Bottom line: Weibo’s rise from the ashes is likely to be followed by a decline similar to the one after its initial rise, as the current boom in live broadcasting wanes or that part of its business gets stolen by a better product from rival Tencent.
A turbo-charged Weibo (Nasdaq: WB) is in a couple of headlines as the new week begins, led by a new partnership with Beijing’s powerful central media that looks eerily similar to one from about 5 years ago. At the same time, the company is also in headlines for passing its role model, U.S. social networking pioneer Twitter (Nasdaq: TWTR), in terms of market value, in a case of the offspring outrunning the parent.
The sub-story to all of this is the huge and sudden explosion of live streaming services in China, which has helped Weibo to rise from the ashes and suddenly become one of China’s hottest companies again. That same live streaming phenomenon is also helping to revive others, such as Momo (Nasdaq: MOMO), sometimes called China’s equivalent of U.S. hooking-up app Tinder.
I’ve written about the live-streaming phenomenon once or twice before, most notably with regards to its sudden arrival and how it has revived Weibo’s prospects. (previous post) While it’s clear that live streaming is the flavor of the moment for Chinese web surfers, it’s far less clear if the fad has any real staying power. What’s also less clear is whether social networking (SNS) powerhouse Tencent (HKEx: 700) will roll out a better product, the same way it did when it stole Weibo’s thunder five years ago with its popular WeChat.
I’ll address those questions shortly, but first let’s look at the main headline that has Weibo and Communist Party mouthpiece People’s Daily formally launching a live-streaming partnership. (Chinese article) The new partnership made its debut at a forum hosted by the Communist Party, where none other than President Xi Jinping was taking part.
Weibo watchers will note that this particular development looks remarkably similar to what happened during the service’s initial rise about 6 years ago, which itself came after the original Twitter was blocked from China in 2009. That early rise saw the Communist Party promote Weibo as a place for public discussion on social issues, and also saw the party encourage government organs to set up their own individual accounts.
Most of those organs still have accounts on Weibo, but many of those have seen sharp slowdowns in postings as more readers gravitate to other services like WeChat to get their news and information. Thus this new tie-up with People’s Daily seems to show the momentum is swinging back towards Weibo, which recognized the importance of live streaming relatively early and has one of the better products in the market.
The recent momentum has lit a fire under Weibo’s stock, which has more than quadrupled over the last year and currently has a lofty price-to-earnings (PE) ratio of 145. The surge has pushed Weibo’s market value to $11.9 billion, edging past its foundering role model Twitter’s $11.8 billion. Of course we should also note that Twitter’s current PE is negative, reflecting the fact that it still hasn’t found a formula for profits.
All of that said, one has to wonder if Weibo’s stock hasn’t perhaps gotten a bit overcharged and also if history might repeat itself in terms of the company getting overtaken by the SNS savvier Tencent or someone else. I’m no future reader, but sadly I have to predict that the answer in both instances is probably “yes”.
Perhaps I’m being cynical, but I honestly don’t have too much confidence in Weibo’s management, most notably its Chairman Charles Chao, who is a solid enough Wall Street type but isn’t particularly brilliant as an Internet visionary. Chao has been at the helm of Weibo parent Sina (Nasdaq: SINA) for about a decade now, and the company has basically languished under his leadership with the lone exception of its early Weibo bet, which essentially was a copycat of the original Twitter.
Of course it’s always possible Weibo could find some staying power this time, though I’m highly dubious. For starters, China is famous for Internet fads, most of which are huge for a year or two before dying quiet deaths. And even if this particular fad has some staying power, I’m almost certain that Tencent will come up with a better product and steal Weibo’s business. That could mean a good short selling opportunity for anyone willing to take a longer-term bet on Weibo’s second downturn over the next couple of years.