THE MOTLEY FOOL - Nov 7 - Chinese app maker Momo lost about a third of its market value over the past three months due to concerns about its growth, the rise or rival apps, and tighter regulations regarding social media platforms and streaming videos.
- It's not the "Chinese Tinder"
Momo doesn't use swipes. It lets users find other users to chat with based on their locations. Most of Momo's revenue comes from live video streaming which generated 83% of its sales last quarter.
- Recent live video bans won't hurt Momo
In June, Chinese regulators ordered Weibo, Phoenix New Media's iFeng, and AcFun to stop streaming video and audio content. Some investors thought that this could hurt Momo. However, those three companies didn't obtain a newly introduced government-issued license last year. Both Momo and Tencent's WeChat had obtained that license.
- It's not immune to tighter censorship laws
The government has cracked down on Momo before. Back in 2014, the state-backed media linked Momo to prostitution, and demanded that its users register their real names the following year. At the end of 2016, regulators ordered the shutdown of thousands of live streaming accounts. The new broadcasting license, which Momo obtained last year, also requires the company to retain a backup of all streaming content for 60 days. This means that Momo's most popular accounts could still be abruptly shut down on a case-by-case basis.
- Its user base isn't that big
Its monthly active users rose 22% annually to 91.3M last quarter, and its paid members remained flat at ~4.1M.
- The stock isn't expensive
Momo trades at just 24 times trailing earnings and 13 times forward earnings, which are remarkably low multiples for a company that's expected to post 135% sales growth and 91% earnings growth this year.
Momo is a very risky stock since nearly all of its growth depends on a small % of its active users spending a lot more money on their top broadcasters.