Benchmark trims Momo stock target as business adjustments impact outlook

On Wednesday, Benchmark adjusted its financial outlook on Momo Inc . (NASDAQ:MOMO), reducing the price target to $13 from the previous $15, while continuing to endorse the stock with a Buy rating. This change follows the company's recent earnings report, which highlighted performance surpassing modest projections in terms of revenue and profit.

The company's second-quarter results indicated that it outperformed conservative estimates for both top and bottom lines. Despite this, Momo Inc. is undergoing business adjustments that are expected to have a more substantial impact on its operations in the near future. These changes include moving away from competition-driven events for MOMO and implementing a significant product upgrade for its subsidiary, Tantan.

Benchmark's analyst noted that these ongoing adjustments are likely to influence the company's growth trajectory more than previously expected. In light of this, the firm has revised its financial forecasts for the fiscal years 2024 and 2025, taking into account the anticipated growth pressure.

The revised price target of $13 reflects a more cautious stance on Momo's growth prospects. The analyst's commentary suggests that while the company has been able to exceed expectations, the strategic shifts it is making require a recalibration of future earnings estimates.

The adjustment in the price target and the maintenance of a Buy rating indicate that, despite the potential challenges ahead, Benchmark still views Momo Inc. as an investment worth considering. The company's efforts to adapt its business model and product offerings are critical factors in this ongoing financial assessment.

In other recent news, Hello Group Incorporated disclosed mixed financial results for the second quarter of 2024. The company's total revenue reached RMB2.69 billion, a 14% decline year-over-year but a 5% sequential increase. Adjusted operating income dropped to RMB477 million, a 33% decrease from the same period last year and a 7% sequential decline.

The company's Momo app and new standalone apps experienced a 30% year-over-year decrease in revenue, yet saw a 6% sequential increase. Tantan, Hello Group's dating app, reported a 27% year-over-year revenue decrease and a 3% sequential dip.

Looking ahead, Hello Group anticipates third-quarter revenue between RMB2.58 billion and RMB2.68 billion, a year-over-year decrease of 15.2% to 11.9%. The company's focus remains on improving Tantan's user experience and profitability, while maintaining the productivity of the Momo app. Growth initiatives are also underway in the MENA region, with a focus on localization and live streaming.

InvestingPro Insights

Recent data from InvestingPro provides additional context to Momo Inc.'s financial situation. With a market capitalization of $1.18 billion and a P/E ratio that has adjusted to 5.29, Momo Inc. appears to be trading at an attractive earnings multiple. This could be indicative of the stock's potential undervaluation, especially when considering the company's strong free cash flow yield, a highlight among InvestingPro Tips. Additionally, Momo Inc.'s management has been actively engaging in share buybacks, signaling confidence in the company's intrinsic value.

Another key point from InvestingPro Tips is that Momo Inc. holds more cash than debt on its balance sheet, providing financial stability and flexibility. This is a significant metric, particularly as the company navigates through strategic business adjustments. Despite analyst anticipations of a sales decline in the current year, the company's cash flows are more than sufficient to cover interest payments, and Momo Inc. has maintained dividend payments for six consecutive years, evidencing its commitment to shareholder returns.

For those looking to delve deeper, InvestingPro offers a suite of additional tips, with 14 more insights available for Momo Inc. These insights could prove invaluable for investors seeking a comprehensive understanding of the company's financial health and growth prospects.

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