What happened
Weibo (WB 4.39%) shareholders had a volatile trading day on Thursday as the stock fell as much as 12% in early trading before jumping back into positive territory by 1 p.m. ET. The wider market declined 0.6% in that time.
The Chinese social media specialist remains in deeply negative territory for the year, with the stock down about 50% so far in 2022. Thursday's moves came as investors reacted to the company's third-quarter earnings report, which showed significant sales declines.
So what
Revenue fell 20% through late September, in fact, after accounting for currency exchange rate shifts. Weibo struggled with a weaker advertising market, just as larger peers like Meta Platforms have noted. But user growth continued thanks to the addition of 11 million users year over year, to push Weibo's total base to 584 million.
Management cut costs in response to the weaker demand trends. But operating profit still fell to roughly 27% of sales from 35% a year ago. Investors initially balked at the news of declining profitability and ad sales. But the stock gained ground on hopes of a stabilization on the way.
Now what
CEO Gaofei Wang said the company has entered a "gradual recovery trajectory," which implies that sales declines might moderate from here. The social media platform's cost cuts could position it for much stronger earnings and cash flow, too, as soon as the advertising market begins growing again.
The stock remains risky for many reasons, including its exposure to slowing economic growth in China and an advertising market that has weakened around the world. But Weibo's business is generating solid earnings today and the platform is expanding its user engagement.
Continued wins in these areas, amplified by management's cost-cutting program, could support further positive returns for shareholders from here.
