Weibo Corp (ADR) (WB) Stock Struggles Despite Strong Earnings

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Weibo - Weibo Corp (ADR) (WB) Stock Struggles Despite Strong Earnings

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One might think Weibo Corp (ADR) (NASDAQ:WB) stock would be soaring on Wednesday morning after the Weibo earnings report for the second quarter. Weibo earnings and revenue both came in nicely ahead of consensus, and Q3 guidance was ahead of the Street as well. But WB stock actually is down over 3% in pre-market trading.

Weibo Corp (ADR) (WB) Stock Struggles Despite Strong Earnings

Source: Shutterstock

It does look like WB stock was the victim of overly high expectations, created in large part by the recent run in the stock. Heading into the report, Weibo shares already had gained 112% year to date, including a 9.5% bounce on Monday as traders positioned themselves for the Weibo earnings report. From that standpoint, the quarter was good — but not good enough to drive another leg up in the rally.

For now, that’s OK, as the stock likely needed a breather. And from a long-term perspective, Weibo earnings seem to do enough to keep a still fairly reasonable valuation intact.

Weibo Earnings

It’s hard not to be impressed with the Weibo earnings report. Revenue increased 72% YOY to $253.4 million. Analysts expected $246 million, toward the higher end of a guided $240-$250 million. The top line instead came in nicely ahead of its projected range. Non-GAAP EPS jumped 138% to 38 cents, two pennies ahead of consensus estimates.

User growth figures impressed as well. MAUs (monthly active years) rose to 361 million, up 28% versus Q2 2016. The daily active user base was 159 million at the end of the quarter, 26% higher over the past year. Weibo is often referred to as the Chinese version of Twitter Inc (NYSE:TWTR), and in Q1 its monthly user base exceeded that of its U.S. counterpart for the first time. And while Twitter’s base plateaued in its second quarter, Weibo added another 21 million users in Q2.

All told, at least from the numbers, it’s hard to see why Weibo earnings aren’t sending WB stock higher. But that seems to be a matter more of expectations than execution.

Good, But Not Good Enough

Bear in mind that WB stock already had soared after Q1 earnings, jumping 25% after a beat-and-raise quarter. And WB stock hit an all-time high on Monday before a modest pullback.

To some extent, investors already were pricing in a beat. Meanwhile, parent SINA Corp (NASDAQ:SINA) posted an impressive quarter of its own Wednesday morning, beating consensus EPS expectations by 13 cents. Many investors have looked to SINA to get exposure to WB stock, particularly as Alibaba Group Holding Ltd (NYSE:BABA) has built out its stake in Weibo.

With SINA stock valued extremely cheaply outside of its WB stock ownership (somewhat akin to the bull case for Yahoo! before it was acquired by Verizon Communications Inc. (NYSE:VZ) and spun out Altaba Inc (NASDAQ:AABA)), it’s possible some traders swapped WB stock for SINA stock this morning.

WB Stock Is a Risky Buy

Fundamentally, WB stock still looks like a buy. It’s worth pointing out that WB stock is valued at about $19 billion plus cash — far above Twitter’s ~$12 billion valuation. But Weibo is larger, more profitable and faster-growing.

Of course, Weibo and its Chinese brethren also offer more risk, given Chinese government policies. WB stock in fact was rattled back in June by a government-led crackdown on online video.

Investors willing to take that risk, however, likely see Weibo earnings for Q2 as yet another reason to buy WB stock, which trades at just 37x 2018 EPS estimates plus cash. So far, even considering a modest decline this morning, those investors have been rewarded.

As of this writing, Vince Martin has no positions in any securities mentioned.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/weibo-corp-adr-wb-stock-strong-weibo-earnings/.

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