August, like most of 2018, was a difficult month for Weibo Corp (NASDAQ:WB) investors. Since reporting Q2 earnings on Aug. 8, the WB stock price has fallen from $90 to a low of $70.13 on Aug. 15, closing at $72.30 on Sept. 5.
So with all the pain still fresh in most WB stock investor’s minds, what should they expect in September?
Here are three cons to Weibo stock and three pros.
Three Cons for Weibo Stock
Trade Wars With China: Trade war rhetoric between the U.S. and China during 2018 has negatively affected the share price of many Chinese technology stocks, including Weibo.
On Feb. 15, 2018, the microblogging company saw an all-time high of $142.12; six months later on Aug. 15, WB hit a 52-week low of $70.13. May and June were especially bad for the Weibo stock price when the Trump administration continuously issued trade-related threats to China, which in return, promised to retaliate in a potential trade war.
On July 6, tariffs on $34 billion worth of Chinese goods came into effect. This recent escalation of trade tensions has left many investors wondering about the future performance of U.S.-listed Chinese stocks, which have otherwise been among the darlings of Wall Street in the past few years. While many analysts are still hopeful for positive negotiations, others are fearful that the rhetoric may actually become a full-blown trade war of unprecedented scale. So, in the short-term, the fate of many Chinese stocks like WB stock may lie in the words of politicians.
Alternatives to WB Stock: Even though most analysts agree that Weibo has strong fundamentals, Weibo stock would not necessarily be the first on the list of Chinese stocks to buy.
For starters, investors may want to consider the Chinese internet company Sina Corp (NASDAQ:SINA), which owns 45.6% of Weibo, its social media platform. About 80% of Sina’s revenue comes from Weibo, whose advertising revenue has been booming.
Yet on a fundamental basis, WB trades at a high premium to SINA shares, thus making Sina Corp a much more attractive (i.e., cheaper) buy. If investors want to add more Chinese stocks to a well-diversified portfolio, other Chinese stocks to consider could be found among industry leaders and disrupters, including Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), Baozun (NASDAQ:BZUN), JD.com (NASDAQ:JD) and Tencent (OTCMKTS:TCEHY), among several others.
Shorter- and Medium-Term Technical Analysis: After investors’ harsh response in 2018 to the uncertainty over the threat of upcoming trade wars with China, WB stock has suffered from a damaging technical picture.
Its short-term technical chart still looks rather weak and it is pointing to the possibility for more choppy action, possibly around the low $70’s level. Initial support for Waibu is first at $73 and then $75; meanwhile, resistance would be hit at $90 and $101. If the support level in the low $70’s does not hold and breaks through the 52-week low of $70.13 seen on Aug. 15, 2018, WB stock could easily test the mid-$50’s level.
Those investors who pay attention to moving averages should note that the technical message is “strong sell,” while oscillators are giving a more neutral reading. Weibo stock’s daily volatility is high, giving it a wide trading range, so investors should proceed with caution in the coming weeks.
Three Pros for Weibo Stock
WB’s Fundamental Story: The microblogging website, which was spun off from Sina in 2014, opened with an IPO price of $18 in April 2014. In Sep. 2017, Alibaba increased its stake in Weibo to almost 32% to become the second-largest shareholder after Weibo’s parent company SINA (at about 46%).
WB reported solid numbers both in Q1 and Q2 in 2018 and the strong fundamental trend is expected to continue in Q3, when the company is expected to release results in Nov. 2018. This is a large part of the reason many investors will still find Weibo stock attractive despite recent trade war woes. Chinese internet celebrity (better known as “) accounts at Weibo and its rich multimedia functionalities help make WB a much loved and somewhat indispensable social media company within China. Furthermore, WB’s recent investments in live video streaming and fintech have already started contributing to the bottom line.
Weibo’s social influence, monetization success and readiness to innovate possibly contributed to JPMorgan‘s initiation of coverage of WB stock on Aug. 28, 2018 with an “overweight” rating and $118 price target.
Future of WB as a Takeover Candidate: WB’s strong fundamentals and growth have been fueling talk that the stock may be a good takeover target. In 2017, activist investor Aristeia placed heavy pressure on SINA to either sell or merge with Weibo. Although SINA managed to squelch these battles, the idea could arise again in the near future as activists’ efforts regain strength.
Alibaba’s name has been on the forefront as the top company to buy WB, partly because it already holds a major stake in WB, but also because it seeks to compete better in Chinese social-networking market with its rival Tencent. Tencent’s WeChat app has become the most popular messaging app in China, but a purchase of Weibo could give BABA more flexibility in social media regarding its e-commerce activities and possibly access to markets outside of China.
The idea of WB as a buyout candidate gains further strength when you consider its market capitalization. Despite its huge popularity in its home market — a monthly active user (MAU) base approaching almost half a billion — WB’s market cap is still about $17 billion. Compared to the market cap of other social media companies like Facebook (NASDAQ:FB) at $507 billion and Twitter (NASDAQ:TWTR) at $27 billion, WB is a fairly attractive, and affordable, takeover candidate.
China’s Love With Social Media and the “Wanghong” Economy: As a leading social media company, Weibo embodies Chinese consumers’ love of social networking. Despite the recent general growth concerns regarding China, the country’s economic fundamentals have vastly improved over the past decade; the internet population is still booming and money continues to pour into Chinese companies operating in this space. All of which help support the long-term durability of WB stock.
The growth numbers released by China-based social networking companies would be the envy of similar companies elsewhere. The new breed of cyber-celebrities is seen as a disruptive force that contributes to this growth as millions of tech-savy consumers are ready to part with their money, while they follow their internet idols. Each “wanghong” has at least 100,000 followers; they spend a given day posting picture-perfect shots and streaming videos of themselves to build a cult following ready to be converted into consumers.
Recent months have seen blogging incubators, like Ruhan, training the new generation of “wanghong.” Despite the looming trade wars between the U.S. and China, it’s safe to assume that the core businesses of Chinese internet stocks like Weibo are more insulated from tariffs or intellectual property concerns.
The Bottom Line on WB Stock
Weibo stock has a solid story in a country infatuated with social media; thus it remains a long-term growth play on fundamental basis. However, in the near-term, there might still be weakness in the WB stock price. This weakness is something that potential WB stock investors should factor into their investment decisions.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.