Originally launched by Sina Corp. (SINA, Financial) in 2009, Weibo Corp. (WB, Financial) has become China’s largest social media service with over 400 million monthly active users and 139 million daily active users. It’s known for Yahoo-style news and opinion content.
While it is controlled by Sina with 75% of the votes and 49.9% of the shares, Alibaba (BABA, Financial) also has a large stake with 31.5% of shares and north of 15% of the voting power. That leaves a small amount of shares for the average investor, which are worth taking at this point.
The company continues to book impressive financial results, beating earnings per share and revenue estimates with its latest quarterly report released earlier this month. Weibo recorded revenue of $426.59 million, up 68.4% year over year, and earnings of 68 cents per share. It is expected to post $2.50 in earnings per share this year and over $3.50 per share next year. Like U.S.-based content platforms, Weibo has high margins and stellar profitability.
China’s internet usage is currently around 56% of the total population. With millions of new users coming online every month, the country’s attention is focused on a core group of websites. More importantly, China’s government controls virtually guarantee that domestic companies will remain the dominant players. While the country is facing slower growth in internet and mobile device shipments, the growth rate will still outpace those in the United States.
As a whole, China’s economy continues to mature and, regardless of what happens with the current trade conflicts, it will remain one of the most productive countries on Earth. The outside bet on the Chinese yuan replacing the U.S. Dollar as the world’s reserve currency is probably not likely, but it could still strengthen. That would lift every Chinese American depository receipt.
With Weibo’s stock down over 40% since its February highs, shares are definitely undervalued.
In June, the company’s monthly active user base passed the 430 million mark. That means 55% of China’s entire internet user base is active on Weibo’s platform every month, which is why the company's advertising and marketing revenue was up 69% to $369.9 million in the latest quarter.
Weibo users create content, enriching its function as an entertainment and information hub for existing users. Key influencers like popstars and well-known businessmen use the platform to attract attention and monetize content. As more people join, more users will tune in to Weibo to read the key opinion leaders’ posts and engage with them through replying, sharing and liking.
Weibo’s platform is on par with Facebook (FB, Financial) when it comes to functionality, but the U.S. social media giant is 28 times larger in terms of market capitalization and 40 times larger in terms of profit. It is only a matter of time before that changes, however, as Weibo continues to grow. If the company continues to capture 70 million MAUs, the growth rate will slow from 19% to 10% in a few years, but the site would then have more than 700 million users. Weibo generates roughly $3.50 in revenue per user. Facebook produces over $21 per active user. On the low end, Weibo could be generating $2.7 billion in sales (barring any currency readjustment) and north of $1 billion in net income in five years. If these numbers are achieved, the stock will be good for a double at this price.
Disclosure: I am not long or short any stocks mentioned in this article.
