Weibo Corp Stock Is in a Bubble Ripe for Bursting

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Weibo Corp. (ADR) (NASDAQ:WB) easily beat earnings estimates for its third quarter, with revenue growing 81% year-over-year. In two weeks of trading since then WB stock is up 21%.

wb stock

Weibo produces WeChat, a chat platform that is the main way young Chinese connect with one another.

The system supports all sorts of content, from emojis to video, and a wide variety of advertising opportunities.

I use WeChat, and it’s good software, similar to Facebook Inc. (NASDAQ:FB) Messenger, if less intrusive. It also has some similarities to Twitter Inc. (NASDAQ:TWTR), like hashtags and the old 140 character limit.

The company is expected to have revenue of nearly $1.1 billion for the full year, when it reports Feb. 6, and over $1.50 per share of earnings.

It’s all very impressive, but does this justify a market cap of over $26.33 billion, which comes to over 100 times earnings and 24 times sales?

I call bubble.

Bubbles Can Last

One thing I learned, to my shame, during the dot-com bubble of the 1990s, is that bubbles can last a good long time. I called bubble in early 1997, and stocks kept going for almost three years despite being unmoored from fundamentals.

Calling a bubble is easy. Calling the date when it will pop, decisively, or the event that will pop it, that’s more difficult. You’re left in the position of a cynic at the wedding party, predicting a divorce while the cake is being eaten.

It’s also hard to scream bubble when you’re investing in it. I own shares of Alibaba Group Holding Ltd. (NASDAQ:BABA), or at least their American equivalent. Alibaba owns about 32% of Weibo.

This cynic knows there’s a party going on. He hears the music and feels the joy. A lot more upside, writes Luke Lango. Don’t hesitate , writes Louis Navillier. Technically, my Alibaba stake says I’m following their advice.

Another way to play this bull is to buy Sina Corp. (NASDAQ:SINA), from which Weibo was partly spun-out before it went public, as VMware was a spin-out of EMC earlier in the decade.

Larry Ramer says buying both makes sense, while Will Ashworth suggests buying Sina, while giving way too much credit to this author.

Parent Companies Don’t Care

One reason why Weibo is so hot is those corporate parents. Weibo is controlled by Sina and Alibaba. There is a possibility that Alibaba might buy Weibo for its global platform.

But this student of bubbles calls that false hope. Alibaba is sticking its nose in everything these days, buying a stake in a supermarket chain, an online grocery in India, funding a car trading site.

Alibaba knows its assets are getting a bubble valuation, and is buying as many real assets as it can while the Sun shines, so it has the strength to scoop up the rest after the fall.

That may be what pops the bubble. When all these “real” assets start hitting the Alibaba income sheet, which is holding up its valuation because so much of what it does is virtual, that’s when the stock may hit a wall and everything may come tumbling down.

The Bottom Line on WB Stock

I think Alibaba knows it is in a bubble and wants to make sure it gets to the other side of it. When it does pop, getting out of WB stock without some big losses is going to be very difficult. When it pops, you’re also going to be hearing a lot of people call it a “dip” and urging you to double down.

Personally, I’ll be selling my Alibaba shares at the first sign of trouble, and putting the money into cash.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, 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 BABA.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/wb-stock-bubble-ripe/.

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