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Weibo IPO Is a Test for Twitter, Alibaba

Updated from 8:25 a.m. ET to include closing share prices

NEW YORK (TheStreet) - Weibo (WB), often referred to as the Chinese version of Twitter (TWTR - Get Report), began trading on the Nasdaq Global Select Market on Thursday, surging over 19% after the company priced its initial public offering at the low end of its expected range.

The listing brought yet another fast-growing social media company to U.S. stock markets and could be a leading indicator of e-commerce giant Alibaba Group's much anticipated IPO.

Beijing-based Weibo sold 16.8 million American depositary shares of its Class A stock at a price of $17 a share, or the low-end of its expected range. However, Weibo shares popped on their first day of trading, rising over 19% to close at $20.24 a share. Underwriters Goldman Sachs and Credit Suisse will have the option to purchase an additional 2.52 million shares to cover over-allotments.

In total, Weibo raised $285.56 million in its IPO. The company first filed for a U.S. stock offering in mid-March.

In China, Weibo provides a way for users and organizations to publicly express themselves in real time and interact with others in a similar fashion to Twitter in the U.S. The company was founded in 2009 and is majority owned by Chinese internet company SINA (SINA - Get Report). In the filing, Weibo said that it would use some IPO proceeds to repay loans to its parent company, Sina.

In early 2013, Chinese e-commerce giant Alibaba invested $585.8 million in Weibo for approximately 18% of the company's outstanding shares. According to a disclosure, Alibaba can increase its stake in the company to 30%. Alibaba is partially owned by Yahoo! (YHOO), which has a 24% stake in the Chinese Internet giant.

In March, Alibaba announced that it too would be going public, seeking a listing in the United States, and not Hong Kong. On Tuesday, a disclosure in Yahoo's first-quarter earnings showed that Alibaba's profits more than doubled to $1.3 billion in the fourth quarter of 2013.

Weibo vs. Twitter

As of the end of 2013, Weibo had 129.1 million monthly active users and 61.4 million average daily active users. Over 70% of the company's monthly active users in accessed Weibo through mobile devices in December. Those figures indicate Weibo's user base is about half the size of Twitter, but its users are growing at a far-faster rate.

The company also relies upon minority investor Alibaba for a significant portion of its earnings.

Weibo generates revenues from advertising and marketing, similar to Twitter, but generates a lot of advertising revenue from one client, Alibaba. The company noted its advertising and marketing revenues increased by 191% from $51.0 million in 2012. However, advertising sold to Alibaba accounted for $49.1 million, or 33.1%, of its advertising and marketing revenues in 2013.

In total, Weibo generated $188 million in revenue in 2013, a near quadrupling of sales versus year-ago levels. The company, however, only saw its net loss narrow from $102 million in 2012 to $38 million this year.

Weibo has non-advertising earnings streams, including game-related services, and VIP memberships. Other revenues rose 168% year-over-year to $39.9 million in 2013.

Gaming Business

Revenue from game-related services increased jumped to $22.9 million in 2013 from $12.7 million in 2012, while VIP membership revenue rose to $11.1 million from $2.2 million in 2012.

The company ended 2013 with 700,000 VIP members, up from 400,000 in 2012. "Our introduction of additional sources of other revenues in 2013 to further monetize our user base and the content on our platform, including data licensing, also contributed to the increase," the company noted in its March F-1 filing.

On a measure of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) Weibo's annual loss narrowed from $80 million in 2012 to a loss of $6.3 million in 2013. Were it not for Weibo's "investor option liability" the company would have generated positive EBITDA in 2013.

In the nine months prior to Twitter's IPO, the company generated $30.7 million in adjusted EBITDA and had a user base of nearly double that reported by Weibo.

-- Written by Antoine Gara and Chris Ciaccia in New York.

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