On Tuesday, Jefferies raised its price target on Weibo Corp (NASDAQ:WB) to $10.90 from $10.20, while maintaining a Buy rating on the stock. The firm noted several key takeaways from the company's recent conference call, highlighting various factors contributing to Weibo's performance and strategic outlook.
The conference call revealed that Weibo saw benefits in the third quarter from special events such as the Olympics, which helped boost spending. The platform also gained from new drama and variety shows during the summer holidays.
There was a noticeable shift in advertising budgets from traditional TV channels to social advertising, which offers more interaction between advertisers and users. Fast-moving consumer goods (FMCG), internet services, and automotive sectors were the largest contributors to growth. Within the FMCG category, food & beverage and apparel saw a lift from the Olympics, which helped counterbalance weaker performance in beauty and personal care.
Weibo's management expressed a cautious optimism about advertising growth, not expecting a V-shaped recovery. Policy measures introduced in September were seen as positive, but it was noted that it would take time for advertising revenue to pick up in the property and luxury sectors.
The electronics category is expected to benefit from trade-in programs in the fourth quarter, with the potential for these programs to expand into other categories such as decorations and indoor designs, which could positively impact e-commerce in 2025 and 2026.
Looking ahead, Weibo plans to focus on new product marketing budgets. The Value-Added Services (VAS) segment achieved double-digit growth in the past two quarters, driven by membership growth. The company places importance on high-value users, and the strengthening of finance and education sectors is anticipated to support VAS growth in the fourth quarter.
The company has also made advancements in artificial intelligence (AI), obtaining the filing for large language models and seeing efficiencies with several AI applications. Product-wise, the number of daily active users (DAU) for search and overall traffic both increased by 10% quarter over quarter.
The monthly active users (MAU) for intelligent search exceeded 20 million, doubling from the previous quarter. AI assistants have also been aiding 'Big V' account users in content generation, with a significant increase in trial users in the third quarter compared to the second.
In addition to AI developments, Weibo has stepped up cooperation with Original Equipment Manufacturers (OEM), leading to double-digit DAU growth from Olympic channels. Socially, the number of users creating user-generated content (UGC) rose by 8% year over year, and relationship feeds grew by double digits quarter over quarter. Updates from various verticals, including entertainment, digital, and games, were also discussed, with partnerships such as the one with the game "Black Myth: WuKong" being highlighted.
In other recent news, Weibo Corporation has reported third-quarter earnings and revenue that surpassed analyst expectations, causing a surge in its stock. The Chinese social media company posted adjusted earnings per share of $0.53, exceeding the consensus estimate of $0.44. Furthermore, revenue was recorded at $464.5 million, surpassing expectations of $436.96 million and indicating a 5% year-over-year increase.
Weibo's advertising and marketing revenues grew 2% year-over-year to $398.6 million, while value-added services revenue saw a significant 25% increase to $65.9 million. CEO Gaofei Wang expressed satisfaction with the company's performance, noting robust growth in advertising revenues from key sectors, largely driven by ad demand during the Summer Olympics.
InvestingPro Insights
Weibo Corp's recent performance and strategic outlook, as discussed in the Jefferies report, align with several key metrics and insights from InvestingPro. The company's impressive gross profit margin of 78.68% for the last twelve months as of Q2 2024 reflects its strong position in the social media advertising market, supporting the growth in advertising revenue mentioned in the article.
An InvestingPro Tip highlights that Weibo is "Trading at a low earnings multiple," with a P/E ratio of 8.37. This valuation could be attractive for investors, especially considering the company's focus on high-value users and the growth in its Value-Added Services segment.
Another relevant InvestingPro Tip notes that Weibo "Operates with a moderate level of debt," which may provide financial flexibility as the company invests in AI technologies and expands its partnerships with OEMs.
For readers interested in a deeper analysis, InvestingPro offers 5 additional tips for Weibo Corp, providing a more comprehensive view of the company's financial health and market position.
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