Momo.com Earnings: Lowering Fair Value by 10% to TWD 445 After Revenue Miss Due to Soft Macro Demand

We have lowered our fair value estimate by 10% to TWD 445 per share for Momo.com after it reported second-quarter 2024 revenue of TWD 26.7 billion, representing only a 2% increase year on year, trailing our estimate of 11%. Our lower valuation reflects downward revisions to revenue growth in the next five years to 6% per year from 8% based on greater competition and softer-than-expected demand for online retail in Taiwan. The disappointing revenue was caused by a smaller value of orders, indicating softening consumer demand in Taiwan. We estimate that the average order value, which was not disclosed this quarter, unlike past quarters, decreased by 8% year on year. We also believe that Momo.com is likely subsidizing more shipping costs as the gross margin declined by 100 basis points while the total number of orders increased by 12% year on year, which likely reflects greater incentives for Momo.com’s consumers given the higher order volume. While revenue missed our forecast, there were some bright spots for Momo.com as it saw active users increase by 8% year on year, reflecting its efforts to gain market share as it wards off Coupang. Despite our lower fair value, we believe that Momo.com still has a leadership position in Taiwan’s online retail industry due to its best-in-class logistics and scale that should provide a better consumer experience with speed and convenience, and we reiterate our narrow moat rating. We believe its logistics capabilities are a differentiator in the long run but prefer to see more robust demand before taking a position given recent softness.