Facebook (FB) vs Weibo (WB): Buy or Beware?

Tech stocks have been severely punished this year, even though they seemed to be unstoppable in the middle of 2018. Over the last 180-days or so, a basket of FANG stocks has dropped an average of -23.04%.

These same names, held over a period of one year (365-days), would have added nearly 10.5% to the portfolio. It’s amazing how sentiment changed in 6-months!

One sector of interest though, is the social media group, particularly Facebook, Inc. (FB). The name has made global headlines – and not for good reasons. Still, there’s no denying that FB is the dominant player in its niche, and isn’t about to go anywhere – soon! The question for investors though is: Should they be adding FB at these levels, or should they be considering an alternate (of sorts – though not a direct competitor) – China’s Weibo Corporation (WB)?

By the numbers

So, lets take a closer look at the two social media titans to find out which of them might make a better investment (or trade).

With a market cap of $13.5B, micro-blogging platform WB is just 3% the size of rival FB, the world’s largest social media company. And, comparatively speaking, it has a higher beta (2.34 vs. 0.59). That makes it more than twice as volatile as the general market. On a TTM P/E-basis though, both stocks seem equally priced (23x vs. 20x). However, based on an EPS for that same period, FB promises a better return for investors (TTM EPS of 6.64 vs. 2.37).

A closer look at the financial performance gives us a clearer picture of how the two rivals are doing, and what an investment (trading) decision in either name would mean. Once again, size matters, with WBs revenue and earnings (millions of USD) clearly dwarfing those of its larger rival (billions of USD).

Considering their Earnings/Revenue ratios, both companies have a similar propensity to convert Revenues into Earnings – in the low to mid 30s. However, the trend of that conversion seems to be in WBs favor over the past two consecutive quarters. In fact, FBs ability to convert top-line revenue into bottom-line earnings has declined, albeit at a lower pace in the last quarter. Investors should watch for those numbers to turn positive, over the next couple of quarters, before making a buy decision.

Taking Q4-2017 as the base year, we see that WB’s earnings have improved by over 26%, while FB has raised its earnings by slightly over 20%. As a prospective investor, I’d like to see those percentages continually improve over the next quarter or two.

So, what do the analysts make of all this?

Well, once again it seems as though there’s an even split in guru opinions on both names. Obviously, given its size and market cap, FB has a much larger analyst following (44), while WB has less than half that number (19).

However, while slightly over 26% of WB analysts rate it as a strong buy, nearly 39% of FB analysts feel that kind of conviction for the stock. Buy ratings from both camps seem to be evenly split, with 58% and 55% of analysts rating WB and FB as worth buying respectively.

By the charts

A look at a 1-year price compare chart shows us that both stocks are generally off their highs from earlier in the year. More interestingly, both FB and WB seem to be meandering along, mostly from upper-left to lower-right.

Both FB, at $133.35 intra-day, and WB, at an intraday price of $54.84, are a far cry away from their 52-week highs of $218.62 and $142.12 respectively. But WBs current price is approximately 3% higher than its 52-week lows ($53.11), compared to almost 5% for FB ($126.85) – which is positive for FB.

 

 

 

 

 

A look at the MACD charts for the two tickers seem to show that WBs MACD has turned positive (hovering above the centerline), while FBs MACD is still below the zero line – though trending up and into “buy” territory. Both MACDs (yellow line) have crossed above the Signal (red line) – which are positive indicators too.

Decision time

So, which one of these two should investors pile into? Well, unfortunately the answer isn’t that simple.

  • Based on Q3-2018 results:
  • Daily active users (DAUs) for FB was 1.46B – a 9% y/y increase
  • DAUs for WB reached 195M, with a net addition of 30M new users – a 15.38% increase
  • Mobile active users (MAUs) for FB reported as 2.77B – an increase of 10% y/y
  • MAUs for WB reported at 446M, with a net addition of 70M user’s y/y – that’s a 15.7% increase
  • WB reported a 48% y/y increase in advertisement and marketing revenue. That metric was a y/y increase of 33% for FB
  • FBs “Payments and other fees” saw a 1% y/y increase, compared to an 18% y/y increase in WBs “Value-added-Services (VAS)” revenue
  • FB reported a 9% y/y increase in Net income, while WBs Net revenues climbed 44% y/y, with a healthy 35% plus Operating margin
  • Some estimates put FBs full-year 2018 revenue at $55.3B, with 2019 estimates at $68.6B – That’s a 24% y/y estimated increase. The same sources estimate that WBs full-year 2018 revenue will come in at $1.7B, with an estimate for 2019 pegged at $2.3B – a 35% plus improvement

Based on these estimates, and given that FB is currently under a cloud of political and regulatory uncertainty, investors should think carefully about rushing in to buy FB. In fact, even a basket of Social Media stocks – as represented by the SOCL ETF, seem to be in the penalty box over the past 3 months or so. If you had to decide between FB or WB though, my money would be on WB.

Buyer beware

FB is a goliath compared to puny WB. And when it comes to the fire-power it wields in terms of cash flow, the smaller company is no match. Additionally, given the backdrop of ongoing tensions between the U.S. and China, I would caution against going overweight on WB. Perhaps take half a position now, and then decide what to do after the 90-day “trade war truce” is over.

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Author does not have investment in stock discussed in this article.

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