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Weibo's Q1 Was All Right, but Ad Sales Are Slowing Down in Q2

Anders Bylund, The Motley Fool

Chinese social media specialist Weibo (NASDAQ: WB) reported first-quarter earnings on Thursday, May 23. The company delivered solid results in this period but set the guidance bar low for second-quarter revenues. Here's a closer look at Weibo's results and how management hopes to reverse this slowdown in ad sales.

Weibo's first-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$399 million

$350 million

14%

Net income

$151 million

$99 million

53%

GAAP earnings per share (diluted)

$0.66

$0.44

50%

Data source: Weibo.

What happened with Weibo this quarter?

  • Three months ago, Weibo's management expected first-quarter revenues to stop near $400 million. The reported result largely lived up to those expectations. Advertising and marketing revenues rose 13% to $341 million, while the smaller value-added services division saw sales increase by 20% to $58 million.
  • The company added 3 million monthly active users (MAUs) during the quarter, stopping at 462 million active accounts at the end of March. Daily active users, or DAUs, also increased by 3 million names at a total of 203 million active users. On a year-over-year basis, MAUs increased by 13% while DAUs rose by 10%.
  • E-commerce giant Alibaba was Weibo's largest single customer as usual. Alibaba's ad orders came in at $16.6 million in the first quarter, 37% below the year-ago period.
Young woman using smartphone and laptop on a train.

Image source: Getty Images.

Looking ahead

For the second quarter, Weibo's revenues are headed toward roughly $432 million -- approximately 9% above the sales seen in the same quarter of 2018. Management pointed out that the market for online advertising in China is experiencing a period of intense pricing pressure, since the incoming ad order volumes are slimmer than the availability of high-quality ad spaces. This effect is particularly pronounced in the small-to-medium business segment (SME), because smaller businesses in China are struggling under regulatory and macroeconomic pressure.

What management had to say

In the earnings call, CEO Gaofei Wang updated investors on how Weibo is addressing the troublesome supply-and-demand balance for SME ad sales. Mainly, rather than focusing on how to sustain Weibo's existing ad agreements, the company now provides generous incentives to new customers in order to replace lost deals with entirely new ad sales. The effort has already started to pay dividends: "If we revisit the all monthly figures, we believe the revenue growth for SME hit the bottom for the months of February, March and April. We -- relative meaningful rebound in May, even though we continue to experiencing price decline in our ad service," Wang said.

At the same time, Weibo needs to follow up on these brand-new accounts in the coming quarters: "Since 2019 Q1, we saw higher percentage of revenue coming from new customers as their spending also continued to increase in Q2," Wang said, adding,

But it will take a while to see meaningful ARPA to go up for those new customers. So this is quite typical as new customers generally have low [average revenue per account] in the initial stage. So for us in the coming quarters, our next step is to further work on our service and the targeting gradually to drive up their spending.

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Anders Bylund owns shares of Alibaba Group. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.