Chinese Twitter looks cheap versus real thing

By Wei Gu
March 2, 2011

By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

HONG KONG — China’s Twitter disappointed investors when its owner Sina Corp. said it won’t yet charge fees for the microblogging site. But Weibo still has potential — and makes Sina’s valuation look cheap, especially after the shares fell 5.5 percent in after-market trading. Weibo already has half as many users as Twitter does, but just a quarter of the implied valuation.

Expectations for Weibo have been high, and explain why Sina shares doubled in the past year. Its user base doubled too, to 100 million in the last four months of 2010. Sina had planned to start monetising the service, but has instead decided to wait until the second half of the year. Partly due to the delay, its first-quarter revenue forecast is now below average estimates, according to StarMine.

Provided Sina doesn’t wait too long, there is still room for growth. More than 50 percent of Chinese already use social networking sites, but just 14 percent microblog. Of those who do, Weibo has a 56 percent market share, according to iResearch.

After the fall in its shares, Sina trades at a market capitalisation of $5 billion. Take the core portal and put its 2010 after-tax operating profit on a multiple of 29, in line with online community provider Shanda Interactive, and it looks to be worth $2.5 billion. Deduct some $900 million of cash on the balance sheet, $300 million for its stake in listed China Real Estate Information Corp., and it suggests Weibo is being valued at $1.3 billion.

That’s tiny versus Twitter’s latest valuation of $4.5 billion. If Weibo can continue to add 50 million users every four months, it could match Twitter’s subscriber size in a year. Weibo should be able to generate as much revenue per user as Twitter does, given its links to Sina’s news, video, gaming and shopping.

So why are investors so cautious? One reason is that Weibo doesn’t have any revenue yet. Another may be that they think Sina’s edge in current affairs may attract the attention of China’s censors. But for now, rising social unrest may actually offer Weibo an unexpected boost: the recent spike in users, just as the Middle East is boiling over, is probably no coincidence.

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How do you reason that Sina user can be as valuable as Twitter users once you factor in the GDP/per capita differences between the two graphics. An American spending 1000s of year on “online goods” is different than a Chinese National doing the same. Dollar for dollar the US citizen likely will spend 5x the Chinese citizen just based on income differences.

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