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Momo: "Tinder of China"
10/18/2016 10:00 am EST
This company, sometimes called the Tinder of China, provides a mobile networking platform that uses subscriber profiles to find other nearby subscribers and rank them by common interests and demographics to create a kind of instant introduction, states Paul Goodwin, editor of Cabot Emerging Markets Investor.
Momo (MOMO), of course, denies that it’s a hook-up site, and says that it’s just a way to find new friends. The company has branched out from that core business, adding features (and revenue sources), with more on the way.
The service, which is aimed exclusively at mobile device users, launched in 2011, first for iOS users and later for Android users. By 2012, registered users had topped 22 million.
In just three years, Momo has become a major player in the Chinese mobile ecosystem and boasts over 180 million users on its social network, including 74.8 million monthly active users.
Momo also achieved profitability in an impressively short time, reporting its first positive earnings in the 1st quarter of 2015.
The company gets the largest segment of its revenue from membership subscriptions, with substantial chunks coming from mobile marketing and games.
Momo’s latest quarterly report featured revenue growth of 222% and earnings growth of 500%, with an after-tax profit margin of 23.5%. Estimates call for EPS growth of 488% in 2016 and 83% in 2017.
The story has included some interesting twists this year, including takeover rumors. However, a letter withdrawing a bid to go private has given MOMO a significant lift.
Our speculation is that the success of the company’s expanding menu of services made it more attractive to continue as a public entity and enjoy the appreciation of its owners’ stock and options.
With the possibility of going private off the table (at least for now), we think the prospects for further appreciation are excellent.
We will start MOMO with a buy rating and recommend a half position, with the possibility of filling the position if the stock fulfills our expectations.
By Paul Goodwin, Editor of Cabot Emerging Markets Investor
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