Here's How Weibo Corp. Tripled Its Bottom-Line Profits in the Second Quarter

China-based microblogging specialist Weibo (WB +0.00%) recently reported results for the second quarter of fiscal year 2017. The Twitter-like service, formerly a division of Chinese telecom Sina, delivered impressive growth in both revenue and earnings.

Weibo's second-quarter results: The raw numbers

Data source: Weibo.

What happened with Weibo this quarter?

• Weibo's second-quarter growth included a 72% revenue jump in advertising and marketing sales, landing at $218 million. Other revenues rose 78% to $35 million.
• Operating expenses increased by 38%, led by an 84% increase in sales and marketing costs. Thanks to this fiscal discipline, operating profits rose faster than revenues. Weibo's operating margin was 34.7% in the second quarter, up from 11% in the year-ago period.
• Paid-membership fees, which fall under Weibo's "other revenues" division, doubled year over year. Notably, 70 million Weibo users have activated their Weibo Wallet mobile-payment accounts.
• The number of monthly active users, or MAUs, rose 28% to 361 million. The microblogging service's daily active user count rose 26%, stopping at 159 million.

Management set up the goalposts for third-quarter revenue at $290 million and $300 million. At the midpoint of that range, sales will have increased by 67% over the third quarter of 2016.

Image source: Weibo.

What management had to say

"By deepening the strategic cooperation with our key domestic smartphone manufacturers, whose market shares are rising, Weibo has maintained strong mobile user growth," said Weibo CEO Gaofei Wang in a conference call with analysts, according to a transcript prepared by Seeking Alpha. "In June, our mobile MAUs from domestic smartphones grew 74% year-over-year."

Among other domestic phone brands, the number of MAUs accessing the service from a Huawei smartphone increased 90% year over year, while OPPO-based MAU counts rose by 130%.

Looking ahead

Beyond basic microblogging services, Weibo sees a bright future in mobile video viewing.

The company has launched video partnerships with several of China's largest video content providers, and viewership of Weibo-hosted video clips increased fivefold in the second quarter. On the content-creation side of that opportunity, Weibo recently launched a video editing and publishing platform to streamline the video-posting process. For end users, Weibo's video recommendation algorithms are using artificial intelligence tools.

Meanwhile, the partnerships with smartphone manufacturers should continue to drive Weibo's user numbers higher. The phone makers like to name-drop Weibo into their marketing messages, as the service is becoming a staple of mobile life in China. Weibo's management expects this effect to be particularly helpful in smaller cities, where Weibo hasn't quite hit the cultural mainstream yet.