MOMO's Q3 Earnings Beat Estimates, Revenues Decline Y/Y

Momo MOMO reported third-quarter 2020 non-GAAP earnings per American Depositary Share (ADS) of 31 cents, which beat the Zacks Consensus Estimate by 29.2% but decreased 45.6% from the year-ago quarter.

Revenues of $554.8 million also beat the consensus mark by 2.2%.

In domestic currency, the company reported earnings of RMB2.11 per ADS. Revenues decreased 15.4% year over year to RMB3.7 billion, attributable to decline in Momo's live videos service and mobile game revenues.

Net revenues from the Momo segment decreased 26.6% on a year-over-year basis to RMB3.03 million ($447.3 million), primarily due to the decrease in net revenues from live video services, partially offset by the increase in net revenues from value-added services.

Net revenues from Tantan in the reported quarter surged 135.1% on a year-over-year basis to RMB728.9 million ($107.4 million). This uptick was driven by increase in net revenues from TanTan’s live video services and value-added services.

Momo Inc. Price, Consensus and EPS Surprise

Momo Inc. Price, Consensus and EPS Surprise

Momo Inc. price-consensus-eps-surprise-chart | Momo Inc. Quote

Segment Details

Live-video service revenues were RMB2.37 billion ($349.8 million), down 27% year over year due to a decline in top-of-the-pyramid paying users as a result of the coronavirus outbreak.

Meanwhile, Tantan has been accelerating the testing of its live video service since the middle of April. Live video service revenues from Tantan were RMB396.7 million ($58.4 million) in the third quarter of 2020.

Value-added service revenues mainly include membership subscription revenues and virtual gift revenues. Revenues increased 25% year over year to RMB1.3 billion ($196 million) attributable to growth of the virtual gift business on the Momo application driven by more innovative features launched and more paying scenarios introduced to enhance the social experience of Momo users. The increase in the membership subscription revenues of Tantan also fueled growth.

Mobile marketing revenues plunged 38% year over year to RMB50.4 million ($7.4 million). This downside resulted from lower demand from advertising and marketing customers, and decline in advertisement properties on Momo's platform.

Mobile games revenues slumped 49% year over year to RMB8 million ($1.2 million), primarily due to decrease in the number of quarterly paying users.

User Details

Monthly active users (MAU) on Momo application were 113.6 million in September 2020, down 0.4% year over year. There were 2.1 million net additions from the previous quarter.

Total paying users of live-video and value-added services, without double counting the overlap and including 4.1 million paying users of Tantan Limited, were 13.1 million in third-quarter 2020 compared with the year-ago quarter’s 13.4 million, which included 4.5 million paying users of Tantan Limited.

Operating Details

Non-GAAP cost and expenses decreased 7.1% year over year to RMB3.05 billion ($449.5 million)  attributable to decrease in personnel related costs and a decrease in revenue sharing with broadcasters related to live video service

Non-GAAP research and development (R&D) expenses were down 0.7% year over year to RMB252.2 million ($44 million).

Non-GAAP sales & marketing (S&M) expenses decreased 29.7% year over year to RMB696 million ($11.1 million).

Meanwhile, non-GAAP general & administrative expenses declined 0.8% year over year to RMB105.8 million ($27 million).

On a non-GAAP basis, the company’s operating income came in at RMB737.6 million ($108.6 million), down 38.4% from the year-ago quarter. Non-GAAP operating margin contracted 730 basis points (bps) from the year-ago quarter to 19.6%, attributed to decline in live video service revenues on the Momo platform.

On a non-GAAP basis, operating income of the Momo segment came in at RMB805.8 million ($118.7 million), down 40.9% from the year-ago quarter. Non-GAAP operating margin contracted 920 bps from the year-ago quarter to 21.4%

However, on a non-GAAP basis, reported operating loss of TanTan segment was RMB64.7 million ($9.5 million), compared with non-GAAP loss from operations of RMB164.4 million in the year-ago quarter.

Balance Sheet & Cash Flow Details

As of Sep 30, 2020 Momo had cash, cash equivalents, term deposits and short-term investments of RMB15.7 billion ($2.3 billion) compared with the prior-quarter’s RMB15.3 billion ($2.17 billion).

Cash flow from operations was RMB691.1 million ($101.8 million) compared with RMB807.3 million ($114.3 million) recorded in the prior quarter.

Guidance

For fourth-quarter 2020, revenues are anticipated between RMB3.65 billion and RMB3.75 billion, indicating a decrease of 20-22.1% year over year.

Zacks Rank & Stocks to Consider

Currently, Momo carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include The Trade Desk TTD, sporting a Zacks Rank #1 (Strong Buy), and Dropbox DBX and Shopify SHOP, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for The Trade Desk, Dropbox and Shopify is currently projected at 40%, 40.8% and 32.5%, respectively.

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