Momo Inc. (MOMO) is trading lower (-16%) in early trading after reporting Q3 results this morning despite reporting a nice beat. The problem appears to be that the Q4 revenue guidance was just in-line. Last quarter, they beat and guided sharply higher, so this in-line guidance is being seen as a bit of a disappointment. Another item weighing on the stock is that three board members resigned for personal reasons.
In terms of quick background, it operates Momo, one of China's largest mobile-based social networking platforms (similar to Tinder in the US). Momo users can build relationships through private and group communication tools, content creation and sharing functions, recreational activities such as gaming, as well as offline social activities. Momo offers a personal and lively way for users to discover people nearby, and facilitates the connecting and content sharing with others. Momo features various location and interest-based features, including Nearby functions, live broadcast and others.
Its Momo app can be downloaded and used free of charge. MOMO generates revenue from the various services it offers on the Momo platform. Its core business is its dating app and it has been growing very quickly. However, MOMO has been expanding in other areas, such as live video, mobile games and music.
Currently, its largest driver of revenue by far is its Momo Live Video Service, which launched in September 2015. This segment generates revenue when users purchase and send in-show virtual gifts to broadcasters. Initially, the service adopted an online live concert format whereby MOMO invited certain talented performers to put on live music shows in a professional studio environment. Such shows were broadcasted live on a daily basis and at pre-announced times.
Until April 2016, MOMO offered the service to just a limited number of talented performers pre-selected carefully by Momo. In April 2016, the company opened up the service to all users of the Momo platform so that each one of them can become a broadcaster if they wish. Revenue has been ramping primarily due to the increase in the number of broadcasters and paying users. Paying users for its live video service increased from 0.2 million in 2015 to 5.6 million in 2016.
MOMO also has a Mobile Marketing Services unit, which provides advertising services to enable customers to develop ad campaigns and post ads on the Momo platform. MOMO also provides customers with analytical tools to help them to track and improve the effectiveness of their marketing campaigns. In terms of mobile gaming, MOMO's app offers games primarily developed by third-party developers. Games on its platform are designed with a variety of themes, cultural characteristics and features to appeal to different segments of the game player community.
Turning to the Q3 results, non-GAAP income per ADS was $0.45, nearly double the $0.24 reported in the same period last year and above market expectations. Revenue increased 126% year over year to $354.5 mln, which was a good bit above prior guidance of $337-342 mln. Monthly Active Users (MAU) were 94.4 mln in September 2017, compared to 77.4 mln in Sep 2016. In terms of guidance, MOMO sees Q4 revenue of $370-385 mln, which is in-line with market expectations.
Live video service continued its momentum and generated revenue of $302.6 mln in Q3. The rapid growth in live video revenue was driven by the increase in the quarterly paying users, which was 4.1 mln in Q3. There was also an increase in the average revenue per paying user per quarter.
In addition to earnings, the company also announced that three board members resigned for personal reasons. The board of directors has appointed COO Li Wang as a new member of the board.
Despite the good numbers, the stock is trading lower this morning. Our sense is that the Q4 revenue being just in-line is being seen as a disappointment after they had guided sharply higher in each of the prior three quarters. Also, the resignation of three board members is a concern. Even though they say it's for personal reasons, this kind of news makes investors nervous. Also, Joseph C. Tsai, one of the directors who resigned for personal reasons, is a co-founder of Alibaba (BABA). BABA had been a major investor in MOMO but has been decreasing its stake over the past year.