On Thursday, Morgan Stanley (NYSE:MS) adjusted its stance on Weibo Corp (NASDAQ:WB), reducing the stock's price target from $10.00 to $9.00, while keeping an Underweight rating. The revision comes amid expectations of stagnant advertising revenue and competitive pressures.
The firm's analysis indicates a downward adjustment in Weibo's advertising revenue forecasts for the years 2024 to 2026, with an estimated decline of 1-2%. The projection is based on a challenging macroeconomic environment and a loss in market share.
The company anticipates its advertising revenue to show no year-over-year growth in the second quarter of 2024 but expects a rebound in the third quarter, potentially fueled by the Olympics.
Morgan Stanley also anticipates that Weibo will face constraints in expanding its profit margins. Despite the significant cost savings achieved in 2023, ongoing investments in content and user incentives aimed at maintaining daily active users (DAU) are likely to limit margin growth. These investments are partly offset by reduced spending on channels with low returns on investment (ROI).
Furthermore, the firm has revised its diluted non-GAAP earnings per ADS forecasts for Weibo downward by 11-13% for the years 2024 to 2026. The price target has been adjusted accordingly, representing a 10% decrease. The new valuation reflects a forward-looking timeframe extending to mid-2025.
Lastly, Weibo's current trading valuation, based on Morgan Stanley's estimates, stands at 5 times the projected earnings for 2024. Moreover, the report notes a potential dividend catalyst, with Weibo historically issuing a dividend in the fourth quarter, which could represent approximately a 9% yield.
InvestingPro Insights
As Morgan Stanley adjusts its outlook on Weibo Corp (NASDAQ:WB), a glance at the latest InvestingPro data and tips could provide additional context for investors. Weibo's market capitalization stands at a solid $2.1 billion, with a notably low P/E ratio of 7.45, which further dips to 7.2 when adjusted for the last twelve months as of Q1 2024. This aligns with the InvestingPro Tip highlighting the company's trading at a low P/E ratio relative to near-term earnings growth, possibly indicating an undervalued stock in terms of earnings.
The company's gross profit margin is robust at 78.45% for the same period, underscoring the InvestingPro Tip praising Weibo's impressive gross profit margins. Moreover, Weibo's liquid assets surpass its short-term obligations, suggesting financial stability and a lower risk profile. It's worth noting that while Morgan Stanley forecasts a dip in advertising revenue, Weibo's strong fundamentals could cushion the impact.
For investors seeking a more in-depth analysis, InvestingPro offers additional tips on Weibo, including insights on earnings revisions and valuation multiples. Use coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable tips and make informed investment decisions.
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