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One of China’s earliest social media companies said most of its major metrics were flat in its latest quarterly report, as it remains reliant on advertising for 85% of its revenue

Key Takeaways:

• Weibo’s revenue fell 1% in the fourth quarter, as a 4% drop in its core advertising business was partly offset by a rise in its smaller value-added services
• More than half of the 21 analysts polled by Yahoo Finance rate the company a “hold” or worse, reflecting bearishness on its stock and ability to revive its prospects

Which way, Weibo?

Both analysts and investors seem undecided these days on Weibo Corp. (WB.US; 9898.HK), one of China’s earliest and most enduring social media companies that started out as a knockoff of Twitter, now known as X. Many might argue that like X, Weibo is currently in need of a major overhaul, which might be better done out of the public eye as a private rather than publicly traded company.

Weibo’s woes were on display in its latest quarterly results released last Thursday, which repeated a frequent refrain of recent years portraying a company mired in stagnation. All these years after first exploding on the scene after the original Twitter was blocked in China in 2009, Weibo still relies on advertising for the big majority of its revenue, accounting for 85% in the latest quarter.

That business has fallen flat these days, and was actually down 4% in the fourth quarter to $385.9 million from $403.7 million a year earlier. The company’s overall revenue for the quarter was down by a milder 1% to $456.8 million from $463.7 million a year earlier, saved by an 18% rise in value-added services that are its other main revenue source.

The investment community’s mixed feelings on this company are nicely reflected in its split profile among analysts. Of the 21 polled by Yahoo Finance, 10 rate Weibo a “hold,” one gives it an “underperform” and one a “sell” – very bearish numbers that show many see little potential for a turnaround anytime soon, either in its business or its stock price. That said, there are still eight who rate it a “buy” and a lone cheerleader who gives it a “strong buy” – perhaps a relative of the company’s longtime Chairman Charles Chao or its CEO Wang Gaofei.

To be fair, Weibo has been trying to diversify and compete with China’s latest “in crowd” that has found gold in revenue streams like tipping for their favorite online celebrities, livestreaming e-commerce and the sale of virtual objects. But nothing seems to have worked, leaving Weibo as mostly a one-trick pony addicted to an online advertising market that has only grown more crowded with popular newcomers like Douyin and Xiaohongshu over time.

The company was led for years by Chairman Chao, who harkens from the first generation of internet entrepreneurs that also includes the likes of Alibaba’s Jack Ma and Tencent’s Pony Ma. But lately Chao has stepped back into a non-executive role and is letting a younger generation take over, led by current CEO Wang.

Still, the best Wang could do on the company’s latest earnings call was detail which sectors are getting a boost from China’s recent stimulus measures targeted at consumers, which is helping to boost ad spending by those sectors. He noted that digital products and e-commerce had gotten a boost from such stimulus, while most other areas, including beauty, personal care and luxury products, continue to suffer.

He also touted a new version of Weibo intelligent search using the latest open-source AI models that would be rolled out this quarter, following other Chinese companies in showing how the company is using the hot technology to advance its business.

Stagnation all around

We’ve already described how Weibo’s revenue has entered a period of stagnation, and that’s reflected in its other numbers as well. Its monthly active users fell slightly to 590 million in the fourth quarter from 598 million a year earlier. Its average daily active users ticked up slightly to 260 million from 257 million over that period.

The one major metric that wasn’t flat was its net income, which plummeted to $8.9 million from $83.2 million a year earlier. But its non-GAAP profit, which typically excludes share-based compensation and other non-cash items, actually rose to $106.6 million from $76.4 million.

In a bid to keep investors interested, the company announced a new policy to pay a regular annual dividend, after paying two one-time dividends over the last two years. Its latest dividend will see it pay out $200 million for 2024, equal to $0.82 per American depositary share (ADS), which equals a fairly respectable 7.5% return based on its latest share price. So, if you’re a dividend lover, perhaps this stock is for you. But if you like growth, you should probably look elsewhere.

Reflecting the mixed sentiment about the company, Weibo’s stock dropped 3.2% on Thursday after the results were announced, but then gained all of that back and a little bit more over the next two trading days. Still, at its latest close of $10.90, the stock is 36% below the $17 it sold shares for when it was still quite a hot company at the time of its 2014 IPO.

Weibo’s parent, Sina Corp., was one of China’s earliest publicly traded internet companies and later privatized as a somewhat redundant entity after Weibo became its primary asset. Weibo looked set to follow that pattern in 2021, when reports emerged that Chairman Chao was in talks with an unnamed Shanghai-based state investor to privatize the company, in a deal that could have value it at about $20 billion.

Chao is probably wishing that deal had come to fruition, since Weibo’s market cap has shrunk since then to just $2.7 billion. The stock has lost about 80% of its value since then amid a broader selloff for Chinese companies between 2021 and 2024. It has bounced back by about 50% over the last six months with the China stock rally, though this really seems like the case of the old adage that “a rising tide raises all ships” rather than any vote of confidence in Weibo.

Despite the rally, Weibo’s stock trades at an anemic price-to-earnings (P/E) ratio of just 9, well behind the 25 for Facebook parent Meta (META.US) and 31 for domestic peer Tencent (0700.HK), owner of WeChat. Frankly speaking, Weibo could be past the point of saving, similar to the original X/Twitter, which also looks like a sinking ship. But for any chance of longer-term survival, a Twitter-like privatization and major overhaul of the company out of the public spotlight seems mandatory.