Please ensure Javascript is enabled for purposes of website accessibility

Why Momo Stock Dropped Nearly 10% This Morning

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MOMO Stock Quote
$4.62 (0.22%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.