Why Weibo Stock Plunged 39.4% in May

What happened

Shares of Weibo (NASDAQ: WB) plummeted nearly 40% last month, according to data provided by S&P Global Market Intelligence, following the company's first-quarter report.

Continue Reading Below

So what

Weibo's revenue rose 14% year over year to $399 million. The Chinese social media network's monthly active users (MAUs) grew 13% to 465 million, while average daily active users (DAUs) increased by 10% to 203 million.

In turn, Weibo's adjusted (non-GAAP) net income increased 14% to $128.5 million, or $0.56 per share. That was above the average analyst estimate for adjusted earnings per share of $0.53.

However, Weibo issued second-quarter revenue guidance of $427 million to $437 million, representing a year-over-year increase of 7%-10% on a constant currency basis. That's well below the roughly $482 million analysts had been expecting.

Now what

The trade war between China and the U.S. has led to a slowdown in the Chinese ad sales market. It's an industrywide trend, with other digital advertising titans such as Baidu also suffering from reduced demand for their services. Investors, who have grown accustomed to years of strong growth, have reacted by selling off these Chinese digital ad leaders.

But this trade war-related pullback in ad spending is temporary. The U.S. and China will likely reach an accord eventually, and even if they don't, China's digital ad market is still poised for solid long-term growth. Only about 60% of China's massive 1.4 billion population is currently online, leaving more than 500 million potential future internet users. Moreover, income levels in China are likely to continue to rise, which should boost demand for online goods and services. All of these trends bode well for China's digital ad leaders. And investors may be beginning to once again focus their attention on these longer-term trends; Weibo's shares are already up more than 6% so far in June.

10 stocks we like better than WeiboWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Weibo wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.