Weibo Corp (ADR) (NASDAQ:WB), the micro-blogging site some call “Chinese Twitter,” should be insulted by that title, on the basis of its latest quarterly earnings report. WB stock is popping 7% this morning on the back of a Q1 beat, bringing its year-to-date gains to more than 60%, and the company has more than tripled since its 2014 IPO.
That’s because Weibo is growing like a startup, and more important, Weibo makes money.
For the three months ending in March, WB reported earnings of $46.9 million, 21 cents per share, on revenue of $199.2 million.
The bottom line beat Wall Street expectations and was in line with the lesser-ballyhooed whisper number. The top line was ahead by $10 million; analysts had only hoped for $189 million in revenue. Monthly average users came in at 340 million.
Maybe we should call Weibo “smart Twitter” instead. The market cap of WB stock is $13.68 billion, nearly matching Twitter Inc (NYSE:TWTR) at $14.22 billion. And while the top line is not yet comparable (Twitter did $548.25 million for its first quarter), the Weibo bottom line is spectacular, representing nearly $1 of every $4 in revenue.
What Makes WB Stock Smart
Weibo doesn’t do politics, nor does it do much in the way of one-way celebrity blast media at all. A big news story on WB is a leaked pre-launch picture of the back of a new phone.
Weibo is more like Facebook Inc (NASDAQ:FB) than any other U.S. service. In fact, one of its more popular services is like Facebook’s Instagram. It also supports user videos directly, like YouTube, and it has been doing live streaming for some time.
In February, after Twitter’s latest earnings disappointment, Weibo was also worth more than Twitter, although speculation over a buyout has since sent Twitter higher. Weibo stock is also a better investment, rising 150% over the last year against Twitter’s gain of 36%, and noting that Twitter was flat for the year until the end of April.
Weibo is a spinoff of Sina Corp (NASDAQ:SINA), which you might call a Chinese Yahoo except that would again insult the Chinese, and I try never to insult people who know how to make a profit. SINA also beat earnings estimates today and retains a 51% stake in WB stock.
Alibaba Group Holding Ltd (NYSE:BABA) raised its stake in Weibo to 31.5% last year.
The Alibaba stake goes beyond its stock holding, and the possibility it might take control of Weibo. Alibaba is Weibo’s biggest commerce partner, delivering $299 million in revenue to it over the past three years in exchange for traffic flows.
Because Alibaba owns Class A shares, however, its stake only represents 12.5% of Weibo’s voting shares, meaning SINA still calls the tune.
A Chinese Internet Bubble?
Before earnings, WB stock had a price-to-earnings ratio of 130, and it gained another 6.5% when its earnings were released, meaning it should open for trade May 16 at about $67 per share.
And this is where investors might have concern.
Weibo, with only 15% of its common stock trading, is up 55% just this year. SINA itself is up 39%, so for that matter are Alibaba and TenCent Holdings Ltd (OTCMKTS:TCEHY), which started in mobile games and is now expanding into an Alibaba competitor.
The point is that China may be developing its own dot-com bubble, akin to what happened in the U.S. at the turn of the century. If you want to dismiss that, you might look at America’s own FANG stocks — Facebook is up 30%, Amazon.com, Inc. (NASDAQ:AMZN) 28%, Netflix, Inc. (NASDAQ:NFLX) 29% and Alphabet Inc (NASDAQ:GOOGL), the former Google, 21%.
We couldn’t be getting into another Internet bubble, could we? This time ending in tears for both American and Chinese investors?
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, BABA, FB and GOOGL.
