Momo: What Happened?

May 01, 2019 3:40 AM ETHello Group Inc. (MOMO)53 Comments

Summary

  • On Monday, April 29, Momo's stock price went down by 7%.
  • The reason was an announcement by the company of the blocking of Tantan in some app stores in China.
  • The huge drop is ridiculous for several reasons.
  • With a PEG of just 0.73, a forward P/E of 12.5 and earnings growth expectations of 20% and more for years to come, I think Momo is a great investment.

An Introduction

As my loyal readers know, I have written quite a few articles about Momo (NASDAQ:MOMO). I picked it in July 2017 as the third pick in the Potential Multibaggers series and I have written six updates since then. One of the reasons I have written about it so frequently is that the stock price has been all over the place since that first pick. And yes, Momo did it again. On Monday 29, the stock dropped 7%:

ChartData by YCharts

The reason: negative news about Tantan, Momo's dating app which is very similar to Tinder (MTCH). Sensational headlines warned investors:

(Source: The Street)

If you don't know the context, this news sounds ugly but if you do, this is just a storm in a teacup. If you realize that at the end of this article, then I have attained my goal.

Momo, a short introduction

For those who wouldn't know Momo, a quick introduction. If you know it, you can skip this part, but I didn't want to write this exclusively for those who already know Momo well. Afbeeldingsresultaat voor momo app logo

(Momo's logo)

Momo is a mobile platform in Chinese. The original app was a social networking platform based on location and interests. Basically, this means that you can meet people who are near you and/or have the same interests as you. That gave it its name of a hook-up app, although the company didn't like that at first. But Momo has much more: chatrooms, karaoke, social groups, social mobile games, etc.

The first big shift for Momo came with Hani, its stand-alone video application, which became hugely successful. In May 2018, one year ago, Momo had its second big shift: it bought Tantan, which you could call the Chinese Tinder. I thought this was an excellent acquisition since Momo had

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

This article was written by

From Growth to Value profile picture
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Potential Multibagger helps you find multibaggers early on.

I am a 46-year old investor with a long-term perspective and that means I mainly think about the future when I invest. I try to uncover multibaggers early on. Picks include Shopify ($7.78), Crowdstrike ($98), The Trade Desk ($19.5), Cloudflare ($39) etc.

The strategy is simple but not easy: find disruptors that have a very high quality and hold them for a very long period. I try to identify stocks that have the potential to go up 1,000% and more over the next 10 years. I do deep research for the stocks that I pick to know if the quality is high indeed. 

I do not care about what my selection of stocks will do next year, but what the result will be over the long term. To paraphrase Warren Buffett: "You should only have stocks that you would feel comfortable having if the stock market closed up for 10 years."

I appreciate your comments because I believe I can learn a lot from your feedback and I believe in the wisdom of crowds.

Disclosure: I am/we are long MOMO, MTCH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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