Twitter unveiled its IPO document Thursday, revealing that it intends to raise up to US$1 billion from its planned listing. With the filing, the US-based provider of online text-messaging service, which allows users to share their ideas in 140 characters at most each time, disclosed its financial performance for the first time.
In the first six months of 2013, Twitter racked up revenue of US$254 million. As the market value of the company is estimated at about US$10 billion, it implies a forward price-to-sales multiple of close to 20.
That offers investors meaningful and comparable information to assess the prospects of its Chinese-clone – the Weibo service of Sina Corp (SINA.US). The P/S ratio of the Nasdaq-listed Sina is just about 12 based on the price that Alibaba Group paid to acquire stake in the Weibo unit in April and Sina’s projected 2013 earnings.
Before rushing to take advantage of the valuations gap, investors should note that Weibo is both alike and different from Twitter. Both of them have vast follower bases. Twitter said its active users hit 218 million in June while Sina Weibo put its number at 100 million. Both companies, meanwhile, are still looking for a viable route to turn their social networking businesses profitable.
Despite the similarity, a discount on Sina’s valuation is not unjustified. In contrast with Twitter, Sina relies too much on one market — China. Or more precisely, the company failed to go beyond its home turf. Riding on the world’s second largest economy enables Sina Weibo to grow rapidly, but excessive concentration in the country is certainly not risk-free.
In order to comply with China’s stringent surveillance regulations, Sina Weibo carries out real-time monitoring on the content flowing through its platform. Although the company does not give financial details on Weibo, it is certain that the average operating cost on users won’t be small, eroding the earnings from portals business where the company made its fortune.
Worse still, mainland authorities often make use of critical Weibo posts as incriminating evidence to suppress dissidents. Such moves have had a chilling effect on netizens, dampening the appetite of active users to surf and share their ideas. If the tightened official grip persists, advertising and value-added service income of Sina will get hurt inevitably.
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