We View Weibo's Capital Allocation Rating as Standard

Senior Equity Analyst

Ivan Su

A strong presence of celebrities and key opinion leaders and users' habits of following the hottest news on the platform are differentiators for Weibo. The company generates revenue from advertising on its platform and has created a network effect between the users, who demand high-quality content, and content providers, celebrities and KOLs, who benefit from the opportunity to grow and monetize their followers. Weibo’s recent content enhancements include video accounts (similar to Weixin's), video pages with both professionally generated content and user-generated content (similar to YouTube channels), the discovery zone (where users can find the popular discussion topics at the main entrance of Weibo), and vertical videos focused on user-generated content.

With the increasing importance of more focused marketing and return on investment for advertisers, Weibo has started to catch up. For example, Weibo introduced optimized cost per x model in 2019. Advertisers can also evaluate their sales conversion on Tmall from the fans accumulated through advertising campaigns on Weibo in collaboration with Alibaba through the uni-marketing program. We expect to see increasing product development costs in the next few quarters. We believe investment in research and development is vital for Weibo even if that means near-term margin compression. 

To improve small and medium-size enterprise ad revenue, Weibo is expanding into untapped and faster-growing verticals such as Taobao merchants, online education, and online gaming by restructuring its sales team since 2019. For example, it has enhanced cooperation between sales and technical teams to provide customized services to top SMEs of key verticals. The success of the new model is unclear because of the disruption from COVID-19. 

To widen its product spectrum and potentially cope with the trend of social e-commerce, Weibo launched an interest-based social product, Oasis, in the fourth quarter of 2019. The app allows users to post, share, and edit photos and videos with a focus on fashion and lifestyle contents with followers. However, we have not seen substantial ramp-up in the usage of this app so far.

Business Strategy & Outlook

We believe Weibo possesses a narrow economic moat based on its network effect. Its 521 million monthly active users and 225 million daily active users in December 2020 make it one of China’s largest social media platforms. According to Questmobile, it was the third most popular social media app in terms of monthly active users as of 2020, just behind apps owned by Tencent (WeChat and QQ), which is a wide-moat company. Weibo’s social network is difficult to replicate, in our view. Not only new users of Weibo but also existing users see higher value from the network as the number of users increase. New users create new user-generated content, enriching Weibo’s function as an entertainment and information hub for existing users. Key opinion leaders, such as pop stars and well-known businesspeople, use Weibo to attract fans' attention and monetize on their fan base. As more key opinion leaders join Weibo, more users use Weibo to read view the key opinion leaders’ content and engage with them through replying, sharing, and clicking the “Like” button. These key opinion leaders can also get tipping from or sell merchandise to their fans, which can encourage them to share more content on the Weibo platform. This virtuous cycle enhances the value of the network for both existing and new users. The value of Weibo’s network rises as more customers use the network, via more users or more usage per customer. Monthly active users, or MAUs, were 521 million in December 2020, still up approximately 5 million users year over year despite the high base. At the end of 2017, MAUs were 392 million. Total time spent on Weibo in first- and second-tier cities rose 3%-4% from December 2015 to June 2016, whereas the growth was 14% for third- and fourth-tier and below cities. Increased user base and time spent on Weibo has in turn attracted more key opinion leaders and multichannel networks (entities that affiliate with multiple Weibo channels that assist in operations and monetization) to distribute their content on Weibo, which in return is helping to improve and lengthen user experiences. As of November 2017, the scale of verified users such as authors, celebrities and so on increased by 67% year over year to 25,000. We believe Weibo’s fintech services such as payment can also strengthen the ecosystem and enhance convenience and value for the users and more effectively monetize the growing user base and time spent. A virtuous cycle has been formed, and it is difficult for a new entrant to recreate the same ecosystem.Weibo’s monetization has evolved and increased over the last few years, and we expect that to continue in the next 10 years. Weibo started to monetize its platform by selling personal computer-based social display ads in 2012. It introduced promoted feeds appearing in the information feed to small and medium-sized enterprises in 2013 and introduced self-service ads for advertisers to buy Weibo’s marketing services on the platform directly in 2014. Since 2015, users can view and purchase an e-commerce merchandise from e-commerce sites such as Taobao and Jumei on Weibo. As of 2016, SMEs can also purchase brand ads and key accounts can purchase promoted feeds; in the same year, Weibo introduced video ads. Weibo started monetizing its search functions in the second half of 2017 by showing ads. The launch of Super FenSiTong, a new ad system, enables more specific audience targeting (for example, targeting users that interacted in a certain post or mentioned a certain topic and so on) and real time automatic bidding based on the lowest price the advertisers offer. To a lesser extent, revenue is also generated from VIP membership, data licensing and game services. Despite the formidable challenge from Tencent's Weixin and other newly emerged news apps with social functions, we’re convinced that Weibo's network effect will remain strong. Weixin and Weibo have distinctly different functions. Connections on the Weixin platform are acquaintances, and communications are private. Weibo is a media platform where all content is public, and users can follow any celebrities or personalized interest groups. Hence, even though Weixin’s user base has been increasing rapidly in the past several years, Weibo users are also growing at a fast pace, with monthly active users increasing at a 20%-plus year-over-year growth rate. We also think the threat of Tencent re-entering into the microblog business in a big way is limited, as Tencent strategically reduced its resources in noncore businesses such as microblogs, e-commerce, and search, and is focused on QQ and WeChat. Tencent integrated its microblog team into Tencent news and Tencent Weishi businesses in 2014. There is no indication that the data privacy ESG risk would lead to destruction of the network effect in our view. In the next five years, we expect Weibo’s return on invested capital to increase with rapid monetization and operating leverage. Weibo's ROIC exceeded its weighted average cost of capital in 2016.

Narrow

Economic Moat

Weibo

Weibo Corp. engages in the creation, distribution, and discovery of Chinese-language content. It operates through the Advertising and Marketing Services, and Other Services segments. Its products and services include Self-Expression, such as Feed, Individual page, and Enterprise page; Social Products, such as Follow, Repost, Comment, Favorite, like, Mention, Messenger, and Group Chat; Discovery Products, such as Information Feed, Search, Object Page, Trends, and Discovery Channel; Notifications; Weibo Games; VIP Membership; and Weibo Apps. The company was founded in August 2009 and is headquartered in Beijing, China.

Earnings data Q2 2020

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Weibo reports Q4 revenue decline but sees profit growth

Weibo's Q4 2022 performance saw revenue decline but a significant increase in non-GAAP net income, driven by user growth and content optimization efforts.
The company's strengths lie in content control, diversified monetization strategies, and a focus on efficiency and cost control measures.
Challenges include revenue decline, Weibo membership business adjustments, and the need for competitive positioning and organizational restructuring.
Opportunities exist in social e-commerce growth, operational enhancements, revenue recovery, and strategic partnerships for revenue diversification.

Weibo reports Q1 earnings, focuses on user growth and shareholder value

Weibo's Q1 2023 performance reflects resilience with strong user metrics and revenue diversification efforts.
Operational efficiency and shareholder value focus through dividends showcase financial stability and commitment to investors.
Challenges lie in managing increased expenses, maintaining margins, and strategic cash allocation amidst growth opportunities.
Overall, Weibo's strategic initiatives position it well for sustainable growth and value creation in a dynamic market environment.

Weibo reports strong Q2 performance, focuses on user engagement

Weibo's Q2 performance showcased growth in MAUs, revenues, and operational efficiency, driven by strategic investments in vertical content and user engagement.
While challenges persist in certain sectors, Weibo's focus on enhancing user acquisition capabilities and leveraging AIGC presents opportunities for revenue growth and improved user engagement.
The AIGC function is seen as crucial for enhancing content creation, user engagement, and operational efficiency across various account levels, indicating a positive outlook for Weibo's future growth.

Weibo reports Q3 results, focuses on AI for growth

Weibo's Q3 performance showed a slight decrease in total revenues but a focus on improving operating efficiency. The company's strengths lie in growing ad revenues from specific sectors and enhancing user engagement through vertical content ecosystems. Challenges include revenue declines in certain industries and adapting to regulatory changes, while opportunities exist in AI technology applications and vertical expansion.

Weibo reports mixed Q4 earnings, focuses on user growth

Weibo's Q4 2023 performance showed revenue growth but full-year decline, with a focus on user engagement and financial stability.
Strengths include user base loyalty, innovative strategies for growth, and investor-friendly financial policies.
Challenges in revenue growth, industry uncertainties, and technology implementation need to be addressed for sustained success.
Opportunities in vertical content, AI integration, and user experience enhancements can drive future growth and competitiveness.

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Weibo Corp. engages in the creation, distribution, and discovery of Chinese-language content. It operates through the Advertising and Marketing Services, and Other Services segments. The company was founded in August 2009 and is headquartered in Beijing, China.

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The post Weibo Earnings: WB Stock Walloped by Q2 Outlook appeared first on InvestorPlace.

Weibo Earnings: WB Stock Walloped by Q2 Outlook

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