The headlines throwing around huge valuations for Twitter and Facebook are just a tease for most investors, who can only watch as elite funds buy and sell closely held shares in these private companies. But one of China’s leading social networks is publicly traded in the U.S., on Nasdaq: Sina Corp., with its popular microblog product, Weibo. Sina Weibo (pronounced Way-Boh, and meaning microblog in Chinese), only 18 months old, was the Internet phenomenon of China in 2010, reaching 50 million users by the end of October — and is likely fast approaching 100 million users now.
By comparison, Twitter now stands at more than 200 million registered users globally. Weibo is a sandbox for cynics, celebrities, influential bloggers and media elites, a potent blend for spreading China’s subversive Internet memes, much to the consternation of bungling local officials across the country. But the sandbox has walls, as Weibo for now does not play much with the outside world, and is subject to a rigorous monitoring and censorship regime. Try searching for posts related to “Egypt” in the last few weeks and Weibo would tell you that, pursuant to “relevant laws, regulations and policies, the search results have not been shown.”
Individual posts discussing Egypt did get by the censors, but posts touching on any of the topics deemed most sensitive by Beijing, like the banned Falun Gong movement, would get excised immediately. The company has at least 100 staffers devoted to monitoring content 24 hours a day, CEO Charles Chao told me (reluctantly) in an interview at Sina’s Beijing headquarters. There are meant to be no Twitter revolutions here, which is why Twitter and Facebook have been banned in China since 2009, and which in turn explains why Sina is a winner in this space.
Sina, long the dominant Chinese news portal and then a major host of blogs, is trusted by Beijing to run its sandbox; a couple earlier microblog startups were not so lucky and got shut down. So how much is Weibo worth? Investors are clearly running up Sina’s stock price already on the basis of a product that has yet to be monetized: The stock has climbed 170% since early July without a fundamental shift in its revenue stream. Investors value the company at $5.7 billion on expected revenues of more than $400 million in 2010, and an estimated net income of $105 million.
Even looking at 2011 projected earnings of $125 million, that’s a sizable 46x price-earnings ratio. But investors are looking at earnings well beyond 2011, counting on Weibo to deliver, and so is Chao. He sees Weibo as “the growth engine” for the company, one that will revamp and redefine the legacy business as a social networking platform, challenging Weibo’s number one competitor, billionaire Ma Huateng’s networking giant Tencent.
The largest Chinese Internet company by market cap (it’s listed in Hong Kong), Tencent has leveraged its gargantuan base of hundreds of millions of users of its IM, blogging, email and other services to grow its QQ microblog to more than 100 million users. But Hong Kong analysts at both the Korean investment group Mirae Asset and at Credit Suisse say user engagement on Sina Weibo dwarfs that of QQ. Mirae Asset, in a January report, estimated that Sina captures 87% of Chinese users’ time spent microblogging.
Weibo’s interface integrates Facebook-like features that help keep users there — including comments on posts, photos and videos, which you can upload directly from your hard drive — that makes the product much stickier for users than Twitter, Chao says (he wouldn’t disclose specific metrics). In its research brief earlier this month, Credit Suisse said that Weibo appeared to be drawing away traffic from Faceb00k-like social networking sites, especially in first-tier cities, and six advertisers or agencies reported interest in working with Sina Weibo.
Sina has begun selling packages that bundle Weibo with its main portal business, but the company is waiting before it tries to monetize Weibo more directly. Chao’s plan is first to build a very large user base, bringing more users into his Weibo as their entry point and keeping them there longer, integrating more Facebook-like functions into the platform and improving the existing service, including on mobile devices, where an estimated 40% of Weibo interactions take place. Monetization will come later, he says, but he notes that Mirae Asset has taken a guess at Weibo’s value: $2 billion, based on Weibo’s long-term chances to help Sina expand advertising market share at a time when the overall pie of online ad revenue in China is growing quickly.
Mirae Asset projects significant Weibo revenue in 2012, at more than 1 billion RMB, growing to 5.8 billion RMB in 2015 — which, assuming the RMB continues to appreciate, could be more than $1 billion. Considering Twitter was valued in its last round of funding at $3.7 billion, and at $4.3 billion on the online secondary marketplace Sharespost — and supposedly at $8 billion to $10 billion in rumored acquisition talks involving Facebook and Google — $2 billion might not be a bad price for China’s Twitter-With-Facebook-Characteristics. Setting aside the big question of competitors, there are a couple variables, both underscored by politics, that could send that valuation up or down: First, will Sina Weibo go global someday, and would the world embrace it?
Chao, a fluent English speaker who studied and worked in the U.S. for 10 years after growing up in Shanghai, says he definitely plans to take Weibo global. He feels the product is good enough to compete, though he grants there is uncertainty about how a Chinese Internet service will be welcomed abroad. There would also be technical and political challenges to overcome at home: China can’t import the rest of the world’s social network wholesale; much of what’s out there isn’t compatible politically. In any case, Chao says he is not focused on the international market yet, and that “China is our priority” for the near future. Still, he suggests it will not be long before users see built-in translation tools and possibly an English-language interface, the necessary precursors to global expansion.
The second political question is a cousin of the first. Could Beijing, in fear of a Twitter-like revolution, simply flip the switch some day and shut Weibo down? Chao is more than ready for this question.
At this point it is worth noting a few things about the 45-year-old CEO. A former CPA for PricewaterhouseCoopers in Silicon Valley, Chao (whose name in Chinese is Cao Guowei) can be as soft-spoken and cautious as that background would suggest, though he has a degree in journalism in China and a master’s degree in journalism in the U.S. After months of putting off requests from Forbes and the rest of the English-language press, he has finally been granting interviews in recent days on the rise of Weibo.
Finally, it is worth noting that the friend who wooed him to Sina in 1999 was then-COO Mao Daolin, a fellow Shanghai native with whom Chao became friends in Silicon Valley in the 1990s. Mao later became the CEO of Sina until leaving the company in 2003; Chao’s friend then took on a new role, as the son-in-law of President Hu Jintao. So, would the Chinese government shut down Sina Weibo? Although this is theoretically possible, Chao argues it would be unprecedented for that to happen to a company as established as his: “In the last 10 years, have you seen any big company being shut down by anybody?”
Then again, in the last 10 years, China hasn’t seen something quite like Weibo.