We expect Momo to deliver in-line 1Q20E results on 28 May, with revenue at RMB3.48bn (-7% YoY) and adj. net profit at RMB680mn (-25% YoY). 2Q20E would still see pressure, given moderate traffic and suppressed gifting willingness. We turn more conservative on its recovery path, given multiple headwinds and competition from short videos. We slightly cut its bottom line by 2%/8%/5% in FY20/21/22E, and trimmed our TP to US$29.4 (13x FY20E P/E). Maintain BUY for low valuation, and upcoming catalysts (e.g. topline recovery, Tantan’s monthly breakeven).
- Expecting in-line 1Q20E results but soft guidance. We expect Momo’s revenue/ adj. net profit to decline 7%/25% YoY in 1Q20E (at the midpoint of guidance) on account of COVID-19 impact, lucky draw features and weak seasonality. It would take time to see meaningful recovery, and we expect a soft 2Q20E quarter ahead, with topline at RMB3.8bn (-8% YoY, +9% QoQ).
- Livestreaming headwinds yet over. We forecast its livestreaming/VAS revenue to trend -15%/+25% YoY in 1Q20E. User metrics would see decline in 1Q20E, and gradually recover in 2Q20E while financials recovery might lagged behind users. Momo would still bear near-term pressure from COVID-19 in 1H20E due to: 1) soft momentum with work resumption delay and social distance; and 2) suppressed gifting willingness by soft consumption power under macro uncertainty, especially for top spenders. We turn more conservative on its live streaming growth in 2H20E, and expect it to deliver positive revenue YoY growth until 1Q21E. We cut its revenue by 5% in FY20E, to reflect its slower recovery path.
- Tantan to face near-term user growth pressure. We expect Tantan’s MAU & paying users to decline 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. In terms of margin, we forecast its 1Q20E adj. net margin at full-year lowest level of 19.5% owing to higher agencies sharing, soft topline and content innovations.
- Maintain BUY. We cut its earnings by 2%/8%/5% in FY20/21/22E, and trimmed our TP from US$35 to US$29.4 (13x/10x FY20/21E P/E). Given multiple challenges from COVID-19 and traffic pressure in 1H20E, we suggest investors to wait for more clear signals for its recovery.
