Weibo, owned by Sina Corp, becomes the latest Chinese Internet giant
to tap U.S. markets, following on the heels of search service Baidu
and its own corporate parent. Alibaba, which owns a stake in Weibo,
is expected to raise about $15 billion in New York this year, in the
highest-profile Internet IPO since Facebook's in 2012.
But underscoring challenges facing Internet firms operating in a
heavily censored and tightly controlled media environment, Weibo
warned investors in its Friday IPO filing about uncertainty arising
from Chinese government regulation.
It highlighted in particular a regulation that came into effect in
September, under which Internet users who knowingly make or share
information considered defamatory or false could face up to three
years' jail time in China.
"The implementation of this newly promulgated judicial
interpretation may have a significant and adverse effect on the
traffic of our platform and discourage the creation of user
generated content," the company said in its filing.
Beijing expressly bans a range of material in media deemed
sensitive, from open political opposition to criticism of important
officials. Responsibility for policing such content often falls on
companies such as Weibo, which could face fines or even revocation
of their licenses.
The government "may require us to limit or eliminate the
dissemination of such information on our platform. Failure to do so
may subject us to liabilities and penalties and may even result in
the temporary blockage or complete shutdown of our online
operations," it said.
For instance, in March 2012, it shut off the "comments" feature for
three days to "to clean up feeds related to certain rumors," it said
in its prospectus.
Weibo also warned about potential government intervention in its
encryption tools and software — used to prevent spying while
safeguarding the privacy of users and their posts.
It said Beijing requires all "cipher code" products to be registered
with the government, though it was unclear whether this applied to
social media encryption.
"Because these regulations do not specify what constitutes a cipher
code product, we are unsure as to whether or how they apply to us
and the encryption software we utilize," the company said in its
COME ONE, COME ALL
Still, U.S. investors have long shown an appetite for Chinese
companies' stock, hoping to share in some of the spoils of the
world's fastest-growing major economy.
[to top of second column]
U.S. markets may see more IPOs from Chinese corporations in 2014
than in any year since 2010. That's despite long-simmering concerns
among investors about Chinese accounting standards, the result of
several high-profile auditing scandals in past years.
Weibo, one of several Chinese Twitter-like services, increased ad
revenue by 163 percent to $56 million in the final three months of
2013. Overall revenues leapt almost three-fold to $188.3 million in
2013, from $65.9 million in 2012. And its net loss shrank to $38.1
million in 2013 from $102.5 million the previous year.
But its user growth is at risk of tailing off after three years of
explosive expansion, as newer messaging apps such as Tencent
Holdings Ltd's WeChat draw users away.
Chinese mobile messaging apps like Tencent's WeChat have become
venues of choice for users who want to express views with less fear
of government retribution.
In January, an official government-backed Internet organization
reported that user numbers for Chinese microblogs, including Sina
Weibo, had fallen 9 percent in 2013.
However, Weibo said the number of its daily users had risen 36
percent to 61.4 million as of the end of December, from the same
time a year before.
Weibo hired Goldman Sachs and Credit Suisse to manage its U.S.
debut, which it said would boost brand recognition and help retain
Its proposed $500 million target is an estimate worked out solely
for the purposes of calculating registration fees.
(Reporting by Edwin Chan and Gerry Shih;
editing by Andre Grenon and Ken Wills)
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