Growth isn’t the issue for China’s Momo (NASDAQ:MOMO); it has been able to do that in spades. Rather, the yardstick by which Momo stock has been and still is judged is the pace of its growth. Anything less than red-hot forward progress has been viewed as a letdown, despite topping earnings estimates in each of its past eleven quarters.
It would also be naive to pretend it hasn’t been lumped in with the likes of Weibo (NASDAQ:WB), Baidu (NASDAQ:BIDU), Alibaba (NYSE:BABA) and other Chinese tech stocks. The escalating trade war and subsequent economic slowdown for the world’s second-biggest economy had spooked investors.
With the tariff showdown currently taking a cease-fire and likely to be closer to its end than not though, in addition to a garden-variety oversold condition, Thursday’s earnings report may well light a fire under Momo stock again. The chart’s certainly set up for such a move.
The key will be what kind of mood investors are in at the time… will they be optimistic, or pessimistic?
Momo Earnings Preview
Originally scheduled for Wednesday morning, China’s online dating platform Momo rescheduled the report on Monday in light of the fact that U.S. markets will be closed on Dec. 5 to honor the passing of former President George HW Bush. The report and corresponding conference call are now both slated for Thursday morning, before the market opens.
The delay won’t change the numbers, however, which on a relative basis should be impressive enough.
As of the latest look, analysts are calling for third-quarter earnings of 54 cents per share on sales of $533.6 million. Both will be up from the year-ago comparables of 45 cents per share of MOMO stock, and a top line of $354.5 million, extending a long streak of sizable organic and non-organic growth.
What to Watch in MOMO Stock
The numbers, of course, are only part of the story.
Though Momo has introduced its own tweaks to make its take on love connections more captivating, it has also bought some of its growth. Early this year it acquired Tantan, the so-called Tinder of China, making it more like its diversified western counterpart Match Group (NASDAQ:MTCH), which operates Match.com, Tinder, Our Time and other online dating sites. Integration with Tantan continues.
Also, like any other social networking company, current and would-be owners of MOMO stock will be looking at the number of regular users the company’s sites boasts and how long they’re logged in. During the second quarter of this year, its platforms counted 108 million regular monthly users, and total paying users of its live video service reached 11.6 million a quarter earlier. Both figures will need to grow respectably for the third quarter to be considered a success. The amount of time spent per user using the app during the second quarter was up 11% year-over-year, and that number would also ideally increase.
The one soft spot that could become a pitfall? Mobile games. Revenue fell 40% during the second quarter … the only arm to see a sales decline.
And, the weighing all of those factors will be further impacted by politics.
The tariff war had undoubtedly crimped China’s economy at a time when it couldn’t afford to be crimped. A combination of wage headwinds and slowing job growth — or at least fear of them — has proven problematic. The agreement between President Donald Trump and President Xi Jinping to call a truce to the tariff war can only help put Momo’s third quarter in a positive light, though the agreement between the two leaders is far from binding.
Getting a Read on MOMO Stock
While the character and quality of Momo’s earnings are key to the stock’s response to the news, just as telling right now is the technical read in Momo stock. It’s perfectly positioned to bounce, though if it doesn’t, it’s also perfectly positioned to suffer another wave of selling.
Click to Enlarge Take a look. Momo has been brutalized since June’s peak, but the selling came to a halt when a familiar support line was met. This may be a subtle sign that there are more than a few bulls waiting in the wings to step back in. They just need the right catalyst.
On the other hand, if the read on the numbers is a bearish one and Momo stock breaks below the floor extending back to the late-2016 low, there’s little that can be done to sidestep another round of selling.
How things pan out for the stock will largely be a matter of perspective.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.