Weibo, China’s version of Twitter, has filed papers to sell shares in the U.S. Through the IPO, the social media platform hopes to raise $500 million, but has yet to disclose how many shares it will be selling. Long-held projections that Sina would spinoff Weibo may be likely, since the company and its partner Alibaba, intend to maintain their 86.9% majority stake and are making provisions that any Weibo debt owed them be paid off with the IPO funds.
The Chinese Market
Companies in China such as Weibo have seen exponential growth due in part to the Chinese government’s block on sites such as Twitter and Facebook. Until recently, Weibo offered its users the ability to receive uncensored information and to express their thoughts on a variety of topics, including their government.
However, in 2013, the government-run media outlets warned cybercitizens of being “rumor-mongers.” Arrests had already begun of employees in marketing and social media platform companies, when the government passed a law that allowed arrests of microbloggers. Since then, 28 million Weibo users have quit the platform, despite the company reporting that its profits tripled in the same year, according to the China Internet Network Information Center.
In addition to Weibo’s precarious position with the Chinese government, there are other issues which make the IPO unstable. Many Chinese web users seem to be migrating to mobile messaging, where government censorship is untenable. As an example, mobile app WeChat experienced a growth of 78.6 million among its Chinese users in 2013. This large exodus highlights the fact that Weibo is only two years old and operating in an industry shaped by the whims of a youthful crowd. This hasn’t necessarily stopped investors before, but Weibo’s company structure as a ‘variable interest entity,’ may do the trick. As a VIE, a company can keep assets off their balance sheets, which allows them, among other things, to hide risky debt.
What do you think? Will Weibo be able to recover from their unstable presence, or is it doomed to fail?