Weibo IPO: Rough road ahead?   

(ECNS) – Fierce competition and user losses have squeezed Weibo's valuation to $3.9 billion, half the initial amount it was looking for earlier this year, according to the Oriental Morning Post.

Weibo, a Twitter-like social media site owned by Sina Corp., filed for an initial public offering in mid-March to list on the Nasdaq exchange under the "WB" ticker.

In an amended Form F-1 filing with the US Securities and Exchange Commission (SEC) on Friday, Weibo said it plans to sell 20 million American depositary shares, or ADS, at an estimated price range of $17 to $19 each.

This will raise $380 million, or up to $429 million in net proceeds if the underwriters exercise the overallotment option. Still, it's less than the $500 million it planned to pull in, and well below market estimation of $700 million.

The number of active users is a key index for the evaluation of a social media company. By December 2013, Twitter had 241 million active monthly users, roughly twice that of Weibo. Twitter was valued at $23.1 billion as of Monday, and Weibo's value should be half of that if measured in terms of monthly users.

So, what caused the company's valuation to drop all the way to $3.9 billion?

Tencent's WeChat, an instant messaging social network, is a formidable competitor. Users are migrating to WeChat where they can connect with friends as well as pay bills and buy things. Tencent's financial report shows WeChat's monthly user base reached 355 million by the end of 2013, while Weibo had 144 million active monthly users.

Weibo's performance also hinges on whether it can figure out ways to boost mobile advertising -- the same thing Facebook went through years ago. Weibo's advertising revenue tripled to $148 million in 2013. However, the display area on mobile phones is much smaller and may limit Weibo's revenue potential.

Weibo's deteriorating user experience is also to blame. The interface, as many users report, has been a mess with increased push ads and zombie fans.

There is some good news: Weibo reported a swinging back to profitability for the first time in Q4 of 2013, with an operating profit of $3 million.

Weibo said it intends to use about $250 million of the IPO net proceeds to repay loans it owes to Sina, and use the remainder to boost its brand and offer employees stock-based incentives.

Following the IPO, Sina will own 57 percent of shares, down from about 78 percent, and China's internet giant Alibaba will grow its stake from 19.3 percent to 32 percent.

Credit Suisse and Goldman Sachs Asia are the lead underwriters for the offering.

By Qian Ruisha