Weibo Corp (ADR) (NASDAQ:WB) is one of the new, hot social media stocks in the young, dynamic Chinese market.
Weibo’s Place in the Internet
Weibo is Chinese and actually translates as “micro-blog,” so you can understand how it got its initial comparison. It was started by Chinese web service SINA Corp (NASDAQ:SINA) as a micro-blogging site like Twitter, with a 140-character limit.
Since then, SINA spun off WB, although it still holds about 46% of the stock. Chinese internet giant Alibaba Group Holding Ltd (NYSE:BABA) owns another 30% of WB stock as well.
This kind of integrated approach, where two major internet players are major shareholders of a third major player, speaks to the difference in the way Chinese tech firms work with each other to find strategic advantage for all — at least for now — rather than duking it out competing in their respective channels.
Here, all three create a virtuous circle for one another. And in this case, one big advantage it has for WB right now is, the two can help WB manage the new internet rules set down by the government that go into effect in October.
China has been adding bricks to its “Great Firewall of China” regarding online activity. Earlier in the year it block virtual private networks (VPNs) that linked users to non-Chinese social media like Facebook.
Now, the government will make online groups responsible for the posts of its individual members. That has sent a chill of self-censorship through the local social media community.
These tougher measures are conveniently timed to coincide with the opening of the 19th Communist Party congress. It’s likely these are to show that the party is still in control of internet, and they have a say on how it grows.
The good news for WB however, is that most of the current crackdown is directed more at competitors like Tencent Holdings Ltd (OTCMKTS:TCEHY) WeChat and QQ. WB has already had its government investigation and looks clear of the issue at this point.
And this is where having two big companies like SINA and BABA helps. Most internet companies in China have offices set aside for government cybersecurity regulators (aka, censors). They have a long and deep relationship with the government organizations and know how to work with them.
WB is in good shape regarding anything that happens, since it’s well informed and protected — because it’s in their best interest to do so — by its big shareholders.
WB stock has made a quite a run this year, up 145% year to date. But it is still growing strongly and its margins are massive. WB stock’s price-to-earnings ratio is certainly high, but it’s not crazy high — it’s only half of Netflix, Inc. (NASDAQ:NFLX) stock’s P/E and about double BABA’s.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.