What drove Weibo’s operating margins?
Weibo’s (WB) operating expenses increased by 15% and 49% in 2016 and 2017, respectively. The expenses amounted to $343.6 million and $511.2 million, respectively. Higher sales and marketing expenses, product development expenses, and general and administrative expenses translated into higher operating expenses. On the brighter side, the expenses as a percentage of revenue (or operating expense margin) have fallen from 62% in 2015 to 44% in 2017.
Weibo’s improved gross profit and operating expenses led to growth of 276% and 189% in income of operations for 2016 and 2017, respectively. The company posted income from operations of $141 million and $407.6 million in 2016 and 2017, respectively. The operating margin expanded from 8% in 2015 to 35% in 2017. Both the increase in gross margin and a decrease in operating cost margin drove the operating margin. The company saw significant investment impairment in 2016. However, higher investment and other income offset the impact of investment impairment in 2017.
How do peers’ operating margins look?
Weibo’s peers recorded a decline in operating expense margin for fiscal 2017 or the comparable period. However, the operating margin also decreased for its peers with the exception of Baidu (BIDU) and Facebook. Tencent’s (TCEHY) operating expense as a percentage of revenue (or operating expense margin) decreased from 23% in 2016 to 21% in 2017, while operating margin fell from 33% to 28% in those years. Alibaba’s (BABA) operating expense margin reduced from 32% in March 31, 2017, to 29% in the year ended March 31, 2018. The operating margin declined from 30% to 28% in those years.
Baidu’s operating expense margin declined from 36% in 2016 to 31% in 2017. The decline translated into an increase in operating margin from 14% to 19% in those years. NetEase’s (NTES) operating expense margin rose slightly from 24% in 2016 to 25% in 2017. The operating margin declined from 33% to 22% in those years. Facebook’s (FB) operating expense margin decreased from 41% in 2016 to 37% in 2017. The operating margin rose from 45% to 50% in those years.