Core views

The core value of Weibo is to create hot topics, quickly aggregate and spread hot topics through the retweet/hot search mechanism, and consolidate Weibo's leading position in social media, but this has led to traffic dominance. After the industry was regulated and rectified, Weibo actively expanded content in vertical fields, opening up commercial space in the fields of games, automobiles, etc. Weibo video accounts are rapidly rising, and high-quality creators are rapidly gathering through traffic and product advantages. Short videos have become Weibo's new growth engine. If strategic clarity and commitment continue to be maintained, the video channel will become a new strategic pivot. Looking at the short cycle, we are currently in the early stages of economic recovery. It is expected that an upward phase will begin in the future, and the performance outlook is optimistic.

occurrences

Weibo posted 4Q23 results. On March 14, 2024, Beijing time, the advertising and VAS revenue for the quarter exceeded expectations, Weibo posted 4Q23 results, of which MAU reached 598 million (yoy +2% -1.3% vs consensus) and DAU reached 257 million (yoy +2%-1.8% vs. consensus). In terms of revenue, 4Q23 Weibo achieved revenue of US$464 million (yoy +3.5% vs. consensus), of which advertising revenue reached US$404 million (yoy +3.4% +2.4% vs consensus) and VAS revenue reached US$60 million (yoy +5.3% +3.4% vs. consensus). On the profit side, 4Q23 non-GAAP operating profit reached US$146 million (+8.2% vs consensus), non-GAAP OPM reached 31%, net profit to mother reached US$76 million (-37.5% vs. consensus), and net profit to mother reached 16.5%.

Brief review

The vertical ecosystem has further prospered, with vertical content accounting for more than 40%. 4Q23 Weibo continues to increase the proportion of vertical content on the platform, increase traffic and interaction support for popular content in vertical fields, and promote the growth of leading KOLs in various vertical fields.

On the entertainment side, the amount of participation and interaction among celebrities continued to increase. The participation of leading stars in Weibo posts increased by more than 30% over the same period last year, and the promotion and discussion traffic of entertainment works on Weibo increased by +50% compared to the same period. In the vertical field of the industry, taking healthcare as an example. Since October, Weibo has encouraged media accounts to actively post popular science content related to respiratory diseases. Doctors have accounted for 68.78% of medical creators, and the total consumption of popular topics has exceeded 2 billion. The 4Q23 Weibo vertical ecosystem was further optimized, forming a total of 25 vertical sub-fields, with vertical creators accounting for 41%, an increase of 14% over the previous year, and the vertical content scale accounting for more than 40%. The average daily vertical hot search traffic increased 82% year over year, accounting for 21% of the total popular search traffic.

Vertical traffic support has paid off, and the advertising business grew steadily in 4Q23. 4Q23 was driven by factors such as e-commerce shopping festivals, year-end promotions, and game license approvals. Weibo's advertising revenue was +3% year-on-year and +4% month-on-month. In terms of industry segments, advertising revenue in the automotive and mobile phone industries continued the previous steady growth trend in Q4, while advertising revenue in the gaming and healthcare industries achieved double-digit year-on-year growth. Despite the impact of the Shuang12 marketing budget migration, the e-commerce industry achieved positive year-over-year/month-on-month growth in advertising revenue. It is worth noting that the beauty industry was affected by weak consumption and control of marketing expenses. The recovery fell short of expectations, and the advertising budget moved to performance advertising platforms, such as live e-commerce. Affected by uncertainty in the macro and industry environment, the overall recovery in advertising demand in 2023 was unstable. Annual marketing budgets for key customers were lower than expected, and advertising revenue for the full year of 2023 was US$1.53 billion, down 4% year on year (yoy +1% at a fixed exchange rate).

In addition, Weibo plans to expand the scope of application of AIGC. On the AIGC side, Weibo plans to use AI assistants based on LLMs to enhance interaction between new/old fans and KOLs. Currently, 5% to 10% of interactions are supported by AI assistants. In terms of vertical content, currently 8% of the content in the beauty field is generated by AI, and the plan is to increase it to 10% to 15% in 2024, while expanding the vertical fields of AI application to 4 to 5.

Investment advice: Since 2021, Weibo has made positive progress in the vertical ecosystem, and the scale of vertical content has continued to grow and account for 40%.

Results have been achieved in supporting traffic in the vertical sector, which is expected to drive Weibo into the upward phase of a new round of advertising cycles. At the same time, the current digital 3C industry is expected to start a new round of product cycles to drive up industry demand. The game industry is increasing due to version recovery and applet game expansion, and automobiles will continue to benefit from a new round of product cycles for new energy vehicle brands. The industry's advertising cycle has bottomed out, mainly focusing on FMCG and e-commerce industry conditions. This is essentially an inventory clearance cycle for existing products. I am optimistic about the overall upward trend of Weibo advertising after inventory removal. Furthermore, Weibo plans to expand the scope of AIGC application and expand the application of AI in vertical content fields, which is expected to bring new impetus to the company's future growth. Maintain a “buy” rating.

Risk analysis

Increased competition in the industry has led to loss of users: Emerging platforms such as short videos continue to rise and are eating away at the time of Weibo users. If competition continues to intensify in the future, they will face the risk of losing the number of users.

The construction of a content ecosystem falls short of expectations: if businesses such as video accounts are not effectively scaled up and vertical content construction progresses slowly, it will be difficult to improve the platform's vitality and commercialization level.

Policy and regulatory risks: The nature of public opinion forums makes Weibo easy to become the focus of regulation. If regulatory policies are tightened, it will adversely affect the platform's development.

Weibo's single commercialization model: The Weibo business is highly dependent on advertising revenue. If new monetization methods cannot be expanded in the future, the singularity of the business model will limit revenue growth.