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Weibo Wants You to Ride China's Micro-Blogging Explosion

LONDON (TheStreet) -- Sina (SINA - Get Report), owner of China's largest micro-blogging site, has been conspicuous for its volatility over the past year, jumping& between $45 and more than $90. These frequent fluctuations are the result of varying valuations applied to its main business, the Weibo;microblogging site.

Weibo, which counts 129 million monthly active users, is in play after announcing on Friday that it plans to raise $500 million through an initial public offering in the U.S. Sina Weibo is expected to use some of the proceeds from the IPO to repay loans to Sina, which owns a 78% stake in the micro-blogging site. 

Sina shares jumped on the news but have retreated this week, much as they've done for 2014. Sina has lost 20% this year, closing on Wednesday at $67.11. But with the Weibo offering in the not-too-distant future, are investors missing out on an inviting opportunity?

It is true that as popular as Weibo has proven to be, the site isn't even China's largest micro-blogging platform. That title goes to WeChat, which is owned by the Hong Kong-listed Tencent. But being that it's China, home to a nearly insatiable demand for such sites, Sina has growth in the triple digits. 

The recently announced fourth-quarter numbers showed advertising revenue surging 163% to $56 million in 2013, while non-ad revenue, data licensing, gaming and membership fees jumped 114% to $15.4 million.

That is very solid progress. But look at the absolute numbers: just under $70 million in fourth-quarter revenues on a user base of just under 70 million people. In essence, Sina is generating $1 for every user each quarter. So how can we value this?

One clue comes from Twitter (TWTR).

Contained within Twitter's poorly received inaugural results last month was the statistic that the San Francisco-based social media platform was generating around $1 of revenues from each of their active 241 million users during the fourth quarter.

So should we just get the calculators out and attach a 70/241 fraction to the current Twitter market capitalization to get an implied value for Weibo?

Here's the math. 30% of Twitter's nearly $28 billion market capitalization is around $8 billion. Sina's 71% stake in Weibo could thus be worth over $5.5 billion. This compares very favorably with Sina's current market capitalization of just under $4.5 billion.

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