Goldman Sachs expects two Chinese social media stocks to climb double-digits on livestreaming

• Goldman Sachs analysts expect China's video livestream market to grow from $2 billion in 2015 to $15 billion in 2020.
• The analysts initiate buy on two leaders in the industry, Momo and YY, and expect them to climb 45 and 35 percent, respectively, from Thursday's close to reach Goldman's price targets.
• That said, the social media stocks tend to be volatile and are sensitive to consumer and government sentiment.

An investor looks at an electronic board showing stock information at a brokerage house in Shanghai on March 16, 2017.

Johannes Eisele | AFP | Getty Images

Goldman Sachs predicts two U.S.-listed Chinese stocks, Momo and YY, will surge double-digits on the rapid growth of the video livestream market there.

"China is leading the world in live streaming – where individuals broadcast themselves singing, chatting or even eating," equity research analyst Fan Liu and a team of other analysts said in a Thursday report.

The analysts forecast the livestreaming market to grow to $15 billion in 2020, more than seven times what it was just two years ago, and are initiating buy on the two leaders of the market "after a flurry of startups in the space last year."

Messaging app Momo has a strong existing social network, while YY has "solid content generation capability," the analysts said.

Shares of Momo closed nearly 7 percent higher Thursday at $38.53 a share, leaving about 45 percent upside to Goldman's $56 12-month price target. Shares of YY gained 5 percent to $74.72, about 35 percent below the analysts' $101 price target.

Livestreaming enjoyed the highest revenue per hour in 2016 (US $)

Source: Goldman Sachs

Momo reached a record 91.3 million monthly active users in the second quarter, according to the Goldman report, while YY had 66 monthly active users for mobile livestreaming and 5.7 million paying users in the second quarter.

To be sure, both stocks tend to be volatile and are based on business models sensitive to consumer sentiment.

The Goldman analysts also noted pressure from Chinese regulators could also quickly turn sentiment around.

Among other major Chinese stocks, Goldman Sachs has a conviction buy rating on Alibaba and buy ratings on Baidu, Ctrip, JD.com, NetEase, Tencent and Vipshop.