Momo.com Earnings: Valuation Lowered by 28% Due to Increasing Competition and Slower Revenue Growth

We lower our fair value estimate for momo.com to TWD 495 from TWD 690 after it reported fourth-quarter revenue of TWD 32.8 billion, which increased only 3% year on year and missed our forecast of TWD 37.8 billion by 11%. This is the second quarter in a row that momo.com has missed its revenue forecast, and the company attributed the shortfall to macro weakness and changing consumer behavior—but for the first time, it also emphasized increasing competition as a greater risk compounding to a headwind. Our lowered fair value estimate reflects slower long-term revenue growth assumptions, as we expect the company's CAGR to expand in the mid- to high-single-digits for 2023-28 rather than the double-digit increase that was anticipated earlier. Our investment thesis remains intact as momo.com continues to enjoy economies of scale with its best-in-class logistics network as Taiwan’s 1P e-commerce leader and should see operating margin expansion as it further improves its operating efficiency. Momo.com offers a modest dividend yield of 3% currently, and we believe the shares are fairly valued given the lesser upside and lower revenue trajectory. We think share price performance will be driven by the indication of greater consumption demand ahead.