Sina finished its twenty-year Nasdaq run this week. The web portal is celebrated for opening the door to foreign investment in China. Privatization might provide some flexibility to diversify its business.
Photo from CFP
By WU Yangyu, YU Hao
Sina Corp (Sina), the first US-listed Chinese internet company and parent company of Weibo, has officially bid adieu to Nasdaq after a rocky twenty-one-year run. In a US$2.6 billion (17 billion yuan) privatization deal, Charles Cao’s New Wave Holdings Limited acquired Sina’s outstanding shares for US$43 each.
There will be no drastic change in Sina’s ownership and control structure. Cao will continue to own 12 percent of the private entity through New Wave, with 58 percent of voting rights. The move aims to improve Sina’s capital structure. Sina and subsidiary Weibo were both publicly traded, an arrangement Cao called “suboptimal” in an internal letter. Privatization will provide flexibility for more diverse development.
The web portal, once the forefront of innovation of China’s internet industry, has long fallen from favor. Sina’s most significant impact was in the capital market, pioneering the VIE model (known in China as the “Sina model”), which powered China’s technology industry. Privatization does not necessarily mark the end of an era, but it remains to be seen whether the old hero will be reborn.
Sina’s underwhelming twenty-year Nasdaq run had a rocky start. The high-flying web portal debuted on April 13, 2000, right in the middle of the worst week of the dot-com bubble, marked by a 25 percent Nasdaq slump. As a result, Sina didn’t see the “IPO pop” of its peers, closing at only 22 percent up from its US$17 IPO price. Fourteen years later, when Weibo also stumbled on the first day of trading, Cao expressed a deep sense of déjà vu by calling it “another letdown.”
Despite the stock market, Sina was the golden child of China’s internet industry. It took its current name in 1998 after a merger and major international events followed its launch, including the 1998 World Cup, Kosovo war, and the chi-chi earthquake in Taiwan. Massive traffic through the news site established its dominance in the media landscape then. For Chinese internet users, Sina was the go-to place, a window to the outside world, and the internet itself. Naturally, it became the darling of the capital market, having secured over US$85 million venture capital investment in nine months in 1999.
That was followed by a grievous two-year post-IPO slump. At its nadir, Sina shares hit a humiliating US$0.95. In twenty-two months from its March 2000 peak, Nasdaq shed nearly 80 percent of its value. While Sina itself failed to expand revenue sources.
In 2003, Sina reported a profit for the first time and grew rapidly thereafter. Its shares soared from below US$10 in January to US$40 a year later, climaxing in April 2011 when the stock price hit US$147.12. It was all downhill from there.
Although its stocks managed a brief resurgence in 2018, Sina had lost its focus and relevance in the tussle between giants of the new era.
The contribution of Sina goes far beyond bittersweet memories of innocent years of the internet. The VIE (variable interest entity) model, conceived for the Sina IPO, has since been widely used by Chinese tech companies seeking access to overseas capital.
The structure allows a foreign-owned entity to access the revenue and returns of a Chinese-owned entity, without the restrictions facing foreign direct investment (FDI). The invention, bold at the time, warmed up foreign investors to Chinese companies in the depth of a stock market winter, and to some extent, paved the way for later giants.
Investors were at first unimpressed. Those who participated in the roadshow recalled having the hardest time explaining VIE to confused and distrustful investors, who were already bracing for lean times. Some analysts have attributed Sina’s underperforming IPO to mistrust from the market.
Ancient history aside, the model is now widely applauded, credited with widening access to capital for domestic companies and fueling the growth of China’s internet industry. Twenty years on, Chinese law has remained friendly to VIE companies and the model is not expected to fade away anytime soon.
The proposal for Sina’s privatization appeared last July, amid a collective crisis facing US-listed Chinese companies. Luckin Coffee had just imploded after revelations of fraud, and investor faith was further shaken by rumors of delistings, sanctions and even more fraud. Sina itself, still largely a web portal, had long fallen from favor in the age of mobile internet. Privatization may give it some leeway to contemplate its next moves and probably another capital market comeback, likely in Hong Kong.
In his letter, Cao reassured stakeholders that there will not be a major reshuffling of Sina’s existing business, at least for now. He did, however, indicate some changes, including integration of Weibo and the Web Portal, strengthening of its still popular finance and sports channels, and increased acquisition to diversify the business.
“The privatization is not the end of the old Sina,” Cao wrote. “The goal is to carve out a better future.”
For better or worse, the future of Sina maybe even rockier than the past.
