Sina's Stock Jumps As Alibaba Picks Up A Stake In Weibo

| About: Sina Corporation (SINA)
This article is now exclusive for PRO subscribers.

Alibaba, a leading e-commerce player in China, has entered into a strategic alliance with Sina (NASDAQ:SINA) to purchase an 18% stake in its Weibo platform for $586 million. Interestingly, this deal values Weibo alone at $3.3 billion, which was the entire market capitalization for Sina as of Friday's close.

Sina’s stock, which was struggling in the recent past, rose by 10% on Monday as investors cheered the partnership between the two companies. The deal also allows Alibaba to raise its stake in Weibo to 30% at an agreed upon price within a stipulated period of time.

While the popularity of Weibo has grown rapidly in the recent past, Sina has been finding it difficult to monetize the user traffic at the social networking platform. The total number of registered users on Weibo crossed 503 million at the end of 2012, with daily active users at around 46.2 million. [1]

This collaboration will see the two companies come closer in the areas of user account connectivity, data exchange, online payment and online marketing. [2] New business models will also be evaluated based on the synergies that are created. Sina expects this deal to rake in $380 million in advertising and other revenues for Weibo over the next three years. Alibaba will benefit from this partnership as access to Weibo’s large user base will help drive traffic at its sites. Further, it will also help Alibaba in its mobile strategy as 75% of Weibo’s active users utilize mobile to access the platform. [1]

We are encouraged by this latest news. Sina is facing increased competition from WeChat (a mobile messaging application by Tencent), which is having a negative impact on the average time spent by users on Weibo. This partnership will provide Sina with additional resources to address this growing threat.

We expect e-commerce to become one of the key monetization strategies for Weibo in the future. The Chinese e-commerce market is experiencing strong growth - the volume of transactions in the Chinese online retail market saw 65% growth in 2012, to reach 1.32 trillion yuan ($210 billion). In 2013 - this figure is forecast to rise by 37%, according to experts. [3] The partnership with Alibaba will help Sina in tapping this market potential.

We are in the process of revising the price estimate for Sina’s stock.

Disclosure: No positions.