Hello Group Inc.

MOMO Details

Hello Group Inc. (NASDAQ: MOMO) (previously Momo Inc.) is a Chinese online social and entertainment business. MOMO enables people to explore new relationships, extend their social connections, and establish meaningful interactions through its platform offerings such as Momo, Tantan, and others. The company's main income streams are live video, value-added, mobile marketing, online gaming, and other services. As of September 22, 2021, the company's market capitalization stood at USD 2.24 billion, with 205.82 million American Depository Shares (ADS) listed and outstanding (each ADS representing two Class A ordinary shares).

Share Repurchased Program: MOMO announced the launch of a share repurchase program on September 03, 2020, under which it is authorized to repurchase up to USD 300 million of its shares over the next 12 months. Under the program, MOMO has repurchased 13.46 million ADS in the open market for USD 173.4 million as of August 26, 2021, at an average purchase price of USD 12.87 per ADS.

Name Change: After convening an extraordinary general meeting on August 02, 2021, the company announced that it had changed its name from Momo Inc. to Hello Group Inc. Accordingly, its ADS have been renamed and are now trading under the new name.

H1FY21 Results: The company reported a slight decline of 4.28% YoY in total net revenues to RMB 7.14 billion during H1FY21 (ended June 30, 2021) compared to RMB 7.46 billion during H1FY20, primarily due to the structural reform on the company's core live video business. As a result, MOMO witnessed a decline in its net income to RMB 922.44 million during H1FY21 vs. RMB 993.24 million reported in H1FY20. As of June 30, 2021, the company's cash and cash equivalents (including short-term deposits) amounted to RMB 9.57 billion, with a total debt of RMB 4.62 billion.

Key Risks: During FY20 and FY19, one of the third-party application shops accounted for 26% of the company's total accounts receivable. As a result, increased reliance on such third-party stores might harm the company's operations and cash flow. Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook: In its Q2FY21 press release, MOMO indicated that it expects to generate between RMB 3.65 and 3.75 billion in total net revenue for Q3FY21, reducing 3.1% to 0.4% YoY. The company's current and preliminary opinions on the market and operating conditions are included in this projection, which is subject to change.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MOMO Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: MOMO's share price declined 25.90% in the past three months and is currently leaning towards the lower-band of the 52-week range of USD 10.70 to USD 20.14. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 34.34. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 12.51. Considering the significant correction in the stock price over the past three months, the increasing demand for social and dating mobile apps, and associated political and regulatory risks, we recommend a "Hold" rating on the stock at the closing price of USD 11.16, up 2.76% as of September 22, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.