August 10, 2017
With Earnings Season underway, investors have a lot of questions. Does a dip in share price after an earnings announcement indicate fundamental weakness? What's the difference between a reason to Sell and a buying opportunity? My favorite Chinese company, Weibo Corporation (WB), offers a glimpse into these questions. In today's blog, I'll unpack the significance of its earnings announcement yesterday, and I'll explain why I still believe it's a Strong Buy.
Weibo Corporation operates through two segments, Advertising/Marketing Services and Other Services. It offers a social media platform for people to create, distribute and discover Chinese-language content. Some investors consider it to be China's answer to Twitter, but my research shows it to be a much stronger company with a diverse business model and rock solid fundamentals.
Weibo offers products that enable its users to express themselves on its platform. It also offers social products to promote interaction between users as well as discovery products to help users find content. Finally, the company provides third-party online games, and it develops mobile apps for Weibo Headlines to aggregate news and information from other online sources.
Keeping its business model even more diversified, Weibo offers advertising and marketing solutions, such as social display ads and promoted marketing accounts. Furthermore, the company provides products allowing its platform partners to link their Websites and mobile apps to its platform, enabling their users to share content to Weibo. Additionally, it offers Weibo Credit and Weibo wallet, two online financial services units.
As you can see Weibo has a diverse business model with strong potential, and according to yesterday's earnings announcement, it's succeeding. So, why did Weibo's shares dip 6% after a positive earnings announcement?
During the second quarter, Weibo's net revenues soared 72% year-over-year to $253.4 million, which topped Weibo's guidance for sales between $240 million and $250 million. Net income surged 144% year-over-year to $86.7 million, or $0.38 per share. The analyst community was expecting earnings per share of only $0.36 on $246.31 million in sales. So, Weibo posted a 5.6% earnings surprise and a 2.9% sales surprise.
What's more, for the third quarter, Weibo is looking for net revenues between $290 million and $300 million, which represents between 64% to 70% annual sales growth. The company's sales guidance is also above current estimates for $276.14 million in sales.
Clearly, Weibo had a great second-quarter and provided strong third-quarter guidance. So, my only explanation for yesterday morning's pullback is profit taking. Given Weibo's run higher this year, some investors used this earnings report as a reason to take gains off the table. And the profit taking is continuing today. Weibo is down today over 5% as I write this.
But that's good news for my Blue Chip Growth members. They know this is an excellent buying opportunity for a fundamentally superior stock. In fact, Weibo maintains an A-rating in my Portfolio Grader tool, which is an excellent resource for you to use when wondering if a dip in share price is an indication to Sell or a buying opportunity.
Of course, you can also stay tuned in right here to this blog to discover additional insights and answers to your investing questions. I look forward to speaking with you again tomorrow.