3Q24 Non-GAAP net profit was better than our expectations

Weibo announced 3Q24 results: revenue of 0.464 billion US dollars, up 5% year on year (3% year on year increase under fixed exchange rate), better than our expectations and Bloomberg's consistent expectations (0.44 billion US dollars); non-GAAP net profit of 0.139 billion US dollars, better than our shared expectations with Bloomberg (0.12 billion US dollars). The better-than-expected performance was mainly due to the fact that both advertising and VAS business revenue were better than expected, and good cost control helped release profits; in addition, it was confirmed that investment income of 16.91 million dollars increased profits.

Development trends

Platform hotspots in the third quarter drove advertising business revenue better than expected; VAS revenue growth was impressive. In terms of advertising business, 3Q24 achieved revenue of 0.399 billion US dollars, an increase of 2.4% year over year (flat year on year under a fixed exchange rate), which was better than our expectations. The company said at the earnings conference that platform traffic and commercialization in the third quarter benefited from the hot topics of Olympic events and variety shows. Among them, 3Q24 advertising revenue for food and drink increased significantly over the same period last year. Revenue from value-added services in the third quarter was $65.87 million, up 24.6% year over year (up 23% year over year under fixed exchange rate). VAS business revenue achieved double-digit year-on-year growth for two consecutive quarters. The company said that on the one hand, it benefited from the optimization of the user structure in the direction of better willingness and ability to pay, and on the other hand, it was driven by newly launched member products.

Costs and expenses are well controlled; return on investment enhances profits. The 3Q24 gross profit margin was 80.1%, up 1.4/0.5ppt, respectively. We judge that it was mainly the release of operating leverage due to revenue growth. The total operating expenses ratio (sales/management/R&D) increased by 1.2/1.1ppt month-on-month, respectively. We believe the overall control is good, with the sales expense ratio increasing 1.7/0.4ppt month-on-month. Additionally, 3Q24 confirmed investment income of $16.91 million and interest income of $6.7 million. Overall, the 3Q24 non-GAAP net profit margin was 30.0%, up 1.1 ppt month on month and down 0.9 ppt year over year.

Advertisers' advertising demand in some industries may have declined in the fourth quarter, maintaining expectations for the growth rate of advertising business throughout the year. The company said in its results that there is still uncertainty about the fourth quarter. We believe that considering the advertising attributes of the Weibo brand, advertisers may maintain their overall budget and tend to focus on hot events such as the third quarter Olympics, so sales of food, drink, footwear, and clothing may decline in the fourth quarter; at the same time, some industries benefited from the Double Eleven promotion or increased investment, such as e-commerce and 3C digital. Taken together, we basically maintained our expectations for Weibo's advertising revenue for the fourth quarter and the whole year. We expect a 2% decline (fixed exchange rate) for the whole year.

Profit forecasting and valuation

Considering that the company's cost control was better than expected, the 2024/2025 non-GAAP net profit was raised 6%/9% to 0.479/0.496 billion US dollars. Currently, the company's Hong Kong and US stocks are trading 4.7/4.6 times 2024/2025 non-GAAP P/E. Maintaining an outperforming industry rating, the target price of Hong Kong stocks and US stocks was raised 6% to HK$82.5 HKD/10.6 US dollars, all corresponding to 6 times the 2024 non-GAAP P/E. The target price for Hong Kong stocks and US stocks was 25%/25%, 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.