On Monday, JPMorgan (NYSE:JPM) downgraded Momo Inc . (NASDAQ: NASDAQ:MOMO) stock from Overweight to Neutral and significantly reduced the price target to $6 from $13.
The adjustment follows the company's first quarter results of 2024, which indicated a lack of clear signs for a fundamental turnaround.
The firm anticipates a decrease in revenue and adjusted operating profit by 12% and 32% respectively for the year 2024, citing challenges such as regulatory pressures, macroeconomic factors, and increased competition in the company's domestic operations.
The live streaming and value-added services (VAS) revenues are expected to face declines. While Momo Inc.'s new initiatives, including its international business Soulchill, have seen a rapid 51% year-over-year growth in the first quarter of 2024, they still only represent 13% of total revenue, which is insufficient to offset the broader challenges the company is facing.
JPMorgan also revised its adjusted net profit forecasts for Momo Inc., which are now 16% and 15% below consensus estimates for 2024 and 2025. The lack of a foreseeable financial turnaround for Hello Group, the parent company, in the near term has influenced this outlook.
Despite this, the firm notes that Hello Group's market capitalization at $1.1 billion is lower than its net cash position of $1.5 billion as of the first quarter of 2024.
The analyst suggests that if Momo Inc. maintains its dividend payout ratio and share repurchase amount similar to 2023, shareholders could see a mid-teens percentage return annually, with dividends and buybacks contributing 8% and 6%, respectively. This could potentially limit the downside risk for the stock price.
The report acknowledges the risks of increased regulatory scrutiny and heightened competition. Conversely, potential positive developments could arise from user growth on Momo and Tantan platforms, as well as the scaling of new apps.
InvestingPro Insights
Following JPMorgan's recent rating downgrade for Momo Inc. (NASDAQ: MOMO), a closer look at the company's financial health through InvestingPro data reveals both challenges and potential areas of resilience. With a market capitalization of $1.04 billion, Momo Inc. is trading at a low earnings multiple with a P/E ratio of 5.02 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 4.75. This could indicate a potential undervaluation considering the company's strong free cash flow yield, as highlighted by one of the InvestingPro Tips.
Despite the company's revenue decline of -5.1% over the last twelve months as of Q1 2024, Momo Inc. holds more cash than debt on its balance sheet, which is a reassuring sign of financial stability. Additionally, the company's cash flows can sufficiently cover interest payments, and its liquid assets exceed short-term obligations, providing further evidence of its solid liquidity position. Another InvestingPro Tip points out that management has been aggressively buying back shares, which could be a signal of confidence in the company's future from its leadership.
For readers interested in a deeper dive into the financial metrics of Momo Inc. and other companies, InvestingPro offers a wealth of additional tips and real-time data. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 12 more InvestingPro Tips available for Momo Inc., which could provide valuable insights for investors looking to make informed decisions.
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