Momo delivered solid 2Q19 results after regulatory blow. We expect user metrics to rebound in 2H19E, and keep confident on its long-term user trend. Given its attractive valuation at 10.5x FY20E P/E, we suggest to buy on dips.
- 2Q19 financials beat. 2Q19 revenue grew 32% YoY, 3%/3% higher than our estimates/ consensus. Non-GAAP net profit grew 40% YoY, 21%/14% above our estimates/ consensus. After previous regulations on Momo and Tantan, mgmt. guided solid 3Q19E revenue at RMB4.25bn-RMB4.35bn (midpoint +18% YoY), 3.6%/3.9% above our estimates and consensus.
- Soft user metrics priced in, rebound to come. As stated in our preview report, 2Q19 saw one-off user fluctuation. 2Q19 MAU was flat at 113.5mn (vs. 114.4mn in 1Q19), in line with our estimate. Live streaming & VAS paying users dropped to 11.8mn (-2.2mn QoQ), mainly due to Momo’s self-inspection and Tantan downloads suspension. Excluding Tantan’s paying users (3.2mn in 2Q19 vs. 5.0mn in 1Q19), Momo’s paying users dropped 0.4mn QoQ (mainly due to subscriber decline). We believe the market has well acknowledged this user fluctuation, and expect both MAU and paying users to sequentially increase in 3Q19E. We keep confident on its LT user trend, mainly driven by: 1) rising mid-to-lower spenders through enriching interactive features (e.g. Parking lot <天天抢车位>); 2) updated paying user ranking system with offline promotion; and 3) Tantan’s recovery.
- Moving to 2H19E recovery, with financials intact. Momo’s livestreaming /VAS grew 18%/169% YoY, 2%/6% above our estimates. We expect solid live streaming momentum to continue in 2H19E, driven by offline campaigns promotion and wealth ranks upgrade. We forecast Tantan’s revenue to grow 10% QoQ in 3Q19E, and continuously rebound in 4Q19E. Tantan’s net loss in 3Q19E would widen (for heavier promotion), but its margin drag to the Group is limited. Given its solid 2Q19 results, we lifted its adj. net profit by 3%/0%/0% in FY19/20/21E.
- Maintain BUY. The stock is now trading at1x/10.5x FY19/20E P/E. Valuation is pretty attractive. We think Momo’s tough times were over, and 3Q19 user metrics recovery and VAS expansion could be further catalysts. Maintain BUY with unchanged TP of US$45 (16x FY19E P/E).
