Shares in Sina Corp, the Nasdaq-listed Chinese online media group, rose nearly 21 per cent during trading on Monday after the company said it had agreed to sell 18 per cent of Weibo, its Twitter-like micro-blogging service, to Alibaba Group for $586m. The two came close to a similar deal five months ago. Now they have tied the knot.
Back in November, Alibaba – a Chinese ecommerce group often likened to eBay – was said to have valued Weibo at about $3bn. Monday’s deal values it at just over $3.25bn. The deal with Alibaba probably means Sina’s rumoured plans to spin off Weibo in an initial public offering has been put on the back burner for now.
For Alibaba, part of the logic in doing the deal lies in the opportunity to use Weibo to drive traffic to Taobao, its online retail marketplace. Indeed, the two companies have entered what Sina said was a separate agreement to:
co-operate in the areas of user account connectivity, data exchange, online payment and online marketing, among other things, and will explore new business models for social commerce based on the interactions of the hundreds of millions of users on Weibo and on Alibaba’s ecommerce platforms. The strategic alliance is expected to generate approximately $380 million in advertising and social commerce services revenues in aggregate for Weibo over the next three years.
The news comes just couple of weeks after Tech in Asia blog was cheerfully wondering whether rumours of Weibo’s death were exaggerated (hat tip to Quartz for that link). Weibo’s userbase shows healthy growth (though as DealBook notes, most of them may be inactive) but it has still to crack the issue of monetisation – though last week’s news of Twitter’s biggest ever ad deal may give Sina cause for hope.
As Marvin Lo of Mizuho Securities told beyondbrics in November, the size of the deal will be a big factor in its success. Lo said a 20 per cent stake in Weibo would be the minimum to deliver the synergies that would make the deal make sense; but warned that Sina would be reluctant to hand over any more than it had to of its most valuable asset.
Investors seem happy, though.