Momo (MOMO -2.70%) is often called the "Tinder of China" because it owns two top dating apps: its eponymous app and Tantan, a Tinder clone it acquired in 2018. But Momo doesn't make money the same way as Tinder's parent company Match Group (MTCH).

Match generates most of its revenue from direct subscriptions to its various dating services. Most of Momo's revenue comes from its core app's live video streaming platform, which lets viewers buy virtual gifts for their favorite broadcasters. A smaller percentage comes from ads, mini-games, and premium dating services.

Momo's stock rallied nearly 50% over the past 12 months, even as it faced Tantan's temporary suspension from Chinese app stores, a two-month suspension of certain news feed features, and macro headwinds in China.

I recently stated that Momo still has room to run after its year-long rally, since it's still well-insulated from macro challenges, trades at a low valuation, and has a clear roadmap with four areas of strategic growth for 2020 and beyond which we'll explore in deeper detail today.

A man uses a dating app.

Image source: Getty Images.

1. Growing its users and engagement rates

Momo's first strategy is to grow its user base and engagement rates with fresh product innovations and marketing efforts. Its monthly active users (MAUs) on its core app rose 3% annually to 114.1 million last quarter, marking a slowdown from previous quarters.

To bring in more users, Momo launched a new version of its app in August. The old version simply promoted nearby streamers, but the new version categorizes those streamers with a broader range of live social activities like chat rooms, karaoke, parties, talent shows, and other experiences.

Momo claims this redesign improves user engagement and enables it to make better dating matches and video recommendations by assessing a user's interests. It also claims that promoting recommended activities streamlines user engagement by reducing the total number of clicks required to access a video stream.

2. Supporting the "healthy" growth of its live videos

Momo's second strategy is to support the "steady and healthy" growth of its live broadcasting ecosystem. Momo's emphasis on those two adjectives during last quarter's conference call indicates that it's closely monitoring its live video platform to avoid a crackdown by China's cyberspace regulators.

A young woman streams a live video on her smartphone.

Image source: Getty Images.

Investors should recall that China's state media pilloried Momo five years ago as a "prostitution" app, forcing it to closely monitor its user profiles and ads. Chinese regulators also forced app stores to remove nearly 400 live video apps in 2018 for offensive content.

That's why Momo voluntarily suspended Tantan and its news feeds in mid-2019 amid claims that inappropriate ads were popping up on its apps. It realized that it was smarter to sacrifice a few months of user growth to clean up its apps rather than risk their permanent removals.

3. Growing its base of paid users

Momo's third main strategy is to grow its base of paying users. Its number of paid users, including Tantan, grew 7% annually to 13.4 million last quarter. That represents just a tiny slice of its total MAUs, but it's implementing fresh strategies to boost that percentage.

In June, Momo launched a "nobility" system that grants regal titles based on a user's monthly spending on virtual gifts and other value-added services. Users who level up or maintain their titles for consecutive months can unlock special rewards and perks. Last quarter, COO Wang Li stated that Momo saw "a strong mentality" among higher-paying users to retain those titles or gain promotions.

Momo also launched three offline music tours, which are live concerts headlined by the platform's top broadcasters, throughout 2019. Li claims that these events convinced its top spenders to spend more money during the third quarter.

All those efforts, along with new virtual "interactive" gifts like fighter jets and snowball fights, boosted Momo's number of core paying users -- who spend over 5,000 yuan ($716) per month -- 20% annually last quarter.

4. The monetization of Tantan

Momo's fourth growth strategy is to monetize Tantan, which grew its paid users 41% annually to 4.5 million last quarter.

These users pay for premium features like unlimited swipes and more matches, which closely mirror the perks of Match's Tinder Gold. Tantan's total revenue rose 89% annually to 310 million yuan ($44 million), or 7% of Momo's top line.

Tantan lets users break the ice with social games and engage in "flash chats," a speed-dating feature that lets users instantly start chatting without digging through personal profiles. It also dispenses inspirational messages and relationship advice on a daily basis to bring back users.

Tantan's growth looks promising, but investors should note that it faces growing competition from Tencent (TCEHY -1.70%), which recently launched three apps with online dating features. Time will tell if these new apps pull users away from Momo and Tantan.

The key takeaway

Momo trades at just 10 times forward earnings, but analysts expect its revenue and earnings to rise 18% and 20%, respectively, next year. We should always take analysts' estimates with a grain of salt, but Momo's four growth strategies could help it clear those forecasts -- making the stock a bargain at current prices.