Originally posted on https://financhill.com/blog/investing/momo-stock-price-prediction
Some investors like to pick their investments from the names they hear in the media. Stocks that are seeing major growth get a lot of attention. However, you should never buy a stock blindly. Before you ante up, spend some time researching the company, what it does, and its risk factors.
Let’s look at a company getting a lot of attention lately – Momo, Inc. [NASDAQ: MOMO].
What is Momo?
Momo [NASDAQ: MOMO] is more than a company. It is also an app – but you won’t find it in your app store if you are based in the United States. That’s because Momo [NASDAQ: MOMO] is a social networking app that is dedicated to serving people in China.
It has a few different components to it. On the one hand, Momo [NASDAQ: MOMO] connects people who have similar interests or spend time in the same place. Because of this, the platform got a reputation as a hook-up app.
However, Momo is more than that. On the other hand, the platform lets users connect in chatrooms, perform karaoke, and play games together.
Sounds fun, right? But should put your hard-earned money into the stock?
Should You Invest in Momo Stock?
Momo [NASDAQ: MOMO] combines a lot of different features that people want in a modern social network, and the company has its eye on strategic growth. From fiscal 2017 to fiscal 2018, Momo boosted its net revenues by over 50% year over year.
In May 2018, Momo acquired the China-focused, Tinder-esque app, Tantan. The purchase was smart because Momo effectively bought its closest competitor, effectively doubling its market share – but that acquisition came with a bigger cost than its price tag.
In April 2019, app stores in China began removing Tantan from its offerings – government orders. The app itself was not shut down, only the ability for new users to download the app.
On April 29, 2019, Momo issued a statement: “The Company is proactively communicating with the relevant government authorities and intends to fully cooperate with such authorities in order to restore the availability of the Tantan mobile app in the subject mobile app stores as soon as possible.
The Company also plans to conduct a comprehensive internal review of the content in the Tantan mobile app and undertake other measures necessary to stay in full compliance with all relevant laws and regulations.”
The drop of Tantan from some app stores is not catastrophic. Here’s why:
1. Tantan is only blocked from SOME app stores. Some areas still have access to the app.
2. Tantan is still operational. New users may not be able to download the app in some areas, but that’s it. Existing users still have access.
3. Tantan is really only a small portion of the company’s revenue – less than 6% to be precise.
4. In China, the government often delists apps. The ban usually lasts no more than four weeks.
What are the Risks of Buying Momo Stock?
That said, there is some risk to investing in Momo.
Make sure that you understand the challenges the company is facing before you decide to include it in your investing portfolio.
Attracting and Retaining Users
First, keep in mind that any social network app, or company with several apps, is only going to be as successful as it is at attracting and retaining users. In order to be successful, Momo needs to keep its current user base happy and engaged while attracting new users. T
his challenge may seem easy at first. Once the app takes root, people want to sign up so they can connect with their friends. Think of Facebook [NASDAQ: FB].
However, like Facebook [NASDAQ: FB], there does seem to be a saturation point where the people who will sign up already have and the ones who are on the platform are using it as much as they ever will. One of the biggest challenges these companies face is keeping things interesting.
Monetizing the Platform
On top of everything else, there is also the issue of monetization. It doesn’t matter how many people are on a network really – only how much money the company can generate from their activities, and therein lies the challenge.
Momo has been charging membership subscriptions since 2013. These fees formed the bulk of the company’s revenues until 2016 when its live video service and virtual items revenue model overtook subscriptions as Momo’s primary source of revenue.
In 2018, live video accounted for almost 80% of the company’s revenues while membership and virtual gifts added just 14% combined.
Momo is also exploring new revenue options such as games and paid advertisements but these efforts are still early. However, the jury is still out on how these efforts will be received by its users in the long-term.
Further, if another network offered similar benefits without the price tag, it is fair to assume that some users might switch platforms.
Government and Legal Issues
Finally, keep in mind that legal issues could still be a problem. Momo operates in a much stricter environment than some other social networks.
While any other social networking platform may experience similar issues in China, that competitor may be able to tweak their offerings just enough to escape the criticisms that got Tantan delisted from certain app stores.
Is Momo Stock a Buy or A Sell?
Determining whether Momo is a buy or sell really depends on your appetite for risk. This is a high-growth company that could have a real chance at producing stellar returns – if it can remain competitive and play nice with its local authorities.
The risks are real and not insignificant. If you are going to allocate capital to Momo, expect volatility. If history is any indicator, Momo share price won’t be smooth sailing as much as it will be a choppy ride.