A Fair Value Hike for Weibo

We have upgraded narrow-moat

In the next few years, we believe Weibo’s network effect with 392 million users will continue to drive sales growth and help protect Weibo from increasing competition. We believe management’s focus on interest-based information feeds and user-generated short-form videos, active user acquisition in the lower-tier cities, a new advertising system that enables more effective real-time bidding and personalized targeting, and the use of machine learning to improve the relevancy of feeds for users will drive user base and engagement. As a result, we expect an increasing number of SMEs and budgets shifting to social media from key accounts to drive sales going forward.

In the next decade, we forecast a 19% revenue CAGR, mainly driven by advertising and marketing revenue. Operating margin improvement will be slower in the next four years due to reinvestment into the platform amid competition and increase faster beyond 2021 as Weibo’s scale solidifies. We forecast operating margin to reach 38.6% by 2021, from 35.4% in 2017, before accelerating to reach 47.3% at the end of the decade. We have already factored in the increase in investments into channels, content, and product offerings, which will reduce pressure margins amid an increasingly competitive environment.

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