Had the "Twitter (TWTR) of China" gone public maybe three years ago, the offering could have been a huge hit. Back then, Weibo was the hottest messaging service in China. I remember traveling around the mainland back then and you couldn't get into an elevator without hearing the sound that someone around you had just posted a Weibo on their mobile phones.
The service gave the Chinese people their first real taste of mass communication with others, all allowed by the government.
However, two things happened. Government censors cracked down on some Weibo users including ones known as the "Big Vs" because they are "verified" and have millions of followers in some cases. Also, Tencent's WeChat came along over the last two years and became the preferred way of communicating ideas. An added bonus of WeChat is that your thoughts are only communicated with the friends you choose rather than the open public. Therefore, censorship is not an issue.
Since WeChat's ascension, Weibo can't seem to find its identity or path forward. Its user growth and engagement has been declining, even as it works hard at making money off users. (Sound like another company you know?)
Now the company has chosen to go public at this moment. It has left potential investors underwhelmed. Initially, when Weibo first filed to go public, there was talk it could get a $7 billion or even $8 billion valuation. At the current initial public offering price, it will be a $2.5 billion valuation.
Weibo had wanted to raise $500 million from the offering. Instead, they will get about $258 million today.
Even at this deeper discount though, where does the stock trade once it opens? Judging from the action in Sina's (SINA) stock price recently, most think it will go down further.
However, unlike my colleague Antoine Gara, I don't think Weibo's successful or unsuccessful IPO today will have any effect on the upcoming Alibaba IPO. Alibaba, as we saw in its latest fourth-quarter results announced by Yahoo! (YHOO) on Tuesday, is seeing accelerating growth, not declining.
It might be a better test of Twitter, though.
Twitter is seeking to make as much money from mobile ads as it can, even as its user growth stagnates. Yet, it trades at a 38x trailing price to sales ratio while Weibo gets a 13x price to sales ratio.
Am I missing something?
At the time of publication, the author was long Yahoo! but held no positions in any of the other stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.