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When it comes down to the basics, every person needs the three Fs: food, fort and let’s call it friendship. At scale, reasonable access to the three Fs leads to sustainable growth for a society. Now, other attributes represent desirable luxuries, such as a hard currency and a robust military industrial complex to collect the debt on said currency. But the three Fs are absolutely essential.
At a cynical level, Hello Group (MOMO) offers the friendship component of these core needs. Specifically, as a social network tied to the Chinese market, Hello Group enjoys a massive total addressable market. Sure, serious concerns exist about the fading growth of the broader Chinese economy. Still, that shouldn’t take away from the core search for human connection.
To be clear, MOMO stock isn’t just an investment in platonic socialization. Yes, it does have the social media component under its belt. But the more intriguing element in my opinion is the underlying dating application. Fundamentally, China up until 2023 commanded the largest population in the world. Just for that fact alone, Hello Group should be on your radar.
More importantly, the search for love is universal. According to Grand View Research, the global online dating market size reached a valuation of $9.65 billion in 2022. Further, experts project that the segment should expand at a compound annual growth rate (CAGR) of 7.4% from 2023 to 2030. At the forecast culmination point, the sector could print annual revenue of $17.28 billion.
What’s more, in 2021, the market value of China’s online dating industry hit $1.13 billion in 2021, up 11.6% compared to 2020. As this market continues to grow, Hello Group should be ideally positioned to benefit. And that thesis seems to be on options traders’ minds.
MOMO Stock Attracts Unusual Trading
Following the close of the Dec. 29 session, MOMO stock became a top highlight in Barchart’s screener for unusual stock options volume. Notably, total volume reached 6,824 contracts against an open interest reading of 24,259 contracts. Against the trailing one-month average metric, Friday’s volume jumped up 574.31%.
Moreover, call volume clocked in at 6,694 contracts versus put volume of only 130. This pairing yielded a put/call volume ratio of 0.02, at face value signifying intense bullish interest. In terms of options flow – or big block transactions likely made by institutional investors – activity was muted.
Per Fintel, the last major options-related transaction for MOMO stock occurred on Dec. 7, when a large entity (or entities) bought 1,047 contracts of the now-expired Dec 15 ’23 5.00 Put. Significantly, big block orders with bearish leanings have all expired except one: 500 contracts of the Jan 19 ’24 13.68 Call.
Barring an exceptional rally, this call option will expire worthless, which is great for risk underwriters. They get to collect maximum premium, which in this case comes out to $15,000. Having said that, with bearish activity on the institutional side cleared out, a possibility exists for bullish speculators to come into the market.
Effectively, MOMO stock has been de-risked, losing about 27% of equity value in 2023. Over the past five years, it stumbled almost 73%. Still, since late September of this year, MOMO has effectively gone sideways. Therefore, it may be on the cusp of a breakdown or a breakout.
Interestingly, while Barchart’s Technical Opinion rating labels MOMO stock a 56% sell, analysts rate shares a consensus strong buy. This assessment breaks down as five strong buys and two holds. Moreover, the average analyst price target stands at $13.37, representing almost a doubling from Friday’s close.
Risks to Consider
Of course, nothing in the market is without risk and one of the main concerns for MOMO stock centers on its revenue growth decline. In 2020, Hello Group rang up sales of nearly $2.3 billion. However, in the following year, the revenue tally fell just shy of the $2.29 billion mark. And in 2022, the sales haul dropped even more conspicuously to $1.82 billion.
As if that wasn’t enough of a concern, on a trailing-12-month (TTM) basis, Hello Group’s revenue sits at $1.73 billion. In the third quarter, the company posted sales of $417 million, down almost 10% from the prior-year quarter. So, when shares trade at a seemingly discounted trailing-year sales multiple of only 0.79X, that might not necessarily be a good thing.
Nevertheless, what should intrigue investors is the growth of the underlying industry. Again, the global online dating ecosystem is projected to witness expansion. And China has already seen robust growth in this industry. So, after posting disappointing performances, Hello Group could be ready to strike back.
It’s a speculative call to be sure. However, it seems that with the bears exiting the derivatives market, the bulls may be ready to play.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
