The growth of video platforms, particularly Chinese company Momo’s recent push, has put mobile broadcasting well and truly on the investment map. Momo is now the leading live mobile broadcast platform in China and its share price has more than doubled since the beginning of 2017.

AtlasTrend has previously written on how technology players are becoming the kings of content as they create, produce and are becoming the biggest buyers of content. Underpinning this is the global trend of ‘cable cutters’ who are moving away from traditional broadcasting and cable viewing to video-on-demand viewing as well as online and mobile broadcasting.

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Mobile broadcasting … the next big thing

Video platforms owned by the likes Facebook (FB US), Twitter (TWTR US) and Amazon (AMZN US) have experimented with mobile broadcasting platforms utilising user-generated videos as well as broadcasting live sporting events. Whilst it is early days in terms of these platforms monetising such content, they are not that far off from doing so.

Why do we think this? It is because there is a social media platform in China that has invested heavily in mobile broadcasting and is now reaping the rewards of this investment.

Chinese social media broadcaster, Momo (MOMO US) is a company to watch

Momo is a leading mobile social networking platform in China which has been operating since mid-2011. The software exists as a free application available on smartphones and tablets, which allows users to chat to other nearby users through location-based services. Users create a profile and are encouraged to include personal information and interests to assist the software in creating more meaningful matches with nearby strangers. The app also features single and multi-player games on its platform.

The free to download application generates its revenue through:

  • paying users of live video services
  • value-added services, such as membership subscriptions and virtual gifts
  • mobile marketing (advertising revenues)
  • mobile games and in-game purchases

At its 1Q 2017 results, Momo reported over 300 million registered users, 85.2 million of which are monthly active users (“MAU”).

Momo developed its mobile broadcasting in 2015 to further engage its young audience, create another revenue stream and leverage its user base to advertisers and marketers. In fact, mobile broadcasting has been a clear reason why Momo has been able to grow its user base again after it stagnated in late 2015 and has been a game-changer for the company’s prospects. The company has a stated goal of reaching 200 million MAUs within the next three to five years.

As the business has grown, Momo has moved beyond user-generated videos but has added new formats such as eSports broadcasting and ‘private’ shows that need to be paid for to be watched.

A game changer for Momo

Momo has become the leading live mobile broadcasting platform in China in terms of both revenue and profit. With a current market value of US$8.1 billion, Momo generated 313 per cent growth to US$553 million in net revenues in 2017 with adjusted net income of US$177 million, up almost six times from 2015.

Of this, mobile broadcasting accounted for US$377 million or about 68 per cent of revenues. Paying users of the mobile broadcasting service reached 3.5 million.

This momentum continued into 1Q 2017 with net revenues increasing by 421 per cent to US$265 million and adjusted net income of US$91 million, up over seven times from 1Q 2016.

Paying users of the mobile broadcasting service reached 4.1 million, which pushed revenues to US$213 million (up nearly 14 times from 1Q 2016) and contributing more than 80 per cent of total revenues in the quarter. Once again, this growth was driven by the expansion of paying users as well as the average revenue per user (“ARPU”), which is now at US$52.

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Management expect this growth momentum to continue as it guides for 2Q 2017 revenues of US$283.0 to US$288.0 million, an increase of 186 per cent to 191 per cent form 2Q 2016.

More room for growth?

With the stock having more than doubled since the start of 2017, investors may want to consider waiting for a better entry point. However, with 75 per cent earnings growth expected for 2017 and revenues expected to be more than double from 2016, we would argue that its current valuation of 18.9x 2018 price to earnings ratio is not overvalued, particularly when compared to social media peers such as Facebook (26.0x), Twitter (46.8x) and Snap, which is not even expected to be profitable by 2018.

Whilst competition is likely to grow from the larger technology players such as Baidu (BIDU US), Tencent (700 HK) and Alibaba (BABA US), video services remain small parts of their overall businesses (between 5 per cent to 15 per cent of revenues) and their penetration into live broadcasting has been limited to date. In contrast, Momo has become the leading pure-play exposure to mobile broadcasting in China and together with its strong growth profile, should be on every investor’s radar as a company to watch.

At the time of writing, one or more AtlasTrend managed funds own shares in Facebook, Amazon and Alibaba.

*The information above does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.

*Investment returns are not guaranteed. Past performance is not an indicator of future performance

About the author

Kevin Hua is the co-founder of AtlasTrend which is a member of the Which-50 Digital Intelligence Unit. Members contribute their expertise for the benefit of our readers. Membership fees apply.

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