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Weibo (WB US) Summary

Core Content

Weibo is a leading social media platform in China, ranked fourth by monthly active users (MAUs) with 582 million users as of June 2022, and a DAU/MAU ratio of 43%. It offers unique brand-plus-performance marketing solutions to advertisers, leveraging its large user base and vibrant KOL (Key Opinion Leader) community. Weibo has a strong potential for monetization efficiency improvement, which could drive better performance in the future.

Main Points

• User Base & Engagement:

  • Weibo has a large and sticky user base with a 43% DAU/MAU ratio in June 2022, higher than other platforms like BiliBili, Xiaohongshu, and Momo.
  • Total MAUs increased by 3% YoY to 582 million in June 2022.

• Revenue Performance:

  • Total revenue declined by 16.9% YoY to US$1.87bn in 2022E, mainly due to the resurgence of the pandemic, high base in 2021, and foreign exchange headwinds.
  • We expect a rebound of 6.4% / 4.6% YoY to US$1.97bn / US$2.04bn in 2023E and 2024E, driven by macroeconomic recovery and improved consumption sentiment.
  • Advertising and marketing revenue will account for 88.5% / 88.0% of total revenue in 2024E and 2023E, respectively.

• Monetization Efficiency:

  • Weibo's ad revenue per MAU was RMB22.9 in 2021, significantly lower than Kuaishou and Tencent.
  • Two key drivers for monetization efficiency improvement:
    1. Videoization Trend: The shift towards video content in social media is expected to increase ad load and monetization efficiency.
    2. Social E-commerce Development: Enhancing commercial infrastructure through social e-commerce initiatives like Weibo Mini Store.

• Macro & Sector Recovery:

  • The Chinese online advertising sector experienced a slowdown in 2022E due to the macroeconomic environment and the resurgence of the pandemic.
  • We expect the sector to recover in 2023E with a YoY growth of 13.5%, supported by normalization of economic activities and improved consumption sentiment.

• Valuation & Investment Thesis:

  • Weibo currently trades at 4.4x 2022E non-GAAP PE, which is a 70% discount to the sector average and a 71% discount to its 2-year historical average.
  • Our target price is US$21.8, based on a 9.0x 2022E non-GAAP EPS, and we initiate a BUY rating due to the attractive valuation and potential for recovery.

Key Financial Forecast

Revenue Breakdown

• Advertising and Marketing (86.7% of 2022E total revenue):

  • Revenue declined by 17.9% YoY in 2022E.
  • Expected to rebound by 6.4% / 4.6% YoY in 2023E / 2024E.

• VAS (Value Added Services) (13.3% of 2022E total revenue):

  • Revenue declined by 10.0% YoY in 2022E.
  • Expected to remain relatively stable, with a small decrease in 2023E.

Competitive Landscape

• Weibo maintains a unique proposition in the social media space with its strong user base, KOL community, and content ecosystem.
• Despite a slight decline in online ad market share from 2.1% in 2020 to 1.8% in 1H22, Weibo is expected to retain its position due to its differentiated offerings and continued investment in user engagement and content diversity.

Valuation Highlights

• Current Valuation: 4.4x 2022E non-GAAP PE.
• Sector Average: 14.7x non-GAAP PE.
• Historical Average: 15.0x non-GAAP PE.
• Target Price: US$21.8.
• Upside Potential: 103.5% upside from current price of US$10.71.

Strategic Initiatives

• Video Account Program: Launched in 2020, contributing to a significant increase in video accounts.
• Close-loop Social E-commerce: Weibo Mini Store is expected to enhance monetization opportunities.
• Taojin Initiative: Aims to attract e-commerce merchants by offering incentives and traffic support.

Conclusion

Weibo is well-positioned to benefit from macroeconomic recovery and the ongoing trend of videoization in the social media sector. Despite short-term headwinds, its unique value proposition, strong user base, and initiatives in monetization and e-commerce suggest a promising recovery path. The current valuation is seen as attractive, and we recommend a BUY based on the potential for improved monetization efficiency and sector recovery.