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Social media operator Weibo Corp (ADR) (NASDAQ: WB ) is often called the Twitter Inc (NYSE: TWTR ) of China. But the irony is that the company has done so much better than TWTR, whose stock is off about 4% during the past year. Weibo stock, on the other hand, has posted a blistering return of 112% during the same period. Consider too that its market cap is roughly $23 billion, which is $10 billion higher than TWTR’s.
But the recent performance of Weibo is no fluke. Since going public in April 2014, WB has gone from $17 to $104 a share.
OK, so why the bullishness? And can Weibo stock keep up the momentum?
Well, first of all, WB has certainly built a tremendous platform – and, yes, management has made some key strategic moves.
Unlike TWTR, the WB social platform is incredibly easy to use. There are also a variety of other advantages, such as:
1)Major Partnerships : SINA Corp (NASDAQ: SINA ) owns majority stake in Weibo and Alibaba Group Holding Ltd (NYSE: BABA ) has a 32% position. These two partners have been critical in bolstering the user base and also providing access to different features, such as social commerce and mobile payments.
2)Multimedia : Over the years, WB has invested heavily in its online video platform, which has allowed for huge volumes of user-generated content. But the company has also been forging arrangements with organizations like the NFL and NBA to provide premium content.
3)Virtual Items and Rewards : WB has created a thriving marketplace of digital gifts, which has provided a nice source of revenue.
WB has also benefited from a general lack of competition. For the most part, operators like Snap Inc (NYSE: SNAP ), Facebook Inc (NASDAQ: FB ) and TWTR have been hamstrung in China because of the onerous regulations and censorship rules.
In light of all this, Weibo has been able to grow at a staggering rate. During the latest quarter, the monthly active users (“MAUs”) jumped by 28% to 361 million and about 92% were on mobile devices. The average daily active users came to 159 million, up 26%.
WB has been able to convert this into strong top-line growth and profitability. In the second quarter , net revenues spiked by 72% to $253.4 million and earnings came to $73.5 million, up 184%.
The outlook was also superb.
For the current quarter, Weibo Corp expects revenues to range from $290 million to $300 million, compared to the Street forecast of $276.1 million.
Bottom Line on WB Stock
There are certainly notable risks with WB stock. First of all, the company faces considerable regulatory issues in China. The company has had to take down various political online groups and the Cyberspace Administration of China (CAC) has launched an investigation into WB, along with other large online firms.
That said, WB has had a long history of successfully dealing with governmental authorities, so it seems reasonable that the company will find ways to navigate the landmines.
Perhaps the most nagging issue with Weibo stock is the nose-bleed valuation, with the forward price-to-earnings multiple currently sitting at 41. By comparison, FB has a 26 P/E ratio, while Alphabet Inc (NASDAQ: GOOGL ) stands at 23.
In other words, if WB has a dicey quarter, the shares could be vulnerable. Let’s face it, the bulk of the revenues come from advertising, which can get choppy.
Besides, some of the momentum WB has generated is likely from short squeezes (this is when short sellers buy back their shares to cover their positions) and this kind of lift is usually temporary.
So, all in all, it might be best to hold off buying WB for now and wait for a better entry point.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies , All About Commodities and All About Short Selling . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.
The post Weibo Corp (WB): Can the Explosive Rally Last? appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.