Live-streaming app Momo posts strong growth in 2018 amid climbing costs

Chinese location-based social app and live-streaming platform Momo reported solid revenue gains in 2018 as monetization efforts paid off.  However, increasing competition in the live video landscape drove up spending during the year on increasing payouts to talent while marketing costs related to the company’s acquisition of dating app Tantan surged in the fourth quarter.

Momo released its fourth quarter and 2018 full year financial results on Tuesday with full-year net revenue of RMB 13.4 billion ($1.9 billion), up 51% from 2017 as monetization gained traction, primarily for livestreaming and value-added services (VAS) including membership subscriptions and its virtual gift business. Fourth quarter earnings per American depository share (ADS) at $0.59 easily surpassed analyst estimates of $0.52 and earnings from the same period a year ago of $0.52.

Revenues from livestreaming were RMB 2.9 billion ($430.40 million) in the fourth quarter, up 36% from the same period in 2017. VAS brought in revenues of RMB 722.4 million ($105.1 million) in the fourth quarter, an increase of 272% compared with the same period in 2017.

Momo burned more cash in 2018 than the year prior as intensifying competition forces players to ramp up user acquisition costs and sweeten incentives for its talent. In the fourth quarter, the company posted $464.8 million in total expenses, a 65% increase from the same period in 2017, and topping a growth trend across 2018. Rising expenses included marketing and promotional spending as well as an increase in revenue-sharing with broadcasters and its rapidly expanding talent pool.

The company noted during a call with analysts on Tuesday that marketing expenses significantly increased in 2018 to more than RMB 557.2 million ($81.1 million), comprising 14.5% of total revenue, was largely due to the consolidation of Tantan. Momo acquired popular Chinese dating app Tantan in May in a bid to increase its market share in the dating app market.

Monthly active users (MAU) on its mobile app grew to 113.3 million in 2018 from 99.1 million in the previous year. Total paying users across the company’s platforms, including dating app Tantan’s 3.9 million paying users, reached 13 million in the fourth quarter.

Momo will focus efforts on its live video platform in 2019, energizing broadcast content to draw traffic and improving conversion. There is a “clear mismatch on the platform, where, on the one hand, we have a lot of users having difficulty in finding effective interactions,” said Tang Yan, Momo’s co-founder and CEO during the call.

Overseas ambitions for the Momo app aren’t imminent, said but there may be a “specific opportunity” for Tantan, said Tang.

“Regarding Tantan’s overseas strategy, so while China is still our focus, we do, in fact, already have a pretty sizable user base. We do see the overseas market, especially Eastern markets, it’s a big growth opportunity for Tantan down the road,” said Wang Yu, Tantan’s co-founder and CEO.

The company said on the macro level, it expects the impact of the country’s economic slowdown to continue to be a risk factor to pace of revenue growth throughout 2019. 

Livestreaming has become increasingly popular in China, with an estimated 425 million live-stream users in the country. However, as regulators tighten their grip on user-generated content, Momo and its peers including YY, Huya, and Kuaishou will likely face more scrutiny this year. This week, a government organization submitted a proposal during the parliamentary session urging authorities to consider banning underage users from hosting live videos.