Poor Quarterly Earnings Break the Hearts of Investors in Dating App Momo
Shares of Nasdaq-listed Momo Inc., which operates two of China's biggest dating apps, were down nearly 16% at market close on Thursday after the company reported worse-than-expected earnings, saying its dependance on high-end paying users left it vulnerable to their fading fortunes when the pandemic struck.
Revenue fell almost 7% in the second quarter to 3.9 billion yuan ($5.65 billion), while net profit plunged 38% to 456 million yuan, translating to about 3.05 yuan in earnings per share.
The company performed slightly below the coronavirus-tempered expectations of analysts polled by Yahoo Finance. The firm expects profits and revenue to dip further in the next quarter before a potential recovery, according to its latest quarterly earnings report released Wednesday.
The Nasdaq-listed dating guru’s 6.85% year-on-year revenue decline widened from 3.46% in the first quarter, accelerating a slow but steady decline since 2017. Even before the coronavirus scared off online romance-seekers, revenue growth for the app had tapered off from 34.67% in the first quarter of 2019 to 21.96% in the last.
In addition to its namesake dating app Momo, the company operates a similar online dating app called Tantan that it acquired in 2018. Despite having a more specific focus on matching users to go on offline dates, Tantan managed a successful pivot to livestreaming business amid the pandemic. Unlike Momo, Tantan recorded 81.6% revenue growth in the second quarter, reaching 517 million yuan, with 192 million attributed to its new livestreaming feature.
The Momo app had already evolved from a simple location-based dating app into a diversified social messaging and networking platform incorporating various entertainment functions including short videos, livestreamed broadcasts and group video chats. It served 111.5 million monthly active users in June, with 12.8 million of them paying for video streaming and other value-added services in the second quarter, representing a year-on-year 8.4% jump.
But the company has failed to translate that increase in paying users into revenue growth. Revenue from livestreaming studios, Momo’s largest source of income, shrank 16% in the second quarter to 2.6 billion yuan, following a 13% year-on-year decline in the first quarter.
The matchmaking service provider said the lackluster results have helped it realize vulnerabilities and lack of balance in its current broadcasting ecosystem, including an over-reliance on payments from high-end users and user traffic generated by a small set of popular broadcasters. It said it is set to make adjustments.
“A considerable number of our high paying users are private business owners whose financial conditions have been negatively affected by the pandemic,” Yan Tang, Momo’s chairman and CEO, said in the company’s earnings call. “We believe it is safer to reduce the revenue concentration on the top and move the spending toward the middle layers within the pyramid,” he added.
Momo expects revenue for the third quarter to stand between 3.7 billion to 3.8 billion yuan, a 16.9% to 14.6% drop compared with the same period last year.
The company’s board also approved a share buyback plan to repurchase $300 million worth of Momo shares in the next 12 months. Yan said he believed the deal “will allow the company to capitalize on attractive share prices to enhance shareholder value.”
Contact editor Gavin Cross (firstname.lastname@example.org)
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