Sina: What Is Weibo Really Worth to the Market?

Sina (NASDAQ: SINA  ) is an online media company in China that has soared more than 50% over the last year. However, nearly all of its gains are in connection to an asset of Sina called Weibo, which will soon file for its IPO. Given the valuation multiples of companies like Twitter (NYSE: TWTR  ) and Facebook (NASDAQ: FB  ) , Weibo may be worth more than expected, which could lead to very large short and long-term gains for Sina.

Weibo: A very important asset to Sina
In Sina's last quarter, revenue increased 43% year over year to $192.3 million. Of that $192.3 million, $71.4 million came from an asset called Weibo, which is a popular microblogging dotcom often compared to a hybrid of Facebook and Twitter.

Specifically, Weibo's $71.4 million was broke down into two segments. Its ad revenue increased 163% year-over-year to $56 million and its non-ad revenue grew 114% to $15.4 million. Hence, the majority of Sina's annual growth came from this one asset.

Therefore, it's no surprise that investors were excited back in February when the Wall Street Journal reported Sina prepping a $500 million Weibo IPO in the second quarter. Then, on Thursday, PrivCo reported an IPO as early as June, and Barclay estimated Weibo's valuation at $5.85 billion, based on a $4.1 billion estimate of Sina's stake. Thus, with Sina's current market capitalization being less than $5 billion, Weibo is of utmost importance to Sina.

Is Weibo worth $6 billion?
If Weibo reaches a $6 billion valuation, then there's no doubt shares of Sina will soar. The company already has $1.8 billion in cash and short-term investments, but with a 71% stake in Weibo, Sina will have the ability to sell its stake and then acquire new growth. However, in gauging the demand for dotcom growth, and the valuations of platforms like Facebook and Twitter, Weibo might carry an even higher market capitalization than what's expected.

Twitter trades at a whopping 45 times sales because it has produced growth in the neighborhood of 100% over the last year, and investors are placing bit bets on what it may become. Facebook's growth is in a slower 60% range, although Facebook is significantly larger with nearly $8 billion in revenue last year; Twitter had $665 million in revenue last year. Yet, Facebook trades at 23 times sales.

Therefore, using these facts, we can assume that a smaller company with more aggressive growth than either Facebook or Twitter will trade at a higher premium based on expectations. Furthermore, companies with large user bases and high growth are cherished on Wall Street, and among peers, which is evident in Facebook's $19 billion acquisition of WhatsApp.

 With that said, Weibo is very early in the stages of monetization; Sina didn't even start reporting Weibo revenue until the second quarter of 2013. Yet, in the second, third, and fourth quarters of last year, Weibo's revenue was $37 million, $53.4 million, and $71.4 million, respectively, showing strong growth and leading analysts to estimate full-year sales near $200 million. Furthermore, $400 million in revenue is expected in 2014, giving Weibo growth in excess of 100% moving forward.

So, if we go back to the valuation metrics and multiples being used and apply a seemingly ridiculous 50 times $200 million premium, Weibo could actually reach a market capitalization near $10 billion! Now, this is not a reflection of its IPO price, but rather market demand, post-IPO stock gains, and the multiples awarded to companies of similar growth and size.

While $10 billion seems excessive, keep in mind that it's on par with Twitter and if using future sales expectations, it would represent a 25 times multiple, which mirrors Twitter, a company with less aggressive year-over-year growth.

Final thoughts
As previously stated, Sina owns 71% of Weibo, meaning if a $10 billion valuation becomes a reality, then its stake would be worth more than $7 billion! Thus, what does this mean for Sina?

Essentially, Sina has an asset that is worth more than its entire company, meaning if we eliminate its entire $600 million in annual revenue business, we are still left with up to $7 billion for a price of less than $5 billion, a reflection of Sina's market capitalization. With that said, Sina is worth at least its stake in Weibo, as the eventual divestment will add to Sina's already large $1.87 billion cash position and give it the ability to make acquisitions, buyback stock, and expand its core business to accelerate growth.

As a result, when the dust finally settles, Sina's business without Weibo becomes more valuable as it puts the cash position to work. Overall, if Sina's stake eventually translates into $7 billion, and combined with its current cash position, Sina would trade at 0.5 times its cash position at current levels.

Such a multiple is unprecedented, and it's for this reason that Sina is a great buying opportunity; even if Weibo is valued at $7 billion total it would still represent a price/cash of below 1.0. Therefore, in realizing the demand for assets such as Weibo, it is almost impossible to imagine a scenario where Sina's stock is not significantly more valuable.

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Read/Post Comments (2) | Recommend This Article (3)

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  • Report this Comment On March 14, 2014, at 5:45 PM, BabyBeluga2 wrote:

    Brian,

    Well, we will soon have an answer to the question posited in your title. Goldman filed for the SINA Weibo IPO today:

    http://www.sec.gov/Archives/edgar/data/1595761/0001193125141...

  • Report this Comment On March 17, 2014, at 5:49 PM, BabyBeluga2 wrote:

    (Actually, the law firms do the filing and Goldman is doing the underwriting).

    Given the single-digit percentage increase in the stock price in the first day of trading after the IPO announcement, it seems that the market will be slow to reflect the Weibo valuation in the SINA stock price prior to the Weibo IPO date. The Alibaba IPO in April, though, and an announcement of an increase in Alibaba holdings in SINA could quicken the pace of the SINA stock price increase.

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