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Why Momo Stock Just Dropped 10%

By Rich Smith – May 10, 2019 at 1:11PM

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This Chinese stock is crashing -- and it's not even Donald Trump's fault.

What happened

Two weeks ago, shares of dating app company Momo (MOMO 4.05%) -- "China's Tinder" -- got walloped nearly 10% after the company warned that its recently acquired Tantan dating app had been summarily removed from "certain mobile app stores in China...on direction of governmental authorities in China."

Investors promptly panicked and sold the stock -- and now it looks like that may have been the right move. Today, Momo issued a new press release advising that "pursuant to directives of relevant government authority," it is taking measures "aimed at strengthening its content screening efforts," including "temporarily suspend[ing] the ability of users to post social newsfeeds on its platform between May 11, 2019 and June 11, 2019."

Chinese flag superimposed on a falling stock chart.

Image source: Getty Images.

So what

At this time, it's unknown whether June 11 will mark the end of this suspension or whether the Chinese restrictions may be extended. Nor is it known what this suspension might mean for Momo's financial results. Will "suspending the ability to post" prevent use of Momo's various dating apps entirely or simply make the apps less attractive to users, costing Momo market share?

Now what

"The Company is evaluating the impact of the temporary suspension and other self-inspection measures on its overall business operations during that one-month period," says Momo.

But while that sounds reassuring, what it really means is that even Momo doesn't yet know the answer to the above question. All I can say for sure is that once again, Momo is giving us an object lesson in the risks of investing in a country where the government has absolute power to...well, apparently, to do whatever it darn well pleases, for any reason or 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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