China’s live-streaming video craze is producing huge returns for U.S. investors.
Momo Inc.’s 123 percent third-quarter return was the fourth-best among U.S.-listed stocks with market values of at least $2 billion. The Chaoyang-based company, which went public in New York in 2014 as China’s answer to the Tinder dating app, has since expanded into the live-streaming business. Credit Suisse AG says that the industry has grown 175 percent over the past year, and analysts see more gains for Momo with their average 12-month target prices forecasting a 23 percent rise.
The live-streaming boom in countries from Russia to India is fueled by more smartphones, cheaper bandwidth and the shift from personal computers to mobile. In China, live-streaming emerged as a cheaper pastime option for millennials who lack the budget for entertainment, Credit Suisse analysts say. The potential to monetize the trend is likely to keep growing, according to analysts from Rosenblatt Securities to JPMorgan Chase & Co.
‘Minutes of Fame’
“For some Chinese Internet users, online video may simply be a desire for 15 minutes of fame, but for Momo it means a big potential for growth,” said Jun Zhang, an analyst at Rosenblatt Securities. “The stock rally is a reaction to the revenue growth, and there is an expectation of solid growth next quarter as well.”
Christian Arnell, an external spokesman for Momo, said the company declined to comment on the stock performance. The shares slipped 4.5 percent to $22.50 last week.
The competition for people eager to stream themselves live is heating up, with the number of platforms growing to 150 this year, said Zoe Zhao, a Credit Suisse analyst. Live-streaming will become a $5 billion industry in China in 2017, half the size of the nation’s booming mobile-gaming market, Zhao said.
She predicts the industry will consolidate into fewer players as growth slows down next year. Zhao has Momo as one of her top two picks in the industry because online video is a well-synced extension of its location-based messaging services with an established audience, not its sole focus.
“The interactions used to be through image/text only, hence less vivid,” Zhao, who initiated her Momo coverage in September with an overweight call, said by e-mail. “Daily activities and users’ engagement level is expected to pick up after introducing the live-streaming function to the app.”
Momo’s second-quarter revenue jumped 222 percent from a year earlier, fueled by additional users paying for live-video service, the company said in a statement in August. The monetization potential of live broadcasting “has just kicked in,” according to Alex Yao, a JPMorgan analyst who started covering Momo with an overweight call shortly after the quarterly results were announced.
For Brendan Ahern, who invests in Chinese ADRs including Momo, the stock’s performance has outweighed concern about management’s recent flip-flop on going private. Just six months after raising $248 million in an initial public offering, Momo in June 2015 received a buyout proposal from a group led by its chief executive officer. The consortium, which included Sequoia Capital China Investment Management, withdrew the bid last month.
“There have been some ups and downs, but now we see a strong momentum driven by a boom in online video,” Ahern said by phone last week. “Online video is a hot industry right now, and Momo makes some important steps to cash in on the trend.”