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Bear Of The Day: Weibo (WB)

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Weibo Corp (WB - Free Report) has slipped to a Zacks Rank #5 (Strong Sell) and to add insult to injury the Zacks Style Scores for Growth and Value are both F's.  Let's take a deeper look at this stock in this Bear of the Day article.

Description

Weibo Corporation operates as a social media platform for people to create, distribute and discover Chinese-language content. The Company operates in two segments: Advertising and Marketing Services, and Other Services. The company offers self-expression products; social products; discovery products; notifications; third-party online games. Weibo also develops mobile apps, such as Weibo Headlines; Weibo Weather and WeiDisk. It also provides advertising and marketing solutions, including social display ads and promoted marketing products. Weibo Corporation is headquartered in Beijing, China.

Earnings History

The earnings history for a stock plays a role in the Zacks Rank, but not as big as earnings estimate revisions.

That said, I see a good earnings history with the company topping the Zacks Consensus Estimate in each of the last four quarters.

Estimate Revisions

Changes in estimates from sell side analyts change the consensus number.  When the consensus moves lower, the Zacks Rank tends to follow that movement.

Quarterly estimates for any stock don't carry that much weight, but it is good to look at them just the same.

WB has seen no movement in this quarter, but next quarter I see a decrease in the Zacks Consensus Estimate.  The number moved from $0.74 to $0.67 over the last 60 days.

The full year 2020 numbers have slid from $2.37 to $2.18 over the same time period.

2021 numbers have dropped from $2.97 to $2.78.

When estimates fall, the Zacks Rank also tends to fall.

Valuation

I see a forward PE of 16.5x which is cheap for a tech name like this, but I also see topline contraction of 19% in the most recent quarter.  That is not something any investor wants to see.  Margins have slipped over the last few quarters and that pattern can lead to lower EPS even without the revenue decreases, but when there are fewer revenue dollars and smaller margins, EPS numbers can fall dramatically.

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