4Q22 total revenue was US$448m (down -27% YoY/-20% YoY on constant Fx) with online ad revenue down -29% YoY. We expect ad industry will still be under pressure in 1Q23 on conservative marketing spending from key advertisers but will gradually revive on multiple catalysts from 2Q23. We believe Weibo will be the main beneficiary of this ad rebound due to its unique value propositions leveraging key integrated marketing solutions, content ecosystem, hot trends social attributes and celebrity/ KOL assets. We expect Co. will put optimisation, integration and efficiency as top priorities but will dynamically adjust operational strategy depending on ad recovery in 2023. We think current valuation is attractive and upgrade to BUY with revised TP of US$25.60/ HK$201.20 on 12x 23E Non-GAAP EPADS.
　　Key Factors for Rating
　　Optimisation, integration and efficiency. We believe Co. will emphasise on optimising core competencies, improving operation and monetisation efficiency and integrating “product, content and monetisation” ecosystem to resume topline growth and maintain user growth in 2023. We expect 1Q23 ad sector will still be under pressure mainly due to conservative spending from key advertisers on macro uncertainty and national event. However, with certain catalysts such as i) releases of supportive policies and eased regulations in various key verticals including game, entertainment, auto, education, real estate and travel; ii) various eC festival, eS tournaments and offline sports events; and iii) gradually improving market sentiments on stable Covid situation domestically from 2Q23, we believe ad industry will gradually revive, especially key discretionary advertisers with their marketing shifting from inventory clearance to new product launches and promotions. We deem Weibo is the main beneficiary of this ad rebound due to its unique value propositions, especially to new product launches, provided by its key integrated marketing solutions leveraging content, celebrity, KOL ecosystem and hot trends social attributes. Promising verticals with decent growth in 2023 for Weibo include cosmetics, personal care, apparel, eC, 3C, auto, luxury, game and entertainment, in our view.
　　Dynamic operation strategy highly dependent on topline recovery. We deem Co. will dynamically allocate its resources and budget in 2023, which is highly dependent on topline recovery. We expect Co. will put earnings stabilisation as top priority in 1H23 amid topline pressure by organisational restructuring and continued executions of optimisation initiatives. However, we believe Co. will mainly invest in its core ecosystem including content, KOL, ad products, resumed offline activities, etc. in 2H23. Moreover, we believe Co. will actively explore diversified VAS monetisation models such as social eC and membership for content creators in the mid to long term.
　　Key Risks for Rating
　　Downsides: (i) covid lockdowns; (ii) slower-than-expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.