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MOMO's Q2 Earnings Miss Estimates, Revenues Decline Y/Y

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Momo (MOMO - Free Report) reported second-quarter 2020 non-GAAP earnings per American Depositary Share (ADS) of 30 cents, which missed the Zacks Consensus Estimate by 33.3% and decreased 63% from the year-ago quarter.

Revenues of $547.5 million also missed the consensus mark of $549 million.

In domestic currency, the company reported earnings of RMB3.05 per ADS. Revenues decreased 6.8% year over year to RMB3.3 billion, attributable to decline in Momo's live videos service.

Net revenues from the Momo segment decreased 13.6% on a year-over-year basis to RMB3.34 billion ($472.8 million), primarily due to the decrease in net revenues from live video service, partially offset by the increase in net revenues from value-added service.

Net revenues from Tantan in the reported quarter surged 81.6% on a year-over-year basis to RMB517.2 million ($73.2 million). This uptick was driven by increase in net revenues from TanTan’s live video service.

Momo Inc. Price, Consensus and EPS Surprise

Segment Details

Live-video service revenues were RMB2.6 billion ($368.4 million), down 16% 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 RMB191.7 million ($27.1 million) in the second quarter of 2020.

Value-added service revenues mainly include membership subscription revenues and virtual gift revenues. Revenues increased 27% year on year to RMB1.2 billion ($170.5 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 50% year over year to RMB81.9 million (US$11.5 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 50% year over year to RMB11.6 million ($1.6 million), primarily due to decrease in the number of quarterly paying users.

User Details

Monthly active users (MAU) on Momo application were 111.5 million in June 2020, down 1.8% year on year. There were 3.5 million net additions from the previous quarter.

Total paying users of live-video and value-added services, without double counting the overlap and including 3.9 million paying users of Tantan Limited, were 12.8 million in second-quarter 2020 compared with the year-ago quarter’s 11.8 million, which included 3.2 million paying users of Tantan Limited.

Operating Details

Non-GAAP cost and expenses increased 2% year over year to RMB2.9 billion ($413.8 million) attributable to an increase in marketing and promotional expenses to attract users on Tantan and an increase in revenue sharing with virtual gift recipients for the company’s virtual gift service.

Non-GAAP research and development (R&D) expenses were up 10.6% year over year to RMB226.6 million ($32 million).

Non-GAAP sales & marketing (S&M) expenses increased 17.6% year over year to RMB590.7 million ($83.6 million).

Meanwhile, non-GAAP general & administrative expenses declined 23% year over year to RMB91.9 million ($13 million).

On a non-GAAP basis, the company’s operating income came in at RMB1.03 billion ($146.6 million), down 28.5% from the year-ago quarter. The non-GAAP operating margin contracted 810 basis points (bps) from the year-ago quarter to 26.8%, 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 RMB1.1 billion ($156.1 million), down 25.9% from the year-ago quarter. Non-GAAP operating margin contracted 730 bps from the year-ago quarter to 28.5%

However, on a non-GAAP basis, the reported operating loss of TanTan segment was RMB62.4 million ($8.8 million), compared with non-GAAP loss from operations of RMB47.9 million in the year-ago quarter.

Balance Sheet & Cash Flow Details

As of Jun 30, 2020 Momo had cash, cash equivalents, term deposits and short-term investments of RMB15.3 billion ($2.17 billion) compared with the prior-quarter’s RMB15.4 billion ($2.18 billion).

Cash flow from operations was RMB807.3 million ($114.3 million) compared with RMB543.5 million ($76.8 million) recorded in the prior quarter.

Guidance

For third-quarter 2020, revenues are anticipated between RMB3.7 billion and RMB3.8 billion, indicating a decrease of 14.6-16.9% year over year.

Zacks Rank & Stocks to Consider

Currently, Momo carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector include Etsy, Inc. (ETSY - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Dropbox, Inc. (DBX - Free Report) and Lenovo Group Ltd. (LNVGY - Free Report) , 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 Etsy, Dropbox and Lenovo Group is currently projected at 26.5%, 34.4% and 13.5%, respectively.

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