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Summary

  • Leading Chinese social media platform.
  • 2013 revenue was up 186% to $188 million - 26% from Alibaba - with a $60 million loss.
  • Operating income, however, was 2% of revenue for the December '13 quarter.

Based in Haidian District, Beijing, Weibo (NASDAQ:WB) scheduled a $360 million IPO on the Nasdaq with a market capitalization of $1.58 billion at a price range midpoint of $18 for Thursday, April 17, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Goldman Sachs (Asia), Credit Suisse, Morgan Stanley, Piper Jaffray, China Renaissance

Co-Managers: None

End of lockup (180 days): Tuesday, October 14, 2014

End of 25-day quiet period: Monday, May 12, 2014

ALIBABA And SINA

Sina (NASDAQ:SINA), market cap of $3.68 billion, owns 77% of WB pre-IPO.

Allibaba: Ali WB, a wholly owned subsidiary of Alibaba (ABABA), already owns 19% of WB pre-IPO. Ali WB has agreed to purchase 3,023,996 ADSs at the initial public offering price.

At the midpoint of the current price range ($18), the aggregate purchase price would be $54.4 million, or 15% of the IPO.

Summary
WB is a leading Chinese social media platform. 2013 revenue was up 186% to $188 million - 26% from Alibaba - with a $60 million loss.

Operating income, however, was 2% of revenue for the December '13 quarter. Note that almost all consumer Chinese companies have lower results in March quarters due to the Chinese New Year, usually in early February.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec qtr

Cap (MM)

Sls

Erngs*

BkVlue

TanBV

in IPO

Weibo

$3,654

12.8

761.3

5.7

5.8

18%

*just above breakeven

December '13 year

Weibo

$3,654

19.4

-63.0

5.7

5.8

18%

Conclusion
Buy WB based on quarterly financial progression and Alibaba's ability to generate sales for WB.

Also, Alibaba has also indicated an interest in buying up to 15% of the IPO at the IPO price.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

WB is a leading social media platform for people to create, distribute and discover Chinese-language content. By providing an unprecedented and simple way for Chinese people and organizations to publicly express themselves in real time, interact with others on a massive global platform and stay connected with the world, WB has had a profound social impact in China.

Users. WB combines the means of public self-expression in real time with a powerful platform for social interaction, as well as content aggregation and distribution. WB allows people to be heard publicly and exposed to the rich ideas, cultures and experiences of the broader world.

Since its inception in August 2009, WB has achieved significant scale. In December 2013, WB had 129.1 million MAUs and 61.4 million average DAUs, increasing from 96.7 million MAUs and 45.1 million average DAUs in December 2012, and 72.9 million MAUs and 25.2 million average DAUs in December 2011.

In March 2014, WB had 143.8 million MAUs and 66.6 million average DAUs. Over 70% of its MAUs in December 2013 accessed WB through mobile devices at least once during the month.

Customers. WB enables its advertising and marketing customers to promote their brands, products and services to its users.

WB offers a wide range of advertising and marketing solutions to customers ranging from large companies to SMEs and individuals. WB generates a substantial majority of its revenues from the sale of advertising and marketing services, including primarily the sale of social display ads and to a lesser but increasing extent, promoted feeds and other promoted products.

WB has developed and is continuously refining its social interest graph recommendation engine, which is based on users' demographics, social relationships, interests and behavior, in order to achieve greater reach, relevance and engagement and enhance the effectiveness of advertisements on Weibo.

For the year ended December 31, 2013, WB had 350 key accounts and over 12,800 SME advertising and marketing customers, as compared to more than 260 key accounts for the year ended December 31, 2012.

Platform Partners. The value WB creates for its customers is enhanced by its platform partners, which include media outlets and developers of games and other applications.

WB's platform partners contribute a vast amount of content to Weibo, broadly distribute Weibo content across their properties, and develop products and applications on its platform, enriching the experience of its users while increasing its monetization opportunities.

WB has revenue-sharing arrangements with some of its platform partners, including game developers.

Mobile use
Designed with a "mobile first" philosophy, Weibo displays content in a simple information feed format. With a limit of 140 Chinese characters per feed, the high information-density of Chinese characters and users' ability to personalize content information flow, Weibo is particularly suited for mobile use, and we have seen significant mobile adoption.

Over 70% of WB's MAUs in December 2013 accessed Weibo from mobile devices at least once during the month.

In the fourth quarter of 2013, WB had over 120 million check-ins where users recorded their location by using a mobile device to post their location in a feed on Weibo.

Mobile revenues accounted for 28.0% of advertising and marketing revenues in 2013.

Dividend Policy

No dividends are planned.

Intellectual Property

WB relies on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect its intellectual property rights.

WB has registered 1 patent and applied for an additional 26 patents with the PRC State Intellectual Property Office.

WB has registered 14 software copyrights with the PRC National Copyright Administration. WB has also registered domain names, including weibo.com, weibo.cn and weibo.com.cn. WB has obtained an exclusive, perpetual, worldwide and royalty-free license from Sina to use certain trademarks.

Competition

Major Chinese internet companies, including Sohu, NetEase, Tencent and Phoenix New Media, as well as other microblogging services and new players in China that offer online media, including content aggregation and distribution services, compete directly with WB for user traffic and user engagement, content, talent and marketing resources.

As a media platform in nature, WB also competes with offline media companies for audiences and content.

In addition, as a form of social media featuring social networking services and messaging services, WB is subject to intense competition from providers of similar services as well as potential new types of online services, including interest-based social products.

These services include mobile applications, such as WhatsApp, Line, Ozone, WeChat, QQ Mobile, Kakao Talk, Yixin, Laiwang, Douban and Momo, and websites such as renren.com.

WB also competes with both offline and online games for the time and money of gamers.

WB has begun to offer social commerce solutions to its customers that enable them to conduct e-commerce on its platform.

Consequently, WB's offerings compete with e-commerce platforms that enable merchants to conduct e-commerce, including location-based services and online-to-offline services.

In addition to direct competition, WB faces indirect competition from companies that sponsor or maintain high traffic volume websites or provide an initial point of entry for internet users, including but not limited to providers of search services and navigation pages, such as Baidu, Inc. and Qihoo 360 Technology Co., Ltd.

WB may also face increasing competition from global social media and social networking services, such as Twitter and Facebook.

5% stockholders

SINA Corporation 77.6%

Ali WB Investment Holding Limited 19.3%

Use of proceeds

WB expects to net $377 million from its IPO. Proceeds are allocated as follows:

$250 million of the net proceeds WB receives from this offering to repay loans WB owes to SINA, its parent company and controlling shareholder. The loans from SINA are repayable upon demand, but there is an understanding between WB and Sina that the loans will be repaid after the completion of this offering.

The loans accrue interest at prevailing market interest rates by reference to the three-month time deposit rate of the People's Bank of China, which have ranged from 2.55% to 3.05%.

WB intends to use the proceeds from the issuance of ordinary shares to Ali WB upon its option exercise to repurchase certain shares and vested options held by individuals who provided services. WB intends to use the remainder to invest in technology, infrastructure and product development, to expand sales and marketing efforts, and for working capital and other general corporate purposes.

Additionally, WB may use a portion of the net proceeds to invest in or acquire complementary businesses, products, services or technologies.

Disclaimer: This WB IPO report is based on a reading and analysis of WB's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Weibo