Momo (NASDAQ: MOMO) recently closed its acquisition of dating application Tantan in a stock and cash deal well worth nearly $800 million, which broke right down to $600.9 million in money while the sleep in newly released shares. The takeover, that has been initially established in February, will expand Momo’s online ecosystem that is dating widen its moat.
To comprehend why Momo purchased Tantan, just take a closer glance at Momo’s core business. Momo’s namesake software, which lets users find each via their pages and provided areas, can be called «Asia’s Tinder».
Image supply: Getty Pictures.
Momo happens to be expanding that platform with brand new chat experiences, a «discovery» page for searching individual pages, and video that is live, that have been launched in very early 2017. The development of live movie channels, that was sustained by adverts and people purchasing digital presents for a common broadcasters, had been a game-changer for Momo and supported a few right quarters of triple-digit product sales development.
But, two dilemmas arose in current quarters: Its product sales growth started reducing, and its own compensated individual base remained a percentage that is small of total users. Momo’s total income rose 57per cent yearly to $386.4 million final quarter, but that marked its slowest development price since its IPO. Its guidance for 46%-52% development for the very first quarter suggested that slowdown would carry on.
Momo’s real time streaming profits rose 68% yearly to $328 million throughout the quarter, but which was a dramatic drop from its 179% development into the quarter that is previous. Its having to pay users rose 23per cent yearly to 4.3 million as the total active that is monthly (MAUs) grew 22% yearly to 99.1 million. However, both numbers just represented 5% sequential development.
Why Momo purchased Tantan
Momo’s development nevertheless looks solid, but it is plainly striking a plateau. That is why it purchased Tantan, an app that is dating has 20 million MAUs. Unlike Momo, that will be marketed as an interest-based social networking app, Tantan is promoted being a dating application that uses the exact same swipe left/right mechanic as Tinder.
Tantan’s mobile software. Image supply: Bing Enjoy.
Tantan claims that its application, that will be also frequently dubbed «Asia’s Tinder», has currently made over five billion matches since its launch in 2015. In comparison, Match Group’s (NASDAQ: MTCH) Tinder apparently made eight billion matches since its launch in 2012.
Match sued Tantan previously this for IP violations, but the case was settled after Tantan agreed to pay Match royalties and redesign its US app year.
Tantan will continue to be a split stand-alone app, though it’s most likely that Momo will ultimately introduce cross-app features. Tantan is only obtainable in Asia, nevertheless the company intends to enter extra Asian markets when you look at the future that is near which will significantly expand Momo’s reach.
But lots of unknowns
Since Tantan had been a start-up previous to Momo’s buyout, its financials are murky. Reports from previous funding rounds suggest so it created $910 million in profits in 2015, but there’s no information on its income in 2016 and 2017.
Momo’s mobile application. Image source: Bing Enjoy.
Tantan’s annual income likely surpassed $1 billion this past year, but it is ambiguous in the event that application is lucrative — specially after factoring within the brand new royalty payments to suit. Consequently, purchasing Tantan will temporarily boost Momo’s profits, nevertheless the unit that is new also throttle its earnings development.
Momo’s decision to issue 5.3 million brand new stocks for the buyout — equal to 2.6percent of its present float — will additionally somewhat dilute its profits and inflate its valuation.
Investors also needs to recall that Momo had been once squarely focused on the web market that is dating but ended up being slammed by state news in 2014 for advertising prostitution. That is the reason that is main developed its application as a «social media» one. Tantan could possibly be struck by comparable accusations as time goes on, which may hurt Momo’s reputation.
The bottom line
Analysts anticipate Momo’s income and profits to increase 38% and 28%, correspondingly, this present year. Those quotes will probably have to be readjusted to account fully for the Tantan purchase. Nonetheless, those are nevertheless growth that is high for a stock that trades at only 17 times in 2010’s earnings.
Numerous investors seem concerned about Momo’s slowing development, however the Tantan buyout could allay some of these concerns. It’s not a bullet that is magic will re re solve all its dilemmas, nonetheless it might make Momo an attractive growth stock once more.
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