Please ensure Javascript is enabled for purposes of website accessibility

Momo's Censorship Headaches Just Got a Lot Worse

By Leo Sun - May 13, 2019 at 4:20PM

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

Momo faces its second suspension in less than two weeks.

In late April, Momo (MOMO 3.68%) announced that Chinese regulators ordered the removal of its dating app Tantan from the country's app stores. Momo stated that it was working with authorities to bring it back "as soon as possible," but didn't reveal specific reasons for the suspension.

At the time, Jefferies analysts noted that Tantan only generated about 10% of Momo's sales, that the suspension didn't impact Tantan's existing users, and that prior regulatory suspensions typically lasted less than a month. However, I warned investors to avoid Momo's stock until Tantan returned, and that regulators might probe its namesake app.

A man uses a dating app on a smartphone.

Image source: Getty Images.

Unfortunately, that's what happened on May 10, when Momo announced that the suspension of news feed posts on both Momo and Tantan from May 11 to June 11. However, Momo will remain available on Chinese app stores.

Momo stated that it will focus on "strengthening its content screening efforts," and that it was "evaluating the impact of the temporary suspension and other self-inspection measures on its overall business operations." In other words, Momo doesn't know when the suspensions will end, and it isn't sure how badly they'll impact its growth.

Both wings clipped... now what?

Momo and Tantan are often called the "Tinders of China", since both apps are often used for online dating. Momo started out as a social network that let users find each other based on their personal profiles and locations.

Momo introduced a live video streaming feature in 2017 that let users buy virtual gifts for their favorite broadcasters. That business became Momo's core growth engine, generating 80% of its revenue in 2018, and convinced it to phase out its weaker advertising and mobile gaming businesses.

Last year Momo acquired Tantan, a Chinese clone of Match's (MTCH) Tinder, for nearly $800 million. Last quarter, Momo's number of paid users on both platforms (for live video and value-added services, without double-counting users) rose 67% annually to 13 million. Tantan accounted for 3.9 million of those paid users.

Momo generated a streak of triple-digit sales growth after the launch of its live video platform, but that growth had decelerated significantly by 2018.

YOY revenue*

Q1 2018

Q2 2018

Q3 2018

Q4 2018

FY 2018







YOY = Year-over-year. Source: Momo quarterly reports. *RMB terms.

Momo's growth seemed to stabilize in the second half of the year, but that can mostly be attributed to its takeover of Tantan. Last quarter Momo estimated that its sales would rise just 28%-32% annually and decline 5%-8% sequentially due to the seasonal softness of its value-added services during Chinese New Year.

The recent suspensions shouldn't impact Momo's numbers for the first quarter, which ended on March 31. However, its first-quarter report on May 28 could include ugly or opaque guidance for the second quarter.

A man and a woman use their smartphones.

Image source: Getty Images.

Why regulators are crippling Momo

Momo weathered a similar crisis five years ago when the state-run media claimed that its app was being used for prostitution. The Nanchang Evening News also recently claimed that ads for prostitution were popping up in Tantan's news feed.

China's regulators didn't cite prostitution in its crackdown on Momo, but stated that it should purge "illegal content" from its platforms. Alibaba's (BABA 0.43%) enterprise messaging app DingTalk was also recently ordered to halt access to its DingTalk community, a forum where users share their experiences with the app, for a month.

These suspensions are part of a broader crackdown on social media and video sharing apps in China, which ramped up significantly last year to censor criticism of the government, support for "separatist" movements (like Tibet and Taiwan), satires of Chinese culture, and anything else that regulators deemed "negative and harmful."

Should Momo investors worry?

Momo and Tantan aren't being pulled from existing users' phones, but users are now cut off from each other without news feed posts. Users can still message each other, but it's now much harder to find new users or view their updates.

The good news is that regulators aren't completely banning Momo's apps, and the suspensions should end by mid-June. However, users could abandon the app in the meantime, and other dating apps -- like Qingchifan ("Let's Eat") or Xintiao ("Heartbeat") -- could benefit. Therefore investors should avoid Momo until these suspensions are lifted or it offers a clearer view of their financial impacts.

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
$5.07 (3.68%) $0.18
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$87.69 (0.43%) $0.38
Match Group, Inc. Stock Quote
Match Group, Inc.

*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 service.

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 05/19/2022.

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.