Everyone’s buzzing today about the trading debut of Weibo (Nasdaq: WB), following a performance by the Sina (Nasdaq: SINA) microblogging unit that was filled with mixed signals. Potential investors in the company will inevitably have many questions about Weibo’s future, as it seeks to carve out a secure and profitable place for itself in China’s competitive social networking (SNS) space. But from the bigger perspective, this mixed performance is the latest sign that the window of positive sentiment towards Chinese Internet IPOs is closing fast in New York, though it could remain open for perhaps another few weeks.
The exact amount of remaining time in that window is quickly becoming a key focus point, as a number of companies line up to make major offerings before sentiment falls into squarely negative territory. Major e-commerce companies JD.com and Jumei.com have both filed for offerings to raise up to $1.5 billion and $400 million, respectively; and media reported this week that e-commerce leader Alibaba could make its first filing next week for a mega New York IPO that is likely to be the world’s largest Internet offering since Facebook (Nasdaq: FB) listed in 2012.
I’ll return shortly to the prospects for these major IPOs, as well as many smaller ones, but first let’s start with a look at the details that are leading most observers to call Weibo’s IPO decidedly mixed. The fact that the company was able to salvage even a mixed IPO is actually a positive result, since all of the signs before its trading debut were quite negative.
The company had originally planned to raise up to $500 million, but had to keep scaling back the number due to flagging demand. In the end it raised less than 60 percent of that target, taking in $286 million. (English article; Chinese article) The offering also priced at the bottom of its original range at a final price of $17 per American Depositary Share (ADS). That gave Weibo a relatively disappointing valuation of just under $3.5 billion, only slightly higher than the figure when Alibaba signed a landmark deal a year ago to buy 18 percent of the company.
All those negative signs certainly didn’t point to a promising debut. But Weibo defied the trends and saw its shares climb as high as 44 percent before finally closing up a healthy 19 percent. The debut isn’t quite as spectacular as previous recent ones for other Chinese Internet firms, but it does indicate there’s still demand out there for these companies.
From a broader perspective, this kind of debut indicates that interest in Weibo from large institutional investors was probably weak, but that smaller retail and hedge fund investors looking to make a quick profit is still strong. That’s not really the kind of market that listing candidates want to see, since longer-term institutional investors are an important stabilizing factor that helps to support a company’s stock and act as a draw for smaller investors who like to follow the big money.
So what does all this mean for the current pipeline of Chinese IPOs? I do think that smaller companies looking to raise $100 million or less should be able to move forward and list in the next 3 weeks. Such amounts are relatively small, and many investors who like these firms tend to be shorter-term buyers I described above. Among the bigger offerings, I do think that Jumei might have to scale back its offering, and either JD.com or Alibaba might be forced to delay and wait to see if sentiment improves by the end of this year.
Bottom line: The mixed performance for Weibo’s IPO shows that big institutional buyers have lost interest in Chinese Internet firms, which could delay mega listing plans for JD.com or Alibaba.