There's a lot of focus on Action Alerts PLUS charity portfolio holding Twitter's (TWTR) board right now and when they are going to select a new CEO. Will it be Jack Dorsey or not?
Bulls on Twitter believe clarification of leadership is necessary to usher in a new era of products and features that drive user growth. Better days lie ahead for the company, if only it can appoint a new CEO, is the hope for these bulls.
But there is another company out there that Twitter investors should fear: Weibo (WB), a spin-off from Sina (SINA). It is the Chinese equivalent of Twitter. Remember that Twitter is banned in China because of government fears that it could be used to spread information that might be harmful to the government.
So, instead of Twitter performing that role, the Chinese government allowed Weibo to blossom. However, they ensured that there were strict limits on Weibo, as well as an army of Weibo censors to monitor the communications going across the network.
When Weibo first launched, it was rapidly embraced by the Chinese, helping to put a jolt into the shares of Sina, which jumped from around $20 at the 2009 lows to $140 by early 2011.
I recall being in China in late 2010. Everywhere I went, I could hear the app beeps for Weibo, which indicated people around me were checking for updates on their Weibo app.
Tencent -- which had built an empire on an earlier messaging app designed for feature phones called QQ -- was nervous. Weibo seemed to be drawing users away in droves for a new smartphone-based app.
Tencent's response was to launch Tencent Weibo -- essentially a copycat. Its strategy to win over users to its own version of Twitter was to hire a lot of big name Chinese celebrities for a series of marketing campaigns. However, it didn't really work.
But then another group within Tencent developed WeChat -- a private messaging service. At the same time that WeChat started to take off in China, a series of events happened. The government turned off Weibo or arrested some people who had allegedly posted some sensitive information on the service. This served to further drive people to WeChat, which was private communication between mostly friends instead of putting out public posts.
Today, Weibo is a shadow of its former self in terms of activity. It has tried to make itself more relevant by getting an investment from Tencent competitor Alibaba (BABA) and focusing on e-commerce (driving people to shop at Alibaba.) But Weibo's stock is down about half since its IPO 18 months ago. Today, its market cap is $2 billion.
Twitter's price-to-sales ratio is about double Weibo's (10x vs. 5.8x).
Now, Weibo is a lot smaller than Twitter. And we don't worry about government censorship over here. However, what if a lot of people don't want to post their thoughts publicly? What if they prefer private communication? Isn't that's what's reflected in Facebook (FB) Messenger's app being so popular on its own?
If that's right, Twitter might be trading at about double the level it should.