Momo.com Earnings: Revenue Weakness Due to Macro Headwinds, but Logistics Advantage Remains Intact

We maintain our fair value estimate of TWD 690 for momo.com after it reported third-quarter revenue of TWD 25.1 billion, which represents a 6% year-on-year increase, but fell 10% short of our forecast due to macroeconomic softness. However, we believe our investment thesis remains intact as momo.com continues to position itself as the market leader in Taiwan’s e-commerce retail industry and should see operating margin expansion as it improves its operating efficiency and adds more users in Taiwan’s less-saturated e-commerce market. In general, retail demand was weak across the board, but in particular across the sports and leisure, fashion and luxury, and home appliance categories. Despite macroeconomic headwinds in the third quarter that caused momo.com to miss our forecasts, we believe that the entire retail industry also saw muted demand. However, momo.com fared much better than its peers as we estimate its online e-commerce market share increased by 80 basis points to 23.9% year on year. We expect momo.com’s convenience and speed, a result of its differentiated logistics network, to attract consumers to the platform in the long term. With 24% upside to our fair value estimate, we believe that the current entry point is attractive given the company should continue to see growth and margin expansion. We also believe that momo.com remains an appealing option for investors looking for a modest dividend yield of 3%.