Shares of Weibo jumped 19% in its trading debut at Nasdaq this Thursday. The company ended the first day at $20.24, a significant rehearsal of the lackluster initial pricing of $17, which was at the bottom line of the projected range of $17 to $19.
So what exactly is Weibo? It is an affiliate of the Internet giant Sina Corp. and one of the most popular social-media sites in China. People can publish posts, comment on others’, and discuss over hot topics on its platform. Considering the fact that a great many celebrities are active users of Weibo and have thousands of millions followers, it is widely acknowledged as the Chinese version of Twitter.
China has the largest number of internet users of around 570 million (42% of the entire population) in the world, and Weibo said that it had grown to 144 million of monthly active user as of March. The company reported a net profit of $3.38 last year with sales of $188 million, against $38 million in losses. In addition, its revenue in the first-quarter this year grew 161% from a year earlier, reaching $67.5 million.
In spite of the brilliant achievement, I think the company still has to face three main challenges for sustainable growth.
First, the model of profitability is yet to stabilize. Like other major social-media sites, Weibo has obtained a broad user base but is still struggling to be profitable. An interesting fact is that many small and medium businesses have been taking advantage of the platform for effective advertising and revenue growth, but the platform itself is cautious when rolling out advertisements on concern that users will be annoyed and abandon its services.
Second, the level of user activity is yet to stimulate. The number of 144 million active users is a little bit inflated because the measure includes everyone who has “logged in and accessed Weibo” during a given month. According to a research at the University of Hong Kong, only 40% of those “active” users actually publish posts and 5% of them—roughly 10 million users—contribute to 95% of the posts on the platform.
Third, it also has to deal with political pressure from government regulation. The censorship somewhat refrains the level of discussions on the platform and even poses potential shutdown risk. So a smart balance between dynamic posts and government commands is certainly a continuous task on the senior management’s top list.
In conclusion, I am bullish about Weibo’s future because of its increasing influence on ordinary Chinese people’s lives, as well as the emerging collaboration with Alibaba, through which Alibaba merchants will be allowed to advertise to Weibo users.