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Why Weibo Is Plunging Again Today

By Zhiyuan Sun – Aug 17, 2021 at 4:13PM

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Things are not well for this Chinese social media behemoth.

What happened 

As of 2:30 p.m. EDT today, Weibo (WB -4.63%) stock was down 7.9% to $46.76 apiece. Shares have lost 23% of their value in the past month. Earlier today, Chinese financial regulators proposed legislation specifically aimed at curbing the growth of tech monopolies. Among many things, it tightens the grip on platforms harvesting user data for marketing purposes -- which could deal a serious blow to their advertising revenue. 

So what 

Weibo is one of the monopolies that will be directly affected by the proposal. During its latest update in the first quarter, the company disclosed that it had 530 million monthly active users on its platform. In addition, the vast majority of its revenue, about $453.5 million out of $513.4 million in Q4 2020, came from advertising. 

Person looking at phone while seated in workshop.

Image source: Getty Images.

Now what 

Weibo stock is very cheap right now -- at just 34 times earnings -- due to its heavy sell-off, and that's because its bottom line could fall off a cliff in the near future. If that weren't bad enough, the Chinese Communist Party is on a path to establishing direct control over tech entities. Recently the central government in Beijing opened a 1% stake in Weibo. There are only three seats on Weibo's board of directors, and the CCP has the authority to appoint one of its representatives.

The primary goal of the CCP is its political survival and not so much about taking care of Weibo's shareholders. For example, last year, the government took the app offline for a week due to loopholes in its censorship infrastructure -- seriously hurting its revenue. For these reasons, it is a tech stock to stay well away from.

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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