1Q24 Non-GAAP net profit better than market expectations
Weibo announced 1Q24 results: revenue of US$395 million, down 4.4% year on year (same year on year under fixed exchange rate), which is basically in line with our expectations (US$387 million) and Bloomberg's agreed expectations (US$388 million); non-GAAP net profit of US$107 million, better than Bloomberg's agreed expectations (US$85.9 million) and our expectations (US$85.14 million), mainly due to maintaining efficient expenses.
Development trends
Revenue from the advertising business remained flat year over year in the first quarter. The first quarter is a traditional low season for the advertising industry. Although the external environment and consumption situation were relatively positive at some points, such as during the Spring Festival, the rest of the year was still quite lackluster, and advertisers' overall brand advertising budget release was limited. Weibo advertising revenue in the first quarter was US$339 million, down 4.6% year on year (same year on year under fixed exchange rate). Among them, mobile and game advertisers achieved double-digit year-on-year growth in the first quarter, while international brands in beauty and personal care, in particular, remained a major drag. Value-added service revenue for the first quarter was $56.55 million, down 3.3% year on year (up 1% year on year under fixed exchange rate).
The gross margin was stable month-on-month, and personnel and sales expenses were well controlled. The gross profit margin for 1Q24 was 78.0%, which was basically the same; the total main operating expenses (sales/management/R&D) decreased by 9.7% year on year. Apart from factors affecting exchange rates, the company had good control over personnel and sales expenses. According to the company's performance conference, the platform's current customer acquisition strategy focuses on high-value users, and is more concerned about the share of this group of users in DAU, so it has actively reduced some channel launches. Overall, the 1Q24 non-GAAP net interest rate was 27%, which was basically the same as the previous year. The increase of 10.5 ppt over month was mainly due to withholding income tax related to dividends in 4Q23.
Focus on advertisers' budget release driven by peak season/hot spots in the industry. The company said at the earnings conference that Weibo plans to cooperate with Tmall in the second quarter to strengthen advertisers' perception of the value of the entire link from Weibo's social influence to e-commerce purchases. For 2H24, with the help of the Olympics and summer film and entertainment hotspots, the company expects advertisers in the food, beverage, footwear and apparel industries to contribute a certain amount of growth. On the product side, Weibo actively iterates advertising products to expand the value of social media content marketing and networking, such as launching native streaming ads to accelerate the integration of content with advertisements, and the launch of “Featured Products on the Main Page” through Superfan Connect. We expect that under the fixed exchange rate, Weibo advertising revenue in the second quarter may remain basically the same year on year, and the growth rate of advertising revenue is expected to gradually increase in 2H24.
Profit forecasting and valuation
Considering that the company maintains efficient expenses, we raised our 2024 non-GAAP net profit forecast by 4% to US$478 million, basically maintaining the 2025 profit forecast. Currently, the company's Hong Kong stock trading is 5.1/4.9 times 2024/2025 non-GAAP P/E, and US stocks are 4.9/4.7 times 2024/2025 non-GAAP P/E. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and the slow growth rate of brand advertising, we maintained a target price of HK$101/13 for Hong Kong stocks and US stocks, all corresponding to 7.0 times the 2024 non-GAAP P/E. The target price for Hong Kong stocks and US stocks had an upward space of 41%/47%, 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.