Why Is China's Momo Inc. Stock Soaring Today?

Shares of Momo Inc. MOMO soared more than 12% in morning trading Friday after the Chinese instant messaging company acquired Tantan, China’s top dating application, in an all-cash deal valued at more than $600 million.

Such a major deal clearly signals that Momo is looking to diversify its core business in an effort to compete against Tencent’s TCEHY WeChat, the clear leader in China’s instant messaging market.

“Our core position will continue to center on social networking and this acquisition enriches our product line in the social space,” said Momo CEO Yan Tang. “After the acquisition, the Tantan team will continue to operate the mobile apps under the Tantan brand with our full support.”

Labelled as the “Tinder of China,” Tantan claims to have created 5 billion matches since launching in 2015. The app never disclosed its private valuation, although we do know that it has raised about $120 million—including $70 million in a funding round as recently as last year.

For Tantan, the deal presents the young company with a unique opportunity to scale while still operating under its own banner.

“The acquisition is a critical strategic upgrade to cover a greater range of user demographics and needs, and build up a larger social networking market through complementary businesses and strategic synergy. We are very confident in our future development,” said Tantan CEO Yu Wang.

Momo shares opened higher and continued to climb in morning trading Friday, reaching an intraday high of $34.50 shortly after the opening of the U.S. markets. The stock is now up nearly 35% over the past year, although it is still a long way off the 52-week high it reached in August.

Momo’s failure to generate much momentum actually presents a unique value opportunity in the Chinese internet space. While many of its peers—including Line Corporation LN and Weibo Corporation WB—trade with sky-high valuations, Momo is currently sporting a P/E of just 13.9.

But Momo is still a stock with explosive growth potential. Our consensus estimates are calling for the company to conclude its fiscal 2017 with full-year earnings growth of 97.7%, followed up by an additional bottom-line expansion of 28.2% in the upcoming fiscal year.

Momo is currently sporting a Zacks Rank #3 (Hold), as well as an “A” grade for Growth in our Style Scores system.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

Zacks Top 10 Stocks for 2018

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?

Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2018 today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Weibo Corporation (WB) : Free Stock Analysis Report
 
Tencent Holding Ltd. (TCEHY) : Free Stock Analysis Report
 
LINE Corporation (LN) : Free Stock Analysis Report
 
Momo Inc. (MOMO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research