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MOMO Q3 Earnings Meet Estimates, Revenues Up on User Growth

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Momo Inc. (MOMO - Free Report) reported third-quarter 2018 non-GAAP earnings per American Depositary Share (ADS) of 53 cents, which were in line with the Zacks Consensus Estimate and increased 17.8% from the year-ago quarter.

Revenues of $536 million also met the consensus mark and surged 52.1% on a year-over-year basis. Monthly Active Users (MAU) on Momo application were 110.5 million in September 2018 compared with 94.4 million in September 2017.

Total paying users of live-video and value-added services, without double counting the overlap and including 3.6 million paying users of Tantan Limited, were 12.5 million in third-quarter 2018 compared with 7.3 million in the year-ago quarter.

Segment Details

Live-video service revenues (75.9% of total revenues) were $406.9 million, up 34.5% year over year, driven by an increase in the number of paying users and higher average revenues per paying user per quarter.

Value-added service revenues (15.7% of total revenues) mainly include membership subscription revenues and virtual gift revenues. Revenues jumped 220.7% year over year to $84.2 million. Solid growth of the virtual gift business on the Momo application and addition of Tantan’s membership subscription revenues for the whole quarter drove growth.
 

Momo Inc. Price, Consensus and EPS Surprise

Mobile marketing revenues (3.2% of total revenues) declined 1.1% year over year to $17.2 million.

Mobile games (0.8% of total revenues) revenues plunged almost 49% to $4.1 million, primarily due to decrease in the number of quarterly paying users.

Other services mainly consisted of revenues from Phanta City, a TV variety show co-produced by Momo. Revenues (4.4% of total revenues) were $23.5 million in the quarter.

Operating Details

Non-GAAP research & development (R&D) expenses as percentage of revenues increased 230 basis points (bps) to 18.2%.

Sales & marketing (S&M) expenses as percentage of revenues decreased 150 bps to 13.8%. However, general & administrative (G&A) expenses remained almost flat at 2.6%.

Non-GAAP operating expenses as percentage of revenues increased 580 bps to 76.8%. The rise can be attributed to an increase in revenue sharing with the broadcasters related to Momo’s live video service and virtual gift recipients. Content production expenses related to Phanta City and higher personnel costs as well as marketing and promotional expenses also drove operating expenses.

As a result, non-GAAP operating margin contracted 590 bps to 23.3% in the quarter.

Guidance

For fourth-quarter 2018, revenues are anticipated between RMB3,655 million and RMB3,7550 million, representing an increase of 43-47% year over year. The company didn’t provide guidance in terms of U.S. dollar due to the recent volatility and uncertainty in foreign exchange rate.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader sector are Twitter (TWTR - Free Report) , Intel (INTC - Free Report) and Arista Networks (ANET - Free Report) . All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Expected long-term earnings growth for Twitter, Intel and Arista is 22.1%, 8.4% and 21.3%, respectively.

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