Weibo Corp. (ADR) (NASDAQ:WB), often characterized as the Chinese Twitter Inc (NYSE:TWTR), reported earnings after the market closed Feb 22, with analysts expecting non-GAAP earnings of 25 cents per share, about $24 million.
Instead the number came in at 34 cents (19 cents under GAAP), with revenue of $212.7 million also beating consensus estimates of $206.6 million. One year ago, Weibo had earnings of just $19.1 million (9 cents per share) on revenue of $149 million.
Still, the shares fell 1.2% overnight, to $57.50. That might be because analysts’ one-year target price on the stock is $62 per share, and its premature rise near that level was a good excuse to take profits.
Weibo is 51% owned by Sina Corp, (NASDAQ:SINA), which also beat earnings estimates for the quarter. Another 31.5% of Weibo common is owned by Alibaba Group Holding Ltd (NYSE:BABA), which has been buying shares in car-load lots from the company’s management team. The small remaining float — there are only 96 million shares outstanding — makes the stock volatile.
Many American analysts on Feb. 23 will ask why Weibo’s growth is so extraordinary compared with Twitter, which has been going nowhere financially and is now worth less than Weibo.
Weibo Is Not Twitter
The answer is that Weibo is not Twitter.
Instead, think of Weibo more as a hybrid of Twitter, Reddit and Facebook Inc (NASDAQ:FB).
Weibo got rid of the 140-character limit of Twitter long ago. The 140 characters can now act as an introduction to a longer piece. Weibo also focuses on communications between friends, rather than just connecting ordinary people to celebrities. It also “gamifies” the experience, offering digital tokens to users who perform tasks for it, often branding tasks.
Weibo also has a better idea of dealing with celebrity. It offers them a version of “Facebook Live,” allowing them to run their own video interaction with fans, during which they can offer virtual gifts Weibo sells for real money. It humanizes celebrities and shares revenue with them.
Ear to the Ground
During the earnings call CEO Gaofei Wang discussed some of the other reasons why Weibo works so well.
For one thing, Weibo no longer uses the “timeline” view of Twitter, but delivers users views based on social relationships and topics of interest. The topics view delivers information but also helps users find “products of interest,” he said.
Weibo does not just see information as a free good, but as a product. Each day the company shares hundreds of millions of yuan in fees for premium content delivered by opinion leaders, media outlets and celebrities. Weibo is thus a good place to put your ear to the ground and learn exactly what China’s government does not want discussed.
The boundaries of free speech are constantly shifting in China, and monitoring those boundaries is a bit like the Kremlinology reporters engaged in 50 years ago, useful both to people inside and outside the country. Reporters do this with a formula that measures both how quickly stories are repeated, and how quickly they are killed, on the site.
Rather than trying to stand on free speech, Weibo accommodates itself to the government’s desires, creating a cottage industry of examining discussions that are not supposed to happen, as with a recent Chinese feminist critique, on Weibo, of Donald Trump. In that incident, an account with 80,000 followers was closed for a month, indicating the difficulty China is having coming to terms with the new administration.
Bottom Line on WB Stock
Weibo’s growth is impressive, and the company is well-managed, but investors are getting ahead of themselves.
Even with the great December quarter Weibo’s revenue for the year came in at $655 million. At its current market cap of $13 billion, you are paying nearly 20 times revenue for WB stock, with a price-to-earnings multiple of 153. The company listed $947 million in assets as of the end of September, and while it has no debt, Weibo had less than $500 million of cash and equivalents at that time.
Weibo, in short, is a minnow that is trading like a whale.
Buying Weibo stock today is speculating, betting that revenue can double, and double again, while it walks a knife edge of censorship.
That is a lot to ask of any company, and should act as a caution flag for WB stock bulls.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA and FB.