Bottom line: A major new investment in Sina by CEO Charles Chao indicates he wants to take one last try at revitalizing the company’s core portal business, and might consider a sale if a good offer emerges.
The China Internet world has been buzzing this week with speculation over what is driving a massive new personal investment of nearly $500 million in leading web portal Sina (Nasdaq: SINA) by its longtime CEO Charles Chao. I have quite a bit of respect for Chao, who is more of a western-style, bottom line-focused CEO than many of his Chinese Internet peers who run their companies like personal fiefdoms.
But that said, I’ve also previously said that Chao lacks the kind of bigger vision that many of his peers have, and that he should consider stepping aside to make way for some new leadership. Accordingly, perhaps this latest move by Chao augers a return to his company’s core portal business, following his focus over the last few years on building up its recently-listed Twitter-like Weibo (Nasdaq: WB) unit. That could be followed by his exit in a year or two, and even a possible sale of some or all of its remaining core assets.
Sina is one of China’s oldest Internet companies, and over the years has established itself as one of the country’s leading independent news voices with its cutting-edge core portal business. But it has failed to parlay that strong brand into profits, allowing the company and its stock to get overtaken by more innovative names like Tencent (HKEx: 700) and Alibaba (NYSE: BABA).
The company is currently one of China’s more valuable Internet firms, and its current share price is triple the level of its IPO price from 2000, giving it a market value of $3 billion. But those gains look relatively small for such a premier name with such a long history in China’s Internet market, especially compared with the more meteoric rises for companies like Tencent and e-commerce high-flyer Vipshop (NYSE: VIPS).
According to the latest reports, Chao, who has been Sina’s CEO since 2006, has announced that he will buy 11 million newly issued shares in the company for $41.49 apiece, for a total of $456 million. (company announcement) The company didn’t give any additional explanation for the move, which looked like a confidence-boosting measure to prop up its sagging shares. The announcement certainly had that effect, igniting a rally that has seen Sina shares surge 25 percent since the purchase was announced.
Despite his title as CEO of Sina, Chao seems to have been largely absent from the helm of the company over these last few years as he focused on building up Weibo, which made a highly-anticipated New York IPO last year. But even Weibo has failed to create much excitement since Chao took over, and has been rapidly overtaken over the last 2 years by the more dynamic WeChat, which is operated by Tencent.
All this brings us back to Chao’s latest investment, and what his broader motivations might be. Some are speculating that he is returning to Sina’s core portal business, and may be looking for ways to develop some of its various parts for future possible spin-offs. (Chinese article) Another interesting hint of what may be happening behind the scenes came in late April, when Sina announced its renewal of a plan aimed at avoiding any hostile takeover attempts of the company. (previous post)
All of this indicates that Sina is probably quite undervalued, in no small part due to Chao’s lack of inspiration despite his capable leadership. At the same time, Chao’s latest purchase indicates he probably wants to have one more try at revitalizing his company, which could greatly boost his personal wealth if he succeeds. Even if he doesn’t, there’s still the chance that a bargain-hunter could get attracted by Sina’s big name and low valuation, which could also bring big profits for Chao if he chooses to negotiate a sale at a big premium.