China’s leading location-based social networking app, Momo, has pulled off a rare feat. The company tripled their annual revenue despite monthly active accounts and paying subscribers plunging in the second half of 2015.
Premium subscription revenues almost doubled, mobile gaming sales grew 180% year-over-year, and mobile marketing rocketed.
It’s also the first time the company turned an annual profit from operations since it began generating revenue in the second half of 2013.
Momo blamed a decrease in smartphone sales for the active user stagnation, even as many Chinese social apps reported considerable user growth for last year; for instance, the popular messaging app WeChat saw 39% year-over-year growth in monthly active users in 2015.
Another explanation Momo gave was users hadn’t got used to some software updates released during the year. The immediate user feedback to Momo’s 6.0 version, a major update launched in the second quarter, failed to meet their expectations, said Momo CEO Jonathan Zhang, during their Q2 earnings call. Later in the year the company released two updates, which apparently failed to boost active user growth.
While the total number of paying subscribers didn’t change much during the year, the jump in revenue collected per subscription reflects the success of an additional type of premium subscription that was introduced in June 2015.
While the previous ‘VIP membership’ subscription costs 12 yuan, less than $2 USD per month, the new ‘Super VIP’ is priced much higher at 30 yuan ($4.60 USD).
This kind of membership hierarchy system, in which users spend time or money to upgrade to higher levels, has been widely adopted by Chinese social services to engage users and keep them spending. Tencent’s premium subscription system has built eight levels over the last decade or so.
Mobile advertising overtook membership subscription as the largest revenue stream for Momo in the fourth quarter of 2015. The annual advertising revenue surpassed that from gaming, which is the largest revenue source for many Chinese social services like Tencent. Advertising revenue as a percentage increased from 4% in the previous year to 29% in 2015.
In the second quarter 2015, Momo launched a self-service ad system for in-feed ads and would later enable real-time bidding. Previously their advertising revenue was driven by display ads and ‘Dao Dian Tong’, a service that allows local merchants to set up their business profile pages.
Before the self-service ad system took off, 58.com, the leading local services platform which is integrated into Momo, and Alibaba, one of Momo’s shareholders, had been important ad revenue contributors for the social networking company.
By 2015 there were 35 games on Momo platform, up from 12 in the previous year. The company has since begun developing games in-house, and launched their first title in February 2015.
The rest of the annual revenue was primarily derived from their live video streaming service, launched in the third quarter. Minor revenue sources include emoticon stickers, one of the company’s early monetization approaches, and the gift mall, launched in early 2015 for users to send physical gifts to other users or themselves.
Momo’s live video streaming business started with Momo Life, a live music concert streaming platform that hires pop singers to do online-only shows. The platform enables viewers to buy virtual gifts for singers, splitting the gains with the company.
Virtual gift-based live video streaming has been highly profitable in China. Momo would later open the platform to all users, inviting a stream of amateur performers. The company claimed that monthly active users reached 30 million in April 2016.
Established in 2011, Momo Inc. raised more than $200 million USD through an IPO on the NASDAQ in December 2014. But only half a year later the company announced the receipt of a non-bidding privatization bid led by Tang Yan, co-founder, chairman and CEO of the company and a group of Chinese venture capital firms.
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