Background
MOMO is a mobile based social networking platform that has able to grow its user base by its platform by providing an alternative location based socializing application that allow people who are near each other to establish social relationships. Over the past few years, it has been able to catch the live broadcasting and video streaming mega trend in China. It has been able to capitalize this line of business through a virtual based gift system where the fans are able to purchase virtual gifts for live streamers they like. It also operates another not-yet-profitable dating app called Tantan, which is the Chinese equivalent of Tinder. Collectively, these apps came under heavy regulatory scrutiny from the government due to the occurrence of prostitution and fraud at the end of April. As a result, Tantan is currently removed from the Chinese App store and several functions of the Momo’s main app is disabled.
Note: problems like this has been surfacing since last year so Momo is expected to undergo a major change to prevent mitigate such issues
Rationale:
1. Momo’s stock price has been relative resilient considering: 1) US-China trade war and weakness in Chinese stocks 2) Regulatory pressures from China. Recent price actions may indicate that the removal of the Tantan app is only temporary
2. Solid results from Momo and the company is significantly undervalued especially when compared to Match Group Inc.
Catalyst:
If developers from Momo can resolve issues raised by the regulatory body, resulting in Tantan re-debuting on the Chinese app store and the Momo app restoring its full functionality, we may expect prices move testing and hopefully moving above may levels indicated on the chart.
Price Target:
Short-term price target range is indicated on the chart. The range contains important resistance levels including the 0.618 fib retracement from previous high, and the downward gap around the 29th of April due to Tantan’s removal. It will be interesting to see whether prices will move past this level. I would consider holding my long position in Momo if it is able to break through this level and consolidate. In that case, more upside potential would appear.
Expected Payout: 3.397%
Trade closed: target reached:
Tantan seems to be up on Chinese android stores on Saturday. Interesting to see how stock price will move from here.
Trade active