No One Is Afraid of Slowing Growth at Momo

Revenue growth continues to decelerate at Momo (NASDAQ:MOMO), but it's hard to be disappointed by a 50% top-line gain. The Chinese social video and online dating specialist posted fourth-quarter results on Tuesday morning, landing comfortably ahead of its earlier guidance. 

Net revenue climbed 50% to hit a record $559.1 million. It's the seventh time over the past eight quarters that the pace of the top-line increase has slowed at Momo, though it's not much of a slide compared to the 51% revenue uptick last time out. The dot-com speedster was only targeting growth of 43% to 47% at the time of its third-quarter report.

Image source: Momo.

Internet thrilled the video star

Once again, we see live video as the top driver at Momo, contributing 77% of the revenue for the quarter. The segment's top-line showing increased 36% for the period. Momo's value-added services business -- including membership subscription and virtual gift revenues -- is growing even faster, soaring 272% (and now accounting for 19% of the revenue mix). There were declines in its mobile gaming and mobile marketing segments, but they have never been needle movers here.

Momo's popularity continues to grow. There were 113.3 million monthly active users in December, up from 110.5 just three months earlier and 94.4 million a year earlier. Momo is also doing a good job of getting a larger percentage of its users to pay up for premium services, and the revenue per paying user is also on the rise. 

Unfortunately, costs are growing even faster than revenue and user counts. Adjusted earnings rose just 22% -- as it did back in the third quarter -- to hit $0.59 a share, but most investors were bracing for slower growth.

The deceleration will continue. Momo's initiated guidance calls for just 28% to 32% in revenue growth for the current quarter. 

Momo has been a volatile stock in recent years, but it's been a winner more often than not during earnings season. The stock's 12% increase on Tuesday makes this the fourth time in the past five quarters that the stock has moved at least 9% higher the day it posts its financial results. 

Momo's platform is still strong and growing. The acquisition of social dating app Tantan last year helped leverage its success with live video while providing a boost to its paying user count. Armed with more than $1.6 billion in cash, it wouldn't be a surprise if Momo goes shopping again. It's putting some of the money to use by declaring a special dividend that amounts to $0.62 per depositary share. Investors will enjoy the pocket change as they ponder what Momo will do to eventually reverse the deceleration in revenue growth.