How To Buy This Chinese Social Media Leader For Less Than 6x EBIT

Weibo is China’s version of Twitter, except that it’s better managed and more profitable. This year, revenues and profits are expected to grow by more than 50% year-over-year; it’s a great business, with a long runway of growth ahead of it. Best of all, we have found a way to invest in Weibo at a 2019 EBIT multiple of less than 6x by purchasing shares of SINA Corporation.

Introducing SINA Corporation

SINA Corporation (“SINA”) is a Chinese technology company founded in 1998 as a web portal. Today, it is best-known for its investment in Weibo, which is one of China’s largest social networks.  Weibo’s business model is very similar to that of Twitter; money is made by placing ads and promoting feeds. Compared to Twitter, Weibo has 20%+ more monthly active users, those users spend more time on the platform per day, and Weibo is considerably more profitable. As a result, Weibo’s EBIT margins are currently between 35% and 40%, whereas Twitter, in comparison, is barely profitable.

Weibo EBIT margins are expected to remain above 35%.Appleseed Capital

Moreover, Weibo continues to grow at a rapid pace. Weibo’s revenues and operating profits are expected to increase by more than 50% in 2018 and by more than 30% in 2019. While investors are clearly and rightly concerned about a trade war between the United States and China and a related slowdown in China, Weibo revenues should continue to grow even through a global recession.

Weibo revenues are expected to increase by more than 50% in 2018.Appleseed Capital


The Weibo background is critical to understand because SINA Corporation owns a 46% stake in Weibo and is also the controlling shareholder in Weibo with 72% of all Weibo votes. While many investors who like Weibo’s business might choose to invest directly in Weibo shares, it seems to be a far more compelling proposition to invest in shares of SINA.

Why SINA Corporation Shares Are So Cheap

Thus far, emerging market stocks are in a bear market in 2018, and some investors would argue that emerging market stocks are currently a great buy. Both SINA and Weibo saw their stock prices plummet by 50% or more since their recent highs on U.S.-China trade war talk and the unexpected rise of Douyin, a Snapchat-like short-video platform that was launched in late-2016 and that has already reached 500 million monthly users.

The market seems to believe that Douyin’s massive early growth has come at Weibo’s expense. However, thus far, Weibo’s operating metrics have barely been influenced by the rise of Douyin; monthly users, daily users, and time spent share all continue to increase. Users appear to be using Weibo and Douyin for fundamentally different reasons, and it seems unlikely that Douyin will take market share from Weibo’s microblogging territory.

As a result of this considerable drop in price, Weibo is now trading at approximately 12.0x consensus FY2019 EBIT, which represents excellent value for a fast-growing, highly profitable business. That said, SINA’s shares represent an even more exciting investment opportunity.

SINA’s market cap currently stands at $4.4 billion. Of this, $1.8 billion is attributable to cash and investments not related to Weibo. Therefore, the market values SINA’s 46% stake in Weibo at $2.7 billion, even though Weibo’s current market cap is $12.7 billion.

While Weibo is likely undervalued, SINA’s stake in Weibo seems significantly undervalued. At the $2.7 billion value which Mr. Market ascribes to SINA’s stake in Weibo, investors are effectively buying shares of Weibo, through SINA, at a multiple of just 5.9x consensus FY 2019 EBIT.

Moreover, SINA’s stake in Weibo deserves a premium because SINA owns Class B shares of Weibo, each of which has three votes, compared to only one vote per every publicly-traded Class A share.

In summary, SINA Corporation investors should have two ways to generate an attractive return:

  1. Should the valuation gap between SINA and Weibo ever close, SINA’s share price should appreciate considerably, even if Weibo never recovers from the recent investor panic.
  2. Should Weibo get its growth-company multiple back and/or reach the median sell-side target price, SINA shareholders should be handsomely rewarded through its investment in Weibo.

Should neither happen, it seems likely that SINA management would buy back shares until the valuation gap disappeared.

SINA Corporation Management

Importantly, SINA’s CEO owns $500 million worth of SINA stock and has a track record of sound capital allocation and returning capital to shareholders. SINA repurchased $303 million of stock as part of a buyback program that expired in June 2018, which translated into a 5% reduction in shares outstanding at an average price of $89 per share. Given the valuation gap between SINA shares and Weibo shares, it seems likely that SINA will continue to repurchase shares at prices which should be accretive to SINA’s intrinsic value.


Given the 50% decline that SINA shares have already experienced, this is not a risk-free investment. Like many Chinese tech companies, SINA Corporation and Weibo are structured as variable interest entities to allow SINA and Weibo to raise capital in foreign markets. Investors in SINA are taking on business risk, technology risk, currency risk, and country risk. Given the attractive valuation of SINA shares, we believe Weibo’s risks have already been discounted.

The 2018 emerging market bargain hunt has begun, and I don’t know how long it will last.  It’s worth taking a look at SINA Corporation, and, while you’re at it, it’s worth taking a look at SK Telecom too.

Disclosure: Adam Strauss owns SINA Corporation and SK Telecom in some of his funds. This article is for informational purposes only and is not a recommendation to buy or sell a security.  The views are those of Adam Strauss as of the date of publication and are subject to change and to the disclaimers of Appleseed Capital.


Is LinkedIn Poised To Be The Next Big Social Network … For Brands?

LinkedIn has always been overshadowed by its rowdy younger siblings. Born way back in 2002 — before Instagram and Snapchat, even before Facebook and Twitter — the button-downed business platform has never attracted the drama or hype of other social networks. There’s no movie about its founder. It’s not in the crosshairs of Congressional investigations. And its “influencers” are more likely to be boring business leaders (myself included) than Kylie Jenner wannabes.

But quietly, in predictably business-like fashion, LinkedIn has emerged as a social force to be reckoned with. It now counts more than 500 million members. More than 100 million of those are monthly active users, meaning people who check in frequently to post and engage with followers, rather than just update their resume once or twice a year. Perhaps more to the point, these users are — by definition — business professionals. They’re generally upwardly mobile and turn to the network for serious engagement, not to share memes or launch into toxic rants.

As companies seek new ways to engage customers, employees and stakeholders, while also wrestling with the fallout from scandals on Facebook and Twitter, a surprising number are turning to LinkedIn. All of which raises the question: could LinkedIn be the next big thing for brands?

No-nonsense professionalism that’s strangely addictive

Yes, social media can (and should) be fun. But we’ve seen the consequence of too much of a good thing. The glut of memes and clickbait clogging feeds has forced Facebook and Twitter to radically recalibrate their algorithms in an effort to surface more relevant, useful content. Both networks have battled the proliferation of bots and contended with bad actors intent on either scraping data or manipulating users with fake content. Unless you’ve been asleep for the past two years, you know the consequences all too well.

LinkedIn has been mercifully spared most all of this controversy and confusion. It was never a place for viral videos or buzzworthy headlines. Posts have always skewed toward the courteous, the actionable and the insightful — something social media fans are increasingly hungry for today. Meanwhile, hardcore LinkedIn users know that there’s a certain warm professionalism that underlies many exchanges on the platform. In short, LinkedIn offers a kind of stability, civility and real value that’s sorely needed on some social platforms.


An employer brand no-brainer

Right now, the U.S. is experiencing the tightest labor market in recent memory. In this context, employer brand — a company’s reputation as a place to work, above and beyond whatever its brand reputation may be — has become a significant differentiator. Companies able to send the message that they’re a genuinely progressive, engaged and even fun place to work often have a real leg up over rivals. And LinkedIn — which is filled with nothing but professionals looking (or soon to be looking) for jobs —is the optimal place to convey that message.

I’ve seen this firsthand in the tech space, where the competition for recruits is notoriously tight. Not only does Hootsuite cultivate a presence through its LinkedIn Company page (which has grown to more than 200,000 followers), but for years I’ve also shared updates and blog posts as CEO from my own profile. By relaying stories about building culture, employee perks and leadership, we’ve been able to project Hootsuite’s employer brand and give a uniquely human face to the company.

The impact has been real and sustained. Posts receive dozens of likes and comments — thoughtful, insightful responses from professionals in tech and social media. And the trickle down effects can be dramatic. A recent LinkedIn blog post on how much we value our sales team and how hard it is to find great tech salespeople led to more than 1,000 visits to our career page and 100-plus applications.

Not just for B2B marketers any more  

For companies operating in the business-to-business space, the benefits of being active on LinkedIn are pretty obvious. An estimated 40 million business decision makers (i.e. the people who seal the deals and sign the contracts) spend their time on LinkedIn. It’s widely regarded as the number one social network for lead generation and, according to some sources, boasts a three times better conversion rate than Facebook or Twitter.

What’s easily overlooked, however, is that LinkedIn can also be an effective way to for brands to reach a general consumer audience. After all, the half-a-billion business professionals on the network are also consumers themselves. And they generally have disposable income to spare. More than half have a college degree and 44% make more than $75,000 per year. Plus, as other networks grow increasingly crowded with ads and clickbait, LinkedIn is proving attractive as not simply the “professional network” but the social network of choice for many users.

Importantly, it’s not just “boring business updates” that find an audience. In my experience, LinkedIn content that hits the sweet spot of personal-meets-professional garners the most engagement. (Think, pics of your latest team-building outing, not pdfs of your latest whitepaper.) Videos and photos — gold on other social platforms — perform equally well on LinkedIn. Adding topical hashtags and directly mentioning other users improves organic engagement. Meanwhile, having your own employees follow your company’s page, and interact with updates, can dramatically extend the reach of your LinkedIn posts.

Quietly committed to innovation (and integrations)

Perhaps the most exciting element of LinkedIn is its quiet, but absolutely relentless, pace of innovation. A few years ago, the network was just a place to post your resume. In 2015, they added blogging and now publish 100,000 articles a week. Last year, they unveiled native video, become a video publishing platform. This fall, they beefed up their Groups functionality, anticipating an industry-wide shift by social users to more intimate, member-only spaces. Plus, a host of new integrations with LinkedIn’s Company Pages — including one that enables users to post videos and respond to comments directly from Hootsuite — has made the platform more attractive than ever for brands. Other networks may steal the headlines, but LinkedIn has aggressively remade itself behind the scenes.

Then, there are the premium data analysis and targeting capabilities that many users never see. The detailed info provided by LinkedIn members means it’s possible to gain insight into exactly who’s viewing your profile and content — right down to current company and job title. While LinkedIn’s ad platform isn’t as widely used as Facebook’s, this same detailed demographic info allows for precision targeting. Not to mention, Microsoft’s recent acquisition means that LinkedIn data and profiles are now being integrated into the full range of Microsoft products, everything from consumer apps like Outlook and Word to enterprise CRM software like Dynamics 365.


Making Social Media Additive — Not Addictive

At the time of writing, the author holds stock positions in Facebook and Salesforce.)

People spend 1 billion hours a day on YouTube. That’s enough person-hours to build 142 Empire State Buildings every single day.

The amount of time and energy consumed by entertainment technology and social media is staggering. An NBC News analysis suggested Facebook alone was responsible for up to $3 trillion in lost productivity.

While social media clearly has many benefits, it raises questions about whether these interactions could be translated into tangibly productive activity — and still be enjoyable. Can all this brainpower be channeled in novel ways to create new and enriching byproducts?

More Symptoms

The most “liked” Instagram post of all time is a picture of Kylie Jenner’s newborn baby clutching Kylie’s perfectly manicured thumbnail. It’s a great picture; Oxford University research actually suggests cuteness plays an innate role in baby caregiving. However, tech firms and content creators can now take advantage of how we’re wired on a scale never before seen. Now, the beneficiary isn’t the baby who gets taken care of by his/her entire village. It’s the big tech company that sells more ads or a celebrity cosmetics startup that gets free marketing.

It’s unclear whether it’s healthy for 18 million people to obsess over a stranger’s baby. But it’s worth noting that, if each person looked at that picture for 10 seconds, that sums to roughly 25 person-years of effort (assuming an eight-hour workday). That’s even more time than it took to develop Instagram itself.

Dangerous Incentives

Unsurprisingly, Google’s, Facebook’s and Twitter’s true “product” is advertising. Advertising-based business models are a dominant paradigm in tech, and they’re vastly more effective with more user attention. This generates not only more ad impressions but also valuable data advertisers use for hyper-targeting.

Cutthroat competition for ad spend has created an arms race. Technology has become ever more captivating in a Darwinian way. As we use it, more A/B tests are run and more data is generated. It’s all used to make these products even more engaging — to the point of arguably becoming addictiveMore than half of Facebook users say they use Facebook “several times” a day.

Recently some prominent tech leaders have voiced concerns about social media and the vast amount of data some companies are collecting:

“Facebook is the new cigarettes. It’s addictive. It’s not good for you.” – Marc Benioff, CEO, Salesforce

“The narrative that some companies will try to get you to believe is: ‘I’ve got to take all of your data to make my service better.’ … it’s a bunch of bunk” – Tim Cook, CEO, Apple

Are you truly enriched by that funny cat video the genius algorithms know you’ll “like”? Are we at risk of a technology-driven attention singularity, where these products become such an irresistibly enjoyable black hole of our time — leveraging every quirk about what we humans find interesting — that they detract from productive activity? It’s a world where we’re all zombies involuntarily gazing at our own navels. The consequences would be devastating.