2Q24 Non-GAAP net profit was better than our expectations
Weibo announced 2Q24 results: revenue of 0.438 billion US dollars, down 0.5% year on year (1% year on year increase under fixed exchange rate), in line with our expectations and Bloomberg's consistent expectations (0.438 billion US dollars); non-GAAP net profit of 0.126 billion US dollars, better than Bloomberg's agreed expectations (0.114 billion US dollars) and our expectations (0.119 billion US dollars), mainly due to better than expected gross margin and maintenance of expenses Efficient spending.
Development trends
Advertising revenue declined slightly year-on-year in the second quarter, and VAS resumed growth. Although there was a “618” marketing promotion in the second quarter, the company said that overall market marketing demand was still weak. During the quarter, Weibo advertising revenue was 0.375 billion US dollars, down 2.7% year on year (down 1% year on year under fixed exchange rate). According to the company's performance report, advertising for beauty and personal care, especially the international brand 2Q24, was still under year-on-year pressure. The company said it was dragging down revenue growth by about 5%; however, the company still achieved year-on-year growth in dominant industries, such as 3C digital and automobiles. Revenue from value-added services in the second quarter was $62.6 million, up 14.7% year on year (up 18% year on year under fixed exchange rate).
Cost investment control, gross margin increased month-on-month, and cost control was good. The gross profit margin for 2Q24 was 79.5%, up 1.4/1.5ppt respectively; the total main operating expenses (sales/management/R&D) decreased by 4.4% year on year, of which R&D expenses decreased by 22.9% year on year. We judge that it mainly benefited from personnel control. Considering the subsequent demand for investment in AI and other businesses, we determine that the absolute value of R&D expenses may increase slightly. Overall, the 2Q24 non-GAAP net profit margin was 28.8%, up 0.1/1.8ppt year over month, respectively.
2H24 was adjusted to cautious expectations; content ecology and commercial product construction may help stabilize. The company said at the performance conference that although the Weibo platform performed well in user discussions and advertising volume during the summer Paris Olympics, against the backdrop of overall macroeconomic pressure and advertisers' cautious budgets, the company determined that the Olympic node siphoned out certain marketing demand for the second half of the year, and it is expected that advertising demand will decline after the Olympics. We believe that Weibo is expected to reduce the downward pressure brought about by the industry market through vertical content ecosystem operation, commercial product construction, and AI model empowerment. In addition, 4Q24's advertising business is also under high base pressure, such as in the gaming and e-commerce industries. In summary, we adjusted 2H24's advertising and overall revenue performance to cautious expectations. We expect 2H24's advertising revenue to drop by around 4% (fixed exchange rate).
Profit forecasting and valuation
Considering that 2H24's overall advertising market is still under pressure, we lowered our 2024/2025 non-GAAP net profit forecast by 5/ 9% to 0.452/0.455 billion US dollars. Currently, the company's Hong Kong stock trading is 4.6 times 2024 and 2025 non-GAAP P/E, and US stocks are trading 4.5 times 2024 and 2025 non-GAAPP/E. Maintaining an outperforming industry rating, we lowered our target price for Hong Kong stocks and US stocks by 23% to HK$78 /$10, which corresponds to 6.0 times the 2024 non-GAAP P/E. The target price for Hong Kong stocks and US stocks is 27%/29%, respectively.
risks
The macroeconomic and consumer demand recovery fell short of expectations, industry regulatory policies continued to be strengthened, industry competition intensified, and investment depreciation risks.