The reasons why investors should buy Weibo Corp ADR (NASDAQ:WB) stock — even though Weibo has gone up more than 500% since I first recommended it in January, 2016 — are pretty straightforward.
In its home market of China, Weibo is an extremely popular and very quickly growing social networking website, but its market cap is still just 5% that of Facebook Inc (NASDAQ:FB). Moreover, there is a good chance that Weibo will become a takeover target, and its content sounds very compelling.
WB reported its second-quarter results earlier this month, and they showed that its website, which is somewhat similar to Twitter Inc (NYSE:TWTR), is still firing on all proverbial cylinders. Weibo’s revenue skyrocketed 72% year-over-year to $253 million, while its earnings per share rose to 33 cents from 12 cents. Finally, its monthly active users jumped 28% to 361 million.
Yes, Facebook’s 2 billion monthly active users dwarf Weibo’s total, and its $9.3 billion of revenue is heads and shoulders above Weibo’s topline total of $253 million. But Weibo’s monthly average users grew at a 28% clip last quarter, while Facebook’s rose just 17%, and Facebook’s revenue increased 47%, versus Weibo’s 72% gain.
That disparity is likely to continue, since the Chinese economy is growing so quickly.
As a result of these trends, Weibo’s revenue and profits will ultimately come much closer to that of Facebook, which does not have a significant presence in China. Consequently, Weibo stock, which as mentioned above, is now worth only 5% of Facebook, is poised to jump
Roughly a year ago, e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA), bought an additional 3 million shares of Weibo stock. The transaction increased Alibaba’s stake in Weibo to 31.5% from 30.1%, China Money Network reported, citing a regulatory filing. At the time, China Money Network wrote that “the move could be geared toward further stake purchases as Alibaba may eventually take over the whole company.”
TechinAsia wrote that Alibaba likely decided to invest in WB stock because it wanted the ability to entice Chinese consumers to buy its products while they are on Weibo. By advertising products there, where people usually socialize rather than purchase products, BABA could convince people to buy products on impulse, rather than just obtain revenue from consumers who had accessed Alibaba’s e-commerce platform because they had already decided to buy products, TechInAsia noted.
Buying all of Weibo would allow Alibaba much more freedom to hawk its products on the social network, and would enable the e-commerce giant to manage Weibo as it sees fit. For example, if Alibaba acquires WB, it could bring an English version of the platform to many other countries
Indeed, Alibaba is looking to enter many other markets, including Europe. If Alibaba does not acquire the rest of WB but convinces Weibo to launch an English version of its website in foreign markets, and the website is even somewhat successful in major markets outside of China, the valuation of WB stock will definitely explode.
Meanwhile, it certainly appears that Weibo has developed very attractive content concepts that would work very well in other countries, including, eventually, the U.S. For example, as Forbes pointed out in June, Weibo has enabled users “to share more images and video” and it “works with hundreds of partners creating video content around areas including education, food, sport and entertainment.” Finally, “famous” Weibo users are asked to post videos on the website, video views on the website jumped 500% over the last year, and ads on videos accounted for “close to 20%” of its revenue, Forbes quoted Weibo as saying.
Given the huge growth potential of WB and the (still) relatively low valuation of Weibo stock, investors should definitely buy in.
As of this writing, Larry Ramer owned shares of Weibo.