Match Group (MTCH) and Momo (MOMO -0.18%), two of the biggest online dating companies in the world, aren't direct competitors. Match offers its dating apps across numerous countries, but Momo dominates the Chinese market.
Match and Momo both generate double-digit revenue growth, are highly profitable, and are well-insulated from the ongoing trade war. That's why Momo's stock surged more than 50% this year as shares of Match roughly doubled. But is either stock worth chasing at these levels?
Image source: Getty Images.
How do Match and Momo make money?
Match generates most of its revenue from paid subscriptions. Its top app is Tinder, which grew its average subscribers 41% annually to 5.2 million last quarter.
Tinder Plus is a basic subscription plan that adds better search and visibility features, and Tinder Gold is an upgrade for Plus that lets users instantly see who likes them. Gold members now account for over 70% of Tinder's subscribers.
Match's total subscriber base, which includes Tinder and its other apps, grew 18% annually to 9.1 million. Its second most popular app, OKCupid, grew its subscription revenue annually for six straight quarters in North America and is currently a top dating app in India. Hinge, which Match fully acquired earlier this year, more than tripled its global downloads annually.
Momo generates most of its revenue from its namesake app. The rest of its revenue comes from Tantan, a smaller Tinder clone it acquired last year. Match previously sued Tantan over the app's design, and Tantan settled the case by agreeing to pay Match royalties.
Image source: Getty Images.
Momo generated about three-quarters of its revenue from its namesake app's live video ecosystem last quarter. This platform lets users broadcast live video streams, then generates revenue when viewers purchase virtual gifts for their favorite broadcasters. Momo generates a smaller percentage of its sales from ads, mini games on Momo, and premium subscriptions for online dating, which are comparable to Tinder's premium tiers.
Momo's total number of monthly active users (MAUs) on its main app rose 5% annually to 113.5 million last quarter, and its total number of paid users (on both apps) rose 2% to 11.8 million. However, those growth rates were throttled by a temporary suspension of Tantan from Chinese app stores over allegations of inappropriate ads, which started in late April and ended in late July.
Which company is growing faster?
Match and Momo both posted slower revenue growth over the past year.
|
YOY revenue growth |
Q2 2018 |
Q3 2018 |
Q4 2018 |
Q1 2019 |
Q2 2019 |
|---|---|---|---|---|---|
|
Match |
36% |
29% |
21% |
14% |
18% |
|
Momo |
58% |
51% |
50% |
35% |
32% |
YOY = Year-over-year. Source: Company quarterly reports.
Match's growth decelerated because it lapped its introduction of Gold a year earlier. However, Match's growth accelerated in the second quarter as more Tinder Plus subscribers upgraded to Gold plans. It expects that momentum to continue with 21%-23% growth in the third quarter.
Momo's growth decelerated because it lapped its acquisition of Tantan and new users were temporarily blocked from downloading the app or making payments on iOS devices. Momo expects its revenue to rise just 17%-19% annually during the third quarter due to a tough comparison to the revenue generated by its Phanta City variety show a year earlier. Excluding that impact, it expects its revenue to rise 22%-25% on a like-for-like basis.
Wall Street expects Match and Momo's revenue to rise by 19% and 28%, respectively, this year. Momo is growing faster, but Match's growth is accelerating as Momo's growth decelerates.
Profitability and valuations
Momo and Match both generate robust earnings growth because subscriptions (and live videos for Momo) generate much higher-margin revenue than online ads. Analysts expect Momo's adjusted earnings to rise 22% this year and another 22% next year. Match's adjusted earnings are expected to grow 17% this year and 18% next year.
Based on those forecasts, Momo trades at just 11 times forward earnings, while Match has a much higher forward P/E ratio of 41. This indicates that Momo is much cheaper relative to its growth potential.
I think Momo and Match are both solid long-term investments. But at these prices, I'd accumulate more shares of Momo, and wait for the pullbacks to buy more shares of Match -- which looks a bit too frothy at its all-time highs.
