Chinese Censorship Of Weibo Creates An Opportunity

Weibo, the Chinese blogging site also known as the Chinese Twitter, has been enjoying a good 2017 thus far, with shares having returned almost 74% to investors. This is despite a 6% haircut this past Thursday when investors woke up to the news that the Chinese government had ordered the company to shut down politically sensitive audio and video content.

Of course, in this hair-trigger investment environment, most investors bailed on the stock as soon as the news was out on Thursday without even waiting for a response from the company. The company did respond by saying that the financial impact of the censorship by the State Administration of Press, Publication, Radio, Film, and Television would be relatively muted, but that the company would comply with the authorities.

Although the exact financial impact of the censorship is still relatively unknown, Street analysts already stated the most popular categories on Weibo (entertainment, celebrity news, and fashion) would not be affected. The content that is being censored is political and most users on Weibo already know better than to say/post anything negative about the Chinese Big Brother.

Street analysts are expecting Weibo to earn $1.51 per share on revenues of $1.05 billion for 2017 which would be up 84% and 60% respectively over 2016. For 2018, current Street estimates call for earnings of $2.33 per share on revenues of $1.47 billion, up 54% and 40% respectively over 2017 estimates.

Investors will be hard pressed to find that sort of growth in Western companies although, for the immediate term, the censorship issue could overhang the shares of Weibo.

Keep in mind that censorship in China is not a new issue by any means and this is not the first time an internet company has been censored and I would bet that it will not be the last either.

Therein could like the best opportunity usually, no?

I have no direct exposure to Weibo but do have an ownership interest via parent Sina (roughly 47% stake in Weibo), and investor Alibaba, which owns about 32% of the company.

Shares of Weibo, Sina and Alibaba closed at $72.38 per share, $87.61 per share and $143.01 per share respectively on Friday, June 23, 2017.

(Long baba, sina, long and short options in both)

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