, 2017

Momo Inc (ADR) (NASDAQ:MOMO) operates as a mobile-based social networking platform in China.  The company started with an online dating app and has now progressed to being a full social media company. Momo offers a free location-based instant messaging application for smartphones and tablets. The app allows users to chat with nearby friends and strangers, as Momo enables users to establish and expand their social relationships based on similar locations and interests.  Some features of the application include subsections like nearby users, groups, message board, topics, and nearby events.

Momo Inc (ADR) (NASDAQ:MOMO) From online dating to full social media platform

Momo Inc (ADR) (NASDAQ:MOMO) users can send multi-media instant messages as well as play single and multi-player games within the app’s platform. Users can also make a Facebook-like profile and are encouraged to include as much information as possible. The platform also runs talent competitions, with both video and pics (E.g. best selfie pic). The company was founded by Yan Tang, Yong Li, Xiao Liang Lei and Zhiwei Li on November 23, 2011 and is headquartered in Beijing, China.

Number of social media users in China – forecast to 2021

The graph below shows a 6% forecast increase in social network users in 2017.  Given China has 1.39 Billion people, I would think the potential growth is a lot higher than 6%pa. Which would be really good for MOMO Stock price.

 

 

Source  Statista

Momo business

Momo’s user base is the Chinese youth (19-32 is 80% of their user base) seeking entertainment, and eager to express and interact.  Momo still only has a very small market share in China of around 2.4% (as of Q2, 2016), with potential to grow market share.

Source

Momo monetizes its users in the following ways:

  • Paid membership subscriptions – A membership will cost around US $2 a month, or less if a user commits to a longer term of use. Benefits of a paid membership includes: VIP logos, advanced search options, discounts in the emoticon store, higher limits on maximum users in a group, and the ability to see a list of recent visitors to a user’s profile page. Paid video streaming is almost 80% of Momo’s revenue.
  • Games – Momo Inc. has integrated mobile games into their platform to monetize off their large user base. Third parties develop games, and revenues from in-game purchases are shared between Momo Inc. and the developers. Going forward Momo plans to introduce some of their own games.
  • Advertising/Marketing – This is only a minor revenue so far.
  • Virtual gifts or on-site purchases.

Monthly active users reached 85.2 million in March 2017, up 18% year on year. The company continues to improve the platform (Momo 7.6 update – premium video content tab, new video creation and editing tools added),  and the content (covering a wide ranging areas including talent shows, extreme sports, pet story as well as mobile games), to drive user retention (stickiness) and new user growth.

Revenue growth and drivers

Momo’s Q1, 2017 revenue surged by 412% year on year, to reach US $265m, with adjusted net income for the quarter of US $90.7m. Q2, 2017 revenue is forecast by the company to be US $283-288m.

The main revenue driver is live video streaming (3.5m paying subscribers). Added to this are growth in platform wide user numbers, growth in gaming (included soon Momo in house games), as well as future ways to monetize the user base.

Momo revenue – Live streaming brings in almost 80% of revenue:

Source: HadePlatform.com

The graph below shows Momo has been rapidly increasing revenues each year, and has been profitable since 2015.  2016 net income was US $145m, and is forecast to double to US $295m in 2017.  2017 net profit margin is forecast to be 23.95%.  Overall, Momo Stock has very impressive financials and growth, which looks set to continue.

MOMO financials graph

 

Source: HadePlatform.com

Valuation

Momo Inc has a market cap of US $7.6b, zero debt, US $739m cash (as of end March, 2017), and a 1 year return of 262%.  2017 PE is 29.

EPS is forecast to increase by 3.6 fold by end 2019,

MOMO Stock has a history of exceeding analysts’ EPS forecasts

Source NASDAQ

Consensus price target is US $48.30, about 24% upside.

For more information you can view the May 2017 company presentation here.

Competitors

Competitors include other Chinese social networks such as WeChat and QQ (owned by Tencent (OTC:TCEHY)), YY Inc (NASDAQ:YY), Sina Weibo (NASDAQ:WB), and Tieba (Baidu).

Risks

 

Conclusion

Momo Inc. is already a strong player in the China social media industry after only 5 1/2 years of operation, with analysts forecasting 2017 net income of US $295m. They are part Facebook (with message service and profiles), part Google YouTube (short video streaming), and part gaming.  80% of Momo’s users are under 32 years old, and almost 80% of Momo’s revenue comes from live video streaming subscribers.

Valuation looks fair with a 2017 PE of 29, especially given the very strong revenue and profit growth. Moreover, their potential to grow revenue across several areas and their history of exceeding analysts’ forecasts makes MOMO Stock attractive.  The stock price has run up a lot in the past year, but overall market cap of US $7.66b is still small compared to peers.

Momo Inc. does have some very large competitors such as WeChat and Weibo. However, they have carved out their own niche area and are going from strength to strength.  I see them as a possible takeover target, and rate Momo Stock as an “accumulate”.

 

This entry was posted in 2017 Stock Outlook, Hot Stocks, Mergers & Acquisitions, Technology, Timely Analysis Bookmark the permalink.
RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

One Comment

  1. moderena
    Posted June 28, 2017 at 2:47 pm | Permalink

    Ed – I bought MOMO a few days ago. I hope that you are right! The financials look good to me.

4 Trackbacks

  1. […] How Much Higher Can MOMO Inc (ADR) (NASDAQ:MOMO) Stock Go? – BNL Finance (press release) (regi… (bnlfinance.com) […]

  2. […] How Much Higher Can MOMO Inc (ADR) (NASDAQ:MOMO) Stock Go? – BNL Finance (press release) (regi… (bnlfinance.com) […]

  3. By Emagrecer Rapido on June 29, 2017 at 1:56 pm

    Emagrecer Rapido

    How Much Higher Can MOMO Inc (ADR) (NASDAQ:MOMO) Stock Go?

  4. […] How Much Higher Can MOMO Inc (ADR) (NASDAQ:MOMO) Stock Go? – BNL Finance (press release) (regi… (bnlfinance.com) […]

Post a Comment

You must be logged in to post a comment.







Join the 100s Who Beat the Market with a BNL Membership

See What Current Members Are Saying

My Complete Access BNL Membership Includes

  • No contract. Guaranteed results. Cancel anytime.
  • Unrivaled Performance. The BNL Portfolio has outperformed the S&P 500 by 150% since October 1, 2015
  • Access. You know what goes in the BNL Portfolio, David’s Dividend Portfolio, and Eddy’s Options.
  • Alerts. You know when a trade is made in all three managed portfolios with application, text, and email alerts
  • Transparency. Verifiable trade records for the BNL Portfolio, David’s Dividends, & Eddy’s Options
  • Research. We have coverage on more than 50 companies
  • Results. Our 10 highest rated stocks outperformed the market by 134% last year
  • Live Chat. Join 100s of other members in an exclusive Members Only section with Chat
  • Growth. We are the fastest growing financial research platform in our industry.
  • Build My Portfolio. You give us your goals, we help you get there
  • Premium Content. Unlock hidden sections in each article. You also get Value of the Month selections and BNL Research Reports.
  • Community. We have professionals and beginners; retirees and college students; the 99% & 1%, but here, we are all equal.


Like what you see? Sign up for our newsletter and get the latest stock picks straight to your email!

%d bloggers like this: