Alibaba: First an IPO, Then Weibo?
A deal would make lots of sense as Alibaba needs a bigger footprint in social.
By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor
Sep 16, 2014, 2:36 pm EDT
Weibo ( WB), which operates a highly popular microblogging site in China, had a nice run lately, clocking 20%-plus returns last week. The biggest driver? Rumors that Alibaba — which is about to launch one of the world’s largest IPOs — could buy the company. However, enthusiasm quickly fizzled, and most of those gains have disappeared right along with the buzz.
Has the market come to its senses … or has it presented an opportunity for investors to buy in at more reasonable prices?
Well, on the face of it, it seems the fall in WB stock has little to do with new revelations about Weibo and more about investors just freeing up funds to buy into the Alibaba IPO. Yesterday saw a wide-scale dumping of a host of stocks, including other social names such as Yelp ( YELP), Facebook ( FB) and Twitter ( TWTR).
And really, there’s not even any reason to believe that Alibaba won’t still make a play for Weibo.
For one, Alibaba already owns 30% of WB stock. Also, Alibaba needs to burnish its social media credentials.
It is also important to note that Alibaba needs to burnish its social media credentials. The fact is that Tencent’s ( TCEHY) WeChat poses an enormous threat to Alibaba’s growth path. The messaging service has more than 400 million active users and opens a huge gateway to e-commerce transactions, as the company has seen in selling huge quantities of Xiaomi smartphones.
And Tencent is just getting started. The company has built its own mobile payments platform and has even taken a 15% equity stake in JD.com ( JD), China’s No. 2 ecommerce operator.
Weibo could be an affordable way of solving Alibaba’s problem, as the total market capitalization for all WB stock is roughly $4.4 billion. Meanwhile, Weibo itself is finding its groove with monetization; in the latest quarter, revenues more than doubled to $77.3 million, and the company was able to shave its net loss from $35.1 million to $15.4 million. Oh, and $22.2 million of that revenue came from an alliance with Alibaba.
Although, Alibaba might care more about Weibo’s users. In Q2, Weibo reported a 32% increase to 156.5 million monthly active users (MAUs), driven by aggressive partnerships, such as with smartphone manufacturers.So, will Alibaba swoop in and buy the remaining shares of WB stock?It’s unlikely, at least anytime in the very near future. When a company is in the midst of an IPO (whether it’s your garden variety, or the largest in history), its main focus needs to be making a smooth transition to becoming a public company.Large acquisitions simply have to wait.But investors don’t need a big buyout to make money on WB stock. Weibo appears to be in a hyper-growth phase in a country with 600 million online users. And a big drop in Weibo shares could actually fuel buyout rumors again, helping to put a floor in the stock.If you’re looking for a great way to play social media in China, WB is a good option — regardless of how interested Alibaba actually is.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities
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