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Better Buy: Momo Inc. vs. Huya

By Leo Sun – Nov 18, 2018 at 10:46AM

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Which Chinese live-streaming platform has more staying power?

Momo (MOMO 2.80%) and Huya (HUYA -1.17%) are both considered high-growth plays on China's booming streaming video market. Shares of Momo have rallied nearly 50% over the past 12 months, even as escalating trade tensions, a depreciating RMB, and rising interest rates crushed many Chinese tech stocks.

Huya, which went public at $12 per share in May, now trades at about $20. Let's take a closer look at these two resilient Chinese tech stocks and see which is the better buy now.

A girl looks at her smartphone and smiles.

Image source: Getty Images.

What do Momo and Huya do?

Momo's namesake app lets users find each other via their profiles and shared locations. It also owns Tantan, an online dating app that clones many of Tinder's features. Momo and Tantan are often referred to as the "Tinders of China."

However, Momo's core growth driver is the live-streaming video feature it launched last year. Popular broadcasters attracted legions of dedicated viewers, and Momo monetized those video streams by selling users virtual gifts that they can send to streamers. The company also monetizes Momo and Tantan's dating features with premium subscriptions, which offer users better matches, higher exposure in searches, and other features.

Momo grew its monthly active users (MAUs) by 18% annually to 108 million during its second quarter. Its total number of paid users (including Tantan) climbed 63% to 11.6 million.

A person plays a PC game.

Image source: Getty Images.

Huya was a video streaming division of YY (NASDAQ: YY) prior to its spinoff. Huya mostly offers live-streams for video games and other user-created content. Like Momo, Huya monetizes its video streams with virtual gifts for broadcasters and other items for unlocking premium features.

Huya's average MAUs rose 11% annually to 91.5 million during its second quarter. Within that total, its average mobile MAUs grew 25% to 42.7 million, and its total number of paying users grew 41% to 3.4 million. That growth sounds solid, but its main rival, Douyu, reportedly isn't far behind with 30 million daily active users (DAUs) at the end of 2017.

Both Huya and Douyu are backed by Tencent (NASDAQOTH: TCEHY), the biggest game publisher in the world, and both platforms are also often dubbed the "Twitch of China."

How fast are Momo and Huya growing?

Momo and Huya are both high-growth companies. However, Momo's revenue growth has been decelerating over the past year (despite its acquisition of Tantan), while Huya's growth accelerated since its IPO.

Company

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Momo

126%

57%

64%

58%

Huya

--

--

112%

125%

YOY revenue growth. Source: Quarterly reports.

However, both companies expect decelerating growth during the third quarter. Momo expects 48%-52% sales growth in U.S. dollar terms, while Huya anticipates 103%-109% growth in RMB terms. Analysts expect Momo's revenue to rise 54% this year, but to slow to 30% next year. Huya's triple-digit growth this year is expected to decelerate to 57% next year.

That slowdown, combined with the Chinese government's tightening regulations for the live-video and video gaming industries, raises red flags regarding the long-term growth of both companies. However, Momo has much higher gross margins than Huya (45% vs. 16% in their latest quarters), and it's consistently more profitable.

Momo's non-GAAP net income rose 90% annually to $140.2 million last quarter, and analysts expect its earnings to grow 43% this year and 26% next year. Huya reported a non-GAAP net profit of 105.4 million RMB ($15.9 million) last quarter, compared to a loss of 9.3 million a year earlier. Wall Street expects Huya to generate 145% earnings growth next year, but it's unclear how long that momentum will last.

The valuations and verdict

Momo's stock trades at just 11 times forward earnings, while Huya has a forward P/E of 39. Both stocks seem cheap relative to their projected earnings growth, but Momo is arguably a safer long-term investment than Huya for three reasons: It has fewer direct competitors, it generates more consistent growth, and its core audience isn't exposed to the government's tightening regulations on video games.

Leo Sun owns shares of Tencent Holdings. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.

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Stocks Mentioned

MOMO Stock Quote
MOMO
MOMO
$4.82 (2.80%) $0.13
HUYA Stock Quote
HUYA
HUYA
$2.53 (-1.17%) $0.03

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