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Why Momo Stock Sank Today

By Evan Niu, CFA - Dec 1, 2020 at 6:19PM

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The Chinese social media specialist reported third-quarter earnings and issued a soft outlook.

What happened

Shares of Momo ( MOMO -12.88% ) sank by as much as 10% today after the company reported third-quarter earnings. The results topped expectations, but guidance left a bit to be desired. The stock recovered somewhat and closed the session down 6%.

So what

Revenue in the third quarter declined by 15% to 3.77 billion yuan ($573 million), which was ahead of the 3.71 billion yuan that analysts were modeling for. That resulted in adjusted earnings per share of 2.98 yuan ($0.44), easily beating the consensus estimate of 2.47 yuan. The Chinese social media tech company said monthly active users (MAUs) were 113.6 million in September 2020, down modestly from 114.1 million in September 2019. Total paying users were 13.1 million.

Chinese woman using a smartphone

Image source: Getty Images.

"The third quarter of 2020 was a busy quarter for us," CEO Li Wang said in a statement. "As a result of management's commitment and the persistence of our colleagues, the structural reform within the core live broadcasting business has achieved initial success."

Now what

Momo's guidance was lacking, however. Revenue in the fourth quarter is expected to be 3.65 billion to 3.75 billion yuan, which is shy of the 3.91 billion yuan that analysts are looking for. The forecast range represents a top-line decline of 20% to 22%.

The company also said that chief strategy officer Xiaoliang Lei is stepping down this month for personal reasons but will continue in an advisory role.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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