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Momo's (MOMO) Q1 Earnings and Revenues Surpass Estimates

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Momo Inc. (MOMO - Free Report) reported first-quarter 2019 non-GAAP earnings per American Depositary Share (ADS) of 62 cents, which beat the Zacks Consensus Estimate of 55 cents. However, the figure declined 4.8% from the year-ago quarter.

Revenues of $554.7 million surpassed the consensus mark of $533 million and increased 35% on a year-over-year basis attributable to growth in Tantan subscription business and Momo's virtual gifting service.

Net revenues from Momo segment increased 24% on a year-over-year basis to $509.5 million primarily due to revenue growth in live-video service and value-added service segments. Revenues from Tantan in the reported quarter were $44 million.

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 (72.2% of total revenues) were $400.7 million, up 14% year over year, driven by an increase in the number of quarterly paying users and higher average revenues per paying user per quarter.

Value-added service revenues (24.3% of total revenues) mainly include membership subscription revenues and virtual gift revenues. Revenues surged 285% year over year to $134.7 million. Solid growth of the virtual gift business on the Momo application and consolidation of Tantan’s membership subscription revenues for the whole quarter drove growth.

Mobile marketing revenues (2.2% of total revenues) declined 32% year over year to $12 million. This decline was due to lower demand from advertising and marketing customers. Additionally, “regulatory changes and challenging macro environment” hurt mobile marketing revenues.

Mobile games (1% of total revenues) revenues declined 8% year over year to $5.8 million, primarily due to decrease in the number of quarterly paying users.

User Details

Monthly active users (MAU) on Momo application were 114.4 million in March 2019 compared with 103.3 million in the year-ago quarter.

Total paying users of live-video and value-added services, without double counting the overlap and including 5 million paying users of Tantan Limited, were 14 million in first-quarter 2019 compared with 8.1 million in first-quarter 2018.

The growth was due to initiatives taken by Momo coupled with seasonal factors. Notably, net user additions in the quarter were 1.1 million.

Operating Details

Total cost and expenses surged 83% year over year to $499.1 million. This was due to higher personnel related expenses, increase in revenue sharing with live video broadcasters and higher amortization expenses.

Further, increase in marketing and promotional expenses to enhance brand awareness and lure users contributed to the increase in expenses.

Research & development (R&D) and sales & marketing expenses increased 123.9% and 121.5% year over year to $37.2 million and $92.9 million respectively. Additionally, general & administrative expenses surged 451% year over year to $89.8 million.

The company’s operating income plunged 59% year over year to $57.3 million.

Balance Sheet & Cash Flow Details

Momo exited the quarter with cash, cash equivalents, term deposits and short-term investments of $1.79 billion compared with $1.64 billion in the prior quarter.

Cash flow from operations was $175.2 million compared with $169.2 million in the prior quarter.

Guidance

For second-quarter 2019, revenues are anticipated between RMB4.0 billion and RMB4.1 billion, indicating an increase of 27-30% year over year.  

Momo stated that it is taking up initiatives to boost “top user spending” in second-quarter 2019. However, the company’s revenues and user base may be negatively impacted by the removal of Tantan from App Store due to regulatory issues.

Moreover, the number of paying users may also decline in second-quarter 2019 as Apple (AAPL - Free Report) has stopped in-app purchases for Tantan. Notably, the above factors are already included in the guidance.

Recent Development

Momo declared a special cash dividend of 62 cents per ADS or 31 cents per ordinary share on Mar 12, 2019. Notably, the company paid the cash dividend on Apr 30 to shareholders as of Apr 5.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Computer Technology sector include Microsoft Corporation (MSFT - Free Report) and ServiceNow, Inc. (NOW - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Microsoft and ServiceNow is pegged at 12.4% and 28% respectively.

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