I've been following Weibo (WB -2.21%), the Chinese microblogging site frequently dubbed "China's Twitter (TWTR)", for several months now. Weibo consistently posts impressive growth, but the stock's 200% rally over the past 12 months and triple-digit P/E ratio made it seem too hot to handle. But after taking a closer look at the company, I finally decided to buy some shares of this hot stock for five simple reasons.

1. The backing of tech titans

Weibo was launched by Chinese internet giant Sina (SINA) in 2009. Sina subsequently spun off Weibo in an IPO in 2014, and retained an 11% stake in the new company. Chinese e-commerce giant Alibaba eventually took a 32% stake. The strong support from these tech giants gives Weibo easy access to partnerships and integrated features, like its payments platform powered by Alibaba's Alipay.

Weibo isn't the only "weibo" (microblogging site) in China. Other weibos include Tencent Weibo, Sohu Weibo, and Netease Weibo -- which are all tethered to their own internet ecosystems. Yet Weibo remains the biggest and most active of all these platforms.

Beijing, where Weibo is headquartered.

Beijing, China. Image source: Getty Images.

2. Incredible user growth

Last quarter, Weibo's monthly active users (MAUs) rose 34% annually to 297 million, and 89% of those users accessed the service from mobile devices. Its daily active users (DAUs) rose 32% to 132 million. By comparison, Twitter's MAUs only rose 3% to 317 million last quarter, and its DAUs grew just 7%.

At this rate, Weibo will easily eclipse Twitter in the near future. Weibo still has plenty of room to grow -- China has an internet penetration rate of just 52%, compared to a penetration rate of 89% in the U.S. Furthermore, the ongoing Chinese ban on Twitter, Facebook, and other foreign social networking platforms will help Weibo remain one of the country's top social networking platforms for the foreseeable future.

3. Smart growth strategies

Weibo's rapid user growth can be attributed to the fact that it's continuously evolved its platform. Like Twitter, Weibo initially lured top celebrities and companies to its platform, which brought plenty of followers. But instead of sticking with Twitter's format of restrictive tweets, Weibo ditched its 140-character limit last January and added new mobile, video, social gaming, and chat functions, which made it much more similar to Facebook.

By building better communication channels between users, Weibo avoided Twitter's fate of becoming a one-way digital soapbox for celebrities and companies. Weibo also launched a live streaming app similar to Twitter's Periscope, but the oddly successful twist is that viewers can buy virtual gifts (from Weibo) for their favorite broadcasters.

Abstract depiction of social media and networking.

Image source: Getty Images.

4. Robust revenue growth

Weibo's revenue rose 42% annually to $176.9 million last quarter. Advertising and marketing revenues rose 48% to $156.7 million, while Value-Added Services revenue (from virtual gifts, gaming, payments, and other features) grew 7% to $20.2 million.

Weibo attributes much of its advertising growth to its growing user base and its new advertising tools for small and medium-sized businesses. That growth probably won't slow down anytime soon -- analysts expect Weibo's revenue to rise 36% this year and accelerate to 44% growth next year.

5. Stable profit growth

Unlike Twitter, which is only profitable on a non-GAAP basis, Weibo is profitable by both GAAP and non-GAAP metrics. That's because Weibo generates much stronger revenue growth and spent just 6% of that revenue on stock-based compensation expenses last quarter. Those expenses, which are much higher in the San Francisco Bay Area, gobbled up 26% of Twitter's revenues in its most recent quarter.

As a result, Weibo's non-GAAP net income rose 147% to $54.6 million last quarter, its GAAP net income increased 122% to $32.1 million, and its adjusted EBITDA surged 117% to $57.7 million. Analysts expect Weibo's non-GAAP earnings to rise 138% this year and 66% next year. Based on those figures, Weibo's trailing P/E of 128 and forward P/E of 39 don't look terribly expensive.

But mind the risks...

Weibo looks like a solid growth stock, but investors should also be well aware of the risks. Weibo currently self-censors its content, but Chinese regulators could enforce stricter censorship laws or clamp down on the site -- as they once did to its former parent company, Sina.

Tencent's WeChat, the most popular messaging app in the country, could also hurt Weibo by expanding its ecosystem via its monolithic app -- similar to Facebook's approach with Messenger. Lastly, a slowdown in the Chinese economy could throttle Weibo's advertising revenue growth. Therefore, I've started a small position in Weibo for now, and I'll wait to see how those situations play out before adding any more shares.

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