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Momo pairs well by swiping right on China's Tinder

[HONG KONG] Momo's latest fling could turn into something serious. It is buying China's answer to Tinder, with a mix of cash and stock. For the US$6.8 billion tech outfit, the acquisition represents yet another shift after its original online courtship effort flopped.

When it first went public in New York in 2014, Momo wooed investors as a fast-growing location-based social network. In China, though, it was best known as a hookup app that allowed users to flirt and meet with nearby strangers. Convincing its mostly-male users to pay for advanced features was hard work, though. In the meantime, the country's nascent live-streaming video market was just taking off.

Boss Yan Tang's change of heart paid off. Momo now touts over 94 million monthly active users as of September. And thanks to the sale of so-called virtual gifts that devoted viewers can buy for their favourite video stars, Momo's revenue in the three months to September more than doubled from a year earlier to US$355 million.

The honeymoon period may be ending, though. Rival apps from the likes of Kuaishou, which is raising US$1 billion at an US$18 billion valuation according to Reuters, are gaining users fast. And China's Internet censors have been ratcheting up a sweeping campaign against vulgar content across social-media sites.

In that context, diving back into the dating pool could be timely. Momo didn't say at what price it would issue stock for the deal, but based on where it was trading the transaction values Tantan at about US$760 million. The Beijing-based company operates with a Tinder-like business model of charging monthly membership fees as low as 10 yuan (S$2) for extra perks such as unlimited swipes and "super likes". A premium Tinder account runs at US$15 a month.

Advertising and virtual gifts eventually could supplement Tantan's membership fees. Momo's investors are excited about the prospects. The company's market value has increased by about US$730 million since the acquisition was announced on Friday.

Match, the IAC subsidiary that owns Tinder and other dating sites, trades at 34 times expected earnings, while Momo fetches 15 times. It's one more reason this new partner could spice things up.