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Why Momo, Inc. Stock Dropped Today

What happened

Shares of Momo Inc. (NASDAQ: MOMO) were down 16.9% on Tuesday despite better-than-expected quarterly results from the Chinese social networking platform.

More specifically, Momo's third-quarter revenue climbed 126% year over year to $354.5 million, primarily driven by a 179% increase in live video service revenue to $302.6 million. That translated to adjusted net income (attributable to Momo) of $93.8 million, or $0.45 per diluted American depositary share (ADS), up from $49.5 million, or $0.24 per share in the same year-ago period.

Both the top and bottom lines were well ahead of investors' expectations for adjusted earnings of $0.38 per ADS on revenue of $339.3 million.

Asian stock market prices on an LED display
Asian stock market prices on an LED display

IMAGE SOURCE: GETTY IMAGES.

So what

To be fair, this isn't the first time Momo has plunged after posting strong results. As fellow Fool Rick Munarriz pointed out a few days ago, Momo stock fell on earnings day in three of its past four quarters leading up to today's report, despite easily crushing expectations each time.

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Momo chairman and CEO Yan Tang added:

We've had a good quarter with strong financial performance and progresses in other operational areas. Momo 8.0 allows us to further diversify the social and entertainment offerings on the platform. We are confident that Momo will continue to drive user growth through product innovations, use case expansions as well as a more result driven marketing plan.

Now what

For the fourth quarter, Momo sees revenue arriving at between $370 million and $385 million, good for year-over-year growth of 50% to 56%. Analysts, on average, were modeling revenue above the midpoint of that range at $382.1 million.

Combining that relative guidance shortfall with the fact that Momo stock is still up more than 40% so far this year at least partly explains Momo's decline today -- though it also ignores the company's propensity for underpromising and overdelivering.

All told, this was another great quarter from Momo as its platform continues to gain steam. And I think long-term investors have nothing to worry about.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.