Chinese social media giant Weibo (NASDAQ:WB) reported second-quarter results early Wednesday morning, and the news was upbeat: Users are flocking to its social networks to the tune of a 19% year-over-year increase.

Weibo's second-quarter results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$427 million

$253 million

68%

Net Income Attributable to Weibo

$141 million

$74 million

92%

GAAP Earnings per share (diluted)

$0.62

$0.33

88%

Data source: Weibo.

What happened with Weibo this quarter?

  • Weibo added 20 million monthly active users (MAUs) during the second quarter, adding up to 70 million new users over the last year. The total MAU count now stands at 431 million, roughly 19% above the same period in 2017.
  • The number of daily active users (DAUs) grew by 6 million during this period, landing at 190 million total DAUs. That's a year-over-year increase of 31 million or 19%.
  • These revenues landed near the midpoint of Weibo's guidance for the second quarter, which called for sales of roughly $425 million.
  • Top advertising customer Alibaba (NYSE:BABA) increased its Weibo ad spending by 137% year over year, contributing $31.3 million to the company's top line in this quarter. The partnership between two of China's largest online businesses is growing closer in a hurry.
  • New accounting guidelines moved some of Weibo's self-promotion through its own advertising platforms down from the cost of revenues to sales and marketing expenses. As a result, gross margins increased from 80% in the year-ago period to 85.5%, and the marketing budget skyrocketed 136% higher. At the end of the day, these shifting sands canceled each other out; Weibo's operating margin expanded by a modest 1.6% to 36.3%.
Weibo's corporate logo, showing a highly stylized red bird tweeting out a message in orange sound waves.

Image source: Weibo.

What management had to say

In an earnings call with analysts, Weibo CEO Gaofei Wang doubled down on the company's commitment to the mobile user experience.

"In June, 93% of Weibo's MAU were from mobile," Wang said. "With the recent FIFA World Cup and other events, Weibo has once again achieved strong user growth and user engagement this quarter, leveraging our enhanced offering, consistent user engagement, and content distribution, as well as our insights into the market opportunity."

This effort includes a growing platform for short, user-generated videos, as well as a meatier service for professionally produced video content -- with full support for mobile viewing in both cases.

The company is also getting some traction for a lower-end social platform intended for less-capable smartphones.

"The number of users on Weibo Lite, which mainly targets mobile users who own relatively low-end smartphones, rose sharply," Wang said. "In June, MAUs for Weibo Lite had a triple-digit sequential increase."

Looking ahead

Weibo expects net revenues in the neighborhood of $470 million in the third quarter, roughly 50% above the same period in 2017. This guidance assumes a flat currency-exchange rate of 6.80 renminbi per U.S. dollar. The updated accounting rules will also continue to move costs of revenue down to the operating section of the income statement, resulting in significant year-over-year changes to Weibo's gross margins and marketing expenses for a couple more quarters.

Anders Bylund owns shares of Alibaba Group Holding. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.