Chinese social media company Hello Group (NASDAQ: MOMO) stock has fallen (-34%) on the year despite being profitable. The Company operates two major apps including the social media app MOMO and Tantan, a dating app similar to Tinder. Top line revenues and user growth have receded with the spread of COVID vaccinations and drop in cases in China. Chinese ADR stocks have fallen largely out of favor with investors as their finances cannot be verified and Chinese regulators could literally take companies out of the market. This has caused valuations to drop significantly, which may mitigate some of the risks of owning Chinese stocks for speculators. The Company expects a rebound in its Tantan dating app business as Chinese lockdowns get lifted in the second half of the year. Hello Group has roughly $2.4 billion of both restricted and non-restricted cash and investments equating to $5.86 cash-per-share (CPS). Shares trade at 5X earnings and still generate $200 of free cash flow. If it sounds too good to be true, keep in mind there’s a reason why its trading so cheap. Value-oriented speculators may find the rewards outweigh the risks if exposure is only taken at opportunistic pullback levels well below its $5.86 CPS.
Q1 Fiscal 2022 Earnings Release
On June 7, 2022, Hello Group released its fiscal first-quarter 2022 results for the quarter ending March 2022. The Company reported an adjusted earnings-per-share (EPS) profit of $0.29 excluding non-recurring items versus consensus analyst estimates for $0.24 , beating estimates by $0.04. Revenues fell by (-9.3%) year-over-year (YOY) to $471.9 million beating analyst estimates by $11.4 million. Monthly active users (MAU) dropped to 110.9 million from $115.3 million in the year-ago period. Total paying users of live video service and value-added service 11 million, down from 12.6 million in Q1 2021. Hello Group CEO Wang Li commented, “Q1 2022 was a challenging yet fruitful quarter for us. I am pleased that our team was able to focus on our product and operational initiatives to cope with the headwinds from the resurgence of COVID-19 and related challenges, getting 2022 off to a good start.”
Q2 Fiscal 2022 Guidance Lowered
Hello Group lowered its Q2 2022 revenue forecast to come in between RMB3.05 billion ($455.1 million) to RMB3.15 billion ($470.08 million) versus RMB3.3 billion ($492.46 million) consensus analyst estimates.
Conference Call Takeaways
CEO Li reviewed the strategic goals in 2022. For the Momo app, the goal is to stabilize user growth with limited marketing spend and seek growth as well. He coined Momo as the “cash cow business”, which they seek to ensure stability. Tantan strives to deliver solid growth by improving marketing efficiency and the dating experience. The COVID lockdowns had a negative impact resulting in a significant decline in users dating sentiment and ability to pay for VAS. This has resulted in scaling back investments temporarily. The focus moving forward will be improving its marketing efficiency for Tantan, as they have lowered their marketing budget to reduce net loss during COVID lockdowns which are simply not conducive to live dating or social engagements. For Momo, the value added service revenue represented 85% of the size of live streaming, which grew 21% quarter over quarter. Unfavorable macroeconomic factors made the recovery slow after the Chinese New Year. They plan to continue its conservative operation strategy with a minimum budget for event-related bonuses to stabilize gross margins amid the challenging regulatory environment.
MOMO Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precise playing field view of the landscape for MOMO stock. The weekly rifle chart bottomed out near the $4.47 Fibonacci (fib) level. The weekly rifle chart has a make or break on flat 5-period moving average (MA) at $5.38 and 15-period MA at $5.43 as the stochastic forms a mini pup up through the 20-band. The weekly 50-period MA sits at $9.21. The weekly lower Bollinger Bands (BBs) sit at $2.01 and upper BBs sit at $10.36. The weekly market structure low (MSL) buy triggers on a breakout through $5.73. The daily rifle chart has a make or break on flat 5-period MA at $5.23, 15-period MA at $5.15 and 50-period MA at $5.19. The daily stochastic has a mini pup rising through the 30-band. The daily lower BBs sit at $4.22 and upper BBs at $6.57. Value speculators can watch for opportunistic pullbacks at the $4.47 fib, $3.52, $2.50, $1.81 fib, and $1.31 fib. Upside trajectories range from the $6.94 fib