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Why Momo Stock Dropped Nearly 10% This Morning

By Rich Smith – Apr 29, 2019 at 1:10PM

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There's a little trouble in big China.

What happened

Shares of "China's Tinder" -- dating app company Momo Inc (MOMO 0.22%) -- dropped 9.6% in early trading Monday. The stock has since pared its losses somewhat, but remains off 7.9% as of 12:45 p.m. EDT after reports began filtering out of China regarding government orders to remove the company's recently acquired "Tantan" dating app from app stores.

So what

TheFly.com has the details. Momo issued a press release  this morning advising that "it has become aware that certain mobile app stores in China have removed the Tantan mobile app on direction of governmental authorities in China."

This is obviously a concerning development. Momo spent $800 million to acquire Tantan last May, aiming to corner the market on online dating by marrying up the two biggest online dating apps in the country. Due to China's interference, though, "The Company's ability to attract new Tantan users will be adversely affected" pending restoration of the app to app stores.

Even for a $7 billion company like Momo, $800 million is a sizable investment, and the inability to capitalize on it fully would be bad news for the stock.

Chinese flag superimposed on stock prices and a down arrow

Image source: Getty Images.

Now what

That being said, Momo advises that it has already contacted the relevant authorities "proactively" to find out what's up, and "intends to fully cooperate with such authorities in order to restore the availability of the Tantan mobile app in the subject mobile app stores as soon as possible."

It's not clear what actual objections the Chinese government might have to the app, or what might be required to address those concerns. But Momo says it's going ahead and doing "a comprehensive internal review of the content in the Tantan mobile app" on its own, and plans to "undertake other measures necessary to stay in full compliance with all relevant laws and regulations," to restore its app to availability.

Hopefully, this conflict will be put to bed in short order. In the meantime, it should serve to remind investors of the risks of investing in China, where the best intentions of mice, men, and software companies can be disrupted by government regulators for any reason -- and maybe also for no reason at all.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.

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