Weibo Stock: WB Rally Poised to Continue

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With its extremely strong growth and reasonable valuation, Chinese Internet stock Weibo (WB) is a great investment opportunity.

Weibo Stock: WB Rally Poised to ContinueKnown as a “microblog,” and traditionally described as similar to Twitter (TWTR) Weibo is one of China’s most popular websites, According to the website What’s On Weibo, the posts on Weibo tend to be more “personal” than those on Twitter, and the website is actually a combination of Facebook (FB) and Twitter.

Its users tend to post more often than Twitter users, What’s On Weibo added. Weibo’s active monthly user base reached 222 million in September 2015, representing a 33% increase versus the same period a year earlier.

Consequently, Weibo is well-positioned to exploit the steady but impressive growth of China’s Internet advertising market, whose revenue increased to $49.8 billion in the second quarter of 2015, up from $36.3 billion a year earlier, according to China Internet Watch.

Weibo Stock and the Growing Social Media Market

The sector’s revenue was expected to increase to $55.9 billion in the third quarter of 2015, from $40.5 billion a year earlier, the website reported. And in 2016, social media advertising revenue in the Asian country is expected to rise to $1.08 billion from $923 million this year, Statista stated.

Weibo has already shown that it can benefit a great deal from the sector’s growth. In the third quarter of this year, its net revenues jumped 48% year-over-year to $124.7 million, and its net income rose to $14.5 million, compared with a net loss of $6.7 million in the third quarter of 2014. Moreover, Weibo’s profits have risen for four consecutive quarters, The Fly quoted Morgan Stanley as saying in a story published by The Street.

Predicting that Weibo’s margins will rise steadily in 2016, Morgan Stanley upgraded the stock to “overweight” from “equal weight,” The Fly noted.

Additionally, analysts predict that the company’s EPS will nearly double to 57 cents in 2016, from 29 cents in 2015.

Meanwhile, in the first half of 2016, WB is expected to unveil video ads for the first time. The launch of video ads, which account for around 8.8% of total online ad spending in China, could significantly boost Weibo’s results next year.

Additionally, Weibo is working on a new initiative that should leave it well-positioned to exploit the huge growth of Chinese e-commerce. Specifically, the company is beta testing promoted feeds that are supposed to help e-commerce companies sell their products on Weibo.

“Weibo Showcase will enable our users to browse products on participating ecommerce platforms … and share interesting products (with) their fans on Weibo,” the company’s CEO explained on November 19.

WB Stock on the Rise

WB stock has surged nearly 60% since it sank to around $11.50 in September, during the height of worries about China’s economy. And it’s true that twice over the last couple of years, Weibo stock fell sharply after similar rallies.

In September 2014, WB stock jumped on rumors about Alibaba (BABA) looking to buy Weibo, then fell when those rumors proved to be inaccurate. The decline of WB stock that began in June 2015 and continued into September was probably related to overdone worries about the Chinese economy that were prominent at that time.

The current rally will continue because it is based on Weibo’s fundamentals, and although worries about the Chinese economy linger, the Street now appears to be reconciled to the idea that the country’s consumer spending and Internet businesses are unlikely to be derailed by the problems its economy is facing.

This change in the Street’s outlook is exemplified by Morgan Stanley’s bullishness on Weibo, as well as by the relative strength shown recently by WB stock and by other Chinese Internet stocks, including Alibaba and SINA (SINA), over the last few months.

Despite its very strong growth outlook, Weibo stock is trading at a relatively low valuation of 32 times analysts’ consensus 2016 estimate.

And Weibo could still be taken over by Alibaba, which is of course extremely fond of acquisitions.

As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.

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Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/wb-stock-weibo/.

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