While the Chinese stock market indexes continue to roar ahead, stock in Weibo Corp (ADR) (NASDAQ:WB) has stalled out.
The Shenzhen Index is up 7% over the last month, while stock in the Weibo micro-blogging site is up just 2.4%.
This happened while Weibo was announcing earnings on February 13 that easily topped estimates. The initial move up, of 9.2%, faded and a second rally is now also failing.
Weibo stock is currently trading around $136, a market cap of $30 billion. That’s still hefty. It’s more than 25 times the company’s 2017 revenue of $1.15 billion, and 84 times the earnings of $352.6 million. So the slowness could just be profit taking.
Or it could mean something else.
An Eyeroll Away
Over the last month China repealed what Americans would call the 22nd Amendment, limiting Presidential terms. It was portrayed in the western media as making President Xi Jinping “President for Life.”
On Weibo, there was initially fierce comment. But censors quickly came down on opponents, sometimes in ham-handed ways, at one point banning the letter N and images of Winnie the Pooh — who sometimes stands-in for Xi in commentary.
Chinese citizens, however, have ways of making themselves heard. When a Chinese business reporter rolled her eyes at the long-winded, obsequious question of a colleague a few weeks later, the incident went viral.
The eye-rolling reporter quickly became a stand-in for Chinese citizens complaining about censorship. Censors responded by stopping searches for the reporter’s name. (It’s Liang Xiangyi of China Business News, for those scoring at home.) There was a report that Liang’s reporting credentials were revoked.)
The eyeroll itself could have been entirely non-political, but the moment became a stand-in for exasperation over the Chinese government’s stage management of events.
So is Weibo stock’s stall a result of increased censorship on the platform?
A Note on Weibo Stock
Most U.S. analysts love Weibo stock, like our Louis Navillier, who calls it the one Chinese stock to own.
There is much to love.
Weibo’s asset-light operations make it look a lot like Facebook Inc. (NASDAQ:FB), as it takes a greater share of revenue to the bottom line every quarter. For the three months ending in December, that meant $131 million in net income on $377 million of revenue — 35% of revenue hitting the net income line. A year earlier, profits came in at just $43 million on revenue of $213 million — just 20% of revenue hit the bottom line.
Extrapolate that performance out a few quarters and it’s easy to see half of Weibo’s revenues being reported as net income.
Weibo, unlike Facebook, seems to be hungry for more. It took on $880 million in what the quarterly report called long-term debt in October. But as a press release on the notes makes clear these are convertible notes, paying just 1.25% interest, and the notes mature in November, 2022. The conversion price is $133.27, a premium of 47% over the stock price when they were issued, but very close to the March 15 opening, and below the stock’s repeated $140 per share peaks.
The Bottom Line
Sometimes an eye roll is just an eye roll. Sometimes a stock’s fall also has a more innocent explanation.
If note holders turn their loans into shares after earnings, the recent fall could turn out to be more good news for Weibo. Censorship doesn’t always mean people aren’t being heard.
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 no shares in companies mentioned in this story.