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Why Weibo's Stock Fell on Thursday

Anders Bylund, The Motley Fool

What happened

Shares of Weibo (NASDAQ: WB) dropped as much as 16.5% on Thursday morning, following a solid first-quarter report accompanied by disappointing revenue guidance for the next period.

So what

In the first quarter, the operator of social media networks in China saw sales rise 14% year over year, landing at $399 million. On the bottom line, adjusted earnings rose 12% to $0.56 per share. Your average analyst would have settled for earnings near $0.52. The top-line result was right in line with the current Street consensus, and a rounding error below the midpoint of management's guidance for this period.

Looking ahead, Weibo expects second-quarter sales to stop somewhere around $432 million for a 7% year-over-year improvement. Here, the current analyst consensus pointed to roughly $482 million. Investors were quick to forget about this quarter's impressive earnings and focus on the upcoming slowdown in revenue growth instead.

Two young asian women pointing and smiling at a shared smartphone.

Image source: Getty Images.

Now what

The so-called Twitter of China didn't add much color to the soft revenue forecast, beyond the usual boilerplate text regarding currency exchange trends and the possibility that the business landscape might change before the next report. In the earnings call, management noted that the market for ad sales in China is weakening in general and that Weibo's ad revenue is following the broader sluggish trend. Online ad vendors are fighting a pricing war at the moment, at a time that the underlying business fundamentals are suffering from the trade war with the Trump administration.

So business is shaping up on the slower side for the second quarter. That's bad news for a hyper-growth stock like Weibo, and investors are letting their frustration show today.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.