YY And Momo: The China Internet Pair Trade

Deutsche Bank has resumed coverage of Chinese live broadcasting site YY Inc (ADR) YY with a Buy rating and launched coverage of peer Momo Inc (ADR) MOMO at Hold.

Rating Justifications

On YY, the brokerage is impressed with professional content, higher user stickiness and potential upside from on-line dating and expects YY to take advantage of imminent industry consolidation.

However, it prefers to be on the sidelines on Momo, as it believes the live broadcasting channel to be constrained to existing users, given a strong emphasis on social connections.

Viewer Comparisons

Deutsche Bank’s survey shows that YY is highly ranked by viewers and performers across many fronts, including content quality and variety, time spend and streaming quality. The same survey suggests Momo is less popular than YY among live broadcast users.

“User trend disruption remains the short-term risk (for YY), while we believe YY’s current business model will underpin its long-term success,” analyst Eileen Deng wrote in a note.

Future Expectations

Deng expects a FY 2017–19 CAGR of 26 percent for YY Live revenue. For Momo, the analyst believes the advertising monetization will come only at a later stage as the company is now heavily focused on live broadcasting.

The analyst also sees substantial potential for YY on the mobile front given that online dating still heavily relies on PC. Deng expects Momo’s mobile marketing revenue to grow at 32 percent CAGR from FY 2017–19.

At last check, ADRs of YY were up 0.09 percent to $42.94, while Momo fell 1.87 percent to $19.65. Deng has a price target of $60 on YY ADRs and $22.70 on Momo.