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. 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 1Q24 results. Revenue for the quarter declined due to exchange, and profits exceeded expectations. On May 23, 2024, Beijing time, Weibo announced 1Q24 results, of which MAU reached 588 million (yoy -0.8%, qoq -1.7%, -2.3% vs. consensus), and DAU reached 255 million (yoy +0.0%, qoq -0.8%, -1.5% vs. consensus). In terms of revenue, 1Q24 Weibo achieved revenue of US$396 million (yoy -4.4%, qoq -14.7%, +1.7% vs. consensus, flat at fixed interest rates), of which advertising revenue reached US$339 million (yoy -4.6%, qoq -16.0%, +1.0% vs consensus, flat at fixed interest rates), and VAS revenue reached US$57 million (yoy -3.3%, qoq -5.6%, +5.9% vs. consensus, according to fixed rates) Interest rate +1% YoY). On the profit side, 1Q24 non-GAAP operating profit reached US$126 million (+18.8% vs consensus), non-GAAPOPM reached 31.8%, net profit to mother reached US$107 million (+24.1% vs consensus), and net margin to mother reached 27.0%.

Brief review

The Spring Festival boosted a significant increase in platform traffic, bringing in considerable commercial revenue. 1Q24 Weibo used the Spring Festival hot effects to take advantage of its operational advantages across categories, driving a significant increase in platform traffic. The total number of broadcasts of content related to the Spring Festival Gala reached 100 billion, and the number of discussions exceeded 300 million, +50% over the same period last year. When the advertising market was weak in the first quarter, total 1Q24 revenue and advertising revenue remained flat year-on-year based on fixed interest rates, and net profit exceeded market expectations. At the same time, advertising revenue related to Spring Festival marketing was +50%. Among them, advertising traffic related to Spring Festival IPs operated by the platform doubled, and commercial revenue was quite impressive. As hot advertising, product recognition standardization, team service, and hot marketing processes become smoother, it will bring sustainable growth in commercial revenue to the company. It helps Weibo continue to maintain its leading position in the industry in hot operations and marketing.

Vertical traffic support strategies continued, and key industries such as mobile phones, online advertising, and gaming grew significantly. In terms of content, Weibo is strengthening its support for vertical content generation and dissemination. Second, divert more traffic to popular content bloggers, cultivate high-quality accounts, and help achieve commercial returns.

The healthcare, automotive, digital, and gaming sectors saw significant growth this quarter. Benefiting from the release of game versions and the new mobile phone product cycle, both the mobile phone and game industry maintained double-digit year-on-year growth in 1Q24. In terms of games, the size of Golden Orange V accounts increased by nearly 50% year on year, traffic and interaction increased by more than 20%, and bloggers' advertising revenue increased nearly 2 times year over year. Due to the improvement in product quality and the shift in consumer preferences to more cost-effective products, the marketing efforts of domestic beauty brands increased significantly, and their influence on social media such as Weibo increased, and revenue increased by more than 50% year-on-year in the first quarter. However, due to the weakness in the international beauty market, the overall revenue of the beauty industry declined. Currently, the beauty industry accounts for about 10-11% of revenue. The company plans to further reduce the share of the beauty industry, and the negative impact is expected to gradually ease in the future. In addition, Weibo plans to strengthen partnerships with e-commerce platforms, explore collaborative promotions on social platforms and e-commerce platforms, enhance marketing effectiveness, and promote steady revenue growth. 1Q24 advertising and marketing revenue reached US$339 million, -4.6% year over year, mainly affected by exchange losses. Currently, beauty has dragged down its performance. With the Summer Olympics and the low base of 1Q24, the company expects 2Q24 advertising revenue to recover, while 24H2 is expected to increase 5-7% month-on-month.

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. Sales of international brands in the beauty industry are still under pressure, affecting large-scale budget investment. 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. We expect Weibo to achieve revenue of 18.2, 18.9, and 1.96 billion US dollars in 2024-26, up 4%/4% year on year, and net profit to mother of 0.8, 0.9, and 90 million US dollars, up -34%, 12%, and 7% year over year. 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.