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Why Momo Inc (ADR) (MOMO) Stock Still Has At Least 30% Upside

Momo Inc (ADR) (NASDAQ:MOMO) stock dropped 20% when it released its Q2 earnings call in late August. But bear in mind, MOMO stock is still up nearly 100% year-to-date, and it logged some pretty impressive growth numbers all the same.

Why Momo Inc (ADR) (MOMO) Stock Still Has At Least 30% Upside
Why Momo Inc (ADR) (MOMO) Stock Still Has At Least 30% Upside

Source: Shutterstock

The head-turning selloff was certainly significant but given the stock’s strength, it isn’t much of a concern at this point. Analysts are less concerned about MOMO stock in particular and more concerned about the future of live video growth in general.

Momo started as a free, location-based instant messaging app. Remember, in China there’s a huge shift of younger people from the country to the big cities where all the jobs are.

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Why MOMO Stock Is Still as Hot as Ever

That means there’s a lot of social dislocation as young people flock to cities where they may not know anyone. An app like Momo helps make that isolation a shared experience and it turns the hardship into an advantage.

Momo now has 91 million monthly active users, up from last quarter’s 85 million. It’s a very popular app that continues to grow. But its biggest driver so far has been its live video. This is where the current — and many say future — growth lies for the company and its competitors.

This past quarter, video accounted for more than 80% of Momo’s net revenue. And net revenue grew 215% in Q2 compared to the same quarter a year ago. The trouble with this is, there is concern that live video use is peaking and we may be nearing the top of this impressive growth.

This was part of the reason for the selloff. Mobile market revenue was up 15%; mobile games were up 23%. That’s all well and good, but MOMO stock’s valuation is based on big growth. And the big driver was video.

But the concern is overdone. Momo is on already on it.

It has launched a number of video initiatives including a live audio-video social game called Werewolf that is going viral. What this shows is Momo has built a huge base and even if the growth of adoption of video slows from here, the company’s penetration is still very early. It has built the breadth and it is now focusing on depth.

And beyond its headline numbers, Momo is still executing well on the fundamentals, continuing to beat expectations. This current selloff isn’t something that signals real concerns with the company. It’s more a concern over its growth potential in the future, which Momo is already addressing.

If you have the risk tolerance, this is a chance to buy in to the Chinese millennial market at a rare discount.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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