Why Weibo Stock Fell 18% Today

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What happened

Shares of Weibo (NASDAQ: WB) crashed hard on Thursday, falling as much as 18.1% in early trading. The social network operator, often called the Twitter of China, reported solid third-quarter results early in the morning, but the company also set its fourth-quarter revenue guidance far below the current Street view. Weibo’s stock had recovered slightly to a 15.5% drop at 11:20 a.m. EST.

So what

Weibo’s third-quarter sales rose 2% year over year to $468 million, in line with consensus analyst estimates. The core category of advertising sales increased by a minuscule 1% while value-added services posted a 9% revenue increase. That bump rested chiefly on the acquisition of a live video-streaming service that closed in the fourth quarter of 2018.

Adjusted earnings rose by 3%, landing at $0.77 per share. Here, your average analyst would have settled for $0.73 per share.

Looking ahead, Weibo’s management sketched out a fourth-quarter revenue target roughly 1.5% above the year-ago period’s result, which works out to approximately $489 million. The analyst consensus had been set at $496 million. Weibo will match the Street target only if it delivers fourth-quarter sales at the very top of the given guidance range.

A young Chinese woman sits on a hill overlooking some wetlands and a small town, focused on her smartphone.

Image source: Getty Images.

Now what

Weibo’s once-rampant revenue growth is slowing down significantly, dragging stock prices down as well. CFO Fei Cao called the fourth-quarter revenue guidance “conservative,” noting that the live video acquisition will provide a smaller year-over-year buyout boost in the fourth quarter and none in the reports beyond that.

Weibo’s shares are now trading 68% below the all-time highs they reached in early 2018, almost exactly in line with the share prices Weibo held three years ago. Growth stocks often take a beating when their revenue increases start to slow down, and that’s what I see in Weibo these days.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.