Match Group (MTCH +0.00%) and Momo (MOMO +3.21%) have both benefited from the growth of the online dating market in recent years. Match owns Tinder, which popularized left and right swipes, and other popular dating apps like OKCupid, Plenty of Fish, and Hinge.
Momo owns two apps, both of which are often called the "Tinders of China". Momo's namesake app is a social media network that lets users find each other based on personal profiles, interests, and locations. Its other app, Tantan, is practically a direct clone of Tinder.
Image source: Getty Images.
Over the past three years, Match's stock has rallied over 400% as Momo's stock more than doubled. Both companies dominate their respective markets and consistently generate double-digit revenue growth. But is one of these online dating stocks better than the other?
Understanding the key differences
Match and Momo might initially seem similar, but their underlying business models are different.
Match generated nearly half its revenue from Tinder in 2018. Tinder makes money from premium subscriptions, which offer features like unlimited likes, the ability to undo swipes, and the ability to search for users in other countries. The rest of Match's revenue came from subscriptions for its other platforms, with a tiny sliver (3%) coming from online ads across its platforms.
Momo generates about 90% of its revenue from its namesake app, while the remaining 10% comes from Tantan, which it acquired last year. Momo and Tantan both offer premium subscriptions like Tinder, but 80% of the company's revenues came from Momo's live video streaming platform last year. That feature, which was launched in 2017, allows viewers to buy virtual gifts for their favorite broadcasters.
Momo's value-added services, which include its premium subscriptions, accounted for 14% of its revenue in 2018, while the rest came from its shrinking advertising and mobile gaming businesses.
Which company is growing faster?
Match's total subscriber base, which includes its other platforms, grew 17% annually to 8.2 million in the fourth quarter of 2018. Within that total, Tinder's paid subscriber base grew 39% annually to 4.3 million.
Momo's number of paid users, for both its live video and value-added services (without counting overlapping users), rose 67% annually to 13 million in the fourth quarter. However, most of that growth came from the addition of Tantan's 3.9 million paid users.
In terms of revenue growth, Momo is the clear winner:
|
YOY revenue |
Q1 2018 |
Q2 2018 |
Q3 2018 |
Q4 2018 |
FY 2018 |
|---|---|---|---|---|---|
|
Match |
36% |
36% |
29% |
21% |
30% |
|
Momo* |
64% |
58% |
51% |
50% |
51% |
YOY = Year-over-year. Source: Company quarterly reports. *RMB terms.
However, Momo benefited from its acquisition of Tantan, which closed in the second quarter, and both companies' revenue growth decelerated over the past year.
For 2019, Wall Street expects Match's revenue to rise 16% and for Momo's revenue to grow 25% (in USD terms). Match's revenue will decelerate as it laps its introduction of Tinder Gold, and Momo's growth will slow down as it laps its acquisition of Tantan.
Image source: Getty Images.
Both companies have similar profit growth rates. Momo's GAAP net income rose 31% to 2.82 billion RMB ($409.5 million) last year as its non-GAAP net income rose 39% to 3.46 billion RMB ($503.5 million). Match's GAAP net income rose 36% to $477.9 million in 2018 as its non-GAAP adjusted EBITDA climbed 39% to $653.9 million.
Analysts expect Match and Momo's non-GAAP earnings to rise 12% and 20%, respectively, this year. Based on those forecasts, Momo looks like a bargain at just 10 times forward earnings. Match is much pricier at nearly 30 times forward earnings.
Yet Momo isn't necessarily the better buy
Momo's superior revenue growth and lower valuation make it look like a better buy than Match, but there's one big problem.
Chinese regulators recently ordered the suspension of Tantan in its ongoing purge of "vulgar" apps. That suspension could be temporary, or it could lead to a suspension of Momo's flagship app -- which would be disastrous for its growth.
Meanwhile, Match's growth still looks solid, but the stock is too pricey relative to its earnings growth. Therefore I won't touch Momo until its regulatory issues are resolved, and I won't buy Match until the stock cools off to more reasonable valuations.
