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Momo (NASDAQ: MOMO) recently shut its purchase of dating application Tantan in a money and stock deal well worth nearly $800 million, which broke right down to $600.9 million in money as well as the remainder in newly granted stocks. The takeover, that has been initially established in February, will expand Momo’s online dating ecosystem and widen its moat.
To know why Momo bought Tantan, take a closer consider Momo’s core business. Momo’s namesake software, which lets users find each via their pages and provided places, is normally called “Asia’s Tinder. “
Image supply: Getty Photos.
Momo was expanding that platform with brand brand new talk experiences, a “discovery” page for searching individual pages, and real time movie channels, that have been launched during the early 2017. The development of real time movie channels, that was sustained by advertisements and audiences purchasing digital gift ideas for a common broadcasters, had been a game-changer for Momo and supported a few right quarters of triple-digit product sales development.
Nevertheless, two issues arose in present quarters: Its product sales development started reducing, and its particular compensated individual base stayed a percentage that is small of total users. Momo’s total income rose 57per cent annually to $386.4 million final quarter, but that marked its growth rate that is slowest since its IPO. Its guidance for 46%-52% development when it comes to very first quarter suggested that slowdown would carry on.
Momo’s real time streaming revenues rose 68% yearly to $328 million throughout the quarter, but that has been a dramatic fall from the 179% development into the quarter that is previous. Its paying users rose 23per cent yearly to 4.3 million as the total active that is monthly (MAUs) grew 22% yearly to 99.1 million. Nevertheless, both numbers only represented 5% sequential development.
Momo’s development nevertheless appears solid, but it is demonstrably striking a plateau. This is exactly why it purchased Tantan, a dating application that has 20 million MAUs. Unlike Momo, that is marketed as an interest-based social networking app, Tantan is promoted being a dating application that makes use of the exact same swipe left/right mechanic as Tinder.
Tantan’s mobile software. Image supply: Bing Enjoy.
Tantan claims that its software, which will be additionally usually dubbed “Asia’s Tinder”, has currently made over five billion matches since its launch in 2015. In contrast, 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 stay a split stand-alone app, though it’s likely that Momo will sooner or later introduce cross-app features. Tantan is just for sale in China, however the company intends to enter extra Asian markets into the future that is near which may somewhat expand Momo’s reach.
Since Tantan had been a start-up previous to Momo’s buyout, its financials are murky. Reports from previous financing rounds suggest so it produced $910 million in profits in 2015, but there is no information on its income in 2016 and 2017.
Momo’s mobile software. Image supply: Bing Enjoy.
Tantan’s annual income likely surpassed $1 billion year that is last but it is confusing in the event that software is lucrative — specially after factoring within the brand new royalty re payments to suit. Consequently, purchasing Tantan will temporarily boost Momo’s profits, however the brand new device could additionally throttle its earnings growth.
Momo’s decision to issue 5.3 million brand brand new stocks for the buyout — equal to 2.6per cent of the float that is current additionally somewhat dilute its profits and inflate its valuation.
Investors also needs to recall that Momo was once squarely centered on the web dating market, but ended up being slammed by state news in 2014 for marketing prostitution. This is the reason that is main evolved its application into a “social media” one. Tantan could possibly be struck by comparable accusations in the foreseeable future, which may harm Momo’s reputation.
Analysts expect Momo’s income and profits to go up 38% and 28%, correspondingly, in 2010. Those quotes will need to be likely readjusted to account fully for the Tantan purchase. However, those are nevertheless high development numbers for a stock that trades just 17 times in 2010’s profits.
Numerous investors seem focused on Momo’s slowing development, however the Tantan buyout could allay several of those issues. It is not a bullet that is magic will solve all its dilemmas, however it might make Momo an appealing growth stock once again.