Shares of Momo Inc. (NASDAQ:MOMO) are back to where they started the year at after Q3 earnings report failed to strengthen investors’ confidence in the company. Earnings coming at the lower end of the guidance and Q4 guidance failing to beat expectations all but spooked investors fuelling a sell-off of the stock.
The stock is down by more than 50% from highs registered mid this year. Having lost all the gains accrued for the better part of the year, things are not looking any better, given the strength of the sell-off wave.
Bears are in firm control, having pushed the stock to a critical support level. The stock is staring at the $22 a share mark, a key support level. A breach of the critical support level would open the door for short sellers to push the stock lower in continuation of the emerging downtrend.
Momo needs to hold firm above the $22 a share level if it is to have any chance of averting further slides in the market. Above the $22, a share level the stock would be well positioned to continue trading in a $22 and $44 a share trading range.
Why is Momo Plunging
Mixed Q3 Financial Results
Despite reporting what the Chief Executive officer, Yan Tan, termed as solid financial results, Momo has continued to edge lower. The stock has hit 11 months low on investors reacting to the mixed Q3 financial results.
Net revenue in the quarter came in at $536 million. While it represented a 51% year over year growth, the fact that that it came at the low end of 51% to 55% growth guidance did not go well with the markets. Investors also expected more in revenue growth, which explains why most of them shunned the stock
Net income attributed to shareholders, on the other hand, surged to $85.2 million from $79.1 million reported a year earlier. Net income for the first nine months of the year rose to $332.8 million from $221.1 million deported the same period last year.
“I am pleased that we delivered solid operational and financial results for the quarter. At the same time we continued to push forward on product and operational fronts, in order to build up long-term growth drivers as we start to look beyond 2018 into next year,” said CEO Yan Tang.
For the fourth quarter, Momo expects revenues of between RMB3,655 million and RMB3,755 million representing a 43% to 47% year-over-year increase. The fact that revenues landing on the higher end of the range would still represent the weakest year over year increase also indicates why investors pushed the stock lower.
Active Users Growth
Despite the underperformance in the stock market, Momo’s bottom line continues to grow at an impressive rate. For starters, the Chinese social-video and online dating specialist saw the number of monthly active users in its app increase to 110.5 million from 94.4 million reported years earlier.
The total number of paying users in the live video service surged to 12.5 million from 7.3 million a year earlier. Most of the increase came from the Tantan social dating app that the company acquired last year.
Revenue continues to outpace user growth in part because of greater success when it comes to monetization. The company has also succeeded in transitioning most of the users into using premium offerings from where it generates a good chunk of its revenues.
Momo’s poor run in the market is a point of concern for long-term investors. However, amidst the underperformance in the market, the financial results provide evidence that the company is still in a phase of robust growth. That said the stock remains well positioned to bounce back on stabilizing above the $22 a share level.