May 9, 2018
At first, it doesn't look pretty. As I write this, shares of Weibo Corp. (WB) are down over 14% after the Chinese social media giant released its first-quarter results this morning. My longtime readers know that this is one of my favorite internet stocks—I currently recommend it in my Blue Chip Growth, Ultimate Growth and Platinum Growth Club newsletters.
So, what happened with WB? Is this a buying opportunity or a sell signal? Let's find out.
For those of you who haven't heard of it, Weibo Corp. is popularly known as "China's answer to Twitter." Weibo is a social media company that allows Chinese users to express themselves, connect with others, discover Chinese-language content and use push notifications on their mobile devices. Weibo also offers online games and mobile apps.
Weibo has experienced tremendous growth since its launch in 2010, as demonstrated in this morning's earnings report. Monthly active users (MAUs) increased 20.5% year-on-year to 411 million. Of those, 93% were mobile MAUs.
Compared with Q1 2017, net revenues jumped 76% to $349.9 million. This beat the $342.4 million consensus estimate by 2.2%. Breaking it down by segment, advertising and marketing revenues rose 79% while value-added service revenues increased 57%. Over the same period, net income more than doubled to $99.1 million, or $0.44 per share. Adjusted earnings per share was $0.50, which topped the $0.47 EPS consensus estimate by 6.4%.
Weibo also released its business outlook for the second quarter. The company expects net revenues to range between $420 million and $430 million, representing between 66% and 70% annual sales growth. This also tops the Street view of $417.1 million.
As good as these results are, shares of WB pulled back.
As far as the earnings are concerned, there's no reason why WB shares should be under pressure. So I expect that the pullback will be short-lived and that WB will move higher once the dust has settled.
After all, we've seen similar bounces in other more aggressive stocks this earnings season. Cognex Corporation (CGNX) and Universal Display Corporation (OLED) both gapped sharply lower during after-hours trading following their respective earnings announcements. However, by the time the market opened the following day, both stocks were in the green.
So if you currently own WB, I recommend that you continue holding your shares. If you don't own WB yet, today's pullback presents an excellent buying opportunity. I consider WB an A-rated Strong Buy.