Buy This, Not That: Twitter and Weibo

As I write this, shares of Twitter Inc. (TWTR) are plunging 13% after the social networking service missed Q2 expectations. Now, Twitter did beat headline estimates. Twitter’s earnings weighed in at $0.08 per share, which beat the $0.05 EPS consensus estimate by 60%. Twitter also brought in $573.9 million in revenue, above analysts’ consensus estimate for $537.5 million in revenue.

However, the hard truth is that Twitter’s user base isn’t growing as fast as it used to. In fact, Twitter had 328 million monthly active users last quarter. While that’s a 5% gain over last year, it was unchanged since the first quarter. That fact was enough to send shares tumbling on Thursday.

Today, I’ve been getting a bunch of questions about whether TWTR is a buy on the dip. However, for those of you who are looking for a bargain buy, I’d look elsewhere. For 2017, analysts expect that Twitter’s total sales will shrink 8% compared with 2016. Adjusted earnings growth is expected to plunge 42.1%.

To add insult to injury, most of the analyst community rates TWTR as a hold or a sell. The stock was recently downgraded by Standpoint Research. As analysts have cooled to the stock, institutional buying pressure has also dried up. For these reasons and more, TWTR ranks as a sell in Portfolio Grader.

So instead of buying into the Twitter dip, I’d recommend you look into another social networking giant first. Weibo (WB) 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, and it’s expected to continue. For the current quarter, analysts expect that Weibo will post 68% annual sales growth and 125% annual earnings growth. Meanwhile, the consensus EPS estimate keeps creeping higher, from $0.29 three months ago to $0.36 today. That 24% increase suggests that analysts are struggling to get a handle on Weibo’s profit potential, and that it’ll likely top estimates again.

So when it comes to fundamentals, Weibo earns As and Bs on six of the eight metrics I graded it on. Couple that with an A-rating for its Quantitative Grade and a reasonable 32 forward P/E, and it’s clear which stock is the better buy. WB rates as a Strong Buy in Portfolio Grader.


Louis Navellier

Louis Navellier

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