The latest rumor making its way through the Chinese Internet sphere is too juicy not to report. According to TechNode, several insiders are reporting that Alibaba has invested in Sina Weibo to the tune of a 15-20 percent stake in the micro-blogging service.
Frankly, I’m highly skeptical about this, but Sina does have a very tricky situation on its hands. It built up its Weibo service to over 400 million registered users, but it has yet to figure out how to convert the active user engagement into profit. After an admission that user time spent on Weibo has gone down because of stiff competition from Tencent’s WeChat, a Whatsapp-like messaging service with over 200 million users, and weak guidance for the fourth quarter, Sina’s stock took a beating last week, dropping more than 15 percent on Friday.
James Cheng, who TechNode describes as as “tech media veteran”, claims that Alibaba’s rumored investment valued Sina Weibo at $2-3 billion. If true, that would be a pretty hefty premium, as Sina’s market cap on Friday sunk to below $3 billion. Though Weibo has been Sina’s bright spot for several years now, the company also operates one of the top Chinese Web portals.
Chinese media report that Sina and Alibaba have declined to comment on the rumor.
During the third quarter, Sina reported $152.4 million in revenue and managed to bring in $9.9 million in net income, but it cautioned that some of the growth was seasonal because of the London Olympics. Looking ahead, the company forecast $132-136 million in revenue, noting that tough macroeconomic conditions in China could stifle growth.
The transition to mobile is also dampening Weibo’s monetization efforts. The service now sees more traffic from mobile users than PCs, but Weibo makes just 15-20 percent of its revenue from mobile advertising.
Sina CEO Charles Chao has said in the past that Weibo was set up to run as a separate division from the company’s main business. The most recent rumors suggest that Sina may be setting up a New-Wave Investment Holding Co. to spin off Weibo via Alibaba’s supposed investment.
Alibaba’s strength has been in the e-commerce arena, but it is believed to be looking to strengthen its social media holdings. The company was recently rumored to have invested in Momo, a location-based chat app that has gained popularity in China as an easy way to hookup with people nearby.
For its part, Sina is the smallest of China’s four Internet giants (Tencent, Baidu, Alibaba and Sina), and its spot is the least secure. It enjoyed prominence largely due to the buzz surrounding Weibo, but now Tencent’s WeChat has become the new darling.
Alibaba’s investment would represent a shift in the balance of power between the four majors, but a Sina and Alibaba partnership might be the best way for the two to take on their larger competitors. It’s not unheard of for rivals with in the Chinese Internet industry to cooperate. In fact, it’s almost necessary, since each of the four has distinguished itself in a specific vertical.
Still, an Alibaba-Sina partnership over Weibo would make things messy. Sina and Baidu announced their own strategic partnership in July, so it’s possible that the four pillars of the Chinese Internet could be morphing into a love triangle.
Image credit: Charles Chan