China’s Weibo seeks to raise $500 million in a US IPO

Chinese messaging service Weibo, which closely resembles Twitter, became the latest Chinese Internet company to tap US markets as the company, owned by Sina Corp, filed on Friday to raise $500 million via a US initial public offering. It follows the example of search service Baidu and its own corporate parent, Alibaba, which recently announced it seeks to raise $15 billion in New York in the most significant IPO since the one of Facebook two years ago.

Weibo was launched in 2009 and received an investment of $586 million in April 2013 by Alibaba Group Holding Ltd., which provided it with an 18% stake.

Weibos owner, Sina, reported in February that its microblogging services user base grew at the slowest pace since the foundation of the company as it lost market share to Tencents WeChat app and also competed with Facebooks recently purchased WhatsApp. Weibo has 129 million active users per month, around half of Twitters user base, while daily active users amounted to 61.4 million.

However, the companys sales more than doubled in 2013 to reach $188 million, while its net loss declined to $38 million from $102 million in 2012. Advertising contributed with about 80% of the companys revenue, while the remaining 20% came from games and game-related and VIP-membership services. Weibo managed to increase ad revenue by 163% to $56 million in the fourth quarter of 2013. The company marked a significant improvement in revenue per user, which rose to $1.24 last year from $0.82 in 2012, but trailed Twitters $3-per-user earned.

Weibo warned investors on Friday about the arising media environment uncertainty in China, stemming from tightly controlling and censoring government regulations. The government prohibits the release of certain material in the media such as political opposition and criticism. There are prominent Weibo users who have been arrested for openly criticizing the ruling party, among which is Charles Xue, a prominent Chinese-American internet personality.

The company particularly underscored a regulation that came into force in September, according to which people who make or share false information could be sentenced to as much as three years jail time.

The company said in its filing, cited by Reuters: “The implementation of this newly promulgated judicial interpretation may have a significant and adverse effect on the traffic of our platform and discourage the creation of user generated content.”

Weibo also warned that Beijings requirement of all “cipher code” products to be registered with the government carries a potential risk of government intervention in its encryption means that are used to protect users privacy. However, it remains unclear if the requirement is also valid for social networks.

Nevertheless, US investors have shown and continue to show heightened interest for Chinese companies as they try to tap the momentum of the worlds fastest growing major economy. Despite Beijings push to reshape the Asian economy from investment to consumer-driven, which drove annual growth back to single digits, this year the US may see the most initial public offerings from Chinese companies since 2010.

Moreover, apart from the US listing, Weibo could get a further boost from its corporate parent Alibaba. According to the Wall Street Journal, people familiar with the matter said that Alibaba may increase its stake in Weibo by 12% to 30%, if an IPO is carried out. The Chinese e-commerce giant bought an 18% stake in Weibo last year in order to tap the soaring number of Chinese surfing through the Internet via their mobile devices.