Weibo’s Worth Is Hard to Pin Down

Weibo’s Worth Is Hard to Pin Down

AARON BACK

March 17, 2014 9:03 a.m. ET

Is Weibo worth more than investors think? That is the case that Sina must make to justify a spinoff of China’s Twitter TWTR +0.25% -like microblog.

Sina is already publicly listed and its stake in Weibo makes up the bulk of its market value. So management must believe Weibo is undervalued by the market, and that a listing can unlock value.

Last April, e-commerce giant Alibaba bought an 18% stake in Weibo, in a deal valuing it at $3.26 billion. Assuming that Weibo makes up a constant proportion of Sina’s market capitalization, reasonable since its legacy Internet portal business has also continued to grow, Sina’s current share price suggests the market values Weibo at around $3.7 billion. But it was recently even higher. At their height, before suffering a sharp correction in January, Sina shares implied a value of around $5.3 billion for Weibo.

That is nearer the bullish side of things. Barclays BARC.LN -0.04% figured before the pre-IPO filing came out that Weibo was worth $5.8 billion, based on fairly aggressive assumptions. Barclays projected that Weibo, which was loss-making in 2013 and had $188 million of revenue, will post $192 million in profits in 2015, and valued it at 30 times those earnings. Barclays also estimated that Weibo had 191 million monthly active users, but the filing reveals that Weibo had just 129 million at the end of December.

This being a social-media stock, there is always an alternate-reality comparison to apply. Twitter’s current valuation of $127 per user would suggest that Weibo is worth $16.4 billion.

Whatever an investor’s starting point for Weibo, a discount for Chinese regulatory risks would be smart. In the third quarter of last year, for instance, a crackdown on politically outspoken bloggers slowed user growth to a crawl. Last week, rival Tencent‘s0700.HK +3.66% WeChat messaging platform deleted dozens of accounts carrying political content. That, plus a surprise curbing of online payments by the central bank, sent Tencent shares down 7% the last two days.

Sina shares have been on a roller-coaster ride for the past year, suggesting investors are struggling to get a grip on Weibo’s worth. Management better hope the ride ends smoothly.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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