Weibo posted unaudited financial results for 24Q1. The decline in 24Q1 revenue was mainly affected by the exchange rate, and operating profit margins increased slightly year-on-year; the company will strengthen its hot marketing model to target customers with high ARPU values. Maintain an increase in holdings rating.
Key points to support ratings
The decline in 24Q1 revenue was mainly affected by exchange rates. Weibo's 24Q1 net revenue was US$396 million, -4% year over year, flat year on year based on a fixed exchange rate (RMB 6.86 = US$1.00, same below); the decline in revenue was mainly affected by the exchange rate. Operating profit of USD 99.74 million, +3.4% year on year, operating margin 25%, +1.9ppts year on year; net profit to mother of USD 49.44 million, or -50.8% year on year; non-GAAP net profit of USD 107 million, -4.2% year on year. As of March 31, 2024, the company's total cash, cash equivalents and short-term investments were US$3.3 billion, and cash inflow from operating activities in 24Q1 was US$140 million.
Advertisers pay more attention to results and hot marketing, and the company will strengthen the hot marketing model. 24Q1 advertising revenue was $339 million, -5% year over year; advertising revenue excluding Alibaba was $316 million, -6% year over year. 24Q1 value-added services revenue of $56.55 million, -3% YoY. According to the performance committee management statement, on the one hand, brand customers invest more of their budget in live streaming or performance advertising, while on the other hand, they focus on hot periods, such as festivals, events, etc. The Summer Olympics and summer film, television, and game hotspots are concentrated, and the food, beverage, footwear and apparel industries are expected to contribute to revenue growth. From an industry perspective, sales of games, mobile phones, and cars grew relatively well, but the year-on-year decline in beauty advertising was significant. According to management, in the future, Weibo will strengthen the market competitiveness of the advertising business from the two dimensions of IP hotspots (festivals, popular movies and TV shows, contests) and customer hotspots (new product launches, e-commerce festivals).
The gross margin and expense ratio have not changed much, and customer acquisition is more aimed at users with high ARPU values. 24q1non-GAAP gross margin was 78.5%, -1.4ppts year over year. The non-GAAP sales/development/management expense rates were 25.2%/17.8%/5.0%, respectively, and +0.6/-0.8/-1.7 ppts compared to the previous year. In terms of customer acquisition, according to the performance conference management statement, in the future, more attention will be paid to the acquisition of users with high ARPU values such as Apple and Huawei phones, thereby boosting the monetization capacity of advertising and value-added services.
valuations
We expect advertising revenue growth in the second half of 2024 to be better than in the first half of 2024, driven by the Olympic Games and summer entertainment hotspots; the cost and cost volume for the whole year will remain basically the same year over year. We expect 2024/25/26 non-GAAP net profit of US$4.37/4.82/511 million, corresponding to 2024/25/26 PE of 5.2/4.8/4.5 times. Maintain an increase in holdings rating.
The main risks faced by ratings
Macroeconomic growth declined; advertising fell short of expectations; content regulation exceeded expectations; competition intensified.