MOMO STOCK - THE TINDER OF CHINA!
Chinese social media & dating stock Momo was growing both revenue and earnings at over 60% back in 2018! The stock hit an all time high before a string of bad news sent Momo spiralling over 80%! The stock may have recently established a bottom after rising 50% this year... Is this merely a bear trap or is Momo ripe for a 𝗛𝗨𝗚𝗘 𝗥𝗘𝗕𝗢𝗨𝗡𝗗?
let’s start with the problems that sent Momo falling in the first place! The bad news began when Alibaba decided to unload it’s 20% stake in the business back in 2017! Not only does this show a 𝗟𝗔𝗖𝗞 𝗢𝗙 𝗖𝗢𝗡𝗙𝗜𝗗𝗘𝗡𝗖𝗘 from Alibaba but it also killed any possibility of $BABA acquiring the social media start-up or even integrating the app into some of its services!
These negative connotations were compounded further when Chinese tech stocks all took a beating over 𝗧𝗥𝗔𝗗𝗘 𝗪𝗔𝗥 fears between China & the US! Despite a recovery for the Chinese stock market, Momo couldn’t catch a break and the company was targeted by short sellers who claimed that the app was being used for 𝗜𝗟𝗟𝗘𝗚𝗔𝗟 𝗚𝗔𝗠𝗕𝗟𝗜𝗡𝗚 𝗔𝗖𝗧𝗜𝗩𝗜𝗧𝗬 and money laundering!
The reports turned out to be correct and Momo had to restructure its business to clamp down on this illegal activity and since they did that, the company has reported an 𝗔𝗟𝗔𝗥𝗠𝗜𝗡𝗚 deceleration in earnings growth and this has pushed the stock even lower!
Finally, the cherry on top for Momo was the coronavirus given that their app is essentially the 𝗧𝗜𝗡𝗗𝗘𝗥 𝗢𝗥 𝗕𝗨𝗠𝗕𝗟𝗘 of China! During the pandemic of course there’s been nowhere to go out on dates and in most regions it’s been illegal to meet up with strangers and therefore the key reason behind why people use Momo’s app has become redundant!
So that’s the bad news and the story behind Momo’s disastrous last couple of years but now let’s talk about the positives and whether or not Momo could now represent a huge 𝗕𝗨𝗬𝗜𝗡𝗚 𝗢𝗣𝗣𝗢𝗥𝗧𝗨𝗡𝗜𝗧𝗬!
Firstly, it’s worth noting that just before the problems started in 2018 – Momo acquired rival platform “tantan” giving it 𝗖𝗢𝗠𝗣𝗟𝗘𝗧𝗘 𝗖𝗢𝗡𝗧𝗥𝗢𝗟 of the online dating market in China! Due to the pandemic we’ve not yet seen any noticeable revenue or earnings growth from this acquisition however when the world goes back to normal Momo should benefit massively from their Tinder like apps!
Not only that but Momo and tantan had barely scratched the surface in terms of monetising their platforms before the lockdown and therefore the opportunity for 𝗔𝗗 𝗥𝗘𝗩𝗘𝗡𝗨𝗘 growth is huge!
Lastly, I want to point out a few 𝗙𝗨𝗡𝗗𝗔𝗠𝗘𝗡𝗧𝗔𝗟𝗦 that I think make Momo’s stock quite attractive! Although Momo’s recent lack of revenue growth makes it hard to compare to other growth stocks, it is likely that when lockdown’s lifted Momo will benefit considerably and therefore I’m going to treat it kind of like a growth stock!
With that in mind, Momo’s price to sales ratio of less than 2 is 𝗥𝗜𝗗𝗜𝗖𝗨𝗟𝗢𝗨𝗦𝗟𝗬 𝗖𝗛𝗘𝗔𝗣 if you believe the company can rediscover it’s mojo when lockdown is lifted and people start dating again! Despite posting 3 year revenue growth that beats the likes of Snap, Pinterest and other social media platforms, Momo trades 15-20x cheaper on a price to sales ratio!
Not only that but Momo is 𝗘𝗫𝗧𝗥𝗘𝗠𝗘𝗟𝗬 𝗣𝗥𝗢𝗙𝗜𝗧𝗔𝗕𝗟𝗘, has great cash flow and pays a 3% dividend!
So there you go, that’s the story of Momo – If you didn’t already know then hopefully you now understand the background of the stock and can make an informed decision on whether or not to join in the 𝗥𝗘𝗖𝗘𝗡𝗧 𝗥𝗔𝗟𝗟𝗬!
As I mentioned above, there are numerous risks attached to this name however there are signs that the stock is bottoming and therefore those who avoided trying to catch this falling knife may well be tempted back!
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