How Much Is China’s Sina Weibo Worth? Should It Be Compared To Twitter?

04-Mar-2011

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How Much Is China’s Sina Weibo Worth? Should It Be Compared To Twitter?

Mar. 4 2011 – 6:28 am | 4,843 views | 0 recommendations | 0 comments
By GADY EPSTEIN
Charles Chao - World Economic Forum Annual Mee... Chao: Weibo is Sina’s future. Image by World Economic Forum via Flickr

Putting a price on Twitter or Facebook, both privately held companies, is hard, with big investment funds bidding in an opaque, not-so-liquid market on a limited number of shares.

You might think that placing a value on Sina Weibo, China’s Twitter with Facebook characteristics, would be easier: It is part of a public company, its financials open for all to examine. But this has actually muddied matters, for Sina Corp., a I wrote in this month’s Forbes Asia cover story, is a company in the throes of transition, from a traditional Web 1.0 portal for news and information to a social networking service, with Weibo and its more than 100 million users as the centerpiece.

To calculate Weibo’s value, you have to assess first whether this strategy will be successful long-term; I think it will, as China is in a very advertising-heavy brand-building phase with a potentially outsized e-commerce market, and the momentum for both brand-building and e-commerce ad dollars is in the direction of social networks.

Then you have to figure out what lessons you can draw from Twitter and Facebook’s valuations for comparison to what is a smaller overall market — the Chinese market versus the global non-China market — that will have multiple winners, not just Weibo. On the secondary-market site Sharespost, Twitter is valued at $4.3 billion and Facebook at $52 billion, but Twitter’s value may well rise in the years ahead as it proves it can make money.

By comparison to Twitter, which is already monetizing, Sina Weibo looks to have a shot at monetizing more effectively because it offers a more interactive experience (to see what I mean, take a look at this useful guide to Weibo by China blogger Bill Bishop). And if there is one thing Sina already knows how to do as a company, it is sell online ads in China; it needs to readjust that to selling on Weibo, but the relationships the company has built, plus Weibo’s market dominance, puts the company in a good position to do that.

Again, Twitter is working off of a much larger denominator, the global non-China pie (Twitter is blocked in China), and Twitter looks to be the only winner in the microblog space outside China, so Twitter will be worth more, no doubt. Weibo has to worry about its social media ad revenue being nipped at by a lot of other would-be domestic rivals in a market that is crowded with microblogs including Tencent’s and Sohu’s versions, Facebook clones like Renren (soon to IPO in the U.S.) and online video companies like Youku.com, Tudou, PPLive and others. But Weibo’s platform, richer in user experience than Twitter’s, gives it a chance of monetizing in some Facebook-like ways that should help it get a decent portion of China advertising budgets, so that may narrow the gap somewhat between Weibo and Twitter.

Does this line of reasoning lead us to a clear answer? No, and the same goes for the many analysts who are paid specifically to make such educated guesses. Research notes on Weibo are all over the place, especially since Sina is taking a short-term hit to earnings to invest more in Weibo, and Weibo hasn’t earned any money yet.

CEO Charles Chao has staked his company’s future on Weibo — I think that’s clearly the right choice, probably saving Sina from eventual obsolescence if he had not done so, and many analysts agree on that much. What they disagree on is how the high the upside is. Their valuations on Weibo, whether implicit or explicit, have ranged from maybe as low as $1 billion to as high as $3 billion, possibly more. The reason this is unclear is the value of Weibo can’t be divorced from the value of Sina (currently near $5 billion) — long-term, Weibo will the value of Sina,.

At the most pessimistic, bearish end is a Deutsche Bank analysis late last month recommending selling Sina with a target price of $58 (Sina closed at $79.25 yesterday on Nasdaq). The bank’s initial research note with this target discussed political risk of a Weibo shutdown or curtailing of service, a risk that I believe is overstated (see this succinct post for why); Deutsche Bank’s new follow-up note emphasizes the risks posed by intense competition.

Goldman Sachs is not so pessimistic, but did lower its price target to $78, near where Sina is at now, in its comments after this week’s earnings announcement. The bank’s reasoning, however, is based on near-term valuation due to the fact that Sina’s profit margins will be under pressure while the company repositions itself.

I agree with those analysts who take the long view and see Sina in the midst of a multi-year campaign. Chao smartly wants to expand his user base, much as social networking behemoth Tencent did for years with its instant messaging service before earning a dime of profit.

Susquehanna International Group’s Zhao Chunming, a respected analyst covering China tech companies, holds this view, and this week raised SIG’s price target for Sina from $89 to $99, predicting Weibo will have 200 million users by the end of this year. Stifel, Nicolaus & Co. similarly priced Sina at $100 a share. China International Capital Corp., saying this is “only the beginning” for Weibo, looked out further ahead, putting a one-year target on the stock of $104 and a three-year target of $201. That would make Sina a $12 billion company, driven by Weibo.

The upside could be higher than that. If Weibo wins big, it could launch Sina into China’s top tier of Internet companies one day, alongside Tencent, Alibaba and Baidu.

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