Momo will announce its 3Q19 results in Nov. We forecast its topline/bottom line to grow 17.5%/32% YoY in 3Q19E. We expect user metrics to rebound QoQ in 2H19E, and keep confident on its long-term user trend. Given its attractive valuation at 10.5x FY20E P/E, compared to its historical valuation, we suggest to buy on dips.
- Expecting solid 3Q19E. We forecast a 17.5% YoY revenue growth to RMB4.3bn in 3Q19E (in line with consensus), and expect adj. net profit up 32% YoY to RMB990mn (1% above consensus). We expect solid financials in 2H19E after regulation headwinds. Eyes on its user recovery and VAS expansion.
- User metrics rebound to come. After user fluctuation in 2Q19, we expect Momo’s MAU and paying users to grow sequentially in 3Q19E, mainly due to: 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.
- 3Q19E financials intact. We expect solid live streaming momentum to continue in 2H19E, driven by offline campaigns promotion and wealth ranks upgrade. We forecast Momo’s livestreaming/ VAS to grow 15%/72% YoY in 3Q19E, while mobile games and marketing to be stable QoQ. We estimate Tantan’s revenue to grow 10% QoQ in 3Q19E, and continuously rebound in 4Q19E. Tantan’s net loss in 3Q19E would widen QoQ (for heavier promotion), but its margin drag to the Group is limited. We forecast its gross margin to decrease 2ppts QoQ, to 48.6% for quarter tournament, while adj.net margin to decline 7ppts QoQ to 23.1% in 3Q19E, with heavier marketing efforts on Tantan. Tantan targets monthly breakeven in domestic market in 2020E.
- Maintain BUY. The stock is now trading at 12.1x/10.5x FY19/20E P/E. Valuation is attractive. We think Momo’s tough time was over, and 3Q19E user metrics recovery and VAS expansion could be further catalysts. We keep our financial forecasts unchanged. Maintain BUY with unchanged TP of US$45 (16x FY19E P/E).
