Core views

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 vertical fields, which is expected to improve user activity and content quality. 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 has gained growth due to version restoration and applet game expansion, and automobiles will continue to benefit from a new round of product cycles for NEV 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. In addition, Weibo plans to increase the scope of application of A IGC and expand the application of AI in vertical content fields, which is expected to bring new impetus to the company's future growth.

occurrences

Weibo posted 2Q24 results. The profit for the quarter exceeded expectations, but the 2H24 outlook is cautious

On August 22, 2024, Beijing time, Weibo posted 2Q24 results. In terms of revenue, total revenue for 2Q24 was 0.438 billion US dollars (yoy -4.2%), which is basically in line with expectations. Among them, advertising revenue for 2Q24 was 0.375 billion US dollars (yoy -1.3%), slightly lower than the expected 1.4 pct; value-added service revenue: 2Q24 was 0.063 billion US dollars (yoy +2.6%), better than the forecast of 11.8 pct. In terms of profit, non-GAAP net profit of 2Q24 was $0.126 billion (better than expected 11.2%), corresponding to a non-GAAP net profit margin of 26.0%. In terms of the 2H24 outlook, the company emphasized that weak macroeconomics and consumption may put pressure on the recovery of 2H24 advertising business.

Brief review

Weibo continues to strengthen its content ecosystem to increase user engagement and activity

This quarter, Weibo's monthly active users (MAU) reached 0.583 billion, and daily active users (DAU) was 0.256 billion. The increase in the DAU/MAU ratio reflects the effectiveness of Weibo's strategy to acquire high-quality users. Weibo effectively increases user stickiness and social activity by strengthening cooperation with KoLS, optimizing the flow of relationship-based information, and hosting various events such as Weibo video contests. In addition, Weibo also uses hot events such as college entrance examinations and the variety show “Singer 2024” to enhance the platform's content appeal. Through these activities, Weibo not only enhances user engagement, but also provides diversified marketing opportunities for brands.

It is worth noting that Weibo has also made progress in AI technology. After its self-developed “Intelligent Micro Model” passed the filing, it is gradually being applied to various AI products within the platform to provide more support for content production and user interaction.

Macroeconomic pressure is compounded by changes in advertisers' advertising behavior, and the annual revenue outlook is under pressure. In recent years, we have observed changes in advertising behavior. Advertisers tend to combine advertising with big IPs, such as hotspot operations. In the past, they used to launch star+ products, but now they will do more hot top+ content insertion. For example, mobile phone manufacturers promote telephoto photography. First, they will warm up through big V marketing in the digital field of technology, and then combine (detonation) scenes with star concerts. In addition, Weibo and Alibaba have collaborated to expand in new advertising formats, and have excelled in industries such as luxury goods, beauty, and footwear. Through cooperation with celebrities and KOLs, brands can more accurately reach target audiences and influence consumers' purchasing decisions. However, we have also noticed that during the Olympics, competition hotspots attracted a large budget, but the annual budget is linked to sales. Advertisers are required to improve operational efficiency, and the advertising budget will not increase. Therefore, advertising performance is weak during the dry season. 2H24 is under macroeconomic pressure, and advertising budgets may not be very flexible.

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 vertical fields, which is expected to improve user activity and content quality. 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 has gained growth due to version restoration and applet game expansion, and automobiles will continue to benefit from a new round of product cycles for NEV 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 the FM CG and e-commerce industry. This is essentially an inventory clearance cycle for existing products. I am optimistic about the overall upward trend of Weibo advertising after inventory removal. In addition, 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.