Momo's (MOMO) Q3 Earnings Beat Estimates, Revenues Rise Y/Y

Momo (NASDAQ:MOMO) reported third-quarter 2019 non-GAAP earnings per American Depositary Share (ADS) of 69 cents, which beat the Zacks Consensus Estimate by 7.8%. The figure jumped 30.2% from the year-ago quarter.

Revenues of $622.8 million surpassed the consensus mark of $614 million.

In domestic currency, the company reported earnings of RMB4.9 per ADS. Revenues increased 22% year over year to RMB4,451.6 million, attributable to growth in Momo's virtual gifting service.

Net revenues from the Momo segment increased 24.5% on a year-over-year basis to RMB4138.9 million ($579.1 million), primarily aided by revenue growth in live-video service and value-added service segments.

Net revenues from Tantan in the reported quarter surged 88.9% on a year-over-year basis to RMB310 million ($43.4 million). This uptick was driven by user recovery trends after the download and payment suspension was lifted, as well as the team's efforts in optimizing its existing premium features to drive better conversion.

On Jun 21, government authorities lifted posting suspension on the popular dating app, Tantan

Segment Details

Live-video service revenues were RMB3,275.4 million (US$458.2 million), up 18.3% year over year. This was backed by product innovation and the company’s operational initiatives during the reported quarter.

Value-added service revenues mainly include membership subscription revenues and virtual gift revenues. Revenues surged 85.7% year on year to RMB1,064.6 million (US$148.9 million). Growth of the virtual gift business on the Momo application and more paying scenarios introduced to enhance the social experience of Momo users. The increase in the membership subscription revenues of Tantan also fueled growth.

On the product side, two of Momo’s earlier product experiments — The Parking Lot and The Farm — reached more than 50% of the daily average user (DAU) penetration, up from the prior quarter’s 40%, owing to continuous upgrades and optimizations.

Notably, 40% of users on the platform connect with others through these virtual community experiences each day.

Mobile marketing revenues plunged 30.2% year over year to RMB81.9 million (US$11.5 million). This downside resulted from lower demand from advertising and marketing customers, and decline in advertisement properties on Momo's platform.

Mobile games revenues slumped 43.4% year over year to RMB15.8 million (US$2.2 million), primarily due to decrease in the number of quarterly paying users.

User Details

Monthly active users (MAU) on Momo application were 114.1 million in September 2019, up 3% year on year. There were 600,000 net additions from the previous quarter.

Total paying users for the Momo platform was 8.9 million, with a 300,000 net addition from the previous quarter. This upside was driven by overall improvement in user engagement, and the company’s product and operational efforts to build richer paying features to improve user experience.

Total paying users of live-video and value-added services, without double counting the overlap and including 4.5 million paying users of Tantan Limited, were 13.4 million in third-quarter 2019 compared with the year-ago quarter’s 12.5 million, which included 3.6 million paying users of Tantan Limited.

Tantan's download and payment service was fully restored by mid-July resulting in strong rebound in the company’s core metrics, including the number of active users and paying subscribers in the third quarter. By Aug 25, the paying users already went back to 4.1 million.

During the reported quarter, the company rolled out paying features within The Parking Lot experience. Such product initiatives contributed to the strong paying user growth in the quarter.

Operating Details

Non-GAAP cost and expenses flared up 17.2% year over year to RMB3,284 million (US$459.5 million). This was due to higher personnel related expenses, rise in revenue sharing with live video broadcasters and higher amortization expenses.

Further, increase in marketing and promotional expenses to enhance brand awareness and attract users and rise in infrastructural spending escalated overall expenses.

Non-GAAP research and development (R&D) expenses were up 28.7% year over year to RMB254 million ($35.5 million).

Non-GAAP sales & marketing (S&M) expenses flared up 60.4% year over year to RMB701.7 million ($98.2 million).

Additionally, non-GAAP general & administrative expenses rose 39.6% year over year to RMB150.4 million ($21 million).

On a non-GAAP basis, the company’s operating income came in at RMB1,196.9 million ($167.5 million), up 40.6% from the year-ago quarter. The non-GAAP operating margin expanded 350 basis points (bps) from the year-ago quarter to 26.9%, driven by revenues generated from value-added services on the Momo platform.

On a non-GAAP basis, operating income of the Momo segment came in at RMB1,364.1 million (US$190.9 million), up 29.2% from the year-ago quarter. Non-GAAP operating margin expanded 170 bps from the year-ago quarter to 30.6%

However, on a non-GAAP basis, the reported operating loss of TanTan segment was RMB164.4 million (US$23.0 million), increasing 24.4% from the year-ago quarter. The non-GAAP operating margin contracted 10 bps from the year-ago quarter to -3.7%.

Balance Sheet & Cash Flow Details

Momo exited the third quarter with cash, cash equivalents, term deposits and short-term investments of RMB13,669.9 million (US$1,912.5 million) compared with the prior quarter’s RMB12,489.8 million ($1.82 billion).

Cash flow from operations was RMB1,175.9 million (US$164.5 million) compared with the RMB1,422 million ($207.1 million) recorded in the prior quarter.

Guidance

For fourth-quarter 2019, revenues are anticipated between RMB4.52 billion and RMB4.62 billion, indicating an increase of 18-20% year over year.

Zacks Rank & Stocks to Consider

Currently, Momo carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are Perficient (NASDAQ:PRFT) , Fortinet, Inc. (NASDAQ:FTNT) and Alteryx, Inc. (NYSE:AYX) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Perficient, Fortinet and Alteryx is currently pegged at 11.75%, 14% and 39.85%, respectively.

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