Chinese social media operator Weibo (NASDAQ:WB) reported third-quarter results early Wednesday morning. The so-called Twitter of China added 15 million monthly active users (MAUs) in the last three months, driving top-line sales 44% above the year-ago period's results, while earnings jumped 62% higher.

Weibo's third-quarter results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

Revenue

$460 million

$320 million

44%

Net income attributable to Weibo

$165 million

$101 million

63%

GAAP earnings per share (diluted)

$0.73

$0.45

62%

Data source: Weibo.

What happened with Weibo this quarter?

  • Weibo reported 445 million MAUs in the third quarter, 3% above the second-quarter tally and an 18% increase over the third quarter of 2017.
  • Average daily active users, or DAUs, clocked in at 195 million. That's a 5 million quarter-over-quarter increase and a 30 million year-over-year jump.
  • The company fell short of its own revenue guidance, which pointed to roughly $470 million.
  • Top customer Alibaba (NYSE:BABA) tapped the brakes on its Weibo-hosted ad spending, raising that budget by 13% to $28.5 million. Alibaba accounted for 6% of Weibo's total third-quarter sales, down from 7% in the second quarter and 8% in the year-ago report.
  • The bottom line was boosted by a $32 million increase (after tax) in the fair value of Weibo's long-term investments, mostly consisting of direct and indirect investments in private and public high-technology companies in China.
Two young Asian women smile over a shared smartphone.

Image source: Getty Images.

What management had to say

In the earnings call, Weibo CEO Gaofei Wang added some color to the quarter's soft revenue growth:

"We see that organic growth of the mobile Internet user is slowing down and the short video industry is becoming increasingly competitive," Wang said. "These factors have put some pressure on the growth rate of the user scale and the user engagement in the first half of 2018."

Weibo is facing these challenges by tweaking its content recommendation algorithm to improve the service's value as a distributor of trending data points. The company is quick to reach out and encourage leading user accounts to boost their posting volumes when there's a newsworthy event. Along with the technical tweaks to Weibo's sharing and chatting platforms, these efforts are making a big difference.

"These upgrades have encouraged more users to discover, consume, distribute, and participate in the discussion of the trends, which in return has allowed us to effectively acquire more users and promote user engagement," Wang said. "Notably, in Q3, the number of trends increased by triple digits sequentially and top content creators post around trends increased by double-digits on a quarter-on-quarter basis."

Looking ahead

Weibo expects net revenues in the neighborhood of $485 million in the third quarter, roughly 37% above the same period in 2017 as measured in local currencies. This guidance assumes a flat currency-exchange rate of 7.00 Chinese renminbi per U.S. dollar. Sales growth is slowing down due to the uncertain state of the Chinese and global economies, and regulatory pressure on Weibo's online gaming operations presents another challenge.

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