Yahoo Will Benefit From Alibaba’s Social Media Push

by Jonathan Berr | April 29, 2013 3:38 pm

Yahoo Will Benefit From Alibaba’s Social Media Push

Yahoo’s (NASDAQ:YHOO[1]) shares are strangely silent today following the news of the decision of Alibaba Group — China’s answer to Amazon (NASDAQ:AMZN[2]) — agreed to acquire Sina’s (NASDAQ:SINA[3]) stake in Weibo, China’s equivalent to Twitter.

That’s a pity.

The Sunnyvale, Calif., company owns about 23% of Alibaba’s stock and stands to benefit whenever the Chinese company decides to sell shares in the U.S. — which, judging from the reaction from today’s news about Weibo, might come sooner rather than later.

That’s especially the case given that Alibaba CEO Jack Ma reportedly is planning to retire at the ripe old age of 48. Selling shares to the public might the perfect exit strategy for Ma, whose relationship with Yahoo has been rocky at times.

Joining microblogging and commerce makes perfect sense. Weibo has many advantages over Twitter — which the Chinese government blocks — because of the nature of the Chinese language. As Radio Netherland recently[4] noted, English speakers can usually jam a sentence or two into Twitter’s 140-character limit. Chinese users of Weibo, however, can pack enough info for a brief news report, and as a result its microblogs are roughly three times as informative as their English language counterparts on Twitter.

Unfortunately, Weibo users are not as free to express themselves as their counterparts on Twitter because the service’s users remain under the tight control of the government. According to media reports, Weibo said it had 503 million registered accounts as of the end of last year, a 73% increase. Growth, however, is starting to slow, hitting 9% in the recent quarter, amid growing competition from Tencent’s (PINK:TCEHY[5]) WeChat, among others.

Still, Weibo remains popular with Chinese businesses and has plenty of potential for growth.

“International media have been keen to point out Weibo’s potential for effecting social change in China,” wrote Josh Ong earlier this year on The Next Web[6]. “According to a recent survey from a communist party-backed magazine, Chinese government officials also acknowledge that potential, as more than half of them admitted that they fear microblogging services could cause social unrest.”

The question isn’t whether Weibo will pay off for Yahoo, but when.

Last year, Yahoo unloaded 50% of its stake in Alibaba for $7.6 billion. At current prices, its remaining stake is probably worth about $1.55 billion. That money could give CEO Marissa Mayer, who recently reported disappointing quarterly earnings, more breathing room to put the company back on the path of sustained profitability.

Alas, one thing Mayer won’t be able to do with the money is to buy Twitter, whose market value is estimated in media reports to be as high as $11 billion. Yahoo, of course, could try to raise the money for such an acquisition, but such a deal would tough for shareholders to swallow. It wouldn’t surprise me if one of the company’s rivals with deeper pockets — such as Google (NASDAQ:GOOG[7]) or Microsoft (NASDAQ:MSFT[8]) — tried to buy Twitter.

The Weibo news also might offer Yahoo investors a good entry point into the stock. Shares of the Sunnyvale, Calif.-based company are trading at a price-earnings multiple of 7.2, near their five-year low, according to Reuters. The average 52-week price target on the stock is $25.42, roughly 3% higher than where it currently trades.

Meanwhile, not only does Yahoo stand to benefit from an Alibaba IPO because of the Weibo investment, but Mayer likely will try to monetize its investment in Yahoo Japan, which is worth about $9.8 billion.

The former Google executive has managed to do something that many though impossible: Get people excited about Yahoo.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. He can be reached on Twitter at @jdberr.

Endnotes:
  1. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  2. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  3. SINA: http://studio-5.financialcontent.com/investplace/quote?Symbol=SINA
  4. Radio Netherland recently: http://www.rnw.nl/english/article/weibo-twitter%E2%80%99s-evil-twin
  5. TCEHY: http://studio-5.financialcontent.com/investplace/quote?Symbol=TCEHY
  6. The Next Web: http://thenextweb.com/asia/2013/02/21/chinas-sina-weibo-grew-73-in-2012-passing-500-million-registered-accounts/
  7. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  8. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT

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