Sina, one of the largest Chinese online media company, has kept a relative steady growth since last year. The company’s profit increased from 2.4 million dollars, or 3 cents a share to 44.5 million dollars, or 59 cents a share, compared to last year’s performance. The net revenue even increased 43% to 197 million dollars. Among all its businesses, Sina Weibo, a Chinese micro blogging website that acts like the combination of Twitter and Facebook, has earned the most profit for the company. The Weibo’s advertising revenue achieved 56 million dollars in the fourth-quarter, which has tripled the year-earlier period. “The strong performance of Weibo’s advertising and value-added services in the fourth quarter allowed us to end 2013 with strong top line and bottom line growth,” said Chairman Charles Chao.
Right now, Sina listed on the NASDAQ market since April 2000 is planning to raise 500 million dollars for Weibo’s initial public offering. The company has hired Credit Suisse and Goldman Sachs to prepare the U.S. listing. However, whether Weibo’s IPO could make more money for Sina is a good question.
One of the potential risk for Weibo’s IPO is its component WeChat from Tencent. WeChat is an instant messaging app that recently places more and more pressure on Weibo. The new rival that provides convenient and private chatting and photo-sharing among small circles of friends was initially designed to complement the market dominated by Weibo. However, more and more user start to realized the advantages of sharing information within a small and safe range. Also, information on WeChat spreads at a much slow speed, which makes user easy to control the information. It becomes clear that people spend less time on Weibo because of the widespread of WeChat. “The ground for public opinion has begun to shift toward WeChat, ” said Luo Changping, an investigative journalist.
Moreover, another risk that could highly influence the future of Weibo is government censorship. Since last year, the government has started a so-called antirumor campaign to prevent the spread of false information. One of the most important features of this campaign is the emphasis on high-profile users. According to Wall Street Journal, the authorities detained several high-profile social-media figures, sent out warning to common users and modified laws to regulate the online activities. People realized that the government not only wants to stop the false information but also wants to stabilize the social order after witnessing the detention of high-profile users who are famous for criticizing social problems. The campaign is very effective because other high-profile users started to watch their posts and even show regrets for their previous views. Obviously, the spread of the fear has scared off many users and turned Weibo into a forum full of advertisements, celebrity gossips and travel logs.
Also, the timing for Weibo’s IPO could be essential. We are not clear about when Weibo will go public, but it needs to choose a right time. The IPOs of Twitter and Facebook should be perfect cases for Sina to study. When Twitter went public in November 2013, the market was in a good shape. The S&P 500 has set a series of high records and the demand for IPOs were strong. According to Wall Street Journal, six companies had more than doubled on their first day of trading and the average one-day increase for listed IPOs is 17%. However, when Facebook went public the market was not stable. The concerns of Europe greatly influenced the market and therefore the demand for IPOs was also negatively affected.
After reading A Random Walk Down Wall Street, we can also use the firm-foundation theory or the castle-in-the-air theory to analyze the possible value of the stocks of Weibo. According to the book, the firm-foundation theory could be used to evaluate a stock if we have information about its present dividends and rate of growth because every stock has an intrinsic value, which combines both present conditions and future prospects. The key of this investment theory is to compare the actual price with its firm foundation of value. Since Weibo is still not a public stock and we cannot observe its present value, we can only focus our attention on the value of Weibo itself. The prospect of Weibo seems promising. According to Charles Chao, the chairman of Sina, Weibo achieved an operating profit of more than 3 million dallors in the fourth quarter with 44.5 millions earned from advertisement. The success of Weibo raised Sina’s profit to 44.5 million dollars from 2.4 million dollars a year ago. However, we still have some concerns about the future of Weibo given the potential risks I mentioned above. Therefore, investors might want to find a way to bypass the trouble of corporate evaluation and use the castle-in-the-air theory to analyze the IPO. If we use psychological principles rather than financial evaluation, we might know if Weibo could be a big favor for major investors. To understand the trend we could use the example of Twitter because it is similar to Weibo in many ways. I think the large market and the huge success of the IPO of Twitter that generated nearly twice much revenue that in the first nine months of 2013 could establish investors’ faith in Weibo’s IPO. Therefore, no matter what method we use to analyze, the coming IPO of Weibo is likely to be a success.
Although supports form Alibaba Group, e-commerce giant, contributed to the stability of Weibo, there are many factors such as market completion from WeChat and the timing of going public that could greatly affect the result of Weibo’s IPO.