On Friday, Morgan Stanley adjusted its outlook on shares of Weibo Corp (NASDAQ:WB), reducing the price target to $7.50 from the previous $8.00 while keeping an Underweight rating on the stock. The revision reflects expectations of a decline in advertising revenue and operating profits for the second half of 2024, as well as the impact of increased competition from short-form video platforms and other internet services in China.
The firm anticipates a 4-5% year-over-year drop in advertising revenue in RMB (JO:RMHJ) terms for the latter half of 2024, which is a steeper decline compared to the 1% year-over-year decrease witnessed in the first half. The skincare and cosmetics sector, in particular, continues to underperform. Despite this, a modestly stronger third quarter is expected, buoyed by the Olympic Games.
Morgan Stanley also forecasts a 9% year-over-year fall in non-GAAP operating profit for the second half of 2024. This is attributed to persistent operating expenses, marketing outlays for the Olympics, and investments in content and user acquisition.
The firm has slightly lowered its revenue projections for 2024 through 2026 by 1-5%, citing weaker consumer sentiment and the severe competitive threats posed by short-form video platforms such as Douyin, Kuaishou, Tencent (HK:0700) Video, and Bilibili (NASDAQ:BILI).
Moreover, sales and marketing expense assumptions for 2024 to 2026 have been reduced by 1-4%, reflecting Weibo's shift to a more aggressive return on investment-driven channel strategy. The non-GAAP EPADS estimates have been altered, showing a 4% change for 2024, a decrease of 7% for 2025, and a 12% reduction for 2026 due to a low base.
Despite the lowered stock price target, Morgan Stanley maintains its target 2025E P/E ratio for Weibo at 4.5x, which remains the lowest among the firm's internet coverage in China. This adjustment comes after a detailed analysis of the company's expected performance and the broader competitive landscape it operates within.
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