Is Sina’s Stock Undervalued?

Yesterday, Sina Tech sub-site Startup Stories posted an interesting op-ed from T.H. Capital CEO Hou Xiaotian entitled “Why is Sina’s Stock Undervalued on Wall Street?” In it, Hou argues that given that Alibaba valued Sina Weibo at $32.56/share for its big Weibo investment, when you add in the value of Sina’s (NASDAQ:SINA) other services, the company’s stock ought to be up around $73, yet it continues to languish in the $50-$60 range instead.

Of course, some have argued that Alibaba gave Sina a pretty sweet deal in terms of Weibo’s valuation, but Hou asserts that the Alibaba number is actually quite reasonable, and lays out five reasons why this is the case:

1. “Weibo has a monopoly on the market.” Hou says that 85% percent of all time spent microblogging in China is spent on Sina Weibo, and it has more than 500 million registered users. Tencent Weibo has big numbers too, of course, but Hou says that it’s much less actively used.
2. “Weibo is a real-life platform.” Hou argues that beyond real-name registration, users actually build real “micro-lives” on Weibo complete with their own social circles, entertainment, news, and a lot of voluntary sharing about their real lives. It’s almost like an online journal in some ways.
3. “Weibo creates web 2.0 content.” To explain this, Hou compares Weibo search — where users can find the answers to questions (because the hottest posts on any given topic tend to be what most people are looking for) — to traditional search where users find “a pile of indexed links” that can be hard to sort through”. Weibo, Hou argues, produces a ton of content that sorts itself more or less automatically, and it’s always timely and based on what users want.
4. “Weibo is an entrance point for the mobile web.” Hou says Weibo’s daily traffic exceeds 1 billion pageviews per day, and that 75% of it comes via mobile clients.
5. “Weibo is a kind of self-run media.” Hou points out that Weibo has been exceedingly valuable as a way of spreading information and has arguably increased transparency in Chinese society, even if the information it spreads is sometimes of dubious veracity.

I’m not an investor, or an expert in how companies are valued, so I won’t dispute any of Hou’s specific numbers. But I do think that she’s viewing Weibo with a particularly rosy set of glasses — perhaps it’s not a coincidence this article was published on Sina Tech — and there do seem to be some legitimate reasons to think Alibaba’s Weibo valuation was a bit over the top.

To begin with, some of Hou’s numbers are pretty shocking. She doesn’t cite sources for any of them but I’m guessing most of them come from T.H. Capital’s own research, but even so a few jump out as questionable. For instance: Sina Weibo gets more daily traffic and pageviews than Baidu? That would be pretty surprising. And while yes, Weibo does have 500 million registered users, only a small fraction of them are active (a study published in March found that only 200 million or so users had ever posted, and only 30 million users wrote unique posts in a given week).

Hou’s point about Weibo’s search being more valuable than Baidu’s is interesting but, I think, misleading in some ways. Weibo search is extremely effective at helping users find certain kinds of information. If you want the latest trends, to see what people are saying about a particular actress, or to hear the latest about a political scandal, for example, Weibo search is probably better than Baidu. But at the same time, if you’re looking for biographical information about a historical figure, a link to a popular e-commerce site, or information about the lineup of an NBA team (for example), Baidu is going to be far more effective than Sina. At one point in her article, Hou asserts that Sina’s Weibo search should be valued at double what Baidu’s search is worth per capita because it is more effective, but that is only true for a specific sort of search. Personally, I do a fair amount of searching for my job, and while sometimes Weibo search is the right tool, most of the time my search begins and ends with Baidu.

Finally, I think Hou is understating the threat that Weibo faces from WeChat. Granted, WeChat doesn’t offer the quasi-journal-like features Weibo has, but frankly Weibo isn’t that great for journaling either. Both platforms are best at communicating the here and now, what’s happening within your circles of contacts, and while there are significant differences between the services, WeChat’s growth should still be pretty alarming to Sina — even CEO Charles Chao has said WeChat poses a threat — and it’s no surprise it’s also affecting Sina’s stock price. Users, after all, only have so much time in the day, and the more time they spend on WeChat, the less time they’re spending on Weibo.

There are other reasons to be bearish on Sina — Weibo faces regulatory threat constantly, Sina has had a really tough time monetizing it — but generally speaking, I do think Weibo is a very valuable service. Is it as valuable as the $32.56 per share that Aliababa paid for it? Right now, I’d argue it’s definitely not, but then again, Alibaba didn’t invest just to make a quick buck, and over the long term if it can help Sina make Weibo profitable, the service certainly could be worth that, and a great deal more.

(image via Sina Tech)