Why Momo Inc. Stock Rose 13% in August

What happened

Shares of Momo Inc. (NASDAQ: MOMO) were moving higher again last month as the Chinese social media company posted a strong second-quarter earnings report, blowing past analyst estimates.

According to data from S&P Global Market Intelligence, the stock finished the month up 13%.

Image source: Getty Images.

As the chart below shows, the earnings report, which came out later in the month, helped the always-volatile Momo overcome a slow start in August.

MOMO August price change. Data source: YCharts.

So what

Momo, which is sometimes called the “Tinder of China” due to its recent acquisition of the dating app TanTan, dipped in the middle of the month, falling 9% on Aug. 14 as rival YY offered weak guidance in its quarterly report.

Momo stock has been especially volatile, gaining 79% the first half of this year after falling 44% in the second half of 2017, so the sell-off wasn’t too surprising.

After recovering most of those losses, the stock surged 9% on Aug. 22 after delivering its own impressive earnings report. Revenue jumped 58% in the quarter to $494.3 million and adjusted earnings per American Depositary Share nearly doubled from $0.35 to $0.66. Both figures beat analyst estimates of $480 million in revenue and $0.61 per ADS. Monthly active users on Momo were up from 91.3 million to 108 million, an increase of 18%. In addition to the added users, Momo is driving revenue growth through live video and value-added services like premium subscriptions.

CEO Yan Tang explained, “Our live streaming business continued to grow robustly. In addition, value-added service revenues for the Momo app more than doubled from a year ago, demonstrating Momo’s monetization potential as a social platform.”

Now what

For the current quarter, the company sees revenue increasing 51%-55% to $525 million-$540 million.

Like its American peer Match Group, Momo is finding a ripe market in online dating, and also trades at a very reasonable valuation, especially for its growth rate, with a P/E ratio of 19. The stock has eased off 5% in the first days of September on a broad sell-off in tech stocks. That could set up a buying opportunity for investors looking to capitalize on this undervalued growth story.

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Jeremy Bowman owns shares of Match Group. The Motley Fool recommends Match Group and Momo. The Motley Fool has a disclosure policy.

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