Weibo reported 3Q22 total revenue of US$453.6m (down -25% YoY/- 20% YoY on constant Fx), with online ad revenue logging -27% YoY.
We expect Co.’s N-T strategy on optimisation, efficiency and integration to stay due to narrowed visibility window of macro and ad recovery. We believe slower-than-expected ad industry recovery and transaction-oriented ad budget spending will weigh on Co.’s N-T topline. In addition, divergent ad performance and recovery among key verticals will continue into 4Q22 and at least 1H23, in our view. N-T catalysts including shopping festivals, FIFA World Cup and new product launches will alleviate weak ad demand in 4Q22. New TP of US$16.30/ HK$128.30 on 7.1x 23E non-GAAP EPADS. Maintain HOLD.
Key Factors for Rating
Determined N-T strategy. We expect Co.’s N-T strategy on (i) content, product, feature, algorithm and tech optimisation; (ii) Op. efficiency improvement; and (iii) content, product and channel integration to stay due to narrowed visibility window of macro and ad recovery. We believe slower-than- expected ad industry recovery and transaction-oriented (e.g. inventory clearance for eC, apparel, cosmetics) budget spending will weigh on Co.’s N-T topline. Thus, we trimmed 2022/23E online ad revenue by 2%/ 8% assuming prolonged ad recovery. We also lift our bottom line estimates on determined cost control measures with efficient resource allocation on key businesses.
Divergent trends among ad verticals to continue in 4Q22 and 2023. We believe divergent ad performance and recovery trend among different key verticals will continue into 4Q22 and at least in 1H23. Some catalysts in 4Q22 such as shopping festival, FIFA World Cup and new product launches in certain categories benefit FMCG-related ad spending amid continued weak macro. We are relatively conservative on 1H23 topline due to weak macro, highly unpredictable covid situations and high base in 1Q22 due to Tokyo Olympics.
However, we are still optimistic on Co.’s L-T ad outlook on its differentiated value propositions and enhanced core competencies with improved efficiency.
Key Risks for Rating
Upsides: (i) swift macro and ad recovery; (ii) supportive policies; (iii) eased covid policies; and (iv) popular new ad products.
Downsides: (i) covid lockdowns; (ii) slower-than-expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.
Valuation
Our new TP of US$16.30/ HK$128.30 are derived from unchanged 7.1x 23E non- GAAP P/E on EPADS of US$2.31 (from previous US$2.27) on improved Op. efficiency due to determined N-T strategy amid highly uncertain macro and low visibility of ad rebound in 2023. New TP implies 1.9x 2023E P/S.