Momo delivered solid 3Q19 results, with topline/bottom line growing 22%/41% YoY, 3%/10% above consensus. 4Q19 guidance modestly beat. Despite slower-than-expected user recovery, we suggest investors to look beyond 3Q19, and focus more on VAS long-term expansion and potential surprise from its new app. Maintain BUY with unchanged TP of US$45.
- 3Q19 beat. 3Q19 revenue grew 22% YoY, 4%/3% higher than CMBI/ consensus. Non-GAAP net profit grew 41% YoY, 11%/10% above CMBI/ consensus. Mgmt. guided solid 4Q19E revenue at RMB4.52bn-RMB4.62bn (midpoint +19% YoY), 1% above consensus.
- Modest user recovery in 4Q19E on anti-spam efforts. Momo’s 3Q19 MAU flat at 114.1mn (vs. 113.5mn in 2Q19), while paying users up to 13.4 mn (+14% QoQ). We expect modest sequential growth for both Momo’s MAU and paying users in 4Q19E, for anti-spam efforts. Tantan’s paying users reached 4.5mn (vs. 3.2mn in 2Q19), and we expect its paying users to see sequential growth (but lower than 5mn net adds in 1Q19) in 4Q19E for anti-spam and iOS issues. Despite slower-than-expected user recovery, we keep positive on its long-term user expansion, driven by enriching interactive features and upcoming lower-tier cities penetration.
- 4Q19E margin intact. Momo’s livestreaming/VAS grew 18%/84% YoY in 3Q19, above our estimates. We expect solid live streaming momentum to continue in 4Q19E. We estimate Tantan’s revenue to grow 52% YoY in 4Q19E. More upside might derive from its Flash chat features and enhanced monetization. We expect its GPM to decline 2ppts QoQ (for annual tournament), but OPM to stay intact in 4Q19E (mainly on manageable S&M and R&D efforts).
- Maintain BUY. We keep financials estimate barely changed, and maintain our TP of US$45 unchanged (14x FY20E P/E). The stock is now trading at 13.6x/11.3x FY19/20E P/E. Valuation is pretty attractive. We suggest investors to look beyond modest 3Q19 and weak seasonality in 1Q20, and focus more on VAS long-term expansion supported by Tantan’s new features, Momo’s VAS enhancement, and its new app initiatives (e.g. More Serious Matchmaking <牵手恋爱>).
