Momo delivered mixed 4Q19 results, with topline/bottom line growing 22%/41% YoY, 2%/13% above consensus, while 1Q20E guidance was soft (18% below consensus). Given multiple headwinds (e.g. COVID-19 impact, regulation limitation), we expect Momo to suffer financials YoY decline in 1H20E, and see meaningful recovery until 2H20E. We cut its earnings by 27%/15% in FY20/21E, and trimmed our TP to US$35. Maintain BUY with low valuation.
- 4Q19 beat, while guidance soft. 4Q19 revenue grew 22% YoY, 2%/2% above our estimates/ consensus. Non-GAAP net profit grew 41% YoY, 1%/6% above our estimates/consensus. 1Q20E guidance was soft on COVID-19 impact, lucky draw features and weak seasonality. Mgmt. guided 1Q20E revenue at RMB3.45bn~RMB3.55bn (midpoint -6% YoY), 18% below consensus. Momo declared a special dividend of US$0.76 per ADS.
- Waiting for 2H20E recovery under COVID-19 impact. 4Q19 livestreaming revenue +14% YoY, while VAS +64% YoY. Momo would bear near-term pressure from COVID-19 in 1Q20E, for: 1) weak traffic with work resumption delay and outdoor activities limitation; and 2) suppressed gifting willingness by soft consumption power under macro uncertainty, especially for top spenders. Mgmt expect revenue QoQ growth from 2Q20, and YoY growth in 2H20E. We forecast its livestreaming/VAS revenue to trend -17%/+20% YoY in 1Q20E. Looking ahead, Momo will enrich innovative features to enhance user retention, and penetrate into low-tier cities.
- Tantan to face near-term user growth pressure. Tantan’s revenue +66% YoY in 4Q19, with paying users flat at 4.5mn. We expect Tantan’s MAU & paying users soft trend to continue in 1Q20E, for iOS new subscription policy and weak engagement with outdoors limitation under COVID-19. We expect Tantan’s revenue to grow 20% YoY in 1Q20E, and to accelerate in 2H20E, supported by user recovery and enhanced features. Tantan would see narrowing net loss quarter by quarter in FY20E. We forecast the Group’s non-GAAP OPM to decline 5ppts YoY for higher agencies sharing, soft topline and content innovations, while 1Q20E margin at lowest level.
- Maintain BUY. We cut its earnings by 27%/15% in FY20/21E, and trimmed our TP from US$45 to US$35 (15x/11x FY20/21E P/E). Despite multiple challenges from COVID-19 and traffic pressure in 1H20E, we keep positive on Momo’s long-term content innovations and VAS expansion.
