Weibo shares get price target trim amid macro headwinds, maintains underweight
On Monday, Morgan Stanley revised its outlook for Weibo Corp (NASDAQ:), reducing the price target to $8 from the previous $8.50. The firm has retained its underweight rating on the company’s shares. This adjustment comes as a response to anticipated declines in advertising revenue influenced by a softer economic and consumer environment in China.
The analyst at Morgan Stanley indicated that projections for Weibo’s advertising revenue from 2024 to 2026 have been trimmed by 2-4%. This revision is attributed to weaker macroeconomic factors and consumer sentiment within the Chinese market. Additionally, the anticipated positive impact from the Olympics in the third quarter of 2024 is expected to be minimal.
As a result of the revised revenue outlook, expectations for Weibo’s earnings per ADS (EPADS) for the years 2024 to 2026 have also been decreased by 3-7%. Consequently, the price target has been adjusted downward to $8.
The analyst noted that despite Weibo’s low valuation, with a 2024 estimated P/E of 5x and a dividend yield projected to be over 10% in the fourth quarter results, the underweight rating is maintained due to potential earnings per share (EPS) downside risks.
These risks are associated with market share losses and the broader economic challenges faced in China.
In other recent news, Weibo Corp has been the subject of recent analyst downgrades and cautious outlooks. Morgan Stanley reduced the stock’s price target from $10.00 to $9.00, maintaining an Underweight rating due to stagnant advertising revenue and competitive pressures.
The firm adjusted its forecasts for Weibo’s advertising revenue and diluted non-GAAP earnings per ADS for the years 2024 to 2026, reflecting a challenging macroeconomic environment and a potential loss in market share.
Simultaneously, Citi revised its price target for Weibo shares, lowering it to $13 from the previous $15, while continuing to recommend a Buy rating. The adjustment followed Weibo’s first-quarter results for 2024, which showed a year-over-year revenue decline of 4% to $395.5 million.
In the first quarter of 2024, Weibo reported an increase in monthly and daily active users, with total revenue hitting $395.5 million.
Despite a 5% decrease in advertising and marketing revenues, the company’s strategic focus on acquiring high-quality users, enhancing its content ecosystem, and improving operational efficiency led to a substantial increase in ad placements during the Spring Festival.
InvestingPro Insights
In light of Morgan Stanley’s recent outlook revision for Weibo Corp (NASDAQ:WB), it’s worth considering additional metrics and insights from InvestingPro. Weibo’s strong gross profit margin of 78.45% in the last twelve months as of Q1 2024, coupled with a low P/E ratio of 6.22, suggests that the company is efficiently managing its finances and could be undervalued. This is further emphasized by the company’s position of holding more cash than debt, which is an indicator of financial stability.
Moreover, despite the downward revision in earnings, Weibo is trading at a low revenue valuation multiple and analysts predict the company will be profitable this year. The InvestingPro data also shows that Weibo’s valuation implies a strong free cash flow yield and that its liquid assets exceed short-term obligations. These factors could be seen as positive indicators for potential investors.
For those interested in a deeper dive into Weibo’s financial health and future prospects, there are additional InvestingPro Tips available. With the use of promo code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these insights. There are 11 more tips listed on InvestingPro that could provide further guidance on Weibo’s stock performance.
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