EUR 850.00 For Business Accounts Only

Morningstar | Reducing Our FVE to $93, but Weibo Still Undervalued for Long-Term Investors

We have reduced our fair value estimate for narrow-moat Weibo to $93 per share from $106 to reflect near-term macro weakness and increasing competition in the long run as mobile Internet user growth matures in China, yet we continue to think Weibo is undervalued for long-term investors. We have reduced our net revenue growth outlook to 53% in 2018, 28% in 2019, and 18% in 2020 before rising to 25% in 2021 and 2021 as the economy recovers. By 2027, we expect revenue growth to slow to 4%. The rise of short-form video has put pressure on user growth and user engagement for Weibo, and some platforms have attracted content creators away from Weibo. We expect more competition in the Internet space going forward, reducing the speed of the expansion of non-GAAP operating margin as Weibo will have to invest more than we previously expected in product development and sales and marketing to remain competitive. Weibo aims to maintain its margin at the current level next year, while we expect non-GAAP operating margin to trend down slightly in the near term and rise at a rate lower than our previous expectation in the long run. Non-GAAP operating margin is expected to decline to 38.6% in 2018, 38.2% in 2019, and 37.8% in 2020 from 39.6% in 2017, before rising gradually to 43.6% by 2027.

However, we are not bearish on Weibo. We note that the number of top content creators that returned to Weibo increased by nearly 3 times sequentially in the third quarter. User engagement of relationship-based feeds and consumption of interest-based feeds grew healthily on a sequential basis. according to management. We think Weibo still has a strong presence in first- and second-tier cities, and its strong network effect will give it an advantage in overcoming these challenges as long as it strives to stay adaptive. We are pleased to see that Weibo is enriching content consumption in several ways. It will launch a new version of the Weibo app with video content such as videos with IP and videos with recurring topics at the primary entry point. In addition, Weibo will further subsidize multichannel networks and top content creators, providing them with some free advertising resources. The MCNs and content creators can then more effectively monetize on Weibo, thereby reducing their incentives to switch to other platforms. We believe this will benefit Weibo in the long run despite short-term pressure on financial performance. Weibo has acquired Yizhibo, a live-streaming platform, and will also further develop live broadcasting for top content creators for more diversified content distributions.