Morgan Stanley Positive On Weibo, Sees Social Media Advertising Picking Up

• Weibo Corp (ADR) WB shares were volatile in 2015 and are down 19 percent in January 2016.
• Morgan Stanley’s Claire Cao maintained an Overweight rating for the company.
• Increased adoption of SNS, rising market concentration and higher social advertising budgets are likely to benefit Chinese social platforms like Weibo, Cao believes.

Analyst Claire Cao mentioned that social advertising is set to take off in the coming years. Social ads are set to grow from the current 4 percent of online ads in China to 11 percent by 2018.

An increasing shift in ad budgets by brands towards social media platforms is expected to result in the segment growing at a CAGR of 83 percent from 2014-2017. “As brand advertisers typically follow consumer eyeballs, we expect the leading social players to benefit the most from the boom of social advertising in the coming year,” Cao wrote.

The boom in the “Fans Economy” is expected to continue, as social platforms provide key opinion leaders [KOLs] with low-cost channels to expand their fan following. “The decentralization of the media channel will likely nurture an increasingly long-tail trend of advertising revenue as more and more KOLs monetize their fan bases on the platforms,” the Morgan Stanley report noted.

Weibo appears poised to benefit in 2016 from faster-than-expected user engagement improvement, robust video ad revenues and better-than-expected KA revenue. Weibo’s stock is currently trading at a discount to domestic and global peers, and a renegotiation of the company’s contract with Alibaba may pose some risk, Cao commented.