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Earnings Preview: Will Weibo’s Q1 results take a hit amidst tough macros?

Chinese social media giant Weibo’s (WB) stock has lost nearly 50% since June 2018. The stock hit a new 52-week low in January 2019 touching $51.15. Weibo and other Chinese tech firms have been facing multiple headwinds like US-China trade wars, slowing Chinese economy, increased censorship regulations in China have made the life tougher for Weibo and its peers in the last 12 months.

Last week, the Chinese search engine giant Baidu’s Q1 earnings fail to impress the street. The stock tanked above 15% on Friday after the company reported its maiden quarterly loss since listing along with muted outlook.

The bottom line has been hurt by a 53% surge in expenses. In addition, the company also added that the online marketing spending might be muted resulting in disappointing Q2 revenue outlook.

Against this backdrop, Chinese social media giant Weibo is slated to report its first-quarter results on May 23 before the bell followed by an earnings conference call at 7 AM ET. Post the Baidu’s results, Weibo’s stock has plunged 10% due to the fear of the investors that tough macros could also hurt Weibo’s earnings, which has a similar business model.

Weibo fourth quarter 2018 earnings infographic
Weibo Q4 2018 Earnings Infographic

Advertising revenues bring in lion’s share of revenue to Weibo. Last quarter, ad revenues contributed 87% to the top line. One of the key metrics to watch on Thursday would be whether Weibo has been able to grow the ad revenues in double-digits. In the fourth quarter, ad revenues jumped 25%. Also, investors would be looking for comments from the management of the ad revenue outlook for the second quarter and the year.

For the first quarter, analysts are expecting earnings of $0.52 per share on revenue of $398.82 million. Last quarter, the company guided Q1 revenues in the range of $395-405 million. It would be interesting to see whether the social media giant is able to continue the momentum from the last quarter.

Weibo’s user base has been growing steadily over the past two years. At the end of 2018, monthly active users (MAUs) came in at 462 million, with the addition of 70 million users to its platform over the prior year period.

Average daily active users (DAUs) stood at 200 million, with new user addition of 28 million compared to last year. Investors would be closely watching both these metrics as any slowdown would indicate that the company also has been impacted by the tough macros faced by its peers in China.

Last November, Weibo announced the acquisition of live-streaming firm Yizhibo. This helped social media giant to augment its platform with live-broadcasting services to its users along with monetization opportunities in terms of marketing and advertising. This deal has been bearing fruit for the company.

Last quarter, revenue from value-added services surged 44%, which can be mainly attributed to the Yizhibo deal. This is another growth metric which would be worth to watch when the company reports its earnings.

We need to wait till Thursday to see whether Weibo surprises investors with another stellar result or mimics the Baidu’s earnings trend, which means the macros will be playing spoilsport this year for Weibo and its peers.

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