Momo investors have hired a corporate law firm to investigate the Chinese mobile dating platform over suspicions that its directors might have been engaging in securities fraud or other unlawful business practices.
Stock prices dropped by over 7% after trading closed for the weekend on 26th April. This was following reports that subsidiary Tantan had been removed from several Android app stores for policy violations.
The exact type of violations have not been declared, but they are believed to be in relation to a number of adverts for prostitution services which were found on the app a week earlier.
Multiple Seeking Alpha analysts have been bullish on Momo stock for several months. Brian Yu called it “unstoppable” at the start of April, and estimated its position in the market would continue to grow.
Now an unnamed Seeking Alpha analyst has explained why they think this sudden trough is “a ridiculous emotional knee-jerk reaction”.
The reasons given were five-fold and included the fact that temporary store blockages of this nature are not uncommon in China. They predicted Tantan would be live again in two to four weeks.
Further, the dating app is a relatively low contributor to Momo’s revenue, providing just 5.8% of its parent company’s overall revenue in Q4 2018.
However, Momo was planning on using Tantan as its main means of expansion into new Asian territories. That project will have to be put on hold until the compliance issue is resolved.
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