Momo Inc (ADR) (NASDAQ:MOMO) shareholders could be heard clapping across the Street yesterday, with shares climbing close to 7% on the heels of Fan Liu of Goldman Sachs initiating bullish coverage on the Chinese social media stock. Sizing up compelling value in the stock, the analyst praises the company’s evolution over to “the power of content,” and believes its user base will stand to benefit.
Liu highlights, “MOMO is transforming from a unique location-based social network linking strangers (social ‘pub’) to an entertainment platform containing a variety of content including live streaming, short videos and social games (fun ‘club’). As a result, we expect MOMO’s addressable user base to expand on the back of its broader value proposition, rising user time spent and increasing user stickiness.”
For 2018, the analyst predicts revenue and net income CAGRs will hit 24%, spiraling up to 28% by 2021 on back of user expansion, ARPU growth, and bolstered operating margin.
Breaking down upcoming catalysts that make MOMO a compelling stock worth the investment, Liu points to: “(1) Continuous product innovations to increase the diversity of use cases and improve user stickiness/retention. With MOMO refreshing the app with new big updates every 2-3 weeks, we expect the company to provide a series of updates in the coming months focused on improving the features of version 8.0, which was launched on July 12. (2) Ongoing offering of newformat entertainment content including in-house developed games, variety shows and talent competitions (particularly in the year-end) to attract new users and increase the engagement of existing users.”
Though Momo remains very much “a niche player” in the social networking-verse considering giants like Facebook circling the midst, the Chinese social media stock still has a lot to prove- but Liu’s bet rests behind the company, recognizing a great deal of exciting potential at play.
Therefore, the analyst initiates a Buy rating on MOMO stock with a price target of $46, which represents a 19% increase from current levels.
The financial world seems to back Liu’s trigger pull of confidence, as TipRanks analytics demonstrate MOMO as a Buy. Based on 2 analysts polled by TipRanks in the last 3 months, both are bullish on Momo stock. With a return potential of 27%, the stock’s consensus target price stands at $49.00.