If you want proof that life isn’t always fair, look no further than Weibo Corp (ADR) (NASDAQ:WB) — one of the most popular social media sites in China. Weibo earnings were released Wednesday morning. The company managed to top its first-quarter sales and earnings estimates — quite firmly, in fact. But Weibo stock is down 13.7% from Tuesday’s close.
What gives? The bearish response likely stems from the simplest explanation. There are the written estimates, and then there are unspoken expectations that are often a little higher than analysts’ outlooks. WB stock had gained more than 100% over the twelve months leading up to the Weibo earnings report, implying high expectations. When they weren’t met, investors fled.
Once the dust settles, however, the odds are that good investors will realize there’s still too much growth and value here to ignore.
Weibo Earnings Recap
For its Q1 ending in March, Weibo turned $349.9 million worth of revenue into per-share earnings of 50 cents versus expectations for a profit of 47 cents per share and sales of $342.4 million. The company earned 26 cents per share of WB stock on $199.2 million in sales for the same quarter a year earlier.
As usual, most of the company’s revenue was driven by advertising and marketing sales, which reached $302.9 million for the quarter.
The big fiscal improvements were made hand-in-hand with more users, and more active usage. The total number of monthly users was 70 million more than reported for the first quarter of 2017, reaching 411 million, while the total number of daily users was up 30 million from year-ago levels to 184 million.
CEO Gaofei Wang commented on the numbers:
“We continue to see great momentum in our business with advertising and marketing revenue growing 79% year over year in the first quarter. With ad budget shifting toward mobile, social and video, we are seeing our revenues benefiting from this secular trend.”
He also added:
“Our focus to grow users scale, deepen the collaboration with top IP content providers, media, celebrities and KOLs on content, strengthen platform effect and social impact will further help attracting more advertisers to increase their ad spending on Weibo.”
The Bullish Case Still Stands
Weibo is mostly commonly compared to Twitter Inc (NYSE:TWTR), in that it’s a microblogging platform. In reality though, all of its customization and enhanced posting features make it look and feel much like Facebook, Inc. (NASDAQ:FB).
Whatever it is, there’s nothing else quite like it catering to Chinese consumers — a market that’s just now experiencing the height of its mobile internet revolution.
Investorplace’s Luke Lango explained late last month:
“The more Chinese consumers urbanize, the more they will have smart phones and other smart devices. The more they have those devices, the more they will become digitally engaged through social media platforms. As engagement transitions from traditional to digital mediums in China, advertisers will follow suit and flock toward digital channels with max engagement. Weibo, as a digital channel for advertisers with nearly 400 million monthly active users, is naturally a big winner in this transition.”
Given its current pace of 80 million new regular users per year, within five years Weibo could boast 800 million regulars, prodding Lango to suggest WB stock could be worth as much as $200 per share down the road.
Looking Ahead After Weibo Earnings
For the quarter now underway, Weibo is looking for sales of between $420 million and $430 million, based on current exchange rates. Analysts were collectively looking for revenue of $417.1 million. The company didn’t offer profit guidance, but the pros are modeling Q2 earnings of 65 cents per share of WB stock.
The company reported sales of $253.4 million and per-share operating income of 38 cents for the second quarter of 2017, suggesting the first quarter’s red-hot growth streak remains intact. The full-year and 2019 estimates suggest similar strength going forward.
To that end, the new forward-looking P/E of 29 is still a bargain relative to the pace of earnings growth in Weibo’s past and expected in its future. Wild swings are nothing unusual here, and for the better part of the past couple of years, buying on the dip has proven prudent. That’s not likely changed as of today.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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