It isn't easy for publicly traded companies to double their revenues within a year. But last month, I examined three companies which were expected to do just that -- Logmein, Snap, and Invitae.
Momo's social networking app lets users find nearby users based on their personal profiles and contact them to meet up in real life. Since it's frequently used as a dating tool, it's often called the "Chinese Tinder". Momo also runs a rapidly growing live streaming video platform which allows viewers to buy virtual gifts (from Momo) for their favorite broadcasters, as well as a platform for mobile games.
Momo's revenue rose a whopping 313% to $553.1 million in 2016. Much of that growth came from its live video service, which generated 79% of its revenues during the fourth quarter of 2016. Revenue from value added services (subscriptions and virtual gifts), mobile marketing, and mobile games also rose by the double digits during that quarter. Analysts expect Momo's revenue to rise another 104% this year before cooling off to 32% growth next year.
Unlike many high-growth social media companies, Momo is highly profitable. Its non-GAAP net earnings rose 480% to $0.87 per ADR share in 2016, and its GAAP net earnings rose ten-fold to $0.71 per share. Analysts expect its non-GAAP earnings to grow 59% this year and another 36% next year. The stock's P/E of 48 looks a bit high, but it's easily justified by those impressive growth rates.
Energous specializes in long-range wireless charging technology. Its WattUp technology can charge compatible devices with stationary pads from up to 15 feet away. That FCC approved the miniature version of its tech for Internet of Things devices last May, and the company has secured manufacturing deals with larger companies like Dialog Semiconductor.
Energous and Dialog launched a small wireless charging RF circuit earlier this year, which many industry watchers believe could be used in an upcoming iPhone. However, other reports claim that although Apple (NASDAQ:AAPL) likely signed a partnership with Energous, it doesn't plan to use the long-range charging tech in the upcoming iPhone 8.
Energous hasn't released any commercial products yet, so its top line is entirely comprised of "engineering revenues" from potential customers and partners. That total came in at a mere $1.5 million in fiscal 2016. However, Wall Street expects massive growth as its partners start commercializing WattUp-enabled products. That's why analysts expect Energous' revenue to rise seven-fold to $10.8 million this year (mostly from Dialog's $10 million investment), and another 372% to $51 million in 2018. Those numbers are very speculative, but they also indicate that Energous could climb much higher over the next two years.
But mind the risks...
Investors are clearly expecting big things from Momo and Energous. That's why Momo shares rallied nearly 220% over the past 12 months, and Energous shares climbed 40%. But investors should also be aware that both stocks are high-risk plays.
Momo is posting great growth now, but the live video streaming market in China is becoming increasingly crowded with social networking giants like Tencent's WeChat and Weibo launching similar platforms. The CAC (Cyberspace Administration of China) is also cracking down on these streaming apps, claiming that they undermine "socialist core values" and negatively impact the social development of younger users. These headwinds could cause Momo's growth to abruptly fall off a cliff.
As for Energous, much of the optimism about the stock stems from reports of new WattUp products and iPhone rumors. Those rumors could turn out to be exaggerated or false, or the FCC could rule that WattUp technology simply isn't safe enough for charging larger devices like smartphones, tablets, or TVs. Those developments could quickly sink Energous' stock, which isn't supported by any sustainable revenue growth. Therefore, investors should fully weigh these risks before buying these stocks based on optimistic analyst projections.