Weibo Passes China Watchdog to Hong Kong Secondary Offering?

Multiple fines and many adjustments in the year to will be remembered by Xi's massive crackdown on tech. Will Weibo get through the watchdog to a homecoming listing?
Nov. 19, 2021 21:49
Weibo Passes China Watchdog to Hong Kong Secondary Offering?

(CapitalWatch, Nov. 19, New York) Weibo Corp. (Nasdaq: WB) got one big step closer to a Hong Kong listing Friday, which uplifted its stock in early trading before sliding into red territory by midday – and recovering at close.

Rumors circulated over the summer that Weibo plans to go private had no merit, as it turned out, while earlier reports on its homecoming listing came to realization. In a filing with the U.S. SEC dated Nov. 18, Weibo said the Stock Exchange of Hong Kong has accepted its application for a secondary listing to offer shares on the city's main board and to global investors.

The Chinese Twitter-like app is part-owned by Chinese media giant Sina Corp. and backed by tech titan Alibaba Group (NYSE: BABA; HKEX: 9988). And as the country's industry leaders suffered in a major government crackdown on several fronts this year, Weibo also had to adjust some of its own operations.

Among others, Beijing's printer spat out new directives against the unhealthy fan culture. In August, Weibo had suspended the ranking of entertainers by fans, which has been active since 2014. In addition, as the Global Times reported at the time, Weibo had removed more than 150,000 posts, 4,000 social media accounts, 814 "unhealthy" topics, and 1,300 "problematic" fan groups. It also had to take measures to prevent minors from virtual gifting or organizing a fan group.

In its SEC filing, Weibo included an extensive statement on China's new regulatory measures. To start with cybersecurity laws: "As a major internet platform, we are at risk of being deemed to be an operator of "critical information infrastructure" or a data processor," it wrote. Under the new rule, Weibo may have to apply for a cybersecurity review – which is uncertain due the lack of clarity on the law. The company said that, to date, it has "not received any inquiry, notice, warning, or sanction in such respect."

Just this week, news surfaced that China is considering extending its cybersecurity review, recently mandated for certain overseas listings, to companies seeking IPOs in Hong Kong.

Weibo also noted new laws against the collection of excessive user data, of which it has been accused in the past. Over the summer, the company had to clean up illegal child content and paid a related fine alongside Alibaba and Tencent Holdings (OTC: TCEHY; HKEX: 0700).

Further, Weibo said that China's State Administration for Market Regulation (SAMR) is investigating an entity of Weibo, Beijing Weimeng Chuangke Investment Management Co., Ltd., in relation to anti-monopoly rules. The company was already fined 500,000 yuan (about $78,300) "for illegal concentration of business operators" and may be subject to more fines related to the case.

On a side note, but a very important one, Beijing is reviewing a draft law proposed in October, that would increase the fines "for illegal concentration of business operators to no more than ten percent of its last year's sales revenue if the concentration of business operator has or may have an effect of excluding or limiting competitions; or a fine of up to RMB5 million if the concentration of business operator does not have an effect of excluding or limiting competition."

For the nine months through September 2021, Weibo booked $1.6 billion in revenue, up 39% year-over-year. The majority of the revenues came from ads and marketing. Net income was $312.6 million, or $1.36 per share, compared with $284.3 million a year ago. The company had $2.7 billion in cash, cash equivalents, and short-term investments as of September.

MAUs increased to 573 million from 511 million at the same time last year. Average DAUs reached 248 million, according to the report.

On Friday, Weibo shares ended the day at $41.97 apiece after some turbulence. Year-to-date, WB has managed to stay in the green, unlike many of the Chinese tech giants. However, today's level is a significant decline from its February and July highs of $65 a share. If Weibo manages to pass through the regulators and raise some new capital from a Hong Kong offering, the stock is bound to get a boost in the markets.