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Why Shares of Momo Are Surging Today

By Timothy Green - Updated Feb 23, 2018 at 12:53PM

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A growth-fueling acquisition and some positive analyst commentary have lit a fire under the stock.

What happened

Shares of Momo (MOMO -4.15%) jumped on Friday following two developments. First, the Chinese social networking company announced that it had acquired a leading social and dating app in China. Second, the stock was given a buy rating and a lofty price target by an analyst. Momo stock is up about 14% at 12:10 p.m. EST.

So what

Momo announced on Friday morning that it had reached an agreement to acquire Tantan Limited. Tantan is a social and dating app in China aimed at young people, with 5 billion matches so far. Momo will pay $600.9 million in cash in addition to 5.3 million newly issued Class A ordinary shares. The deal is expected to close in the second quarter of 2018.

A blue stock chart with an orange line going up in a zigzag pattern.

Image source: Getty Images.

"Our core position will continue to center on social networking and this acquisition enriches our product line in the social space. We will continue to invest and incubate more sub-brands to serve the social and entertainment needs of different demographics," said Momo CEO Yan Tang.

In addition to the acquisition news, Momo received positive analyst coverage on Friday. Analysts at New Street Research initiated coverage with a buy rating, slapping on a $45 price target. Even factoring in Friday's gain, that implies about 29% upside.

Friday's gain adds to a nearly 30% surge in January.

Now what

Based on previous years, Momo will report its fourth-quarter results sometime in early March. Revenue has been growing at a breakneck pace, with revenue through the first nine months of 2017 up more than 200% year over year. The Tantan acquisition will add more fuel to the fire.

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