Weibo Sold Fewer Shares Than Expected in IPO
Chinese Microblogging Service Sold 16% Fewer Shares Than Expected in $285.6 Million IPO
A smartphone running the Sina Weibo social-networking application with the company's logo in the background. European Pressphoto Agency/Adrian Bradshaw
Weibo Corp., China's version of Twitter Inc., TWTR -2.42% raised $286 million in an initial public offering in New York, falling short of expectations because of a reduced offering size, in a big test of demand for Chinese Internet stocks ahead of a hotly anticipated Alibaba Group Holding Ltd. listing.
Weibo—which means "microblog" in Chinese—allows users to send brief public messages to followers who can comment on or repost them. Since its 2009 launch, Weibo had grown to 144 million monthly active users as of March, making it the closest thing China has to a public forum in a country where the media is strictly controlled by the government.
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At the IPO price, Weibo, which is growing fast but posted a net loss last year, is valued at about $3.4 billion. The $17-a-share price, which was at the bottom of the projected range of $17 to $19. The company sold 16.8 million shares, fewer than the 20 million expected.
The offering comes amid broad weakness in the U.S. IPO market and a month-long pullback in stock prices for both Chinese and U.S. Internet companies, including Twitter, whose shares have fallen 18% since the beginning of March.
Many of those companies saw their valuations soar, even as they didn't produce profit, because of an explosion in user growth in recent years—a view that some investors may be reconsidering.
"The market at this stage probably isn't too interested in user growth. Maybe last year they would have been okay with it, but that window kind of closed," said Jeff Papp, senior analyst at Oberweis Asset Management, which manages the $192 million China Opportunities fund. He said Wednesday he was likely to pass on the IPO, but would consider buying Weibo stock in the future.
The trading debut of one of China's most popular social-media services in the U.S. market offers a potential window into how investors may greet the U.S. listing of China's e-commerce giant Alibaba, which is expected to go public in the third quarter, people familiar with the matter have said.
Alibaba is a large investor in Weibo. After the IPO, Alibaba is set to own about a third of Weibo, according to the offering prospectus. Part of the aim of the relationship is to allow Alibaba merchants to advertise to Weibo users.
While Alibaba could be among the biggest IPOs ever in the U.S., its looming listing may have had a mixed effect on Weibo's efforts.
Some investors said that Weibo's IPO carried less appeal because they were also interested in buying Alibaba shares, which they said would give them enough exposure to Weibo.
Others, however, may bet that Alibaba's stake could presage a bigger relationship with Weibo in the future, or even a potential acquisition. "The reason I would put in an order for it is the possibility that Alibaba buys the whole thing," said one trader at a multibillion-dollar hedge fund who was considering playing the deal.
The IPO was led by bankers at Goldman Sachs Group Inc. GS +1.48% and Credit Suisse Group AG CSGN.VX -1.47% .
Weibo is among a wave of Chinese tech companies flocking to the U.S. to list. In part these companies are drawn to the market because the U.S. allows some insiders to have outsize voting power in a company, such as a dual-class share structure, which Weibo uses.
Besides Alibaba, other upcoming U.S. IPOs include a potential $1.5 billion offering for JD.com Inc., a major competitor in China's e-commerce market, and a roughly $400 million offer for online cosmetics retailer Jumei International Holding Ltd.
Weibo faces a number of challenges, ranging from the rise of smartphones and intensifying competition to increased scrutiny from the Chinese government.
Weibo's parent, Sina Corp. SINA -0.19% , has worked to make the service profitable with a cautious rollout of advertising on the platform. Weibo generated a profit of $22 million in the fourth quarter of last year, but lost money in the year overall. Like other social media services, it is trying to capture a new generation of users who primarily access the Internet via smartphones, tablets and other non-PC gadgets. China now has more than 500 million mobile users, according to official data, more than four times the amount in 2008.
Sina is set to own more than half of Weibo shares and nearly 80% of its voting rights, according to Weibo filings.
Last year, Weibo had sales of $188 million, against $38 million in losses. In a filing Monday, Weibo said first-quarter 2014 revenue grew 161% from a year ago, from $25.9 million to $67.5 million. Its quarterly losses more than doubled, however, to $47.4 million, in part due to a one-time $40 million charge related to stock options.
Some analysts working on Weibo's IPO forecast revenue to grow by about 70% over the course of 2014, to more than $300 million next year, investors familiar with the matter said.
At that rate of growth, Weibo would be valued at a substantial discount to Twitter, with a stock-market value of roughly 11 times next-year sales. Twitter is valued at about 21 times forward revenue, according to FactSet.
Weibo is caught in a rising battle between much larger companies—including Alibaba, Internet conglomerate Tencent Holdings Ltd. TCEHY +2.40% and search provider Baidu Inc. BIDU +1.13% —to dominate the future of the Chinese Internet.
Another major challenge: the Chinese government. Last year, following a change in top leadership, Chinese officials began what they called an anti-rumor campaign that in part targeted some of Weibo's most popular and controversial posters. The campaign also set up new rules to more quickly punish Weibo users who spread information that the government said was untrue. Activists have said the moves were designed to tighten the government's control over the flow of information on the service, which sometimes runs counter to the narrative in official, state-run media.