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Why Weibo Stock Fell 43.5% in 2018

By Keith Noonan – Updated Apr 18, 2019 at 11:34AM

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The stock's history has been characterized by big swings, but shares are still up big over the last several years.

What happened

Shares of Weibo (WB 0.10%) sank 43.5% in 2018, according to data from S&P Global Market Intelligence. The social media stock posted huge gains in 2017, but it lost ground last year due to slowing sales and earnings growth and a broader sell-off for the Chinese tech sector.

Check out the latest Weibo earnings call transcript.

CQQQ Chart

CQQQ data by YCharts.

The Invesco China Technology ETF (which bundles 71 different stocks and is a good benchmark for the Chinese tech sector) lost more than a third of its value across 2018. And Weibo's growth-dependent valuation set it up to underperform the sector as investors sought to minimize their risk exposure. However, despite the big sell-offs, Weibo stock is still up roughly 230% over the last three years. 

A person using a mobile phone.

Image source: Getty Images.

So what

Weibo stock climbed more than 150% in 2017 thanks to strong sales and earnings growth, so it's not surprising that the stock was hit hard last year when top- and bottom-line momentum slowed and the market environment turned harshly bearish on Chinese tech stocks. Moves by China's government to regulate the social media space also reinforced the notion that there could be persistent and unpredictable business roadblocks. And along with slowing economic growth and trade tensions with the U.S., investors sold out of China-based internet stocks that weren't delivering growth that was significantly ahead of expectations.

Now what

Weibo stock has continued to decline early in 2019 despite positive momentum for Chinese tech stocks. The company's shares are down roughly 7.1% in the month so far.

CQQQ Chart

CQQQ data by YCharts.

Weibo shares now trade at roughly 16.5 times this year's expected earnings, a level that could pique the interest of growth-focused investors, as the company is still posting impressive sales and earnings expansion. Sales climbed 44% year over year in its last reported quarter, and adjusted earnings per share rose roughly 49%. That's strong performance relative to the company's valuation, and even if growth is slower than what the company was posting a year ago, investors with high risk tolerance could have an opportunity with Weibo stock.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.

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