Weibo Corp (ADR) (NASDAQ:WB) is a social media juggernaut in China. In the last 12 months, WB stock has more than doubled, with 34% of that gain in the past three months alone.
And while it gets pegged as a mashup of social media platforms like Twitter Inc (NASDAQ:TWTR) and Snap Inc (NYSE:SNAP), Weibo really more like a young Facebook Inc (NASDAQ:FB) that has cut a deal with Alphabet Inc (NASDAQ: GOOGL, NASDAQ: GOOG) and Amazon.com, Inc. (NASDAQ: AMZN).
Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) holds a 32% ownership stake in Weibo.
This type of arrangement isn’t unusual in the Chinese marketplace where firms with different strengths look to leverage what they do with other companies that can complement their focus.
Given the concentration of the market, it has been a very successful approach so far.
Government Intervention
However, in late June the Chinese government stepped in and shut down some of Weibo’s political chatrooms and video feeds.
WB stock fell, short positions grew. Investors immediately worried that the government was going to clamp down on Weibo’s platform, thus threatening its incredible growth.
But in the past month, WB stock is up 7%. Compare this to TWTR that just announced growth has stalled and even fallen in some spots, dragging its share down more than 7%.
Also remember that those investors now on the short side are helping drive the shares higher as they ditch their positions as Weibo stock rallies. It’s what they call a short squeeze. Investors on the short side see the stock rise and decide that they’re losing too much and get out, which helps push the stock higher, which forces more shorts out. Rise and repeat.
But beyond this short-term trading dynamic, the fact is government censorship efforts are not new to Chinese social media companies. And given that the authorities didn’t lay a finger on WB’s entertainment, celebrity news, sports and fashion feeds, this isn’t such a terrible threat. Most people in China know that the government is a bit touchy when it comes to open political criticism and so most people don’t air their grievances online, knowing the government is watching.
As this channel wasn’t a big part of WB’s core growth, whatever happens won’t have much of an effect on its core business, or its growth.
August Earnings
WB’s Q2 earnings release is scheduled for August 7, so we’ll see where the stock goes until then. shares hit their high just above $82 shortly before the government crackdown; but it’s now trading about $8 off that high water mark.
If there are any shorts left when Weibo announces earnings — and those numbers are strong (which they should be) — WB stock should easily bust through that high in the near term and keep that pace going for some time to come.
And if the shorts win the day, it will only be a brief defeat. WB has a bright future.
— Louis Navellier
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Source: Investor Place