Weibo Corp (ADR) (NASDAQ:WB) announced earnings Nov. 7. As a result of standout WB earnings, WB stock is up 13% over the past five days of trading.
Like a runaway train that can’t be stopped, Weibo is on its way to $200; the only question is how long it takes to get there.
In November alone, two InvestorPlace contributors have written about WB earnings and the stock’s potential upside.
But it’s what InvestorPlace’s Dana Blankenhorn said in early October that has me pondering an investment in SINA Corp (NASDAQ:SINA).
“Ian Bezek calls it red hot, because it’s a ’10-bagger,’ having risen 1,000% since 2015,” Blankenhorn wrote. “Tom Taulli notes that the company is ‘running on all cylinders.’ Despite its huge gains, Larry Ramer says it is ‘still attractive.’”
Those are some mighty persuasive words.
Interestingly, WB stock has gained as much in the past week as it’s gained from the beginning of October highlighting the importance of WB earnings, or any company’s earnings for that matter, in driving the share price higher.
Now back to Dana’s words of wisdom.
Different Options for WB Stock
Blankenhorn’s thesis in his Oct. 2 article centers around the idea that while Weibo is booming, Sina owns 46% of Weibo’s common shares and 72% of its votes, thereby controlling the Chinese social media platform.
Yet, Sina’s market cap of $7.4 billion is just 30% of Weibo’s at $24.5 billion. The difference left Blankenhorn scratching his head.
Blankenhorn reasoned it made less sense to own WB stock than SINA stock. Why? Because with Sina you’re getting a piece of Weibo at 39% off — 46% of Weibo’s $24.5 billion market cap less Sina’s market cap of $7.4 billion equals $3.9 billion divided by $12.2 billion which equals 35% — which makes owning the parent a much better deal.
Case closed, right? Not so fast.
Back in September, InvestorPlace’s Larry Ramer made the case that Alibaba could acquire all of Weibo giving it unfettered access to sell its products on the social media platform while also creating an English version in Europe and other parts of the world.
Let’s assume Alibaba does decide to buy the rest of the company from Sina and the other minority shareholders.
What would it have to pay?
My guess is a lot. In September 2016, Alibaba paid $135 million for three million ADRs which works out to $45 per depositary receipt. That was based on 2016 nine-month revenue and operating profits of $443.1 million and $77.3 million respectively.
Flash forward to 2017 and those nine-month numbers are considerably higher at $772.6 million in revenue and $262.3 million in operating profits.
In Q3 2016, Weibo had 223.9 million shares outstanding. At $45 a pop, the company’s market cap was $10.1 billion. Its market cap has doubled in one year.
My best guess given Sina is in the driver’s seat is at least $200 per share, probably more.
Bottom Line on WB Stock vs. Sina
This is a tricky answer because depending on your viewpoint, you could buy WB, SINA or even BABA and feel good about the move.
If Alibaba did pay $200 per share, how much of that value would trickle down to SINA stock? In my opinion, enough to make SINA stock the better buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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