Investments In momoAds And Logistics Will Boost Future Performance

Key Takeaways

• Rapid scaling of the 3P business and investments in momoAds could drive significant revenue and profit margin growth.
  
• Enhanced logistics and customer engagement initiatives are expected to improve operational efficiency and support long-term growth.
  
• Slowing e-commerce growth, declining media revenue, and increased expenses challenge momo.com's profitability and diversification efforts amidst changing consumer behavior and spendings.

Catalysts

Engages in the TV and radio production, radio and TV program distribution, radio and TV commercial, video program distribution, issuing of magazine, and retailing businesses in Taiwan.

• momo.com's 3P business is rapidly scaling, with significant GMV growth expected, which could drive overall GMV and revenue growth in 2025.
  
• Investment in momoAds, the company's retail media network, is seeing increased traction with merchants. This could potentially enhance revenue and profit margins due to its high-margin nature.
  
• The integration of the Southern and Northern Distribution Centers and streamlined 2-hub operations aim to enhance logistics efficiency and customer service, potentially improving operational costs and net margins.
  
• Ongoing focus on enhancing customer engagement and increasing user activity, demonstrated by rising average monthly users and purchase frequency, could boost future sales and revenue growth.
  
• Strategic priorities for 2025, such as market share growth in 1P and 3P businesses, leverage of customer service and logistics, and use of technology to drive operational excellence, are expected to support long-term revenue and earnings growth.

momo.com Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming momo.com's revenue will grow by 5.6% annually over the next 3 years.
• Analysts are assuming momo.com's profit margins will remain the same at 3.1% over the next 3 years.
• Analysts expect earnings to reach NT$4.1 billion (and earnings per share of NT$18.57) by about March 2028, up from NT$3.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2028 earnings, up from 27.2x today. This future PE is greater than the current PE for the TW Multiline Retail industry at 19.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.29%, as per the Simply Wall St company report.

momo.com Future Earnings Per Share Growth

Risks

• Slowing growth in the e-commerce industry and modest revenue increase of only 3% year-over-year could indicate challenges in sustaining revenue growth.
  
• Media revenue declined by 12.4% year-over-year, reflecting potential difficulties in diversifying revenue streams beyond core e-commerce operations.
  
• Investment in new business initiatives led to increased operating expenses, which could pressure net margins if not offset by sufficient revenue growth.
  
• The decreased take rate due to changes in product sales mix and customer trading down behavior may adversely impact net income and profitability.
  
• Weak consumer spending and shift towards low-price alternatives might limit the growth potential of higher-margin product categories, affecting overall earnings.

Valuation

• The analysts have a consensus price target of NT$368.143 for momo.com based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$430.0, and the most bearish reporting a price target of just NT$315.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$132.5 billion, earnings will come to NT$4.1 billion, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of NT$372.5, the analyst price target of NT$368.14 is 1.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.