Alibaba pays $586 million for stake in Sina Weibo

Alibaba Group, China's largest e-commerce company partly owned by Yahoo Inc, has spent $586 million for an 18-percent share of Sina Weibo, the Chinese equivalent of Twitter, in an attempt to monetize the hugely influential social media platform.

The two companies said in a statement on Monday that Alibaba has made a payment and has an option to boost its stakes in Sina Weibo to 30 percent.

The deal was expected to combine Alibaba's e-commerce strength with Sina Weibo's user base to explore social commerce and develop marketing solutions to merchants.

The transaction put the value of Sina Weibo at $3.26 billion. The market capitalization of Nasdaq-listed Sina Corp was $3.67 billion on Monday. Sina's American depository shares rose by 9 percent to $55.03 on Monday.

Hangzhou-based Alibaba Group, which Yahoo holds about a 23-percent stake, is the largest e-commerce empire in China. It currently runs a business-to-business online trading platform called Alibaba.com, the eBay-like Taobao.com and Tmall.com, as well as the Paypal-like Alipay. Transactions on its websites last year reached about 1.1 trillion yuan ($170 billion).

Beijing-based Sina Weibo started as an imitator of Twitter, but later developed features tailored to Chinese users. In November, the number of registered users had exceeded 400 million. But Sina Weibo has been facing challenges to generate equivalent revenue to its huge user base and influence in China, similar what social media sites Twitter and Facebook are trying to do in the United States.

Li Kaifu, former Google China president and the founder of an angel investment firm, said Sina Weibo used to rely on advertising, but now with Alibaba's e-commerce platform, it will be an easier way to make money out of its user population.

The two companies said the deal is expected to generate approximately $380 million in advertising and revenues from social commerce services for Sina Weibo over the next three years.

"The $586 million deal offered by Alibaba is higher than Sina's valuation prior to this news," said Echo He, an analyst from New York-based financial services firm Maxim Group.

She said over the longer term, the deal will help Sina's profitability. "Benefit to both sides is long-term. Sina may get Alibaba's business long term and Alibaba may be able to provide its users a public media venue," she said.

As part of the alliance, the two companies would cooperate in user account connectivity, data exchange and online payment and marketing. They would explore new business models for social commerce based on the interactions of users on Sina Weibo and on Alibaba's e-commerce platforms, according to Sina.

"We believe that the cooperation of our two robust platforms will bring unique and valuable services to Weibo users, as well as making the mobile Internet a core part of Alibaba's strategy," Alibaba Chairman Jack Ma said in a statement.

Social media in China such as Sina Weibo is playing a much bigger role in China's consumer market. About 2.5 percent of Taobao's traffic comes from Sina micro-blogging, higher than some social shopping sites such as Mogujie and Meilishuo, according to a report released by analyst firm Hitwise.

Taobao and Tmall, the two online shopping sites operated by Alibaba, have nearly 500 million registered users. More than 100 million people visit Taobao or Tmall a day.

Yang Miao, a writer from the technology blogging website Huxiu.com, said the deal between Alibaba and Sina is by far the largest stock deal in China.

"There are 300,000 enterprises registered on Sina Weibo. If the integration is smooth, Weibo will no longer just a branding platform or customer relationship management platform for those enterprises; it will become an integrated platform of brand marketing, communications, online payment, and after-sales service," Yang said.