Momo delivered mixed 2Q20 results, with revenue/adj. net profit -7%/-28% YoY, 1%/1% above consensus. 3Q20 rev guidance came in at -16.9%~-14.6% YoY, midpoint 13% below consensus. 2H20E would still see pressure, given livestreaming structural adjustment, macro uncertainty and suppressed gifting willingness. We are conservative on its short-term recovery pace, given COVID-19 challenges and competition from short videos. We cut our earnings forecast by 29%/11%/11% in FY20/21/22E, and downgrade to HOLD with new TP of US$19.3 (12x FY20E P/E).
- 2Q20 in line, while guidance was soft again. 2Q20 revenue declined 7% YoY, 1% above consensus. Non-GAAP net profit declined 28% YoY, 1% above consensus. However, 3Q20E rev guidance disappointed us at -16.9%~-14.6%YoY, midpoint 13% below consensus. User metrics saw mild recovery, +3% QoQ/ paying users +0% QoQ.
- Limited visibility for recovery. 2Q20 livestreaming revenue -16% YoY, while VAS +27% YoY. 3Q20 guidance miss was mainly on livestreaming structural adjustment. Momo would try to stimulate long-tail gifting by adjusting its traffic mechanism, agents KPI, and content improvement, which might put short-term pressure on its topline growth and gross profit. Mgmt expected earnings to bottom out in 3Q20 and to recover in 4Q20 onwards, with 3ppts negative impact on gross margin from this reform. We are conservative on its livestreaming trend in 2H20E, given reform uncertainty, suppressed gifting willingness and competition. We forecast Momo’s livestreaming rev to decline 18% QoQ in 3Q20E, with VAS +30% YoY.
- Tantan’s monetization to enhance. Tantan’s revenue +81.6% YoY in 2Q20. Its paying users declined to 3.9mn in 2Q20 (vs. 4.2mn in 1Q20), but would saw mild sequential growth in 3Q20E. Tantan enhanced its monetization with strong livestreaming momentum. We expect Tantan’s revenue to grow 34% QoQ in 3Q20E, with higher rev mix from livestreaming.
- D/G to HOLD. To reflect financial drag from Momo’s livestreaming reform, we cut our earnings forecast by 29%/11%/11% in FY20/21/22E, and downgrade to HOLD with new TP of US$19.3 (12x FY20E P/E) from US$29.4. Given multiple challenges from COVID-19 and macro uncertainty, we suggest investors to wait for more clear signals for its livestreaming reform.
