Alibaba, China’s biggest e-commerce company, just announced that it is paying $586 million for an 18% stake in Sina Weibo, the online ad company’s Twitter-like social media platform. Alibaba will have the option to raise its stake to 30% in the future.
The official announcement noted that the deal should bring in $380 million in marketing and e-commerce to Sina Weibo over the course of three years (link in Chinese). The deal had been rumored for awhile, though so too had a Weibo investment by leading Chinese search engine, Baidu.
“We think this estimate is very conservative, given that current Taobao ad revenue … is around $700 million per quarter,” says Junheng Li, head of research for equities research firm JL Warren Capital.
The deal values Sina Weibo at around $3.2 billion—something that has to come as a relief to Sina, which has for years frustrated investors with its struggle to monetize its social-networking site (SNS). The rising threat of Tencent’s WeChat to its user base has only heightened that urgency. That $380 million in three years will be a big step in the right direction. Sina’s stock is up around 10% so far today.
“And for [Alibaba],” says Li, “it will get the largest SNS and the top three mobile app in China.”
Li is referring to Sina Weibo’s 503 million users, of which around 46. 2 million are active on a daily basis. And more than 130,000 companies have opened corporate accounts on Weibo.
While Taobao, its eBay-like site, and Tmall, its Amazon-like platform, handled transactions worth $170 billion in 2012, Alibaba didn’t necessarily make money off all of those sales. Unlike eBay and Amazon, Alibaba’s revenue comes mainly from advertising. This means its teaming-up with Sina could help it boost ad revenue, as well as shore up a massive user base that could help it justify charging users, the way eBay does, says Li.
The potential benefits of cooperation between the two had already begun to be clear, as Sina incorporated a new module in mid-April that enhances the product information on Taobao products. Already 8.2% of Sina Weibo’s downstream sites—meaning other websites that Weibo users clicked through to—go to Taobao. In addition, there may be potential to pool user data to target users more effectively; at present, the sites have an estimated user overlap of more than 40% (link in Chinese).