Since late January, social media operator Weibo Corp (ADR) (NASDAQ:WB) has taken a hit, dropping from $136 to $113. But hey, this is really just a blip – that is, when you take a longer view on things. During the past three years, WB stock has averaged a return of 108%!
But next Tuesday we’ll get a better idea on how the company is tracking. It will release its fourth-quarter-earnings results (they will come out before the market opens). The Street is looking for earnings of 58 cents a share and revenues of $362.6 million, up about 71%.
At the heart of the growth story – which has propelled WB stock – is the strong momentum in the user base. During the past year, the MAUs (monthly active users) jumped by 79 million to 376 million. Roughly 92 are mobile. And as for the DAUs (daily active users), the year-over-year increase was 33 million to 165 million.
Weibo is often referred to the Twitter Inc (NYSE:TWTR) of China. But interestingly enough, Weibo is growing much faster and yet the valuation is only a couple billion dollars higher.
What’s more, there is lots of room for growth in China, which should help keep WB stock on its bullish path. Just consider the following metrics:
In the meantime, Weibo continues to invest heavily in improving its platform. A big part of this has been to keep the UI simple, which has helped with engagement. But the company has also been aggressive with partnerships.
Note that SINA Corp (NASDAQ:SINA) and Alibaba Group Holding Ltd (NYSE:BABA) have major holdings of Weibo stock. These companies have certainly be critical with boosting user growth as well as providing critical infrastructure assets, such as for mobile payments and social commerce.
Weibo has also been ahead of the curve with video. This has largely been about user-generated content. But yes, Weibo has also been adding premium content, such as from the NFL and NBA.
There are definitely notable risks with WB stock. Perhaps the biggest one is the political environment. Recently the government demanded the take down of various portals. There were also actions against some of the video streaming.
Yet Weibo has a long history of handling the complexities of the Chinese regulations. Besides, the company has also benefited greatly from some of the policies. After all, potential rivals have been blocked from entering China.
Although, might this not last? Perhaps so. Mizuho analyst James Lee believes that Facebook Inc (NASDAQ:FB) could enter China this year. He notes that Airbnb and Linkedin have recently received approval, which indicates more openness.
But then again, it will take time for the company to get traction. More importantly, Weibo already has achieved critical mass in the country, which will be tough to unseat.
OK then, but what about the valuation? Even with the sell-off, isn’t WB stock fairly expensive? This is true. Keep in mind that the forward price-to-earnings multiple is at 41X.
To put this into perspective, FB trades at 19X and Alphabet Inc (NASDAQ:GOOGL) sports a multiple of 21X. But it’s important to note that Weibo stock should deserve a premium because of its growth rate, which is likely to continue for some time.
All in all, while there will likely to be volatility – which is natural for an early-stage operator – the stock does look like an interesting opportunity for those who want to benefit from the secular growth in China.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.