Weibo's IPO: Investors should be wary

WEIBO's planned initial public offering stretches financial logic. Listing a US$500 million stake in China's version of Twitter looks like a response to sky-high tech valuations - most recently Facebook's US$19 billion acquisition of messaging service WhatsApp. But investors can already buy shares in parent Sina, whose value is mostly made up of Weibo already. They should be sceptical about the idea that two plus two is five.

With over 61 million active users a day, Weibo is one of China's most hyped social networks. Yet owner Sina Corp, which also operates web portals, has only lately started to try and monetise it. Revenue from the microblog grew 34 per cent in the quarter ending Dec. 31 to US$71.4 million, compared with the previous three months. A chunk of that came from a tie-up with e-commerce giant Alibaba, which owns 18 per cent of the microblog, with the option to increase to 30 per cent.

Sina is now seizing on red-hot tech valuations to plan a listing of a minority stake in Weibo. Indeed, since Alibaba bought its stake in April 2013, valuing the microblog at US$3.3 billion, Weibo's prospects may have increased dramatically.