Weibo Corp Stays Strong, But This Rally Could Burn You

WB stock beat earnings estimates

By Dana Blankenhorn, InvestorPlace Contributor
Recent Weakness Looks Like a Buying Opportunity in Weibo Stock

Source: Shutterstock

Weibo Corp (ADR) (NASDAQ:WB), the micro-blogging site sometimes called “Chinese Twitter,” delivered results that soundly beat analyst estimates, and WB stock rose in pre-market trading Feb. 13.

Our Tom Taulli called it, writing on Feb. 9 that investors should “buy the dip,” an early-February fall in line with the general market that brought Weibo shares from $130 down to a low of $111. The stock was due to open at $125, up almost 6% in overnight trading.

For the quarter WB stock revenues came in at $377 million, exceeding the company’s guidance of $355 million to $365 million, and net income was $131 million, 58 cents per share. For the full year the company earned $352.6 million, $1.56 per share, on revenue of $1.15 billion.

Chinese Law Benefits Trivia

Taulli noted that WB stock is entirely a growth story. Daily average users had jumped by 79 million during the year to 376 million, 92 million of them mobile. That means 46 million more users than Twitter Inc (NASDAQ:TWTR), which seems to have hit its growth limit.

Weibo has yet to see any pause in its growth, and perhaps the Chinese government can be thanked for that.

Twitter is known for bots and fake news. You don’t make fake political charges in China. You don’t make many real ones, either. The site locked-down all changes to profiles for the Communist Party Congress in October. Weibo also has a real name rule, in contrast to Twitter.

Despite all this, it can sometimes get in trouble with the government over issues like pornography.

Where Weibo is used for politics, it is mostly for local issues. When it is used on national issues, it is often by indirection, as when 10,000 people recently flooded the account of the U.S. Ambassador to complain about Chinese security regulation.

Weibo maintains a 140-character limit on posts, although Chinese ideographs mean that in practice much more can be said in a Weibo post than an English one. It is more heavily-used on weekends than weekdays, and people tend to be open about sharing personal details.

While Twitter reigns supreme in the U.S. as a microblogging site, Weibo has strong competition from TenCent Holding Ltd (OTCMKTS:TCEHY) companies, WeChat and QQQ. Both WeChat and QQQ have almost three times more registered users than Weibo, many of them outside China.

The Sina Connection and WB Stock

Sina Corp (NASDAQ:SINA) retains 72% of the voting in Weibo stock, and 46% of the common. Alibaba Group Holding Ltd (NASDAQ:BABA) holds another 31%. So, while there appear to be 109 million shares, only about 25 million of them trade.

Sina is an old-line portal site, founded in 1998. Weibo, by contrast, was only created in 2010. It’s a little like Yahoo owning Twitter. Aristeia Capital, an American activist investor group, was recently beaten back in its effort to have Sina sell out. Sina also reported strong top-line growth in its latest quarterly report.

If Sina were to dump its Weibo stock holdings, or sell out to Alibaba, the impact on Weibo shareholders would be dramatic.

The Bottom Line on WB Stock

Weibo’s post-earnings gain put its price to earnings ratio over 100, and it’s now at almost 20 times sales. Our James Brumley expressed concern about that high price in November, and the earnings just now got it over where it was when he wrote.

Even after its February dip, Weibo stock is still up over 100% in the last year. Will Healy called it a bargain in January and it’s up 14% since then.

Weibo stock is only for aggressive investors looking for fast capital gains on the strength of China’s booming Internet sector. At some point that sector’s growth will slow, but that point has not yet arrived.

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 [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA.

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