Social media is making its presence in felt in the financial world, with major household names like Facebook (FB) and Twitter (TWTR) already established as publicly-traded companies in the space.
Not only are their stocks trading at high valuations, these companies have gone on an acquisition spree to widen their user bases and monetize them.
Now Weibo, a microblogging service 71% owned by Sina Corp (SINA), is planning an initial public offering in New York. According to industry sources, Sina has hired Goldman Sachs and Credit Suisse to spin off the Twitter-like service, and intends to raise around $500 million in a public offering scheduled for the second quarter.
Sina Corp is an online media company based in China, which offers internet services to Chinese users across the globe. Its website is like Yahoo’s (YHOO): it offers news in almost every category, including sports, entertainment, technology etc.
Sina Weibo was launched in 2009 when Sina Corp CEO Charles Chao took the opportunity to exploit a vacant space even as microblogging services were shut down in China following riots in the country. Not only Chinese portals, foreign social media services like Facebook and Twitter were also blocked following the protests. Now, just as the noun Google has become synonymous with search, the Weibo name is synonymous with microblogging: other companies have also launched similar offerings. Imitators include Tencent Weibo and Sohu Weibo.
By December 2013, Weibo had 61.4 million daily active users, compared to 60 million at the end of September 2013. The total number of monthly active users is not known, but analysts estimate it to be around 180 to 195 million.
News of Weibo's IPO is being weighed with the company’s profitability. The platform earned $3 million in profits on ad revenues of $56 million in the fourth quarter of 2013.
Weibo has had an established user base since its launch, but its monetization had been lackluster until Alibaba bought a stake in the company. The Chinese ecommerce giant proceeded to integrate Alipay, a payment platform, into Weibo, allowing merchants to post ads on the social network. With Alibaba’s continued backing, monetization is expected to continue improving moving forward.
Alibaba had acquired 18% of Weibo for $586 million in April 2013 as a means to expand its mobile offerings. That deal valued Weibo at $3.3 billion. If calculated using Facebook and Twitter’s per user value of $142 and $126, Weibo's valuation should currently be around $7.5 to $8 billion.
If Weibo goes public, Alibaba is expected to raise its stake in the company to 30%. Alibaba itself will also go public this year.
Social media stocks have recently become an investor favorite, especially since Facebook released better-than-expected earnings results and acquired WhatsApp for $19 billion. However, concerns regarding user base growth rates and monetization have continued to hound investors.
Twitter, which raised $2.1 billion when it went public in November 2013, reported fourth quarter (4Q) fiscal ’13 (FY13) earnings on February 5. The company beat earnings estimates and guided revenues higher, but investors turned very bearish due to the reported slowdown in its user growth. Twitter users increased only 4% in the quarter, compared to 6% in 3QFY13.
These trends indicate that investors are more concerned about user growth and user monetization than any other factor.
Weibo has faced a similar slowdown in user growth, but due to Chinese censorship and the growing shift to chat apps. The Chinese government has reported that microblogging usage declined around 9% in 2013. Meanwhile, WeChat, a Chinese WhatsApp-like chat service owned by Tencent Holdings (TCEHY), has posed stiff competition for the company. The app has around 272 million monthly active users.
Weibo CEO Chao has moved to allay concerns, saying Weibo has continued experiencing moderate user growth, and the time spent on Weibo has increased 16% from December 2012 to December 2013.
With the backing of ecommerce giant Alibaba, Weibo is expected to continue increasing revenues by monetizing more effectively in the future. The ‘Alibaba effect’ has buoyed Yahoo’s valuations too. Yahoo, which has a 24% stake in Alibaba, has seen its valuation climb as Alibaba moves closer to a public listing expected to value it at more than $100 billion.
It seems that Weibo has chosen the right time to go public. With Alibaba on board, it may just be able to achieve a valuation in line with other social media companies; especially as investor confidence is also riding high.