SAN FRANCISCO (Reuters) - Shares of Weibo Corp WB.O rose 19 percent in their U.S. debut on Thursday, sweeping aside concerns that Chinese censorship will hurt the growth of the country's Internet sector and broader worries about lofty tech-stock valuations.
Investors are scrutinizing the biggest debut of a Chinese Internet company in years, hoping for clues as to demand for the highly anticipated IPO of far larger e-commerce giant Alibaba Group Holding Ltd IPO-ALIB.N.
Weibo Corp’s gains came after the owner of a Chinese Twitter-like messaging service priced its shares at the bottom of a target range of $17 to $19, and cut its offer by 16 percent, to 16.8 million American Depositary Shares from 20 million.
The stock rose as high as $24.48 in the afternoon, briefly valuing the company at about $4.7 billion. It closed at $20.24, up $3.24, at 4 p.m. in trading on the Nasdaq Stock Exchange.
That surge caught some investors off-guard because of its well-known susceptibility to unpredictable Chinese censorship and the uncertain outcome of intense domestic competition with the likes of Tencent Holdings Inc0700.HK.
At $24, near its Thursday high, Weibo Corp is trading at around 26 times 2013 sales, higher than Facebook Inc's FB.O 19 times and Chinese Internet search-leader Baidu Inc's BIDU.O roughly 2 times, but still lagging Twitter's multiple of 40.
The strong debut gave fellow Chinese Internet companies a lift. Parent Sina Corp SINA.O rose more than 6 percent, video-streaming site Youku Tudou Inc YOKU.N was 3 percent higher, and social network RenRen RENN.N gained 3 percent.
“It’s overdone. These are very speculative names that have tremendous uncertainty,” warned Michael Yoshikami of Destination Wealth Management. “It’s very similar to 1999. The big investors are looking past the current numbers to whatever the future might be.”
“One day, valuations will matter. Just not today.”
TWITTER IN NAME ONLY
Weibo, in which Alibaba owns a stake, often prompts comparisons with Twitter but its market value remains a fraction of the San Francisco company’s. At Thursday’s close, Twitter was valued at about $26 billion.
Weibo Corp’s offering, whose lead underwriters were Goldman Sachs and Credit Suisse, raised $286 million, much of which will go to its parent. It is controlled by Web portal company Sina Corp, whose stake falls to 56.9 percent from 77.6 percent after the IPO. [ID:nL3N0N90HN]
Alibaba, which paid $585.8 million for an 18 percent stake in the company last year, will increase its holding to 32 percent and appoint a director to the board.
Weibo, whose name means “micro blog” in Chinese, has grown at breakneck speed in a country where Twitter is banned, but there’s evidence that its user growth has slowed as China cracks down on criticism of the ruling Communist Party.
A rule that took effect in September imposes a prison sentence of up to three years for those who knowingly share false information online. That had a chilling effect.
Research commissioned by Britain’s The Telegraph found that posts fell as much as 70 percent after rule was announced.
And it’s also battling intense domestic competition. People who once used sites such as Weibo’s are now flocking to messaging apps such as Tencent’s WeChat.
Unlike Weibo, WeChat allows users to communicate among private circles of friends. The service leaped from 121 million global monthly active users at the end of September 2012 to 272 million in just a year.
Yet WeChat itself isn’t immune to government censorship. Last month, authorities closed dozens of popular accounts, including those held by widely read columnists and investigative journalist Luo Changping.
“People had concerns that there’s some competition over there and that engagement on Weibo may be challenged in the future, but I think Weibo is still a social media platform, that people still use it every day,” said Henry Guo of JG Capital.
“I’m expecting the censorship and monitoring to continue. But I don’t see any risk as far as Weibo’s existence.”
Weibo Corp's sterling debut could pave the way for its peers. Alibaba is expected to file as early as next week for a U.S. IPO that could raise as much as $15 billion. That would make it the biggest internet company IPO since Facebook Inc's FB.O $16 billion coming-out party in 2012.
U.S. IPOs raised more than $18 billion in the first three months of the year, making it the best quarter in more than a decade. Technology companies raised about $4 billion of the total, compared with $1 billion in the same period last year.
But investors may be having second thoughts as valuations -- particularly for tech and biotech companies - become stretched. The Nasdaq Composite index .IXIC has fallen about 6.5 percent since its March 6 high, and recorded its biggest one-day drop in two and a half years last week.
“This is not as bad as 1999..., these are real companies with real sales and revenue,” Yoshikami said. “But while it may not be as bad, it’s certainly not an environment where valuations matter.”
Additional reporting by Tanya Agrawal in Bangalore and Yimou Lee, Elzio Barreto and Denny Thomas in Hong Kong; Editing by Ted Kerr and John Pickering
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