20140513-高盛-Initiating_at_Buy_on_China_s_leading_social_media_platform_40页_849kb

Weibo Summary: Initiating Coverage at Buy

Core Content Overview

Weibo, a leading Chinese social media platform, is initiating coverage at a Buy rating with an 18-month target price of $24, based on a 1X PEG valuation. This target implies a 23% upside from the current share price of $19.52. The report highlights Weibo's growth potential in the mobile Internet market, driven by its asymmetrical social relationships and targeted advertising capabilities.

Main Points and Key Information

User Base and Content Ecosystem

• Weibo has 144 million monthly active users (MAU) and 67 million daily active users (DAU), with 70% of MAU accessing the service on mobile devices.
• The platform supports a virtuous cycle of content and user growth, attracting a wide range of users and content providers.
• Users include grassroots bloggers, opinion leaders, and organizations such as brands and government agencies.
• Weibo offers verified individual accounts, enterprise accounts, and government accounts to support diverse engagement.

Advertising and Monetization

• Weibo monetizes through social display advertising and promoted advertising, which are blended into users' feeds.
• Promoted advertising is particularly important for SMEs, offering mobile-friendly formats and cost-per-engagement (CPE) pricing.
• Revenue is net of agency rebates, and in 2013, 28% of revenue came from advertising, despite 70% of users accessing via mobile.
• The report forecasts a 43% CAGR in advertising revenue from 2014 to 2017, with the platform expected to turn profitable in 2014 and achieve 17% net margin by 2015.

Revenue and Financial Performance

• Revenue is projected to grow from $188.3 mn in 2013 to $675.8 mn in 2016.
• EBITDA is expected to increase from $-5.1 mn in 2013 to $201.8 mn in 2016.
• Net income is forecasted to grow from $-30.8 mn in 2013 to $153.4 mn in 2016.
• EPS is projected to rise from $-0.21 in 2013 to $0.69 in 2016, with a 222.1% growth in 2015E.

Valuation Metrics

Financial Growth and Margins

• Sales growth is expected to be 185.6% in 2013, 73.2% in 2014E, 49.0% in 2015E, and 39.1% in 2016E.
• EBITDA margin is projected to increase from -2.7% in 2013 to 29.9% in 2016E.
• Net income growth is forecasted at 62.8% in 2013, -29.6% in 2014E, 237.2% in 2015E, and 126.5% in 2016E.
• Gross margin is expected to rise from 70.5% in 2013 to 80.7% in 2016E.

Strategic Partnerships

• Major stakeholders include Sina and Alibaba, with an expected $380 mn in ad revenue over 2013-2015.
• Platform partners include CCTV, People's Daily, and 340,000 media outlets, app developers, and game operators.
• Weibo collaborates with content providers to create Weibo Pages, enabling users to access multimedia and transactional information.

Growth Drivers

• Mobile-first design and user-friendly features (e.g., short videos, location-based services, payment systems) drive engagement and user growth.
• User engagement is strong, with an average of one hour per day spent on the platform.
• DAU as a percentage of MAU increased from 41.3% in 1Q12 to 46.3% in 1Q14.
• Advertising monetization is expected to improve, especially with the adoption of mobile-friendly promoted feeds.

Key Risks

• Competition with Tencent for user engagement and advertising revenue.
• Tighter government content controls that could reduce user traffic and engagement.

Comparison with Peers

Investment Profile

• Returns: Return on Capital
• Investment Rating: Buy
• Coverage Group: Asia Pacific Buy List
• Key Financial Metrics:
  • EPS (basic, pre-except): $-0.21 in 2013, $0.01 in 2014E, $0.38 in 2015E, $0.78 in 2016E
  • EPS growth (%): 64.3% in 2013, 1.1% in 2014E, 222.1% in 2015E, 119.9% in 2016E
  • CROCI (%): -12.2% in 2013, -5.0% in 2014E, 18.7% in 2015E, 28.4% in 2016E
  • ROE (%): 16.7% in 2013, -46.9% in 2014E, 13.7% in 2015E, 24.6% in 2016E

Value Proposition

• Receive information: Weibo recommends content based on social interest graphs, which are built from demographic traits and subscription relationships.
• Publicize information: Users engage in self-expression and social interaction, with opinion leaders and organizational accounts managing public profiles and broadcasting content.
• VIP membership: Offers preferential features such as daily priority listing and increased follower limits.

Conclusion

Weibo is positioned as a leading social media platform in China, with strong user growth, content diversity, and monetization potential. The platform is expected to turn profitable in 2014, with significant improvements in net margins by 2015. The target price of $24 reflects a positive outlook on its future performance and growth opportunities, particularly in the mobile Internet market. Despite key risks, the growth drivers and strategic advantages suggest a favorable investment opportunity.