Sina (SINA) reported tepid forward guidance on Thursday night last week. The stock tanked on Friday. On Monday's market run-up, it was up 9%.
The reason is that Alibaba, the Chinese ecommerce giant, announced that it would buy a 15-20% stake in the Weibo microblogging service.
The action in the last two days and the investment by Alibaba says less about Sina Weibo and more about the growing battle between Tencent and Alibaba.
Tencent has traditionally been the giant of Chinese Internet stocks. There have been brief moments where Baidu (BIDU) has surpassed it. Even today, Tencent is the biggest with a market cap of more than $58 billion. And that's 12% below its 52-week high reached at the beginning of November.
Tencent built its internet empire on messaging. It connected people with a Chinese messaging system that was unique for China.
Alibaba is known as a leader in e-commerce with the equivalent of the eBay (EBAY) and Amazon (AMZN) of China. It's staggeringly successful. Earlier this month, it exceeded $3 billion in sales on one day.
It is still private, but will probably go public in the next year or two.
Its most recent private valuation pegged Alibaba at $48 billion. My own analysis suggests that if Alibaba was to go public before the end of 2012, it would likely get a post-IPO valuation of $60 billion. By the end of next year, with continued growth, I think they're likely to hit a market cap of $78 billion. Yahoo! (YHOO) still owns 24% of Alibaba, so they stand to greatly benefit when this IPO event occurs.
So, Alibaba and Tencent will continue to battle to be the kings of the Chinese Internet for the foreseeable future. Where does Sina fit it?
Sina Weibo now has 400 million accounts. It's China's Twitter, although it's more interesting as a messaging platform than Twitter. To this point, it's really captured the attention of the most influential Chinese netizens and celebrities.
But Tencent has launched WeChat (or Weixin) recently and it's already up to 200 million users. They're not direct competitors. WeChat is more of a direct copy of WhatsApp. It's like a souped-up BBM for multiple platforms. Yet, the messaging takes time away from other net activities and Sina CEO Charles Chao said as much on Friday's Sina earnings call.
What's good for Tencent is bad for Alibaba it seems. That's probably why Alibaba moved so quickly now to buy a piece of Sina Weibo.
Sina Weibo still has a long way to go to prove to its investors that its investment in marketing and censorship costs will pan out to long-term profits. There's no question that it's a powerful platform, but it will continue to require heavy investments. The quick rise of WeChat shows how even dominant social platforms can quickly come under pressure from unexpected places.
Alibaba is a good partner to have in your corner, although it's not clear what expertise they'll bring immediately to help make Weibo suddenly more profitable. Perhaps heavy promotion on their Taobao and Tmall platforms. We'll see.
It's good news for Sina, but I wouldn't get too carried away expecting the stock to continue to run from here.