China's Answer to Facebook's Success

Facebook (FB) has been a break out stock for investors ever since it recovered from a lackluster IPO back in 2012. In fact, it’s up an incredible 695% over the past five years. That’s why so many investors are scouring Silicon Valley looking for the next FB to put in their portfolios. Well, today, I want to direct your gaze in a different direction, across the ocean from San Francisco to where the next Facebook is emerging as we speak.

Based in China, Momo Inc. (MOMO) operates a mobile-based social networking platform that’s very similar to Facebook. Members can connect, establish new relationships and expand their social circles based on their location and personal interests. Thanks to its tools, services and features, including games, Momo has quickly grown into one of the leading social media platforms in China.

In fact, before the opening bell on Tuesday, Momo reported that it had 91.3 million monthly active users at the end of this past quarter, which was up 22% from the 74.8 million monthly active users at the end of the second quarter 2016.

Now, I know this number is dwarfed by FB, which claims over 1 billion daily users on its platform. However, you have to keep in mind that Momo serves only a Chinese audience, and it was founded in just 2011. Having started the social networking craze in 2004, Facebook’s growth precedes its Chinese counterpart by a whole seven years.

Momo’s second-quarter net revenue surged 215% year-over-year to $312.2 million, while net income soared 295% year-over-year to $60.8 million. Earnings per ADS jumped 191.7% year-over-year to $0.35, up from $0.12 per share in the same quarter a year ago. Analysts were expecting earnings of only $0.31 per share on $286.33 million in sales. So, Momo posted a 12.9% earnings surprise and a 9% sales surprise.

For the third quarter, Momo expects net revenues to be between $337 million and $342 million, which translates to 115% to 118% annual sales growth. This forecast is well above analysts’ current estimates for $307.13 million in sales. To put this all in perspective, Facebook is only expecting 26% growth for this entire year.

Overall, this was a strong second-quarter report and better-than-expected third-quarter guidance. But as is often the case with strong stocks, that didn’t stop Momo from selling off yesterday morning. However, Momo still maintains a solid A-rating in Portfolio Grader. That’s why I found this selling a bit overdone, and I fully expect Momo’s shares to bounce back from yesterday’s pullback.

Before you go loading up on MOMO, however, I must mention that this is a very aggressive stock. In fact, it’s the most aggressive stock on my Blue Chip Growth Buy List right now. This is an international stock with explosive growth potential, but with that increased upside potential comes increased risk. So, I urge you to stay tuned in right here to this blog going forward to see if anything changes with my opinion on this explosive Chinese stock.

Sincerely,

signed: Louis Navellier

Louis Navellier

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