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Momo Bucks Tradition in a Good Way

Rick Munarriz, The Motley Fool

It was easy to be apprehensive heading into Momo's (NASDAQ: MOMO) fourth-quarter results on Wednesday morning. The Chinese social video specialist had seen its stock take double-digit percentage hits in each of its two previous financial outings. Thankfully for investors, the third time was the charm. 

Net revenue climbed 57% to hit $386.4 million, less than half the year-over-year pace it rang up just three months earlier. However, Momo's guidance at the time was calling for $370 million to $385 million on the top line, or 50% to 56% growth. In short, the market was already braced for a sharp deceleration in revenue growth. 

Momo app on a smartphone.

Image source: Momo.

Live video remains king

Live video continues to be a driver at Momo, accounting for nearly 85% of the revenue for the quarter. Unfortunately for investors, running video portals doesn't come cheap, between chunky bandwidth costs and in some cases content licensing overhead. Unlike other dot-com darlings with scalable models, we're not seeing margins widen and profitability grow faster than revenue here. Momo's adjusted earnings rose 20% to $110 million, or $0.53 a share.  

Momo's platform continues to grow in popularity. Monthly active users clocked in at 99.1 million in December, up from the 81.1 million it had a year earlier and a healthy sequential uptick from the 94.4 million it was servicing at the end of the third quarter. 

A big sticking point for Momo stock during the second half of last year -- shares soared 139% through the first half of 2017, only to shed 44% of their value through the final six months -- is the company's lack of premium accounts. Paying users clocked in at 4.1 million in each of the first quarters of 2017. The tally rose to 4.3 million premium members in the fourth quarter. 

Guidance was another thing that tripped up Momo investors last time out, but it's an easier swallow now that the market's braced for decelerating revenue growth. Momo sees revenue clocking in between $387 million and $402 million for the current quarter, 46% to 52% higher than last year's first quarter.

Seeing the stock move higher after earnings is a welcome relief. The stock tumbled 19% the day it posted its unsatisfying third-quarter numbers, and that followed a 20% smackdown the day it served up disappointing second-quarter results. Shares had fallen following four of Momo's five previous quarterly announcements before this week.

Momo is in decent shape. It closed out the year with $1.06 billion in cash and investments. It also announced last month that it was acquiring the social and dating app Tantan, a move that should reaccelerate growth after the transaction closes during the second quarter. Momo was a wild stock last year, but between the market's tempered growth expectations and a reasonable trailing earnings multiple just north of 20, it should be less volatile in 2018.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.