What happened
Shares of Hello Group (MOMO 2.15%) were up 36% as of 9:31 a.m. ET on Thursday after the company reported better-than-expected earnings results for the third quarter. Revenue fell 14% year over year, and the company still saw monthly active users decline, but low expectations entering the quarter set the stage for a post-earnings bounce.
So what
While the company is still struggling to deliver growth in a challenging economic environment, management noted it made "solid progress across all business lines." Despite a drop in paying users, the company delivered an adjusted profit of $0.37 per share, slightly down from the same period last year.
The company's live video service business continued to experience pressure from COVID-19-related softness and the stringent regulatory environment in China. The macroeconomic headwinds in China also pressured mobile marketing revenue, which is only a small part of Hello's business, in addition to mobile gaming revenue.
However, Hello's adjusted profit improved by $0.04 over the second quarter, and this is what sent the stock higher today.
Now what
Investors are also encouraged by the return of CEO Yan Tang, who took over in October following the resignation of Li Wang over health reasons.
While management expects another decline in revenue next quarter, the sequential improvement in earnings per share is all that matters right now. That's because the stock is dirt cheap, trading at a forward price-to-earnings ratio of 6.6. One of management's priorities is to improve cost efficiency, so if that continues to lead to growth in earnings, the stock could have more upside.
