Momo delivered mixed 3Q20 results, with revenue/adj. net profit -15%/-40% YoY, 1%/15% above consensus. 4Q20 rev guidance missed 6%, given livestreaming structural adjustment, macro uncertainty, suppressed gifting willingness and disciplined S&M. We are conservative on its short-term recovery pace, given COVID-19 challenges and competition from short videos. We adjusted our earnings forecast by +4%/-5%/-4% in FY20/21/22E, and cut our TP to US$15.5 (9x/8x FY20/21E P/E).
- 3Q20 beat, while guidance was soft again. 3Q20 revenue declined 15% YoY, 1% above consensus. Non-GAAP net profit declined 40% YoY, 15% above consensus. However, 4Q20E rev guidance disappointed us at -20% to -22% YoY, midpoint 6% below consensus. User metrics saw mild recovery, +2% QoQ/ paying users +2% QoQ.
- Multiple headwinds yet over. 3Q20 livestreaming revenue -27% YoY, while VAS +25% YoY. 4Q20 guidance miss was mainly on continuous livestreaming structural adjustment due to new regulation, conservative tournament, and soft gifting willingness. We expect Momo 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. We forecast Momo’s core rev to decline 4% QoQ in 4Q20E, with livestreaming/VAS -45% YoY/+25% YoY. 4Q20E gross margin might see 1-2 ppts QoQ decline for incremental cost on hosts.
- Conservative marketing in Tantan for high TAC in 4Q20E. Tantan’s revenue +48% YoY in 3Q20. Its paying users recovered to 4.1mn in 3Q20 (vs. 3.9mn in 2Q20), but would saw sequential decline in 4Q20E for SVIP launch and disciplined marketing given high TAC in ecommerce seasonality. Tantan would still be long-term growth engine despite short-term pressure. We expect Tantan’s revenue to be flat QoQ in 4Q20E.
- Maintain HOLD. To reflect financial drag from Momo’s livestreaming reform, we adjust our earnings forecast by +4%/-5%/-4% in FY20/21/22E, and cut our TP to US$15.5 (9x/8x FY20/21E P/E) from US$19.3. Given multiple challenges from COVID-19 and macro uncertainty, we suggest investors to wait for more clear signals for its livestreaming reform.
