2024-04-08 05:26:04 ET
Summary
- Hello Group's investment thesis is being reconsidered due to a decline in users and revenues, impacting future dividends.
- Both MOMO and Tantan apps are losing users, with Tantan being a loss-making acquisition.
- Cutting marketing expenses has led to a decline in revenues, and capital allocation and corporate governance issues are a concern.
Investments thesis
Hello Group (MOMO) is a Chinese social media platform that enables users to interact with each other using mobile applications. Hello Group consists of two main applications, namely: MOMO and Tantan. Additionally, several other niche applications such as Hertz, SoulChill, Duidui, and Tietie were developed to target specific demographics In China and abroad. When I wrote about Hello Group in March 2023 , I believed that MOMO’s low relative valuation should provide an attractive risk/reward ratio to lift up MOMO’s shares. Furthermore, I have assumed that the management of the company will be able to accomplish a successful turnaround and return to growth in users and revenues. In mid-March 2024, the company reported results for FY2023, which were below the estimates on many items, primarily the growth of revenues. After the results, I reconsidered my initial investment thesis with the following conclusions: a) a decline in users will continue b) revenues will stay under pressure in the foreseeable future c) future dividends will need to be cut as a result of the previous two factors. Based on these observations, it seems probable that Hello Group is entering the last phase of the corporate life cycle. This phase can be characterized by shrinking but still profitable operations. I ended the article with the valuation of the company, which despite its low share price seems to be fairly valued at current levels....
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Hello Group Stock: Seems Cheap, But Lacks Growth Opportunities