Weibo: Why This Chinese Internet Stock is On Fire
By Isabella Zhong
Barron's
May 16, 2017 11:14 p.m. ET
Weibo ( WB) shares skyrocketed 25% (!) in Tuesday New York trading after the Chinese microblogging platform delivered a clean beat across the board with its March quarter earnings and unveiled a stronger-than-expected outlook for the June quarter.
Here’s Jefferies analyst Karen Chan with more on Weibo’s impressive results:
1Q17 strong results beat; 2Q17 guidance tops Street. 1Q17 revenue came in 6.3%/4.9% above consensus/our est. at USD199.2mn, +67% YoY, 4.8% above high-end of guidance of USD185-190mn. Non-GAAP net income was USD57.8mn, +253.6% YoY, 28.3% above consensus and 23.7% above our est. Company guided 2Q17 revenue 8% above consensus at USD240-250mn, representing 63.4-70.2% YoY growth. Chan applauded Weibo’s strengthened brand value in social advertising.
KA (key accounts) and SME (small-to-medium enterprises) showed strong revenue growth of 79% and 86% respectively, as advertisers increasingly recognize Weibo’s brand value of social advertising, its large and growing active user base as well as diversified ad product offerings. No. of short video ad customers was up 50% QoQ, now accounting for 18% of advertising revenue. Daily video view reached 2.4bn, 5x that of prior year quarter. Another highlight was the strong growth in the number of monthly active users, which increased 30% compared to a year ago to 340 million. The rise was underpinned by increased user engagement in interest-based information feeds, richer vertical content and higher consumption of video and live streaming content. Weibo is set to further expand short video content beyond professionally generated content (PGC) to user generated content (UGC) with the recent launch of Stories among some iOS users.
Chan expects the richer short video content will help increase overall user time spent and expand ad inventories down the road.
We revise up FY17/18 revenue est. by 7.6%/11.6% with potential upside coming from revenue sharing with Yizhibo on live streaming in 2H17. We revise up profit est. by 18.2%/22.5%, with non-GAAP operating margin further improving to 38% in FY17 and 43% in FY18. Chan maintained her buy rating on Weibo and lifted her target price from $67 a share to $82 a share, which implies 4% upside.
Weibo shares have gained 234% over the past year after earnings jolted to life for the microblogging platform as it started to convert eyeballs into income. The stock trades at 49 times forward earnings.
Shares of parent company Sina ( SINA) jumped 17.85% on Weibo’s strong performance. Sina was among the six Internet stocks that Barron’s Asia recommended investors buy in 2017.
It’s been a jubilant earnings season for Chinese Internet companies. JD.com ( JD), NetEase ( NTES) and Vipshop ( VIPS) are familiar names that have reported stronger-than-expected results. Titans Tencent ( 700.HK) and Alibaba ( BABA) will report results this week. For more on what to expect, please see: Alibaba: What to Expect from Q4 Earnings and Tencent: What to Expect from Q1 Earnings.
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