1 Metric Weibo Corp Investors Have Overlooked

Sina (NASDAQ: SINA  ) and Weibo (NASDAQ: WB  ) shares fell considerably after poor guidance was reported during the first quarter. While investors dwell on these numbers, there is one metric that should bring about a great deal of confidence to investors.

Where the focus lies
Prior to Weibo's IPO, Sina owned 77.6% of the company. Today, Sina's share is 57%, meaning Weibo's earnings are still relevant to Sina's fundamentals. Therefore, it should come as no surprise that both stocks were trading lower by 9% on Thursday after the companies reported earnings.

Sina grew revenue 38% to $167.3 million and reported a gross margin of 60%. Moreover, approximately 40% of Sina's revenue came from Weibo, as Weibo grew revenue 161% to $67.5 million. Weibo's platform continues to monetize through advertising and marketing, while its largest advertiser, Alibaba, now accounts for nearly one-quarter of total revenue.

Therefore, nothing with the quarter itself created losses, but rather it was the outlook. Here's how both companies see the second quarter playing out:

Company

Revenue Guidance

Expectations

Sina

$177 million-$182 million

$197.7 million

Weibo

$74 million-$76 million

$$77.9 million

Clearly, Sina's disappointment is far more significant than Weibo's, thus implying that Weibo is still strong and Sina might have lagging segments elsewhere.

User growth should be the main focus
With all things considered, it's normal investor behavior to focus on revenue, EPS, and guidance in assessing a company's valuation. However, for social media companies like Weibo, users are most important, which is where revenue is ultimately created. Further, it was weakness in users prior to Weibo's IPO -- its daily active users fell 4% quarter over quarter -- that was likely responsible for the company pricing shares below expectations. 

Therefore, investors should be jumping for joy now that Weibo's monthly active users rose 14.7 million to 129.1 million, and its daily active users rose 5.2 million to 66.6 million. This represents nearly 13%, and more than 8% growth, respectively, in each category.

To put this in perspective, Twitter  (NYSE: TWTR  ) has lost more than half its value in 2014 after its last two quarters showed significantly slowing user and Timeline growth. During Twitter's first quarter, the company's monthly active users grew 6% to 255 million, growth that was about half of Weibo.

With that said, there is a rather large valuation discrepancy between Twitter and Weibo, as the latter has about 50% as many users, yet trades at 20% the valuation of Twitter. Moreover, revenue expectations of $400 million for 2014 have it trading at 9.5 times future sales, while Twitter trades at a steeper 15 times multiple.

Final thoughts
Weibo is cheaper and growing its user base faster than Twitter, meaning if you like the latter as an investment, then you may like Weibo, especially with returned user growth. But, what about its parent company, Sina?

Sina's revenue growth may be decelerating, and if we remove Weibo from the equation, it has no growth. However, it has cash, and most would agree that $1 is worth $1 in any market. While Sina has $1.9 billion in cash -- roughly $700 million from its partial divestment of Weibo -- and its remaining Weibo stake is worth $2.15 billion, Sina could potentially have $4.65 billion of cash if liquidating its Weibo stake.

Yet, Sina has a market cap of $2.85 billion, meaning investors can buy $1 for $0.61, a good investment however you assess it. Therefore, if Weibo is undervalued relative to Twitter, and will eventually trade higher, Sina's stake will only become more valuable, meaning shares of both stocks could soar. Finally, the backbone of this expected stock appreciation, fears of declining user growth may be overblown, and Weibo's first quarter serves as proof, meaning the long-term outlook remains intact.

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