Mobile instant messaging app company Momo (MOMO) released first-quarter earnings Tuesday, as positive earnings sent shares up about 4% in trading Wednesday. The company reported revenue increased 35% since this time last year, while profit came in better than expected, at $0.62 per share. Among the most important revenue segments, its “value-add services,” grew 285%, which contributed to strong revenue growth while other segments slipped.
On the release, Nomura analyst Jialong Shi maintains his Buy rating on MOMO stock, while slightly raising his price target from $47 to $49. If the price target is reached within 12 months, that would provide a 12-month return of nearly 75%. (To watch Shi’s track record, click here)
Momo’s strong growth was significantly higher than consensus at 4%, with Shi saying Tantan revenue growth remained “robust at 34% q-q to reach 8% of Momo’s revenue.” Furthermore, while EPS was down 10% since this time last year, it still came in 16% higher than Wall Street consensus.
Looking ahead, Shi believes that “earnings will likely resume positive [year-over-year] growth from 2Q on margin expansions backed by leverage on marketing and R&D expenses.” Guidance for the second quarter calls for between 27-30% growth in revenue, with a midpoint higher than Wall Street estimates.
While Momo faces increased regulation in China on its Tantan app, Shi says “the guidance beat suggests the recent regulations have had limited impact on Momo’s organic businesses, i.e., VAS (value-added services) and live broadcasting.” The analyst continues, believing “Momo app’s user engagement will be able to recover post 11 June, when the [regulation of its] timeline service is resumed.”
Though Shi admits there is “no clarity as yet when Tantan’s operation can fully normalize,” the analyst believes regulators are “unlikely to inflict any further punishment” on the app with over 10 million daily active users. Yet, Shi says if he were to remove Tantan from his forecasts, the stock still “appears cheap enough to have factored in the regulatory uncertainties around Momo.”
Overall, since the Chinese regulation against Tantan sent its stock down more than 20% in a one-month period, shares are still up about 10% for the year. But Shi says, “with cheap valuation, a healthy earnings growth (16% y-y for Momo Core in FY19F/20F) and macro defensive businesses…[Momo is an] attractive stock to own amidst current market volatility.”
All in all, Momo stock has one of the best ratings by the Street. TipRanks reveals that Momo has a Strong Buy analyst consensus rating with 6 back-to-back buy ratings in the last three months. Meanwhile the average analyst price target of $44.42 suggests the stock still has upside potential of nearly 60% from the current share price for the next 12 months. (See MOMO’s price targets and analyst ratings on TipRanks)