Sina, Alibaba Resurrect Tie-Up Talks

Note: Since originally writing this post, Sina and Alibaba have formally announced their tie-up. (company announcement) Under the deal, Alibaba has purchased 18 percent of Sina Weibo for $586 million, valuing Weibo at about $3.3 billion. The pair said they expect the alliance to generate $380 million in revenue for Weibo over the next 3 years. Sina shares jumped nearly 10 percent after the news came out.

 

Weibo, Alibaba in new tie-up

It looks like I may have been premature in declaring last month that talks for a tie-up between leading web portal Sina (Nasdaq: SINA) and e-commerce leader Alibaba were dead. According to the latest reports, the pair have resuscitated their negotiations that began late last year and later collapsed due to disagreement over a valuation for Sina’s popular Weibo microblogging platform. Now media are reporting the talks have quietly resumed in recent weeks, and a deal could be announced very soon. (English article; Chinese article)I’ve previously said that such a tie-up looks very smart for both sides, since presumably Alibaba would be looking to offer its popular e-commerce services to Sina Weibo’s 500 million registered users. (previous post) From a more near-term perspective, the most interesting element of this deal will be the valuation that Sina ultimately gets for Weibo, since part of the deal would reportedly see Alibaba buy a stake in the microblogging unit. Such a development would come as a huge boost for Weibo, as Sina works hard to monetize the popular but revenue-challenged service in preparation for a spin off and potential separate public listing in the next 2 years.

All that said, let’s take a closer look at the latest headlines, which cite several unnamed sources confirming that the 2 sides have resumed their talks after negotiations collapsed late last year reportedly over Weibo’s valuation. The reports say talks are now in the late stages, with Alibaba most likely to pay about $500 million for a 15-20 percent stake of Weibo. They say announcement of a final deal could come very soon, implying we could hear something in May.

The figures from the report would value Weibo at anywhere from $2 billion to as much as $4 billion, compared with Sina’s own current market capitalization of about $3.4 billion. So at the low end of that range, Weibo would still account for nearly 60 percent of Sina’s market value even though it only now contributes about 10 percent of the company’s revenue. I suspect that some of these leaked figures are probably a bit optimistic and are coming from Sina, and we could see Weibo ultimately valued at $1.5 billion to perhaps as much as $2 billion in any upcoming deal.

It’s obvious from these high figures that both Sina and especially Alibaba see huge potential in this tie-up. Such a pairing would instantly give Alibaba a big presence in the fast-growing social networking services (SNS) space that is dominated by the likes of Sina Weibo, Tencent (HKEx: 700) WeChat and QQ and the more Facebook-like Kaixin and Renren (NYSE: RENN).

These social networking services are huge headline-grabbers, as they can quickly sign up tens and even hundreds of millions of users,  as evidenced by Weibo’s explosive growth over the last 4 years and WeChat’s over the last 2. But while it’s easy to sign up lots of subscribers, operators are finding it much more difficult to monetize those services that are usually offered for free — a problem also being faced by the original Facebook (Nasdaq: FB).

Against that backdrop, I’ve said that a new tie-up between Sina Weibo and Alibaba looks like a very smart strategic move, as many Weibo subscribers are the same kinds of people who like to buy goods online via services like Alibaba’s popular Taobao and TMall platforms. If Alibaba can get just a fraction of Sina users to do their shopping over Weibo, that could translate into billions of yuan in extra revenue each year.

Such a huge new revenue source would come as a nice lift for Alibaba as it prepares for its own blockbuster IPO as early as the second half of this year. It could also provide a huge boost for Sina Weibo in its own march to profitability, perhaps paving the way for the unit’s own accelerated IPO as soon as next year if the pairing is successful.

Bottom line: Sina’s new tie-up with Alibaba could value Sina Weibo at around $1.5 billion, and could pave the way for an accelerated IPO for Weibo if the pairing is successful.

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This article was first published in the online edition of the South China Morning Post at www.scmp.com.

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