4Q23 Non-GAAP operating profit is largely in line with market expectations
Weibo announced 4Q23 results: revenue of US$464 million, up 3% year on year (up 5% year on year under fixed exchange rate), which is basically in line with our expectations (US$458 million) and Bloomberg's agreed expectations (US$454 million); non-GAAP operating profit of US$146 million, which is basically in line with Bloomberg's agreed expectations (US$144 million), but due to withholding tax (withholding tax), non-GAAP net profit of US$76.37 million is lower than Our expectations ($110 million) are in line with Bloomberg's ($122 million).
Development trends
The brand advertising business recovered moderately in the fourth quarter. Although the fourth quarter was the peak season for the advertising industry, the overall external environment and consumption situation were still relatively lackluster, leading to no significant adjustments on the advertisers' budget side. In this context, online brand advertising continued to recover moderately. Weibo's advertising revenue in the fourth quarter was 404 million US dollars, up 3% year on year (up 5% year on year under fixed exchange rate). Among them, sales from automobiles, mobile phones, games, and healthcare were relatively active, while beauty and personal care remained the main drag. Revenue from value-added services in the fourth quarter was $59.93 million, up 4% year on year (up 6% year on year under fixed exchange rate).
Gross margin was stable month-on-month, and the month-on-month decline in net profit margin was a one-time effect. The 4Q23 gross profit margin was 78.4%, which was basically the same; the non-GAAP net profit margin was 16.5%, which was a significant decrease from the same period last year, mainly due to 1) the return of management expenses in the same period last year, due to the fact that the investment company Kamen Technology did not meet its previous performance gambling goals; 2) tax deductions were retracted in the same period last year, while 4Q23 had withholding income tax. Excluding one-off factors, the company's overall cost investment remained cautious, and the adjusted operating profit margin for the whole year was 33.6%, maintaining a relatively high level.
Pay a special cash dividend of $200 million; watch for changes in advertisers' 2024 budget allocations. The company announced a dividend of $0.82 per ADS, with a total dividend of about $200 million. We expect subsequent dividends or gradual normalization. Looking ahead to the full year of 2024, we believe that in terms of online brand advertising, in addition to the external environment, other potential impacts include: 1) large-scale sporting events, such as the Olympics, driving the brand advertising budget, especially for advertisers such as food, drink, sports shoes, clothing, etc.; 2) supporting marketing budgets for new product launches by manufacturers, such as games, new energy manufacturers' new model reserves, etc. We expect that under the fixed exchange rate, Weibo advertising revenue may drop by about 1% year on year in the first quarter, and advertising revenue may increase by low year year over year.
Profit forecasting and valuation
Considering the slow progress of brand advertising repair, we lowered our 2024/2025 non-GAAP net profit forecast of 17.4%/17.0% to US$405.497 million. Currently, the company's Hong Kong stock trading is 5.4/4.9 times 2024/2025 non-GAAP P/E, and US stocks are 5.2/4.8 times 2024/2025 non-GAAP P/E. Maintaining an outperforming industry rating, we lowered our target price for Hong Kong stocks by 11%/13% to HK$101/13, for both 7.0/6.5 times 2024/2025 non-GAAP P/E, and the upward space for Hong Kong and US stocks was 31%/34%, 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.