Earnings: Trina firmly in black, Weibo stuck in red
The outlook for Weibo and Trina will remain cloudy until the former can post a profit and diversify its revenue, and the latter can post strong consistent profit and sales growth
Investors were clearly focused on the bottom line in the newly released earnings for solar panel maker Trina (NYSE: TSL) and leading microblogging site Weibo (Nasdaq: WB), which are both trying hard to show they can post consistent profits on a long-term basis. For Trina the news was strong, as the company posted its third consecutive quarterly profit after several years of losses during a prolonged sector downturn. The prognosis was less stellar for Weibo, which posted a loss for the period even though the figure showed positive trends.
As I often do with earnings stories, it's helpful to look at the share price reaction to these two companies' latest reports, which shows how investors feel about the news. Trina's case was by far the most extreme, igniting a rally not only for the company's own shares but also for the entire solar panel sector.
When the trading session was over, Trina's shares had soared a whopping 31 per cent. It's worth noting that even after the rally, the shares are still down 25 per cent from a peak reached just two months ago, reflecting a broader correction for solar shares following a rapid run-up over the previous year. Other solar shares also rallied, with Yingli (NYSE: YGE) and ReneSola (NSYE: SOL) both up 10 per cent or more, while JA Solar (Nasdaq: JASO) and Canadian Solar (Nasdaq: CSIQ) also jumped by 5-7 per cent.
Weibo's shares moved in the opposite direction after its results came out, shedding 6.2 per cent in after-hours trade. But even at that after-hours price of around $19 (HK$147), they are still solidly ahead of the $17 offering price from their highly-anticipated but bumpy IPO last month. Let's start with a closer look at Weibo, which like its parent Sina (Nasdaq: SINA), is relatively easy to understand because of its heavy dependence on advertising revenue.
In its first earnings report since its IPO, Weibo said its revenue totaled $67.5 million during the first quarter, up a sizable 161 per cent. That's not too hard to believe since the total number is still relatively small. Advertising and marketing revenue accounted for the lion's share of that bigger figure, rising a similar 176 per cent to $51.9 million. The company's operating loss, which excludes a big one-time item, shrank by about half to $8.1 million.
Weibo said it expects revenue to reach $74-$76 million in the current quarter, though that number is hard to assess since we don't have year-ago figures. From my perspective, the 2 main factors to watch for Weibo will be its ability to diversify beyond advertising revenues, and how quickly it can become sustainably profitable. If it can achieve its first operating profits by the end of this year and get a third or more of its revenue from non-advertising sources by then, I would say the future looks good and the stock could have some solid upside.
Meantime, the big surprises in Trina's results are clearly the healthy profit the company posted in the first quarter, and also its strong outlook for the current quarter. Trina actually posted a sharp drop in revenue on a sequential basis in the first quarter, which it had previously warned of, citing a delay in some shipments while final details were being worked on to resolve a trade dispute with the European Union. That earlier warning helped to fuel the earlier sell-off last month.
But in its latest report, Trina posted a strong $26.5 million net profit, up 73 per cent from the fourth quarter and its third consecutive profit. The company also forecast strong second-quarter shipments of 950-1,010 megawatts of panels, which would be nearly double its first-quarter figure. The strong stock rise seems to show that shareholders are starting to forgive the company for its earlier revenue warning. But that said, I expect the road ahead will be bumpy for the rest of the year until Trina and its peers can show they are on a long-term upward track.
Bottom line: The outlook for Weibo and Trina will remain cloudy until the former can post a profit and diversify its revenue, and the latter can post strong consistent profit and sales growth.
To read more commentaries from Doug Young, visit youngchinabiz.com