IPO Report: Momo (MOMO)

Momo (MOMO) is a revolutionary mobile-based social networking platform. MOMO enables users to establish and expand social relationships based on location and interests. It is headquartered in Beijing, China.

Nine other companies are scheduled to IPO for the week of Dec. 8, 2014.  The full IPO calendar is available at IPOpremium.

Manager, Joint-managers: Morgan Stanley, Credit Suisse, J.P. Morgan, China Renaissance
Co-managers: None

MOMO scheduled a $216 million IPO with a market capitalization of $2.5 billion at a price range midpoint of $13.50 for Thursday, Dec. 11, 2014 on Nasdaq.  SEC Documents

MOMO IPO Summary

MOMO is a revolutionary mobile-based social networking platform. MOMO enables users to establish and expand social relationships based on location and interests.

MOMO’s platform includes its Momo mobile application and a variety of related features, functionalities, tools and services that MOMO provides to users, customers and platform partners. MOMO has established itself as one of China’s leading mobile social networking platforms in less than three years since its inception.

MOMO IPO Conclusion

Neutral

Rev +60%

Loss -87% of rev

Price-to-sales of 73 (too high)

P/E -85

Per share dilution -$-11.30  vs  IPO mid-range of $13.5

Momo Inc. is offering 16,000,000 American depositary shares, or ADSs. Each ADS represents two Class A ordinary shares

Concurrent Private Placement

Concurrently with, and subject to, the completion of this offering, Alibaba Investment Limited and 58.com Inc., both of which are non-US entities, have agreed to purchase from us US$50.0 million and US$10.0 million of MOMO's Class A ordinary shares, respectively, at a price per share equal to the initial public offering price adjusted to reflect the ADS-to-ordinary share ratio,

Business

MOMO connects people in a personal and lively way.

MOMO is a revolutionary mobile-based social networking platform. MOMO enables users to establish and expand social relationships based on location and interests.

MOMO’s platform includes its Momo mobile application and a variety of related features, functionalities, tools and services that MOMO provides to users, customers and platform partners. MOMO has established itself as one of China’s leading mobile social networking platforms in less than three years since its inception.

Free of Charge

MOMO's mobile application is free of charge.

MOMO began to generate revenues in July 2013 from membership subscription packages, which provides members with additional functions and privileges.

MOMO generated 68.1% of net revenues from membership subscription fees in the nine months ended September 30, 2014.

MOMO also began to generate revenues from mobile games, paid emoticons and mobile marketing services in the second half of 2013.

MOMO believes its large, engaged user base makes Momo attractive to mobile marketing customers and our platform partners.

Market

The mobile internet population in China has grown substantially due to rapid technological development, network enhancement and increasing affordability of smartphones.

According to eMarketer, a third-party market research firm, the number of mobile internet users in China grew from 375.6 million in 2011 to 556.1 million in 2013, representing a compound annual growth rate, or CAGR, of 21.7%, and is expected to further increase to 712.4 million in 2017.

User Metrics

MOMO’s user base has grown rapidly since it launched Momo in August 2011, as evidenced by the following:

MOMO had 180.3 million registered users as of September 30, 2014, representing an increase of 160.8% from September 30, 2013.

MOMO’s MAUs reached 60.2 million in September 2014, representing an increase of 112.8% from September 2013.

MOMO’s average DAUs reached 25.5 million in September 2014, representing an increase of 140.6% from September 2013.

MOMO had 2.3 million members as of September 30, 2014, representing an increase of 659.9% from as of September 30, 2013.

MOMO’s users sent a daily average of 655.2 million one-to-one messages, representing a daily average of 26 one-to-one messages per DAU, in September 2014; 63.5% of these messages were exchanged among people who had already followed each other.

Integral Part

MOMO has become an integral part of the daily lives of many people in China, where the increasing proliferation of smartphones and network enhancement allow more people to be connected anytime and anywhere. With powerful and precise location-based features, MOMO enables its users to connect with each other and expand relationships from online to offline, thereby making their social networking experience more real, personal and multi-dimensional.

MOMO aims to offer its users an authentic social experience by encouraging them to provide detailed personal information on Momo. Leveraging its social interest graph engine and its analysis of user behavior data, MOMO is able to provide users a customized experience based on their social preferences and needs.

Momo users can maintain and strengthen their relationships through MOMO’s private and group communication tools, content creation and sharing functions, as well as the offline social activities promoted on MOMO’s platform.

Intellectual Property

As a mobile social networking platform, MOMO is subject to intense competition from providers of similar services as well as potential new types of online services, including interest-based social products. These services include various mobile applications, such as Weixin and Mobile QQ.

MOMO’s competitors may have substantially more cash, traffic, technical and other resources, as well as broader product or service offerings and can leverage their relationships based on other products or services to gain a larger share of marketing budgets from customers.

MOMO believes that its ability to compete effectively depends upon many factors, including the size, composition and engagement of its user base, its ad targeting capabilities, market acceptance of its mobile marketing services, its marketing and selling efforts, and the strength and reputation of its brand.

If MOMO is unable to compete effectively for users or cannot maintain its user engagement, its business and operating results may be materially and adversely affected.” MOMO also experiences significant competition for highly skilled personnel, including management, engineers, designers and product managers. MOMO’s growth strategy depends in part on its ability to retain its existing personnel and add additional highly skilled employees.

Competition

MOMO has registered 11 trademarks and applied for 48 trademarks with the Trademark Office of the State Administration for Industry & Commerce of the PRC. MOMO has registered 18 software copyrights and 30 copyrights with the PRC National Copyright Administration and applied for registration of 4 software copyrights and 3 copyrights with the PRC National Copyright Administration. MOMO has also registered four domain names, including immomo.com, wemomo.com, immomogame.com, and momocdn.com.

5% Shareholders Pre-IPO

Yan Tang          39.9%

Yong Li             5.1%

Sichuan Zhang  29.6%

David Ying Zhang  19.9%

Neil Nanpeng Shen        5.6% 

Feng Yu            5.6%                

Gallant Future Holdings Limited              29.2%    

Alibaba Investment Limited        20.7%

Matrix Partners China II Hong Kong Limited        19.9%    

Rich Moon Limited        5.6% 

Sequoia Funds 5.6%

(totals more than 100% because some of the individuals are nominees for funds)             

Dividends

No dividends are planned.

Use of Proceeds

MOMO expects to receive $256 million from its IPO and use it for the following:

US$80.0 million for research and development activities, including enhancing its technology infrastructure;

US$100.0 million for sales and marketing activities; and

the balance for capital expenditures and other general and administrative matters, which may include, among others, acquisitions of, or investments in, technologies, solutions or businesses that complement its business, although MOMO has no present commitments or agreements to enter into any acquisitions or investments.