Weibo: Stifel’s Highlights, Notes From F-1 Prospectus

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Stifel Equity Trading Desk analysts George I. Askew, Zim Yin and Steve Rubis look at Weibo’s impending plans to go public, pouring over the numbers from the company to come up with a series of highlights and notes.

Weibo has announced plans to go public in an initial public offering valued at up to $500 million. We have reviewed the company’s Form F-1 prospectus for selected key takeaways focusing on Weibo’s Ecosystem, Financials and the Offering as outlined below.

Notable highlights include:

  • Alibaba plans to exercise option for 30% ownership on IPO
  • Of IPO proceeds, $250 million will go to repay SINA Corp (NASDAQ:SINA) loans
  • ARPU in 4Q13 was $0.44
  • Nike Inc (NYSE:NKE) and The Procter & Gamble Company (NYSE:PG) are Weibo advertisers
  • Employees total 2,043, including 1,493 in product development
  • SINA-owned Class B shares have 3 votes, Class A shares 1 vote

We have a Buy rating on the shares of SINA Corp (NASDAQ:SINA) and $100 target price based on a sum-of-the-parts valuation. We value Weibo at $4.6 billion based on a per daily active user valuation. Adjusting for our valuation of Weibo, our target price suggests an enterprise value to adjusted EBITDA multiple of 9.3x our 2014 adjusted EBITDA estimate of $175 million for the core SINA portal business.

Weibo’s Ecosystem

  • Weibo is a leading social media platform for people to create, distribute and discover Chinese-language content.
  • Weibo has amassed a large user base in China and in Chinese communities in more than 190 countries.
  • In December 2013, Weibo had 129.1 million monthly active users, and 61.4 million average daily active users
  • Over 2.8 billion feeds were shared on Weibo in December 2013, including 2.2 billion feeds with pictures, 81.7 million feeds with short videos and 21.5 million feeds with songs.
  • Over 70% of MAUs in December 2013 accessed Weibo from mobile devices at least once during the month.
  • In 4Q13, Weibo had over 120 million check-ins where users recorded their location by using a mobile device to post their location in a feed on Weibo.
  • Through Weibo Connect, over 340,000 platform partners enable their users to share content from their websites and applications to Weibo and attract our users back to their properties to access the content.
  • There are over 700,000 verified individual accounts on Weibo including actors, singers, business leaders, etc.
  • More than 400,000 businesses have opened Weibo enterprise accounts, which enable them to create Weibo Pages as landing pages.
  • More than 80,000 government agencies and officials at the local and national levels across China have established Weibo accounts and the total number of their followers exceeded 250 million as of December 2013.
  • For the year ended December 31, 2013 Weibo had approximately 350 key accounts and over 12,800 small and medium enterprise advertising and marketing customers.
  • Average spending per key account was approximately $231,000 in 2013.
  • In general, the proportion of internet users in more economically developed tier 1 and tier 2 cities in China who use Weibo is higher than in other parts of China.
  • VIP members totaled 0.7 million as of December 31, 2013.
  • For the 2014 CCTV New Year Gala, a popular television event in China, 118 million engagements (including Post, Repost, Comment and Like) related to the show were generated over the two days the show was broadcast.
  • Referenced Advertisers: Nike, Bakery in Guangzhou, Procter & Gamble, Lenovo.
  • Weibo has registered 1 patent and applied for an additional 26 patents with the PRC, and has registered 14 software copyrights with the PRC.
  • Total employee count is 2,043 including product development (1,493); sales, customer service and marketing (370); operations (169); general administration and human resources (11).

Weibo’s financials

  • Weibo revenues were $188.3 million in 2013, net loss was $38.1 and Adjusted EBITDA was a loss of $6.3 million.
  • Mobile advertising and marketing was $41.6 million in 2013.
  • Mobile revenues accounted for 28.0% of advertising and marketing revenues in 2013.
  • In 2013, Weibo generated 78.8% of revenues from advertising and marketing services, 12.2% from game-related services, and 5.9% from VIP membership services.
  • As the size of the user base increases to an even bigger scale, the user growth rate may decrease. Future revenue growth may become increasingly dependent on the ability to increase average revenue per user, or ARPU.
  • ARPU increased from $0.18 for the first quarter of 2013 to $0.26, $0.36 and $0.44 for the second, third and fourth quarter, respectively.

Aggregate offering price

  • Proposed maximum aggregate offering price: $500 million. Approximately $250 million of net proceeds to repay loans owed to SINA. Weibo is a subsidiary of SINA and will continue to be an affiliate of SINA after the offering, as SINA is expected to remain the controlling shareholder.
  • On March 14, 2014 Alibaba gave Weibo notice to exercise its option to increase its ownership to 30% on a fully diluted basis. The purchase price will be the lower of (i) 15% less than the public offering price in this offering, and (ii) a price per ordinary share that implies an equity valuation of $5.5 billion. The settlement date of the option exercise will be contemporaneous with the completion of the IPO.
  • Each Class A ordinary share is entitled to one vote; each Class B ordinary share is entitled to three votes.
  • Weibo will issue Class A ordinary shares represented by our ADSs in this offering. All options and restricted share units regardless of grant dates, will entitle holders to an equivalent number of Class A ordinary shares.
  • All outstanding ordinary shares held by SINA will be automatically redesignated or converted into Class B ordinary shares on a one-for-one basis and all outstanding ordinary and preferred shares other than those held by SINA will be automatically redesignated or converted into Class A ordinary shares on a one-for-one basis immediately prior to the completion of this offering.

Weibo’s valuation

We maintain our Buy rating on the shares of SINA and our target price of $100. We believe the promise of Weibo is finally being realized as revenues grow rapidly and margins improve. We continue to value the company on a sum-of-the-parts basis. We value Weibo at $4.6 billion. Adjusting for the Weibo valuation to SINA, our target price suggests an enterprise value to adjusted EBITDA multiple of 9.3x our 2014E adjusted EBITDA of $175 million for the core SINA portal business.

Risks to Target Price

(1) Risks associated with operating an Internet business in China. (2) The possibility of a major global recession that negatively impacts Chinese exports and commerce activity, which undermines the Chinese advertising environment.

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