(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By John Foley
BEIJING, Dec 27 (Reuters Breakingviews) - Weibo is changing Chinese society, but can it change investors’ minds? The rambunctious social media site, where over 400 million of the country's web users post, follow, share and criticise, could be worth multiples of what the market currently suggests. A partial spin off in 2013 could be a good way to unlock Weibo’s charms.
Part social network and part blog, valuing Weibo requires some lateral thinking. The closest U.S. rival, Twitter, is still unlisted. And Weibo’s stature outweighs its finances. It has broken news of national disasters and outed corrupt officials, yet only started contributing revenue in the second quarter of 2012.
Say Weibo can produce $1 of income per registered user by 2015, giving total revenue of around $400 million – and that this year’s $160 million of costs grow 50 percent by then. On the 15 percent tax rate China offers high-tech firms, that leaves $180 million of earnings. Apply U.S. listed Facebook's 2015 price-to-earnings multiple, and Weibo is worth $4.3 billion.
Two things suggest that’s achievable. While ad revenue in China is slowing, Weibo’s network of well-heeled urban users is an asset advertisers should covet. Yet owner Sina (SINA.O) has only just started asking companies to pay for accessing its “social graph”, plans to let advertisers appear in users’ news feeds have yet to launch.
Then there’s its political usefulness. Weibo has outlived several rivals by unapologetically censoring when told to. Meeting onerous government controls is now a sizeable barrier to entry for new rivals. Meanwhile, Weibo is becoming increasingly useful to the authorities as a way of letting the public blow the whistle on low-level corruption.
Investors haven’t yet twigged. Sina’s market capitalisation is $3.3 billion, based on its share price on Dec. 19. Strip out its main portal and wireless business, worth around $1.7 billion according to JPMorgan estimates, and around $900 million of cash and investments, and Weibo's implied worth is just over $700 million.
Sina could do worse than spin off a minority stake through a separate listing if markets permit. True, Weibo’s owner is unlikely to want to let go altogether – and given the political significance, China’s authorities may not let it. But with such a big valuation gap, tapping the financial network seems a logical move.
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