Alibaba Group Holding Ltd. agreed to buy a stake of about 18 percent in Sina Corp. (SINA:US)’s Weibo for $586 million, connecting China’s largest Twitter-like service with the nation’s biggest e-commerce company.
Alibaba, the Hangzhou-based company founded by billionaire Jack Ma, acquired preferred and ordinary shares and has the option to increase its stake to 30 percent at “a mutually agreed valuation,” according to a statement yesterday. The companies said they will also work on user-account connectivity, data exchange, and online payment and marketing.
Sina, based in Shanghai, has boosted development spending for Weibo, which has more than 500 million users, as clients increasingly post from mobile devices rather than computers. Alibaba, operator of the Taobao and Tmall online marketplaces, is expanding into mobile devices and cloud computing to take advantage of the increasing number of shoppers who order from smartphones and tablets.
“Sina Weibo’s media platform nature and social characteristics, and Alibaba’s various e-commerce platforms, will help Sina Weibo to form a business model that is way beyond Weibo’s current large advertisement-oriented business model,” Juan Lin, an analyst at Wedge Partners Corp., wrote in a report.
Alibaba’sMa said last month that the company may use acquisitions to boost growth through apps because it hasn’t been able to keep up with Tencent (700) Holding Ltd.’s WeChat messaging service. WeChat had more than 300 million users by January. Ma is focusing on strategy after Alibaba named Jonathan Lu to replace him in May as chief executive officer, amid speculation the company is preparing for an initial public offering.
Shares of Sina, an Internet company, advanced 9.4 percent to $55.03 at the close in New York yesterday, for its biggest gain since Aug. 16.
In a note to clients yesterday, Piper Jaffray Cos. (PJC:US), which has an overweight or buy rating on Sina, increased its price target for the stock to $75 from $65 and boosted revenue and earnings per share estimates, citing the deal.
The companies said they will work on new business models for social commerce based on the “hundreds of millions” of users on Weibo and on Alibaba’s e-commerce offerings. The agreement is expected to generate about $380 million in ad and social-commerce revenue for Weibo over the next three years, according to the statement.
“E-commerce will play a vital role in building an eco- system around Weibo’s open platform,” Charles Chao, chief executive officer of Sina, said in the statement. “Weibo and Alibaba’s e-commerce platforms are natural partners.”
Alibaba said earlier this month that it’s working with five Chinese handset makers to use its operating system as the nation’s biggest e-commerce company competes with Google (GOOG:US) Inc. and Tencent for mobile device users.
A Chinese government research institute said in March that the nation’s smartphone makers are “heavily dependent” on Google’s Android software and that is hampering the development of the domestic industry.
The number of registered users on Sina’s Weibo rose 73 percent last year to 503 million, according to the company. The average number of daily users was 46.2 million in December, 82 percent more than a year earlier.
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