Alibaba, Sina Haggle on Weibo Value 阿里巴巴与新浪就微博估值陷入僵局
I was surprised to see reports today that Alibaba and Sina (Nasdaq: SINA) have reached an impasse in their rumored negotiations for the former to buy a strategic stake in the latter, since both sides clearly want this deal to happen as it would greatly benefit both. But then I had a closer look at the reports, and my conclusion is simply that the 2 sides are still negotiating in an attempt to place a value on Sina, whose popular and increasingly influential Weibo microblogging service lies at the heart of their planned tie-up. Such disagreement is standard for this kind of negotiation, and I fully expect the 2 sides to reach a deal that should be one of the most significant tie-ups we’ve seen for China’s Internet space since the merger of leading online video sites Youku (NYSE: YOKU) and Tudou earlier this year.
To understand what’s happening here, let’s take a look at the latest headlines, which look to me like a tempest in a teapot. Media are reporting that the deal has fallen apart because the 2 sides couldn’t agree on a price. (Chinese article; English article) I find this reason somewhat interesting, since Sina is a publicly traded company and its market value is public knowledge. Its current market capitalization values the company at about $3.2 billion, which includes a 5 percent jump in its share price since word of the talks first leaked out early this week.
Of course, Sina might argue that its shares are undervalued following a sell-off over the last year and a half as investors dumped shares of many US-listed Chinese stocks after a series of accounting scandals at several companies. Sina shares have lost around two-thirds of their value over the last year and a half since the confidence crisis began, and I have no doubt that CEO Charles Cao is seeking a valuation closer to the 2011 level of around $9 billion, whereas Alibaba founder Jack Ma wants something closer to current levels.
Both men are very savvy at finagling valuations to their advantage, and I have no doubt that each will fight very hard to get the best deal for his company. At the same time, both of these men are also very good strategists, and realize this kind of a deal makes very good sense and would benefit both companies for reasons I explained when news of the negotiations first leaked out over the weekend. (previous post)
To recap quickly, Sina has found huge success with its Twitter-like Weibo microblogging service, which now has more than 350 million registered users and has become a powerful center for public debate in China. But Sina has had difficulty monetizing the service since most people already access it for free and don’t want to pay for premium services. One thing Chinese Internet users don’t mind paying for on the web is consumer products, which has helped Alibaba become the country’s e-commerce leader with its popular its TMall e-commerce site. Thus a tie-up between Alibaba and Sina could help both companies by extending TMall’s e-commerce services to Weibo.
So to return to the original subject, I fully expect Sina and Alibaba to finally reach a deal, since the stakes are too high for either to walk away. For Alibaba in particular, the big risk could be that Sina might look for another e-commerce partner, perhaps Jingdong Mall or a big foreign name like Amazon China (Nasdaq: AMZN). At the end of the day, I expect that Alibaba will pay a nice premium for its Sina stake, perhaps valuing the company at as high as $5 billion.
Bottom line: Alibaba is likely to reach a deal to purchase a strategic stake in Sina despite a current impasse in their talks, with Sina shares likely to ultimately fetch a nice premium.
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