Is Weibo Corporation (NASDAQ:WB) A Financially Sound Company?
There are a number of reasons that attract investors towards large-cap companies such as Weibo Corporation (NASDAQ:WB), with a market cap of US$14.1b. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, its financial health remains the key to continued success. This article will examine Weibo’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WB here.
View our latest analysis for Weibo
How much cash does WB generate through its operations?
WB’s debt levels surged from US$63m to US$882m over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, WB currently has US$1.6b remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of WB’s operating efficiency ratios such as ROA here.
Can WB pay its short-term liabilities?
At the current liabilities level of US$557m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$2.2b, with a current ratio of 3.97x. Having said that, anything above 3x may be considered excessive by some investors. They might argue WB is leaving too much capital in low-earning investments.
Does WB face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 61%, WB can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies.
Next Steps:
At its current level of cash flow coverage, WB has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure WB has company-specific issues impacting its capital structure decisions. I recommend you continue to research Weibo to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WB’s future growth? Take a look at our free research report of analyst consensus for WB’s outlook.
Valuation: What is WB worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WB is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
