One of my favorite stocks in the portfolio of Cabot Emerging Markets Investor is Weibo (WB). This Chinese company runs the most popular Chinese social media platform. And the success of its service—kind of a cross between Twitter and Facebook—has brought the company so much cash that it has been shopping for rivals, investing in allies and diversifying via joint ventures with all kinds of Chinese online players.
I recommended the stock to my subscribers in April, when WB was trading at 21. With the stock now trading over 48, we’ve taken profits in one-third of our position and we’re holding the rest. But WB doesn’t seem to be interested in slowing down.
Here’s what Mike Cintolo said about the stock when he wrote it up for Cabot Top Ten Trader a couple of weeks after I featured it in Cabot Emerging Markets Investor. (The company did quite well in the upcoming quarterly report that Mike mentioned, but hasn’t yet seen more investment from Alibaba.)
But first, take a look at the stock’s chart to keep in mind as you read. I think it’s exactly the kind of thing that makes it fun to go back to school.
Weibo (WB) from Cabot Top Ten Trader, April 18, 2016:
“In 2009, Sina.com, one of China’s most-popular web portals, came up with its own answer to Twitter and Facebook and called it Weibo. In some ways, it was a standard social media platform that let users create and post their own content, play games (including opportunities for in-game purchases) and access news and weather services. Weibo was a huge hit, and Sina.com spun it off as a separate business in 2014, while retaining a majority stake. Chinese daily active users now number 106 million, while monthly active users hit 236 million in Q4 (up 34% year-over-year), with 83% connecting via mobile devices.
“Like Facebook, Weibo gets its revenue from selling ads, and revenue grew by 43% in 2015. That’s off from growth in previous years, but still huge, indicating that advertisers are hungry for ways to reach Chinese consumers. Weibo has turned a financial corner, booking its first profitable year in 2015, and earnings are forecast to grow 56% in 2016 and 68% in 2017. The other reason for the strength of Weibo’s stock is that rumors are swirling that Alibaba, the Chinese online giant, is ready to increase its ownership stake. If true, the tie-up would increase access to Alibaba’s even larger user base, which could provide a huge boost to revenues. Analysts expect Weibo to report an 18% jump in revenue when Q1 results come out (no set date yet), and that earnings will come in at four cents per share, up from a one cent profit in Q4 2014.”
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My stock pick today is a Chinese stock that appeared in Cabot Top Ten Trader on June 20. I also have it in the portfolio of Cabot Emerging Markets Investor, the advisory that I write. It’s a social networking platform that’s a mixture of Facebook and Twitter, and it’s been enjoying phenomenal earnings growth. The stock has also been acting well despite the challenges the market has presented.
Here’s an excerpt from Mike’s write-up in the June 20 issue of Cabot Top Ten Trader.
“Weibo (WB) is a social networking platform that can be called the Twitter and Facebook of China all wrapped into one. Weibo was launched in 2010 as a messaging service of the Chinese Web portal Sina.com (which still owns a majority of its stock), but was spun off in 2014. Weibo’s user base has grown rapidly; at the end of 2012, the company had 97 million monthly active users (MAUs), which increased to 129 million in 2013 and 176 million in 2014. And when Weibo reported its Q1 results, daily active users had reached 120 million for the month of March, with more than 90% of users accessing the service via mobile devices. The company makes money by offering advertising and marketing opportunities aimed at users, and revenue grew 43% in 2015 and 24% in Q1. Weibo turned profitable in 2015, and has reported six quarters of EPS growth over 100%, including a 600% leap in Q1 2016. Weibo is one of a cluster of Chinese companies (including Baidu, Alibaba and Tencent Holdings) that are thriving as more and more Chinese access the internet—and make purchases—on mobile devices. Like Facebook, Weibo’s popularity is a self-reinforcing trend; the more people become users, the more others want to join. Weibo is a definite Chinese success story, and analysts project that EPS will grow by 72% in 2016 and 69% in 2017.
WB came public in April 2014 at 17, and settled into a trading range centered on 20, with a couple of spikes into the higher 20s. But the stock corrected strongly in late 2014 and again in July and August 2015, with each correction followed by a run back to 21. The stock finally got past that stubborn resistance at 21 in April, running all the way to 29 in early June. The stock’s rising 25-day moving average is just below 26, and should provide support. WB is volatile, but a buy on minor weakness with a relatively loose stop should work out.”
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My stock pick today is Weibo (WB), a Chinese company that’s called “the Twitter of China.” Weibo was spun off from Sina.com, a popular Chinese Web portal that still holds a majority of its stock. (Alibaba also owns an 18% stake.)
Weibo is like Twitter in being a social medium for sharing news, messages, gossip and links to everything else.
But it’s unlike Twitter because 120 Chinese characters can communicate a ton more information than 120 Western characters.
Weibo has always been popular, but what has investors taking notice is the successful monetization of its huge user base of 222 million monthly active users. When Weibo reported Q4 earnings on March 2, earnings were up 275% and revenue up 42% and the company’s after-tax profit margin was a record 22.1%.
WB is trading around 18, which is essentially right where the stock came public back in 2014. WB has traded as high as 26 in its short life, and as low as 9, during the August 2015 free-fall, and 12 just last month.
WB remains on the list of past holdings for Cabot Emerging Markets Investor, as we got shaken out during the February retreat. We’re always ready to get out of positions when the market (and a stock’s chart) turns against us. That’s part of how we can take on the risk inherent in emerging markets.
But we still love the story and appreciate the stock’s rebound from its February low.
If you’d like to know when to get back into WB, a click on this link will bring you a no-risk trial subscription to my Cabot Emerging Markets Investor, and the full story on how emerging markets in general (and China in particular) are performing. And when WB is ready, I’ll tell you. Click here for more information.