Performance preview
We expect the company's 1Q23 non-GAAP net profit to fall 21.9% year-on-year. Weibo expects to post 1Q23 results in June. We forecast that the company's 1Q23 revenue was 416 million US dollars, down 14.2% from the previous year; Bloomberg's unanimous forecast was 411 million US dollars; 1Q23 non-GAAP net profit was 104 million US dollars, down 21.9% from the previous year, and Bloomberg's unanimous forecast was 102 million US dollars.
Key points of interest
The advertising market recovered moderately in the first quarter, and brand advertising lagged behind. In terms of advertising business, the advertising market has shown a recovery trend since the beginning of 2023. According to CTR, advertising market publication costs (excluding discounts) fell 6.7% from January to February 2023, and the decline was significantly narrower than at the end of 2022; however, the first quarter was a low season for the advertising industry. We determined that most advertisers initially resumed or maintained their advertising plans and preferred performance ads with better ROI. Furthermore, considering that Weibo had marketing campaigns related to the Winter Olympics in the same period last year, we expect 1Q23's advertising and marketing service revenue to be US$357 million, a year-on-year decrease of 16.5%. In terms of value-added services, we judge that 1Q23 value-added service revenue was 59 million US dollars, and the year-on-year growth rate may be corrected, driven by social e-commerce business. We expect total quarterly revenue to resume year-on-year growth starting in 2Q23.
Expenses are invested in a targeted manner to keep the community active. We anticipate that the company's personnel optimization in 4Q22 is expected to have a positive impact on costs and expenses in 2023, while the saved investment will later or gradually be transferred to offline brand marketing activities such as 1Q23 Weibo Night, partial resumption of channel promotion, and media cooperation to maintain user stickiness and community activity. We expect the gross profit margin of the 1Q23 company to be 78.6%, which is basically the same as the previous year. The absolute value of sales/R&D/management expenses decreased by 12%/20%/35%, respectively. Overall, we expect the 1Q23 company's non-GAAP operating profit margin to be 29.8%, which is basically the same as the previous year.
Be optimistic about the company's hot spots combined with the advantages of social communication ecology, and pay attention to brand advertising flexibility. Weibo previously hosted the V Influence Summit to introduce the priorities of ecological construction in 2023: in terms of operation strategy, this year Weibo included social interaction in the assessment index for leading creators, emphasizing core fan value; in terms of product strategy, Weibo expanded popular searches from global hot spots to global+personalized hot spots, and added secondary distribution to the relationship flow scenario to expand users' content consumption networks; in terms of creator monetization, the platform continues to help creators achieve commercialization value through advertising endorsements, V+ memberships, closed-loop e-commerce, etc. Looking ahead, we believe that with further support from macroeconomics and consumption recovery, brand advertising is expected to show a greater recovery; at the same time, along with the trend of normalization of content, Weibo, as a social media with strong entertainment attributes, is expected to benefit from user activity brought about by increased content richness and advertisers linking hot topics.
Profit forecasting and valuation
We maintain our 2023/2024 earnings forecast and maintain our outperforming industry ratings and Hong Kong/US stock target price of HK$194/$25, all corresponding to 11.2 times the 2023 non-GAAP P/E. Currently, the company's Hong Kong stock trading is 7.4/5.4 times 2023/2024 non-GAAP P/E, US stock trading is 7.2/5.3 times 2023/2024 non-GAAP P/E, and the target price margin for Hong Kong/US stocks is 51.6%/53.9% respectively.
risks
The recovery in macroeconomic and consumer demand fell short of expectations, industry regulation policies continued to be strengthened, industry competition intensified, and investment depreciation risks.