Three months ago, Momo Inc (ADR) (NASDAQ: MOMO ) shareholders were facing a tough decision. Momo stock had lost a third of its value in just the span of a couple of weeks in response to a not-so-bad third quarter reporting, bringing the four-month rout to a loss of more than 50%. The picture looked grim to say the least.
In retrospect, however, those investors who stuck with the troubled stock knew what they were doing. Thanks to today's 9% post-earnings pop, MOMO stock is up more than 60% from its early December low.
Perhaps best of all, continued revenue and profit growth sets the stage for more gains from this largely overlooked equity.
Momo Earnings Recap
One would think with China's bigger and longer-lived social media platforms like those operated by Weibo Corp (ADR) (NASDAQ: WB ) and Tencent Holdings Ltd (OTCMKTS: TCEHY ) (Weibo and WeChat, respectively) there might not be enough room or opportunity for a newcomer to make a dent in the market. Momo has defied the odds, however, proving that something creative and useful can still turn heads.
In simplest terms, Momo connects online users in the offline world. By understanding each of its members' interests, it can connect users with like-minded people. Moreover, use of the mobile app can connect members with other similar Momo users in the same geographic area. It's not just a dating site, but the platform is arguably best suited to play that role online.
And yet, the vast majority of its revenue stems from its role as a provider of live streaming video.
Thanks to the early 2017 acquisition of Zhejiang Shengdian, Momo has an Internet Audio-Visual Program Transmission License and is able to drive ad revenue as well as subscription revenue via its delivery of entertainment content.
Whatever it is, it's working.
For its recently-completed fourth quarter, sales were up 57% year-over-year, to $386.4 million . Non-GAAP profits per ADS grew from 44 cents in the fourth quarter of 2016 to 47 cents per share of Momo stock this time around. The number of monthly active users expanded from 81.1 million a year earlier to 99.1 million.
Analysts were only looking for a profit of 46 cents per share and sales of $381.5 million, prodding a massive 11% rally from MOMO shares on Wednesday.
Realistically speaking though, much of the bullishness before and after Wednesday morning's report reflects the realization that the company continues to grow. Last quarter's fiscal progress and earnings beat were nothing unusual for the organization.
Looking Ahead for Momo Stock
To that end, for the quarter now underway, the company anticipated revenue of between $387 million and $402 million, versus a year-ago total of $265.2 million and analyst estimates of $350.8 million.
The company doesn't provide earnings guidance, but the pros are modeling a profit of 44 cents per share… the same profit total produced in the comparable quarter a year earlier. The company hasn't failed to top earnings estimates for nine straight quarters though, so that outlook may underestimate just how well Momo stock has done over the course of the past few weeks.
Whatever's in the cards, it's going to continue leaning heavily on video.
Momo CEO Yan Tang commented on the quarter and the outlook:
"…due to the initiatives that we have been taking since the fourth quarter, the content ecosystem around the live streaming service is seeing substantial development as we entered into the new year, providing a solid foundation for us to continue to drive content improvement and business growth for live streaming business going forward."
Beginning sometime in the second quarter, Momo's success will also reflect the impending purchase of dating site Tantan , which Momo announced in late February it intended to purchase. It won't be the last such deal though. Tang commented at the time, "We will continue to invest and incubate more sub-brands to serve the social and entertainment needs of different demographics."
The multi-pronged plan appears to be paying off, particularly for owners of Momo stock. With a forward-looking P/E of less than 16.0 though , there's still plenty of upside for newcomers.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter , at @jbrumley.
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