Nov 21, 2018 (China Knowledge) - Momo Inc, which is better known for its namesake live-streaming platform and dating application, will be reporting its third quarter earnings next Tuesday on 27th November. Apart from Momo, the company also owns another dating app Tantan and the two apps have been dubbed as the “Tinders of China”.
The company has enjoyed strong performances this year with revenues for the past three quarters growing by more than 50% year-on-year. For the second quarter this year, the company saw its revenue increase by 58% year-on-year and its guiding sales for the third quarter is set between USD 525 million and USD 540 million, representing a 53% increase year-on-year.
Despite this, the company has seen its share price fall by around 40% from its high this year of nearly USD 54 per share and is currently trading at USD 30.63 per share as of yesterday’s close. As of October, Momo currently has a trailing-twelve-months (TTM) price-earnings (P/E) ratio of 14.15.
Compared to the industry average of 31.85 for the internet software and services industry and its strong growth, is this company a steal at its current price?
Momo's strong revenue growth largely stems from its video-streaming segment which generated USD 411 million in the second quarter this year, increasing by 58% from USD 259 million in the second quarter of 2017. The company's video streaming revenues made up more than 80% of its second quarter revenues which stood at USD 494 million. This increase has been mostly driven by the platforms total and paying users. Its platform is reported to have 108 million monthly active users in the second quarter.
While the company has certainly seen impressive growth, it faces some domestic headwinds in the near future.
Firstly, China is imposing stricter regulations on its social media and video streaming market. Live-stream services have to fill up the Internet Content Provider (ICP) form and gain certificates for their services and have to report to the local police station after a show is broadcasted.
The new measures also require real name registration of live-stream viewers and will seek to black-list streamers who violate these regulations to enhance the supervision of these platforms. The new measure may put a dent on Momo earnings and future growth as the company may need to hire more people to enforce standards on its platform to prevent it from being shut-down.
Next, the company also faces increasing competition in China's social media and live-streaming market. China has a burgeoning live-streaming and social video market which is already home to many different live-streaming platforms such as Huya and Yizhibo. Huya currently reports to have 91.5 million monthly active users in the second quarter which isn't far from Momo, while Yizhibo has partnership with microblogging site Weibo which allows users to broadcast within Weibo without installing any new apps.
Social media and video streaming can be fickle in China and any novel developments from its competitors may easily allow them catapult past Momo.
Therefore, while Momo certainly has the potential to be a market leader in China's video streaming market, it does face certain headwinds in terms of uncertain regulatory futures and competition in the market. Momo, which is currently profitable has shown that it has the ability to navigate China's complex regulatory environment. For investors with a larger risk appetite, Momo may indeed turn out to be a strong contender.
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