Weibo Corporation (WB) and Tencent Holdings Limited. (TCEHY) are two popular social media and advertising platforms that in China. Formerly known as T.CN Corporation, WB operates through its advertising and marketing services and value-added services segments. TCEHY operates through VAS, online advertising, FinTech and business services, and other segments.
Higher mobile penetration and increasing use of online solutions by individuals and businesses across China continue to leverage the business of Chinese social media players WB and TCEHY. In this fast-evolving environment, these two companies have managed to grow their user bases significantly by stepping up their investments and creating significant social values through innovations.
Although WB and TCEHY have been capitalizing on China’s changing socio-economic profile, they look less appealing now given that Chinese authorities have doubled down on their enforcement of antitrust rules to rein in the growing influence of big tech companies.
Over the past three months, WB stock price has lost 4.5%, while TCEHY has declined 9.6%. So, let’s find out if any of these stocks is a good pick now.
Recent Financial Results
WB’ revenue increased 42% year-over-year to $458.9 million in the first quarter, ended March 31, 2021. Its non-GAAP operating margin was 30%, compared to 23% in the prior-year period. However, WB’ non-operating loss was $44.7million for this period, as compared with $10.0 million in non-operating income for the same period last year. Also, the company’s net income declined 4.4% year-over-year to $49.82 million.
In the first quarter, ended March 31, 2021, TCEHY’s total revenues increased 25% year-over-year to RMB135.3 billion ($20.6 billion). Its adjusted EBITDA was RMB52.9 billion (US$8.28 billion), up 17% year-over-year. However, TCEHY’s free cash flow came in at RMB33.2 billion (US$5.19 billion), representing a 15% decline from its year-ago value. Furthermore, its gross margin was 46% for this quarter, compared to 49% in the prior year period.
Past and Expected Financial Performance
WB’s revenue and EBITDA grew at 12% and 7.4% CAGRs, respectively, over the past three years. The company’s net income declined at an 8.4% CAGR over this period. In comparison , TCEHY’s revenue and EBITDA grew at 24.8% and 19.5% annualized rates, respectively, over the past three years. The company’s net income grew at a 30.6% CAGR over this period.
WB’s revenue is expected to rise 26.4% in the current year, and 11.3% next year. A $2.67consensus EPS estimate indicates a 12.2% increase in 2021. In comparison, analysts expect TCEHY’s revenue to increase 19.9% in 2021 and 17.5% in 2022. Also, the company’s EPS is estimated to increase 19.7% in the current year.
TCEHY’s trailing-12-month revenue is significantly higher than WB’s. However, WB is more profitable, with an 83.1% gross profit margin versus TCEHY’s 45.6%.
However, TCEHY’ net 35.1% income margin compares favorably with WB’s 17%.
In terms of trailing-12-month Price/Sales, TCEHY is currently trading at 9.47x, which is 53.7% higher than WB, which is currently trading at 6.16x. Also, its 9.72x trailing-12-month EV/sales is 75.8% higher than WB’s 5.53x.
Both WB and TCEHY have overall C ratings, which equates to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In terms of Value Grade, WB has a B, which is consistent with its lower-than-industry P/E ratio. In comparison, TCEHY has a C grade, which justifies its higher-than-industry EV/Sales ratio.
Both WB and TCEHY have C Momentum Grades, in sync with their negative price returns over the past month. In terms of Growth Grade, WB has a C, while TCEHY has a D.
Of 76 stocks in the D-rated China group, WB is ranked #13 while TCEHY is ranked #31.
In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both WB and TCEHY for Quality, Stability, and Sentiment. Get all WB ratings here. Also, click here to see the additional POWR Ratings for TCEHY.
A growing anti-monopolistic crackdown in China and investors’ anxiety surrounding the volatility of Chinese stocks could lead to further pullbacks for WB and TCEHY. Although their increased user engagement and broad-based growth across all segments might benefit them in the long run, the bearish sentiment stemming from increased regulatory risks do not make them good investment bets right now.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the China group.
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TCEHY shares were trading at $76.64 per share on Friday morning, down $1.76 (-2.24%). Year-to-date, TCEHY has gained 6.86%, versus a 13.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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