On Wednesday, Momo Inc . (NASDAQ:MOMO) experienced a downgrade in its stock rating by a Morgan Stanley (NYSE:MS) analyst. The rating shifted from Equalweight to Underweight, accompanied by a decrease in the price target to $6.00 from the previous $7.00. The adjustment comes amid expectations of a significant decline in the company's operating profit for the year 2024.
The analyst from Morgan Stanley anticipates a 25% year-over-year drop in Momo's operating profit for 2024. This forecast is based on challenges facing the company's primary revenue streams. Live streaming, which constitutes roughly half of Momo's total revenue, along with Value-Added Services (VAS) from both the Momo core and Tantan, excluding new applications, are expected to face headwinds.
The company's dividend, which had a yield of 9% in 2023, has historically been a catalyst for the stock. However, this benefit is typically observed in the fourth quarter, suggesting a limited potential for positive impact throughout the majority of the year.
The downgraded price target reflects the analyst's concerns over Momo's ability to deliver a turnaround story. With the dual pressures on its major sources of income, the outlook for the company's financial performance appears to be under strain.
Investors and market watchers will likely keep a close eye on Momo's financial results and strategic moves throughout 2024 to see if the company can navigate the anticipated challenges and provide any updates on its future prospects.
InvestingPro Insights
As Momo Inc. (NASDAQ:MOMO) navigates through the challenges highlighted by Morgan Stanley's analyst, it's essential to consider the company's financial health and market performance. According to InvestingPro data, Momo boasts a market capitalization of $1.12 billion and is trading at a low P/E ratio of 4.55, which is even more attractive when adjusted for the last twelve months as of Q4 2023, at 4.07. This suggests that the company is undervalued relative to its near-term earnings growth.
An InvestingPro Tip highlights that Momo holds more cash than debt on its balance sheet, indicating a strong financial position. Additionally, with a high shareholder yield and a P/E ratio that implies a strong free cash flow yield, the company presents a potentially compelling value proposition for investors. Despite the expected sales decline in the current year, Momo's cash flows can sufficiently cover interest payments, and analysts predict the company will be profitable this year.
For investors seeking more detailed analysis and additional insights, there are over 10 InvestingPro Tips available at https://www.investing.com/pro/MOMO. Furthermore, those interested in a deeper dive can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes comprehensive metrics and expert commentary to inform investment decisions.
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