Weibo 3Q23 total revenue decreased by -3% YoY/ increased by 2% YoY on constant currency to US$442m, in line with consensus. MAUs/ DAUs reached historical peak at 605m/260m. Non-GAAP OPM rose both YoY and QoQ to 37.1% mainly on efficiency initiatives. We see Co. continue their efforts to improve user engagement and unleash monetisation capabilities on traffic structure, channel investments, distribution mechanism, resource reallocation, algorithm optimisation and AI applications. But we deem tepid ad spending, especially from main discretionary clients on weak consumption sentiments, will weigh on NT ad rebound. Maintain BUY but cut our TP to US$16.7/ HK$131.0.
　　Key Factors for Rating
　　Dedicate strategies amid tepid ad spending. We expect Co. will continue to i) solidify their edges in certain IP verticals; ii) moderately step up channel investments for high value users; iii) allocate more resources towards traffic and KOL ecosystems of content verticals, including beauty, auto, handset, fashion, healthcare, etc.; iv) optimise algorithm to improve main clients’ transaction- oriented ROI; v) improve distribution efficiency to facilitate synergy among content and monetisation; vi) adopt AI to enhance content production and user interactions; and vii) execute operational efficiency initiatives. However, we see relatively tepid and erratic marketing spending of main discretionary clients on weak consumption sentiments will still weigh on Co.’s N-T ad revenue. Thus, we nudge down our 2023-25E total revenue by 2% to reflect softer ad rebound. We keep our 2023-25E GPM unchanged while cutting our 2023-25E earnings mainly to reflect increased S&M on channel investments for traffic structure and resumed events post Covid-19.
　　3Q23 results: Healthy users; in-line revenue with modest ad recovery; solid margin expansion trend. Total revenue of US$442m (down -3% YoY/ up 2% YoY on constant currency basis) was in line with consensus. Core online ad delivered -1% YoY/ +3% YoY on constant currency to US$389m with soft July followed by rebound in August and September. Non-Alibaba and Alibaba ad revenue logged -3% YoY and +44% YoY respectively. Regarding verticals, handset, entertainment, food & beverage and online services maintained strong YoY growth momentum; game sector was recovering while auto and luxury verticals experienced YoY decline. MAUs/ DAUs stayed solid by increasing 1% QoQ to historical peak of 605m/ 260m respectively. GPM remained flattish QoQ at 78.7%. Non-GAAP OPM rose 1.3ppts YoY/ 2.1ppts QoQ to 37.1% primarily due to committed execution of efficiency initiatives.
　　Key Risks for Rating
　　Downsides: (i) marketing behaviours change of key advertisers; (ii) slower-than- expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.
　　Valuation
　　Maintain BUY but cut our TP to US$16.70/ HK$131.00, based on 8.0x (down from 9.0x previously) 2023E Non-GAAP EPADS of US$2.08 (previously US$2.15).