5PE's Weibo, the cheapest big internet company?

The ideal CEO Li Xiang, known as the "Weibo King" among car industry peers, loves to post on Weibo, which is a way for him to exert influence and promote. He became much more low-key after the MEGA incident.

In addition to posting on Weibo, he has also invested in Weibo. He made several times the profit on Weibo in 2016-2017, earning tens of millions of US dollars, and even posted on Weibo to thank the Weibo CEO.

Last year, he posted again believing that Weibo's stock price was undervalued. At that time, Weibo's market value was $3.6 billion, which was cheaper than the car home he founded.

Over the past year, the "undervaluation" has no end in sight. Weibo's market value has halved to $1.8 billion, while the car home still has $3.5 billion.

Is Weibo even more undervalued?

1. Good cards gradually worn out

At that time, Weibo was still called Sina Weibo, and it was also a winner in the big waves. The reward is that Weibo is now the exclusive alias for Sina Weibo.

In 2007, "Twitter" became popular worldwide, and tweeting became a trend. With the success of Twitter, domestic internet imitators began to take action.

Wang Xing's "Fanfou" took the lead, with the number of users rapidly increasing. In the first half of 2009, Fanfou's user base had exceeded one million. However, due to internet regulation, Fanfou was required to handle inappropriate comments and was eventually shut down in July of the same year. It gradually resumed operations on November 25, 2010.

By the time Fanfou reappeared, the world had changed drastically.

During this period, portal websites such as Sina, NetEase, Tencent, and Sohu all launched their own microblogging services, especially Sina Weibo acted quickly, taking the lead and attracting a large number of users, including many former Fanfou users.

In early 2010, Sina Weibo launched an API open platform, allowing users to post on Sina Weibo through other software, making it convenient and fast. At the same time, the strategy of inviting celebrities to join and driving user growth through the celebrity effect. In 2010, Sina Weibo had 50 million active users.

Among other microblogs, Tencent Weibo was the biggest competitor. Tencent invested heavily in Tencent Weibo, but was 9 months slower than Sina Weibo. The internet is a winner-takes-all game, and Weibo's leading advantage captured users' minds, while Tencent Weibo gradually declined and announced its closure in 2020.

As the winner of the microblog war, Sina Weibo seems to have won. However, the losers of the other microblog wars have all developed and grown in other fields, while Weibo seems to be trapped Of course, Weibo also has its highlights. Through the entry of various celebrities, commercialization, and Alibaba's investment cooperation, Weibo's market value surpassed Twitter in 2016. In less than two years, it then broke through the $30 billion mark.

Looking at the current meager $1.8 billion, which is just a fraction of its past market value, it is truly lamentable.

Changes and turning points do not happen in an instant. There are changes in the environment as well as issues within Weibo itself.

Initially, Weibo's strategy was not bad.

Weibo created some vertical interest communities, supported some influencers, expanded influence in different fields, and increased Weibo's overall commercial value, making advertisers willing to cooperate. With the potential for strong grass-roots support, Weibo still mainly relied on celebrity marketing and stopped short of exploring further. Later, Xiaohongshu emerged in this field.

Both before and after Alibaba's investment, Weibo considered venturing into e-commerce. In 2015, Weibo launched "Weibo Showcase," combining Weibo's social system with Alibaba's e-commerce system. If pursued further, it could have been a leading social e-commerce platform. However, Weibo once again stopped short, ending with generating revenue by redirecting traffic to Alibaba. Later, Pinduoduo's social group buying, Douyin's interest-based e-commerce, and Kuaishou's trust-based e-commerce are all areas that Weibo could have explored, but it did not fully leverage its advantages and became a tool for Alibaba to redirect traffic and earn some stable income.

The most regrettable aspect is short videos. Weibo was the first to start short video content, integrating platforms like Miaopai and Xiaokaxiu into Weibo. With the flow of its own celebrities, these platforms quickly gained popularity. However, Weibo did not pay enough attention to this, treating it as an entertainment feature after integration, failing to break through the traffic ceiling. When Miaopai and Xiaokaxiu were gaining popularity, Kuaishou had low traffic, and Douyin was just starting out.

Now, giants have emerged in the various fields that Weibo has tried. Weibo holds social traffic and has the advantage of being an early mover, but it is constrained by existing strengths and traditional thinking.

New giants, supported by algorithmic recommendations, have stronger competitiveness.

Meanwhile, public opinion supervision has become stricter. Weibo, which used to focus on entertainment celebrities, now has almost no "live" content, only work-related accounts. Weibo has become their workplace. Weibo is like a wedding dress for everyone.

In fact, everyone misses the time when Weibo was full of "live" content.

Weibo still has some energy, but its main function may be to view hot topics and report, joining the "onlookers" crowd. Nowadays, Weibo is filled with hostility and opposition, easily stirring up a negative atmosphere. This discussion style on Weibo is inseparable from its public nature, and Weibo has yet to come up with a good solution. Figures like Luo Xiang and Dong Yuhui have simply quit Weibo.

Weibo still tolerates celebrities inflating data, watering down content, and having a bunch of zombie followers, auto-following, etc., just to make the data look better. Often, truly useful comments are hard to come by.

Weibo has always chosen short-sighted profit solutions, sacrificing long-term user experience.

Ruining a good hand may be the summary of Weibo's many years 2. Value Analysis

Weibo also understands the importance of content ecology to itself.

Therefore, in the past two years, Weibo has once again focused on vertical content, but there has been no significant change in overall help for the time being. If Weibo does not make major changes, the market will think it has no future. Even with 600 million monthly active users, the market does not see much value in it.

Weibo's valuation is far less than Xiaohongshu and Bilibili, which have only over 300 million monthly active users. Bilibili is valued at around $6.5 billion, while Xiaohongshu's valuation is close to $20 billion based on financing.

From the performance perspective, Weibo appears weak. Weibo's main revenue comes from advertising, accounting for over 85% of its revenue. In recent years, Weibo's advertising revenue has not only failed to increase but has also declined. The advertising revenue in 2023 is on par with that of 2019. The revenue from value-added services was not disclosed in the first half of this year, and the combined revenue still declined by 2.42% year-on-year. There are certain macro factors at play, but the bigger issue lies in the fact that advertisers are not very keen on Weibo.

In terms of advertising trends, advertisers are increasingly inclined to concentrate resources on high-traffic, high-conversion platforms. Relatively speaking, although Weibo has 600 million monthly active users, it is a low-conversion platform. The traffic is high, but the user value is low. Unless given sufficient discounts, going to high-conversion platforms, although more expensive, is more valuable and yields greater returns.

The difference between Weibo and other platforms lies in the lack of algorithmic recommendations, still relying mainly on search and following. The model of people finding things on the internet is already a thing of the past, and the efficient algorithm of things finding people is currently the mainstream form.

Social platforms such as Douyin, Kuaishou, and Xiaohongshu, which are based on algorithmic advertising push models, also have higher monetization efficiency, as well as stronger content ecology and user stickiness. Although Weibo has made some attempts at algorithmic recommendations, it is unclear what it is pushing, with the majority being advertisements. At the same time, Weibo's topic format, if not controlled well in terms of comments and reposts, sometimes has the opposite effect on advertisements.

The current decline of Weibo makes it difficult to be optimistic about its future. Being able to maintain the status quo may already be a good outcome.

Having 600 million monthly active users is a treasure if it can be utilized, but it is useless if it cannot. When Weibo can no longer provide the market with room for imagination, the value of these 600 million monthly active users is determined.

For a mature company without room for imagination, its value can actually be seen first from the balance sheet.

Weibo has sufficient cash on hand, with $1.922 billion in cash and $916 million in short-term investments, greatly exceeding its $1.8 billion market value However, at the same time, its liabilities are at a relatively high level, with $1.063 billion in long-term loans, $800 million in short-term loans, and other liabilities totaling $3.689 billion.

On the asset side, there are items such as goodwill, long-term investments, accounts receivable, and other non-current assets, the actual value of which is uncertain as they would need to be discounted. After deducting the liabilities, there may be less than $1 billion in net assets (rough estimate) plus a platform.

In other words, if Weibo were to strictly liquidate its current assets, its current market value may not necessarily be undervalued.

Based on current market bids, deducting the aforementioned net assets of around $1 billion, the value of this platform is around $700-800 million. This is equivalent to more than $1 for each active user per month, which seems quite cheap from a traffic perspective.

If there is a company that can leverage Weibo's 600 million monthly active users, they might be willing to pay a higher price for acquisition. However, if Weibo continues to earn only this much money, the market will overlook its 600 million monthly active users, even with $1 billion.

For Weibo, since there is no further room for development, it might be a better choice to distribute the money.

Weibo's operational cash flow performance is still good, far exceeding the level of net profit, making it a profitable internet company that can also support a relatively high level of dividends.

In the past two years, the company has also started paying dividends, with a dividend of $0.82 per share, resulting in a current dividend yield of over 11%. From the perspective of dividend yield, it is still attractive, but it is unclear whether dividends can be stable in the future. If dividends can be stable, then there is a high probability that the stock price will stabilize.

Conclusion

Weibo's performance after its peak has been lackluster, holding traffic in multiple areas and entering early, but failing to succeed.

The problem with Weibo lies in its lack of consideration for the overall situation, focusing excessively on how to survive and how to quickly improve performance. It has not paid much attention to and delved into user needs, but rather focused more on which feature can generate more revenue, with multiple layers of VIP services.

How to enrich content ecology, find new growth points, and compete with other internet platforms are all issues that Weibo needs to consider. Simply using it for "eating melons" is somewhat wasteful