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A Strong Year For Weibo Just Ended, Another One Gets Set to Begin

Weibo continued to climb last year. With new deals and possible acquisitions, 2018 is looking strong as well.

Lucas Hahn
    Jan 15, 2018 6:05 AM  PT
A Strong Year For Weibo Just Ended, Another One Gets Set to Begin

Last year was another great year for Weibo Corp. (Nasdaq: WB), the Chinese microblogging platform - and this year could be just as strong.

Weibo grew earnings, revenue, and active users at impressive rates over the past 12 months while investors enjoyed the ride upward as well.

Weibo stock opened 2017 at $41.33 per share; by May it was nearing $80. From there, it almost tripled, hitting its high last year at $123 per share on Nov 21. It closed Friday at $121.44, a gain of 194-percent gain.  

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Weibo is often compared with Twitter Inc. (NYSE: TWTR), but Weibo is larger, both in terms of market capitalization and monthly active users. In the most recent quarter, ended Sept. 30, Weibo boasted 376 million monthly active users, making it one of the largest social media platforms in China.

After turning profitable in 2015, its growth has continued since. Over the trailing 12 months, Weibo has earned $1.18 per share. Weibo's total revenue for the first nine months of 2017 was $772.6 million, up from $443 million in the first nine months of 2016.

Sports Partnerships

China's fast-growing middle class has developed a taste for professional sports, and Weibo enables sports leagues to reach Chinese audiences.

In 2017, Weibo partnered with three major sports leagues: the National Basketball Association (NBA) and National Football League (NFL) in the United States, and La Liga in Spain, a soccer league.

American football might not be well-known in China, but the NFL is very interested in the country. In February, the Super Bowl was broadcast on Weibo for Chinese audiences, with 3.07 million viewers tuning in.

Unfortunately for Weibo, in August the NFL signed an agreement with its rival, Tencent Holdings Ltd. (OTCMKTS: TCEHY), granting the company exclusive streaming rights in China.

Weibo had better luck with the NBA, which announced a partnership with Weibo to stream basketball games in China. According to the Motley Fool, NBA clips on Weibo registered 8.4 billion views over the season.

In March, La Liga, a Spanish soccer league including teams such as Real Madrid, named Weibo its official social media platform in China.

Government Relations

Events in 2017 reminded us that investing in Chinese companies like Weibo comes with political and regulatory risks. Live-streaming continued growing in 2017, but the Chinese government set some boundaries.

In February, foreigners were required to register with the Chinese Ministry of Culture before livestreaming on Weibo. On June 22, the Chinese government issued a warning over livestreaming on Weibo, iFeng and ACFun.

Weibo stock slipped following the government's warning. Shortly thereafter, Weibo apologized and complied, restricting political content and videos over 15 minutes long.

In August, the Cyberspace Administration of China announced an investigation of Weibo, Tencent and Baidu Inc. (Nasdaq: BIDU) over violations of cybersecurity laws. The government claimed these platforms were being used to spread violence, false rumors, and pornography.

The agency required netizens to register personal information, including their real names, and slapped the three companies with RMB 100,000 fines.

In September, Weibo announced that it would pay 1,000 people to report inappropriate content during their spare time, with some receiving prizes such as iPhones.

This is a very sensitive area; similar concerns in 2009 got Facebook, Inc. (Nasdaq: FB) blocked in China.

Rivalry With Toutiao

Weibo's growth, however, won't come without a challenge. It faces increased competition from Toutiao, an app which uses artificial intelligence (AI) to create personalized news feeds. TechNode noted that Toutiao ranked among the top five apps in China, both in terms of both monthly active users and total time spent during June.

Toutiao is growing rapidly and Weibo may see it as a threat. Some of the moves Weibo made in 2017 might be due to Toutiao. Weibo invested in Toutiao a few years ago but has since sold its stake.

During earnings calls, Weibo executives noted how the company was improving the algorithms it uses to recommend content to users. And in October, Weibo raised $700 million to fund acquisitions.

Toutiao and Weibo also clashed earlier this year. Toutiao asked users with Weibo accounts to allow the app to republish Weibo posts. Weibo claimed that it owns content created on Weibo and demanded that Toutiao ask permission before republishing content. In response, Toutiao blocked users from sharing Weibo content.

Looking Ahead

During the third quarter earnings call, Weibo provided a guidance for the fourth quarter, estimating revenue between $355 million and $365 million.

According to Seeking Alpha, analysts from Barclays, Benchmark, and Citi raised their price targets on Weibo stock in recent months.

Seven analysts currently have a "strong buy" recommendation, while 12 regard the stock as a "buy." Only three research analysts have Weibo listed in the "hold" or "sell" category.

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