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As confidentially submitted to the Securities and Exchange Commission on February 18, 2014

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Weibo Corporation

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

Cayman Islands		7370		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

7/F, Shuohuang Development Plaza,

No. 6 Caihefang Road, Haidian District, Beijing, 100080

People’s Republic of China

+86 10 6061-8000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Z. Julie Gao, Esq. Skadden, Arps, Slate, Meagher & Flom LLP c/o 42/F, Edinburgh Tower The Landmark 15 Queen’s Road Central Hong Kong +852 3740-4700		Alan Seem, Esq. Shearman & Sterling LLP Five Palo Alto Square, 6th Floor 3000 El Camino Real Palo Alto, California 94306-2155 United States of America +1 (650) 838 3600

 

 

Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Proposed maximum aggregate offering price(1)		Amount of registration fee
Class A ordinary shares, par value $0.00025 per share(2)(3)		$		$

(1)	Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(2)

Includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and also includes Class A ordinary shares that may be purchased by the underwriters pursuant to an over-allotment option. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)	American depositary shares issuable upon deposit of the Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No.333-                ). Each American depositary share represents         Class A ordinary shares.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated             , 2014.

                     American Depositary Shares

Weibo Corporation

Representing                     Class A Ordinary Shares

 

 

This is an initial public offering of American depositary shares, or ADSs, of Weibo Corporation.

We are offering                      ADSs. Each ADS represents              of our Class A ordinary shares, par value $0.00025 per share.

Prior to this offering, there has been no public market for our ADSs or our Class A ordinary shares. We intend to list the ADSs on the [NASDAQ Global Market/New York Stock Exchange] under the symbol “[WB].”

We are an “emerging growth company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

See “Risk Factors” beginning on page 19 for factors you should consider before buying the ADSs.

 

 

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per ADS				Total
Initial public offering price		$				$
Underwriting discount		$				$
Proceeds, before expenses, to us		$				$

To the extent the underwriters sell more than              ADSs, the underwriters have a 30-day option to purchase up to an additional              ADSs from us at the initial public offering price less the underwriting discount.

Immediately prior to the completion of this offering, our outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to three votes and is convertible into one Class A ordinary share. Immediately after the completion of this offering, our parent company SINA Corporation will hold 140,000,000 Class B ordinary shares, representing             % of our outstanding ordinary shares and             % of our aggregate voting power, assuming the underwriters do not exercise their option to purchase additional ADSs.

 

 

The underwriters expect to deliver the ADSs against payment in U.S. dollars in New York, New York on                     , 2014.

 

Goldman Sachs (Asia) L.L.C.		Credit Suisse

 

 

Prospectus dated                     , 2014

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You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.

Until             , 2014 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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RISK FACTORS

An investment in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Related to Our Business

If we fail to grow our user base, or if user engagement on our platform declines, our business, financial condition and operating results may be materially and adversely affected.

The growth of our user base and the level of user engagement are critical to our success. We had 129.1 million MAUs and 61.4 million average DAUs in December 2013. Our business has been and will continue to be significantly affected by our success in growing the number of users and increasing their overall level of engagement on our platform, including their engagement with promoted feeds and other advertising and marketing products on our platform. We anticipate that our user growth rate will slow over time as the size of our user base increases. To the extent our user growth rate slows, our success will become increasingly dependent on our ability to increase user engagement. If people do not perceive content and other products and services on our platform to be interesting and useful, we may not be able to attract users or increase the frequency of their engagement. A number of user-oriented websites that achieved early popularity have since seen their user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement level. A number of factors could potentially negatively affect user growth and engagement, including if:

 

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we are unable to attract new users to our platform or retain existing ones;

 

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users engage with other platforms or activities instead of ours;

 

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influential users, such as celebrities and other public figures, media outlets, brands, government agencies and charities, switch to alternative platforms or use other products or services more frequently;

 

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we are unable to combat spam or other hostile or inappropriate usage on our platform;

 

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there is a decrease in the perceived quality or reliability of the content generated by our users;

 

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we fail to introduce new and improved products or services or we introduce new or improved products or services that are not well received by users;

 

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technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise adversely affect the user experience;

 

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users believe that their experience is diminished as a result of the decisions we make with respect to the frequency, relevance and prominence of ads displayed on our platform;

 

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there are user concerns related to privacy and communication, safety, security or other factors;

 

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there are adverse changes in our products or services that are mandated by, or that we elect to make to address, legislation, regulations or government policies; or

 

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we do not maintain our brand image or our reputation is damaged.

If we are unable to increase our user base or user engagement, or if the number of users or their level of engagement declines, this could result in our platform being less attractive to potential new users and customers, which would have a material and adverse impact on our business, financial condition and operating results.

 

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If our users and platform partners do not continue to contribute content or their contributions are not valuable to other users, we may experience a decline in the number of users accessing our platform and a decline in user engagement.

Our success depends on our ability to provide users with interesting and useful content, which in turn depends on the content contributed by our users and platform partners. We believe that one of our competitive advantages is the quality, quantity and open nature of the content on Weibo, and that access to rich content is one of the main reasons users visit Weibo. We seek to foster a broader and more engaged user community, and we encourage celebrities, opinion leaders, media outlets, government agencies and others to use our platform to express their views and share content. We also encourage our platform partners to contribute quality content. If users, including influential users such as government agencies and public figures, and our platform partners do not continue to contribute content to Weibo due to policy changes, their use of alternative public communication channels or any other reasons, and we are unable to provide users with interesting, useful and timely content, our user base and user engagement may decline. If we experience a decline in the number of users or the level of user engagement, customers may not view our products and services as attractive for their advertising and marketing expenditures and may reduce their spending with us, which would harm our business and operating results.

We generate a substantial majority of our revenues from advertising and marketing. A decline in our advertising and marketing revenues could harm our business.

Our monetization model is new and evolving. We only started to generate revenues in the first half of 2012 through advertising and marketing and other services, such as game-related services, VIP membership and data analysis. A substantial majority of our revenues are currently generated from customers’ advertising and marketing on Weibo. We generated 77.4% and 78.8% of our revenues from advertising and marketing services in 2012 and 2013, respectively. We cannot guarantee that the monetization strategies we have adopted can generate sustainable revenues and profit. As is common in the industry, our advertising and marketing customers do not have long-term commitments with us. In addition, our major brand customers typically purchase our advertising and marketing services through advertising agencies. Advertising agencies and potential new customers may view our advertising and marketing services as experimental and unproven, and we may need to devote additional time and resources to educate them. Customers also may choose to reach users through our free products instead of our paid advertising and marketing services or through our partner websites and applications. Customers will not continue to do business with us or may only be willing to advertise with us at reduced prices if we do not deliver advertising and marketing services in an effective manner, or if they do not believe that their investment in advertising and marketing with us will generate a competitive return relative to alternative advertising platforms. If we fail to retain existing customers or attract new advertisers and marketing customers to advertise and market on our platform or if we are unable to collect accounts receivable from advertisers or advertising agencies in a timely manner, our financial condition, results of operations and prospects may be materially and adversely affected.

If we are unable to compete effectively for user traffic or user engagement, our business and operating results may be materially and adversely affected.

Competition for user traffic and user engagement is intense and we face strong competition in our business. Major Chinese internet companies, including Sohu.com, Inc., NetEase, Inc., Tencent Holdings Limited and Phoenix New Media Limited, as well as other microblogging services and new players in China who offer online media, including content aggregation and distribution services, compete directly with us for user traffic and user engagement, content, talent and marketing resources. As a media platform in nature, we also compete with offline media companies for audiences and content. In addition, as a form of social media featuring social networking services and messaging services, we are subject to intense competition from providers of similar services as well as potential new types of online services, including interest-based social products. These services include mobile applications, such as WhatsApp, Line, Ozone, WeChat, QQ Mobile, Kakao Talk, Yixin, Laiwang, Douban and Momo, and websites, such as renren.com. We also compete with both offline and online games for the time and money of gamers. We have begun to offer social commerce solutions to our customers that enable them to conduct e-commerce on our platform. Consequently, our offerings compete with e-commerce platforms that enable merchants to conduct e-commerce, including location-based services and online-to-offline services.

 

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In addition to direct competition, we face indirect competition from companies that sponsor or maintain high traffic volume websites or provide an initial point of entry for internet users, including but not limited to providers of search services and navigation pages, such as Baidu, Inc. and Qihoo 360 Technology Co., Ltd. We may also face increasing competition from global social media and social networking services, such as Twitter and Facebook. Some of our competitors may have substantially more cash, traffic, technical and other resources than we do. We may be unable to compete successfully against these competitors or new market entrants, which may adversely affect our business and financial performance.

We believe that our ability to compete effectively for user traffic and user engagement depends upon many factors both within and beyond our control, including:

 

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the popularity, usefulness, ease of use, performance and reliability of our products and services compared to those of our competitors;

 

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the amount, quality and timeliness of content aggregated on Weibo;

 

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our ability, and the ability of our competitors, to develop new products and services and enhancements to existing products and services to keep up with user preferences and demands;

 

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the frequency, relevance and relative prominence of the ads displayed by us or our competitors;

 

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our ability to establish and maintain relationships with platform partners;

 

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changes mandated by, or that we elect to make to address, legislation, regulations or government policies, some of which may have a disproportionate effect on us;

 

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acquisitions or consolidation within our industry, which may result in more formidable competitors; and

 

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our reputation and brand strength relative to our competitors.

If we are unable to compete effectively for advertising and marketing spending, our business and operating results may be materially and adversely affected.

In addition to intense competition for users and user engagement, we also face significant competition for advertising and marketing spending. A substantial majority of our revenues are currently generated through advertising and marketing services. We compete against online and mobile businesses that offer such services, including Sohu, Netease, Tencent, Baidu, Inc. and Youku Tudou Inc. We also compete against traditional media outlets, such as television, radio and print, for advertising and marketing budgets. In order to grow our revenues and improve our operating results, we must increase our market share of advertising and marketing spending relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products. In addition, some of our larger competitors have substantially broader product or service offerings and leverage their relationships based on other products or services to gain additional share of advertising and marketing budgets.

We believe that our ability to compete effectively for advertising and marketing spending depends upon many factors both within and beyond our control, including:

 

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the size and composition of our user base relative to those of our competitors;

 

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our ad targeting capabilities, and those of our competitors;

 

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the breadth and effectiveness of our mobile offerings;

 

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the timing and market acceptance of our advertising and marketing products and services, and those of our competitors;

 

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our sales and marketing efforts, and those of our competitors;

 

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the pricing for our products and services relative to the products and services of our competitors;

 

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the reach and effectiveness of our advertising and marketing products and services and those of our competitors; and

 

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our reputation and the strength of our brand relative to our competitors.

 

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Significant acquisitions and consolidation by and among our actual and potential competitors may present heightened competitive challenges for our business. Acquisitions of our platform partners by our competitors could result in reduced content and functionality of our products and services. Consolidation may also enable our larger competitors to offer bundled or integrated products that feature alternatives to our platform. Reduced content and functionality of our products and services, or our competitors’ ability to offer bundled or integrated products that compete directly with us, may cause our user base and user engagement to decline and customers to reduce their spending with us.

If we are not able to compete effectively for advertising and marketing spending, our business and operating results may be materially and adversely affected.

We have a limited operating history in a new and unproven market, which makes it difficult to evaluate our future prospects.

The market for social media platforms is relatively new and may not develop as expected, if at all. People who are not our users, customers or platform partners may not understand the value of our products and services and new users, customers or platform partners may initially find our products and services confusing. There may be a perception that our products and services are only useful to users who post, or to influential users with large audiences. Convincing potential new users, customers and platform partners of the value of our products and services is critical to increasing the number of our users, customers and platform partners and to the success of our business. In January 2014, the China Internet Network Information Center, or CNNIC, released a report stating that the number of microblog users in China had declined by 9.2% from 2012 to 2013. Although we have experienced continued user growth as shown by the continued increase of our MAU and DAU for the past two years and some of our peers may have declined user base after a special event driven year of 2012, if microblogging declines in popularity among Chinese internet users, we may be unable to grow our user base or maintain or increase user engagement.

We have a limited operating history. We only launched Weibo in August 2009 and only began to generate revenues in the first half of 2012, which makes it difficult to effectively assess our future prospects or forecast our future results. You should consider our business and prospects in light of the risks and challenges we encounter or may encounter in this developing and rapidly evolving market. These risks and challenges include our ability to, among other things:

 

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increase our number of users and the level of user engagement;

 

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develop a reliable, scalable, secure, high-performance technology infrastructure that can efficiently handle increased usage;

 

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convince customers of the benefits of our advertising and marketing services compared to alternative forms of advertising and marketing;

 

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develop and deploy new features, products and services for our users, customers and platform partners;

 

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successfully compete with other companies, some of which have substantially greater resources and market power than us, that are currently in, or may in the future enter, our industry, or duplicate the features of our products and services;

 

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attract, retain and motivate talented employees;

 

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process, store, protect and use personal data in compliance with governmental regulations, contractual obligations and other obligations related to privacy and security; and

 

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defend ourselves against litigation, regulatory, intellectual property, privacy or other claims.

If we fail to educate potential users, customers and platform partners about the value of our products and services, if the market for our platform does not develop as we expect or if we fail to address the needs of this market, our business will be harmed. Failure to adequately address these or other risks and challenges could harm our business and cause our operating results to suffer.

 

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We have incurred significant net losses in the past, and we may not be able to achieve or subsequently maintain profitability.

Since our inception, we have incurred significant net losses. As of December 31, 2013, we had an accumulated deficit of $274.9 million. We believe that our future revenue growth will depend on, among other factors, popularity of social media as well as our ability to attract new users, increase user engagement, establish effective monetization strategies, compete effectively and successfully, and develop new products and services. Accordingly, you should not rely on the revenues of any prior quarterly or annual period as an indication of our future performance. We also expect our costs to increase in future periods as we continue to expand our business and operations. We also expect to incur substantial costs and expenses as a result of being a stand-alone public company. If we are unable to generate adequate revenues and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or subsequently maintain profitability.

We expect to generate a significant portion of our advertising and marketing revenues from our strategic alliance with Alibaba; if we fail to earn these revenues as expected and to maintain our relationship with Alibaba, our results of operations and growth prospects may be materially adversely affected.

In April 2013, we formed a strategic alliance with Alibaba and its affiliated entities to jointly explore social commerce and develop innovative marketing solutions to enable merchants on Alibaba’s e-commerce platforms to better connect and build relationships with our users. Assuming the successful development of new products and business models and the growth of effective traffic, the strategic alliance is expected to generate approximately RMB2.3 billion ($380 million) in advertising and marketing revenues in aggregate for SINA and us from 2013 to 2015, with SINA’s portion not exceeding 15% of such revenues. As a result of these arrangements, we anticipate that a significant percentage of our revenues through 2015 will be attributable to our collaboration with Alibaba. Separately, in connection with Alibaba’s equity investment in us, Alibaba has customary minority shareholder protection rights with respect to certain of our corporate matters. Furthermore, if Alibaba fully exercises its option to increase its minority ownership interest in us to 30% on a fully diluted basis before the closing of this offering, it may appoint one or more directors to our board in proportion to its then minority ownership interest. See “Our Relationship with Major Shareholders—Our Relationship with Alibaba.” If we are unable to maintain our strategic alliance relationship with Alibaba, or develop enough new products and business models or attract enough effective traffic to generate the expected revenues from the strategic alliance, our results of operations and growth prospects may be adversely affected.

Our new products, services and initiatives and changes to existing products, services and initiatives could fail to attract users and customers or generate revenues.

Our ability to increase the size and engagement of our user base, attract customers and generate revenues will depend in part on our ability to create and offer successful new products and services. We may introduce significant changes to our existing products and services or develop and introduce new products and services, including technologies with which we have little or no prior development or operating experience. If new or enhanced products or services fail to engage users, customers and platform partners, we may fail to attract or retain users or to generate sufficient revenues to justify our investments, and our business and operating results could be adversely affected. In addition, we may launch strategic initiatives that do not directly generate revenues but which we believe will enhance our attractiveness to users, customers and platform partners. We may not be successful in future efforts to generate revenues from our new products or services. If our strategic initiatives do not enhance our ability to monetize our existing products and services or enable us to develop new approaches to monetization, we may not be able to maintain or grow our revenues or recover any associated development costs and our operating results may be adversely affected.

If we fail to effectively manage our growth, our business and operating results could be harmed.

We continue to experience rapid growth in our business and operations, which will continue to place significant demands on our management, operational and financial resources. However, we have no experience

 

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operating as a stand-alone company, and we may encounter difficulties as we establish and expand our operations, product development, sales and marketing, and general and administrative capabilities. We face significant competition for talented employees from other high-growth companies, which include both publicly traded and privately held companies, and we may not be able to hire new employees quickly enough to meet our needs. To attract highly skilled personnel, we have had to offer, and believe we will need to continue to offer, competitive compensation packages. As we continue to grow, we are subject to the risks of over-hiring, over-compensating our employees and over-expanding our operating infrastructure, and to the challenges of integrating, developing and motivating a growing employee base. In addition, we may not be able to innovate or execute as quickly as a smaller and more efficient organization. If we fail to effectively manage our hiring needs and successfully integrate our new hires, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business and operating results could be adversely affected.

Providing products and services to users may be costly and we expect our expenses to continue to increase in the future as we broaden our user base and increase user engagement, and develop and implement new features, products and services that require more infrastructure, such as short video functionality. In addition, our costs and expenses, such as our labor-related expenses, product development expenses and sales and marketing expenses, have grown rapidly as we have expanded our business. Historically, our costs have increased each year due to these factors and we expect to continue to incur increasing costs to support our anticipated future growth. We expect to continue to invest in our infrastructure in order to enable us to provide our products and services rapidly and reliably to users. Continued growth could also strain our ability to maintain reliable service levels for our users and customers, develop and improve our operational, financial, legal and management controls, and enhance our reporting systems and procedures. Our expenses may grow faster than our revenues, and our expenses may be greater than we anticipate. Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition could be harmed.

Our operating results may fluctuate from quarter to quarter, which makes them difficult to predict.

Our quarterly operating results have fluctuated in the past and will fluctuate in the future. As a result, our past quarterly operating results are not necessarily indicators of future performance. Our operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

 

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our ability to grow our user base and user engagement;

 

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fluctuations in spending by our advertising and marketing customers, including as a result of seasonality and extraordinary news events, or other factors;

 

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our ability to attract and retain advertising and marketing customers;

 

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the occurrence of planned or unplanned significant events;

 

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the development and introduction of new products or services or changes in features of existing products or services;

 

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the impact of competitors or competitive products and services;

 

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increases in our costs and expenses that we may incur to grow and expand our operations and to remain competitive;

 

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changes in the legal or regulatory environment or proceedings, including with respect to security, privacy or enforcement by government regulators, including fines, orders or consent decrees; and

 

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changes in Chinese or global business or macroeconomic conditions.

Given our limited operating history and the rapidly evolving market in which we compete, our historical operating results may not be useful to you in predicting our future operating results. We believe our rapid growth

 

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may understate the potential seasonality of our business. As our revenue growth rate slows, we expect that the seasonality in our business may become more pronounced and may in the future cause our operating results to fluctuate. For example, advertising spending is traditionally seasonally strong in the fourth quarter of each year and we believe that this seasonality affects our quarterly results. In addition, economic concerns continue to create uncertainty and unpredictability and add risk to our future outlook. An economic downturn in China or globally could result in reductions in advertising revenue, as our advertising and marketing customers reduce their advertising budgets, and other adverse effects that could harm our operating results.

Spam could diminish the user experience on our platform, which could damage our reputation and deter our current and potential users from using our products and services.

“Spam” on Weibo refers to a range of abusive activities that are prohibited by our terms of service and is generally defined as unsolicited actions that negatively impact other users with the general goal of drawing user attention to a given account, site, product or idea. This includes posting large numbers of unsolicited mentions of a user, duplicate feeds, misleading links (e.g., to malware or click-jacking pages) or other false or misleading content, and aggressively following and un-following accounts, adding users to lists, sending unsolicited invitations, reposting feeds and favoriting feeds to inappropriately attract attention. Our terms of service also prohibit the creation of serial or bulk accounts, both manually or using automation, for disruptive or abusive purposes, such as to post spam or to artificially inflate the popularity of users seeking to promote themselves on Weibo. Although we continue to invest resources in reducing spam on Weibo, we expect spammers will continue to seek ways to act inappropriately on our platform. In addition, we expect that increases in the number of users on our platform will result in increased efforts by spammers to misuse our platform. We continuously combat spam, including by suspending or terminating accounts we believe to be spammers and launching algorithmic changes focused on curbing abusive activities. Our actions to combat spam require the diversion of significant time and focus of our engineering team from improving our products and services. If we are unable to effectively manage and reduce spam on Weibo, our reputation for delivering relevant content could be damaged, user engagement could decline and our operational costs could increase.

Privacy concerns relating to our products and services and the use of user information could damage our reputation, deter current and potential users and customers from using Weibo and negatively impact our business.

We collect personal data from our users in order to better understand our users and their needs and to help our customers target specific demographic groups. Concerns about the collection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and customers and adversely affect our operating results. While we strive to comply with applicable data protection laws and regulations, as well as our own posted privacy policies and other obligations we may have with respect to privacy and data protection, the failure or perceived failure to comply may result, and in some cases has resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose users and customers, which could have an adverse effect on our business.

Any systems failure or compromise of our security that results in the unauthorized access to or release of our users’ or customers’ data could significantly limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We expect to continue to expend significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of products and services we offer and increase the size of our user base.

Furthermore, if privacy concerns or regulatory restrictions prevent us from selling demographically targeted advertising, we may become less attractive to our customers. For example, as part of our future advertisement delivery system, we may integrate user information such as advertisement response rate, name, address, age or email address with third-party databases to generate comprehensive demographic profiles for individual users. In

 

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Hong Kong, however, the Hong Kong Personal Data Ordinance provides that an internet company may not collect information about its users, analyze the information for a profile of the user’s interests and sell or transmit the profiles to third parties for direct marketing purposes without the user’s consent. Other jurisdictions may have similar prohibitions. Although less than 1% of our revenues are generated in Hong Kong and other jurisdictions with similar prohibitions, we hope to attract more users in these jurisdictions and if we are unable to construct demographic profiles of internet users because they refuse to give consent, we will be less attractive to customers and our business could suffer.

New laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux, may be inconsistent with our practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and operating results. Complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

If our security measures are breached, or if our products and services are subject to attacks that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services and our business and operating results may be harmed.

Our products and services involve the storage and transmission of users’ and customers’ information, and security breaches expose us to a risk of loss of this information, litigation and potential liability. We experience cyber-attacks of varying degrees on a regular basis, including hacking into our user accounts and redirecting our user traffic to other websites, and we have been able to rectify attacks without significant impact to our operations in the past. Functions that facilitate interactivity with other websites, such as Weibo Connect, which among other things allows users to log in to partner websites using their Weibo identities, could increase the scope of access of hackers to user accounts. Our security measures may also be breached due to employee error, malfeasance or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, users or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data or accounts, or may otherwise obtain access to such data or accounts. Since our users and customers may use their Weibo accounts to establish and maintain online identities, unauthorized communications from Weibo accounts that have been compromised may damage their reputations and brands as well as ours. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation and a loss of confidence in the security of our products and services that could have an adverse effect on our business and operating results. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose users and customers and we may be exposed to significant legal and financial risks, including legal claims and regulatory fines and penalties. Any of these actions could have a material and adverse effect on our business, reputation and operating results.

We rely on assumptions and estimates to calculate certain key operating metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

The numbers of daily and monthly active users of Weibo are calculated using internal company data that has not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable periods of measurement, there are inherent challenges in measuring usage and user engagement across our large user base. For example, there are a number of false or spam accounts in existence on Weibo. Although we continuously combat spam by suspending or terminating these accounts, our active user number may include a number of false or spam accounts and therefore may not accurately represent the actual number of active accounts. We treat each account as a separate user for purposes of calculating our active users, because it

 

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may not always be possible to identify people and organizations that have set up more than one account. Additionally, some accounts used by organizations are used by many people within the organization. Accordingly, the calculations of our active users may not accurately reflect the actual number of people or organizations using Weibo.

We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly titled metrics used by our competitors due to differences in methodology. If customers, platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and customers and platform partners may be less willing to allocate their spending or resources to Weibo, which could negatively affect our business and operating results.

Our business is highly sensitive to the strength of our brand and market influence, and we may not be able to maintain current or attract new users, customers and platform partners for our products and services if we do not continue to increase the strength of our brand and develop new brands successfully in the marketplace.

Our operational and financial performance is highly dependent on the strength of our brand and market influence. Such dependency will increase further as the number of internet and mobile users as well as the number of market entrants in China grows. In order to retain existing and attract new internet users, customers and platform partners, we may need to substantially increase our expenditures to create and maintain brand awareness and brand loyalty.

In addition, negative coverage in the media of our company could threaten the perception of our brands, and we cannot assure you that we will be able to defuse negative press coverage about our company to the satisfaction of our investors, users, customers and platform partners. If we are unable to defuse negative press coverage about our company, our brand may suffer in the marketplace, our operational and financial performance may be negatively impacted and the price of our ADSs may decline.

The monetization of our services may require users to accept promoted advertising in their feeds or private messages, which may affect user experience and cause a decline in user traffic and a delay in our monetization.

Weibo users typically can log in to their personal accounts to view feeds and private messages from accounts that they have selected to follow. Social media and social networking companies have been subject to negative comments, and even lawsuits, for introducing promoted advertising into their users’ information feeds. We started to test promoted products on Weibo at the end of 2012 and have also received user complaints. If we are unable to address user complaints adequately, user experience may be negatively affected, the monetization of our products and services may be delayed and our user base or user engagement may decline, which may adversely impact our operations.

New technologies could block our advertisements, desktop clients and mobile applications and may enable technical measures that could limit our traffic growth and new monetization opportunities.

Technologies have been developed that can disable the display of our advertisements and that provide tools to users to opt out of our advertising products. Most of our revenues are derived from fees paid to us by customers in connection with the display of advertisements to our users. In addition, our traffic growth is significantly dependent on content viewed via mobile devices, such as smartphones and tablets. Technologies and tools for personal computers and mobile devices, such as operating systems, internet browsers, anti-virus software and other applications, as well as mobile application stores could set up technical measures to divert

 

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user traffic, require a fee for the download of our products or block our products and services altogether, which could adversely affect our overall traffic and ability to monetize our products and services.

Our business and growth could suffer if we are unable to hire and retain key personnel.

We depend on the continued contributions of our senior management and other key employees, many of whom are difficult to replace. The loss of the services of any of our executive officers or other key employees could harm our business. Competition for qualified talent in China is intense. Our future success is dependent on our ability to attract a significant number of qualified employees and retain existing key employees. If we are unable to do so, our business and growth may be materially and adversely affected and the trading price of our ADSs could suffer. Our need to significantly increase the number of our qualified employees and retain key employees may cause us to materially increase compensation-related costs, including stock-based compensation.

Future investments in and acquisitions of complementary assets, technologies and businesses may fail and may result in equity or earnings dilution.

We may invest in or acquire assets, technologies and businesses that are complementary to our existing business. Our investments or acquisitions may not yield the results we expect. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, significant amortization expenses related to intangible assets and exposure to potential unknown liabilities of the acquired business. Moreover, the cost of identifying and consummating investments and acquisitions, and integrating the acquired businesses into ours, may be significant, and the integration of acquired businesses may be disruptive to our existing business operations. In addition, we may have to obtain approval from the relevant PRC governmental authorities for the investments and acquisitions and comply with any applicable PRC rules and regulations, which may be costly. In the event that our investments and acquisitions are not successful, our financial condition and results of operations may be materially and adversely affected.

We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.

We may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.

We may be subject to intellectual property infringement claims or other allegations by third parties for products or services we provide or for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.

Companies in the internet, technology and media industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, particularly in China, are uncertain and still evolving. As we face

 

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increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

We allow users to upload written materials, images, pictures and other content on our platform and download, share, link to and otherwise access games and applications (some of which are developed by third parties) as well as audio, video and other content either on our platform or from other websites through our platform. We have procedures designed to reduce the likelihood that content might be used without proper licenses or third-party consents. However, these procedures may not be effective in preventing the unauthorized posting of copyrighted content.

With respect to games and applications available on our platform, we have procedures designed to reduce the likelihood of infringement. However, such procedures might not be effective in preventing games and applications, particularly those developed by third parties, from infringing upon other parties’ rights. We may face liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence, and other claims based on the nature and content of the materials that are delivered, shared or otherwise accessed through our platform.

Defending intellectual property litigation is costly and can impose a significant burden on our management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our platform to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.

User growth and engagement depend upon effective interoperation with operating systems, networks, devices, web browsers and standards that we do not control.

We make our products and services available across a variety of operating systems and through websites. We are dependent on the interoperability of our products and services with popular devices, desktop and mobile operating systems and web browsers that we do not control, such as Windows, Mac OS, Android, iOS, and others. Any changes in such systems, devices or web browsers that degrade the functionality of our products and services or give preferential treatment to competitive products or services could adversely affect usage of our products and services. Further, if the number of platforms for which we develop our products increases, it will result in an increase in our costs and expenses. In order to deliver high quality products and services, it is important that our products and services work well with a range of operating systems, networks, devices, web browsers and standards that we do not control. In addition, because a majority of our users access our products and services through mobile devices, we are particularly dependent on the interoperability of our products and services with mobile devices and operating systems. We may not be successful in developing relationships with key participants in the mobile industry or in developing products or services that operate effectively with these operating systems, networks, devices, web browsers and standards. In the event that it is difficult for our users to access and use our products and services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected.

Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China.

Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Moreover, we primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. Web traffic in China has

 

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experienced significant growth during the past few years. Effective bandwidth and server storage at internet data centers in large cities such as Beijing are scarce. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage. If we are unable to increase our online content and service delivering capacity accordingly, we may not be able to continuously grow our traffic, and the adoption of our products and services may be hindered, which could adversely impact our business and our share price.

In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet users increase, some users may be prevented from accessing the internet and thus cause the growth of internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base and increase our attractiveness to online customers.

Our business and operating results may be harmed by service disruptions, or by our failure to timely and effectively scale and adapt our existing technology and infrastructure.

One of the reasons people come to Weibo is for real-time information. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our products and services simultaneously, computer viruses and denial of service, fraud and security attacks. For example, in January 2013 a large number of our users temporarily lost access to their own Weibo Pages due to our failure to properly control software updates and other issues. Any disruption or failure in our infrastructure could hinder our ability to handle existing or increased traffic on our platform or cause us to lose content stored on our platform, which could significantly harm our business and our ability to retain existing users and attract new users.

As the number of our users increases and our users generate more content, including photos and videos on our platform, we may be required to expand and adapt our technology and infrastructure to continue to reliably store and analyze this content. It may become increasingly difficult to maintain and improve the performance of our products and services, especially during peak usage times, as our products and services become more complex and our user traffic increases. In addition, because we lease our data center facilities, we cannot be assured that we will be able to expand our data center infrastructure to meet user demand in a timely manner, or on favorable economic terms. If our users are unable to access Weibo or we are not able to make information available rapidly on Weibo, or at all, users may become frustrated and seek other channels to obtain the information, and may not return to Weibo or use Weibo as often in the future, or at all. This would negatively impact our ability to attract users and customers and maintain the level of engagement of our users.

We prioritize product innovation and user experience over short-term operating results, which may harm our revenues and operating results.

We encourage employees to quickly develop and help us launch new and innovative features. We focus on improving the user experience for our products and services and on developing new and improved products and services for the customers on our platform. We prioritize innovation and the experience for users and customers on Weibo over short-term operating results. We frequently make product and service decisions that may reduce our short-term operating results if we believe that the decisions are consistent with our goals to improve the user experience and performance for customers, which we believe will improve our operating results over the long term. These decisions may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect, in which case our user growth and user engagement, our relationships with customers and our business and operating results could be harmed. In addition, our focus on the user experience

 

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may negatively impact our relationships with our existing or prospective customers. This could result in a loss of customers and platform partners, which would harm our revenues and operating results.

We may face lawsuits or incur liability as a result of content published, made available through, or linked to our social media platform.

As a social media platform, we have faced and will continue to face liability relating to content that is published, made available through, or linked to our platform. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights, rights of publicity and privacy, illegal content, content regulation and personal injury torts. The law relating to the liability of providers of online products or services for activities of their users remains somewhat unsettled in China. In addition, the public nature of communications on our platform exposes us to risks arising from the creation of impersonation accounts intended to be attributed to our users or customers. We could incur significant costs investigating and defending these claims. If we incur costs or liability as a result of these events, our business, financial condition and operating results could be adversely affected.

We may be subject to litigation for user-generated content provided on our platform, which may be time-consuming and costly to defend.

Our platform is open to the public for posting user-generated content. Although we have required our users to post only legally compliant and inoffensive materials and have set up screening procedures, our screening procedures may fail to screen out all potentially offensive or non-compliant user-generated content and, even if properly screened, a third party may still find user-generated content postings on our platform offensive and take action against us in connection with the posting of such information. As with other companies who provide user-generated content on their websites, we have had to deal with such claims in the past and anticipate that such claims will increase as user-generated content becomes more popular in China. Any such claim, with or without merit, could be time-consuming and costly to defend, and may result in litigation and divert management’s attention and resources.

We have limited business insurance coverage.

The insurance industry in China is still young and the business insurance products offered in China are limited. We do not have any business liability or disruption insurance coverage for our operations. Any business disruption, litigation or natural disaster may cause us to incur substantial costs and divert our resources.

We face risks related to health epidemics and natural disasters.

Our business could be adversely affected by the effects of H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or another epidemic. China reported a number of cases of SARS in 2003, which resulted in the closure of many businesses by the PRC government to prevent the transmission of SARS. In recent years, there have been reports of occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. In 2009, the global spread of H1N1 flu resulted in several confirmed infections and deaths in China. Our business operations could be disrupted if one of our employees is suspected of having H1N1 flu, avian flu, SARS or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that H1N1 flu, avian flu, SARS or another outbreak harms the Chinese economy in general and the online advertising industry in particular.

We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-

 

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ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide products and services on our platform.

Risks Related to Our Carve-out from SINA and Our Relationship with SINA

We have no experience operating as a stand-alone public company.

We were incorporated in 2010 in the Cayman Islands as a wholly owned subsidiary of SINA. We have no experience conducting our operations as a stand-alone public company. Prior to this offering, SINA has provided us with financial, administrative, sales and marketing, human resources and legal services, and also has provided us with the services of a number of its executives and employees. After we become a stand-alone public company, we expect SINA to continue to provide us with certain support services, but to the extent SINA does not continue to provide us with such support, we will need to create our own support systems. We may encounter operational, administrative and strategic difficulties as we adjust to operating as a stand-alone public company. This may cause us to react more slowly than our competitors to industry changes and may divert our management’s attention from running our business or otherwise harm our operations.

In addition, since we are becoming a public company, our management team will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance, listing standards and securities and investor relations issues. While we were a subsidiary of SINA, we were indirectly subject to requirements to maintain an effective internal control over financial reporting under Section 404 of the Sarbanes–Oxley Act of 2002. However, as a stand-alone public company, our management will have to evaluate our internal control system independently with new thresholds of materiality, and to implement necessary changes to our internal control system. We cannot guarantee that we will be able to do so in a timely and effective manner.

Our financial information included in this prospectus may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company.

Prior to the establishment of Weibo Corporation in 2010, the operations of our social media business were carried out by companies owned or controlled by SINA. For all periods presented, our combined and consolidated financial statements include all assets, liabilities, revenues, expenses and cash flows that were directly attributable to our social media business whether held or incurred by SINA or by us. Only those assets and liabilities that are specifically identifiable to our business are included in our combined and consolidated balance sheets. With respect to costs of operations of the social media business, an allocation of certain costs and expenses of SINA were also included. These allocations were made using a proportional cost allocation method by considering the proportion of revenues, infrastructure usage metrics, labor usage metrics among other things attributable to us. We made numerous estimates, assumptions and allocations in our historical financial statements because SINA did not account for us, and we did not operate as a stand-alone company for any period prior to the completion of this offering. Although our management believes that the assumptions underlying our financial statements and the above allocations are reasonable, our financial statements may not necessarily reflect our results of operations, financial position and cash flows as if we had operated as a stand-alone public company during the periods presented. See “Our Relationship with Major Shareholders—Our Relationship with SINA” for our arrangements with SINA and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our combined and consolidated financial statements included elsewhere in this prospectus for our historical cost allocation. In addition, upon becoming a stand-alone public company, we will establish our own financial, administrative and other support systems to replace SINA’s systems, the cost of which could be significantly different from cost allocation with SINA for the same services. Therefore, you should not view our historical results as indicators of our future performance.

 

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We may not continue to receive the same level of support from SINA.

SINA is a leading internet media company in China, and our social media business has benefited significantly from SINA’s strong market position in China and its expertise in both internet and media-related businesses. For example, our advertising and marketing revenues have benefited from SINA’s ability to attract large brand advertisers that are interested in advertising on the internet.

Although we plan to enter into a series of agreements with SINA relating to our ongoing business partnership and service arrangements with SINA, we cannot assure you we will continue to receive the same level of support from SINA after we become a stand-alone public company. Our current customers and platform partners may react negatively to our carve-out from SINA. This effort may not be successful, which could materially and adversely affect our business.

Our agreements with SINA may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our non-competition agreement with SINA limits the scope of business that we are allowed to conduct.

We plan to enter a series of agreements with SINA prior to this offering and the terms of such agreements may be less favorable to us than would be the case if they were negotiated with unaffiliated third parties. In particular, under the non-competition agreement we will enter into with SINA prior to the completion of this offering, we agree during the non-competition period (which will end on the later of (1) five years after the first date when SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (2) the fifteenth anniversary of the completion of this offering) not to compete with SINA in the business currently conducted by SINA, as described in its periodic filings with the Securities and Exchange Commission, or the SEC, other than the microblogging and social networking business currently operated by us and any business developed by us operating under either the domain names or the brands owned by us as of the date of the agreement. Such contractual limitations significantly affect our ability to diversify our revenue sources and may materially and adversely impact our business and prospects should the growth of social media in China slow down. In addition, pursuant to our master transaction agreement with SINA, we have agreed to indemnify SINA for liabilities arising from litigation and other contingencies related to our business and assumed these liabilities as part of our carve-out from SINA. The allocation of assets and liabilities between SINA and our company may not reflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as SINA continues to control us, we may not be able to bring a legal claim against SINA in the event of contractual breach, notwithstanding our contractual rights under the agreements described above and other inter-company agreements entered into from time to time.

Our sales, marketing and brand promotion have benefited significantly from our association with SINA. Any negative development in SINA’s market position or brand recognition may materially and adversely affect our marketing efforts and the strength of our brand.

We are a subsidiary of SINA and will continue to be an affiliate of SINA after this offering, as SINA is expected to remain our controlling shareholder. We have benefited significantly from our association with SINA in marketing our brand and our platform. For example, we have benefited by providing services to SINA’s clients. We also benefit from SINA’s strong brand recognition in China, which has provided us credibility and a broad marketing reach. If SINA loses its market position, the effectiveness of our marketing efforts through our association with SINA may be materially and adversely affected. In addition, any negative publicity associated with SINA will likely have an adverse impact on the effectiveness of our marketing as well as our reputation and our brand.

SINA will control the outcome of shareholder actions in our company.

Upon completion of this offering, SINA will hold         % of our ordinary shares, assuming the underwriters do not exercise their over-allotment option. SINA has advised us that it does not anticipate disposing of its voting

 

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control in us in the near future. SINA’s voting power gives it the power to control actions that require shareholder approval under Cayman Islands law, our memorandum and articles of association and [NYSE/NASDAQ] requirements, including the election and removal of a majority of our board of directors, approval of significant mergers and acquisitions and other business combinations, changes to our memorandum and articles of association, the number of shares available for issuance under share incentive plans, and the issuance of significant amounts of our ordinary shares in private placements.

SINA’s voting control may cause transactions to occur that might not be beneficial to you as a holder of ADSs and may prevent transactions that would be beneficial to you. For example, SINA’s voting control may prevent a transaction involving a change of control of us, including transactions in which you as a holder of our ADSs might otherwise receive a premium for your securities over the then-current market price. In addition, SINA is not prohibited from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase of your ADSs. If SINA is acquired or otherwise undergoes a change of control, any acquirer or successor will be entitled to exercise the voting control and contractual rights of SINA, and may do so in a manner that could vary significantly from that of SINA.

We will be a “controlled company” within the meaning of the [NASDAQ Stock Market Rules/NYSE’s Listed Company Manual] and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

We are a “controlled company” as defined under the [NASDAQ Stock Market Rules/NYSE’s Listed Company Manual] because SINA beneficially owns more than 50% of our outstanding ordinary shares. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from corporate governance rules, including:

 

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an exemption from the rule that a majority of our board of directors must be independent directors;

 

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an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and

 

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an exemption from the rule that our director nominees must be selected or recommended solely by independent directors.

As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

We may have conflicts of interest with SINA and, because of SINA’s controlling ownership interest in our company, we may not be able to resolve such conflicts on favorable terms for us.

Conflicts of interest may arise between SINA and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest that we have identified include the following:

 

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Indemnification arrangements with SINA. We will agree to indemnify SINA with respect to lawsuits and other matters relating to our social media business, including operations of that business when it was a private company and a subsidiary of SINA. These indemnification arrangements could result in our having interests that are adverse to those of SINA, for example, with respect to settlement arrangements in litigation. In addition, under these arrangements, we have agreed to reimburse SINA for liabilities incurred (including legal defense costs) in connection with any litigation, while SINA will be the party prosecuting or defending the litigation.

 

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Non-competition arrangements with SINA. We and SINA will enter into a non-competition agreement prior to the completion of this offering, under which we will agree not to compete with each other’s core business. SINA agrees not to compete with us in a business that is of the same nature as the microblogging and social networking business operated by us as of the date of the agreement. We agree not to compete with SINA in the business currently conducted by SINA, as described in its periodic

 

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filings with the SEC, other than the microblogging and social networking business operated by us as of the date of the agreement.

 

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Employee recruiting and retention. Because both SINA and we are engaged internet-related businesses in China, we may compete with SINA in the hiring of new employees, in particular with respect to media and advertising-related matters. We have a non-solicitation arrangement with SINA that restricts us and SINA from hiring any of each other’s employees.

 

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Our board members or executive officers may have conflicts of interest. We may continue to grant incentive share compensation to SINA’s employees and consultants from time to time. These relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for SINA and us.

 

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Sale of shares in our company. SINA may decide to sell all or a portion of our shares that it holds to a third party, including to one of our competitors, thereby giving that third party substantial influence over our business and our affairs. Such a sale could be contrary to the interests of our employees or our other shareholders.

 

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Allocation of business opportunities. Business opportunities may arise that both we and SINA find attractive, and which would complement our respective businesses. SINA may decide to take the opportunities itself, which would prevent us from taking advantage of those opportunities.

 

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Developing business relationships with SINA’s competitors. So long as SINA remains as our controlling shareholder, we may be limited in our ability to do business with its competitors, such as other online media companies in China. This may limit our ability to market our services for the best interests of our company and our other shareholders.

Although our company is becoming a stand-alone public company, we expect to operate, for as long as SINA is our controlling shareholder, as an affiliate of SINA. SINA may from time to time make strategic decisions that it believes are in the best interests of its business as a whole, including our company. These decisions may be different from the decisions that we would have made on our own. SINA’s decisions with respect to us or our business may be resolved in ways that favor SINA and therefore SINA’s own shareholders, which may not coincide with the interests of our other shareholders. We may not be able to resolve any potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with a non-controlling shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved among unaffiliated parties, this may not succeed in practice.

Risks Relating to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations on foreign investment in internet and other related businesses, or if these regulations or their interpretation change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in internet and other related businesses, including the provision of internet content, online advertising services and online game operations. Specifically, foreign ownership of an internet content provider may not exceed 50%. We are a company registered in the Cayman Islands and Weibo Technology, our PRC subsidiary, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, we conduct our business in China through Weimeng, our VIE, and its subsidiary based on a series of contractual arrangements by and among Weibo Technology, Weimeng and its shareholders. As a result of these contractual arrangements, we exert control over our VIE and its subsidiary and consolidate or combine their operating results in our financial statements under U.S. GAAP. Our VIE holds the licenses, approvals and key assets that are essential for our business operations.

 

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In the opinion of our PRC counsel, TransAsia Lawyers, our current ownership structure, the ownership structure of our PRC subsidiary and our VIE, and the contractual arrangements among our PRC subsidiary, our VIE and its shareholders are in compliance with existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Thus, we cannot assure you that the PRC government will not ultimately take a view contrary to the opinion of our PRC counsel. If we are found in violation of any PRC laws or regulations, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation, levying fines, restricting our right to collect revenues, confiscating our income or the income of our VIE, revoking our business licenses or the business licenses of our VIE, requiring us to restructure our ownership structure or operations, and requiring us or our VIE to discontinue any portion or all of our business. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations.

We rely on contractual arrangements with our VIE and its shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.

Due to the PRC restrictions or prohibitions on foreign ownership of internet and other related businesses in China, we operate our business in China through our VIE, in which we have no ownership interest. We rely on a series of contractual arrangements with the VIE and its shareholders to control and operate its business. These contractual arrangements are intended to provide us with effective control over the VIE and its subsidiary and allow us to obtain economic benefits from them. See “Corporate History and Structure—Contractual Arrangements with Weimeng” for more details about these contractual arrangements.

Although we have been advised by our PRC counsel, TransAsia Lawyers, that these contractual arrangements are valid, binding and enforceable under existing PRC laws and regulations, these contractual arrangements may not be as effective in providing control over the VIE as direct ownership. If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights. All of these contractual arrangements are governed by and interpreted in accordance with PRC law, and disputes arising from these contractual arrangements will be resolved through arbitration in China. However, the legal system in China, particularly as it relates to arbitration proceedings, is not as developed as in other jurisdictions, such as the United States. See “Risk Factors—Risks Relating to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.” There are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. These uncertainties could limit our ability to enforce these contractual arrangements. In addition, arbitration awards are final and can only be enforced in PRC courts through arbitration award recognition proceedings, which could cause additional expenses and delays. In the event we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our affiliated entities and may lose control over the assets owned by our VIE and its subsidiary. As a result, we may be unable to consolidate our VIE and its subsidiary in our combined and consolidated financial statements, our ability to conduct our business may be negatively affected, and our business operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition.

Shareholders of our VIE may have potential conflicts of interest with us, which may affect the performance of the contractual arrangements with our VIE and its shareholders, which may in turn materially and adversely affect our business and financial condition.

Our VIE’s shareholders are non-executive PRC employees of our company or SINA and do not hold any equity interest in our company. Although each of these shareholders has authorized Weibo Technology to

 

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exercise all of his voting powers in the VIE, and we may replace any of these shareholders at any time pursuant to the share transfer agreements, we cannot assure you that these shareholders will act in the best interest of our company should any conflict arise. If they were to act in bad faith towards us, we may have to take legal actions to enforce their contractual obligations, which may be expensive, time-consuming and disruptive to our operations. As there remain significant uncertainties regarding the ultimate outcome of a legal action due to the limited number of precedents and lack of official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law, we cannot assure you that conflicts will be resolved in our favor. If we are unable to resolve any such conflicts, or if we suffer significant delays or other obstacles as a result of such conflicts, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and financial condition.

We may lose the ability to use and enjoy assets held by our VIE and its subsidiary that are important to the operation of our business if our VIE or its subsidiary declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.

Our VIE holds certain assets that are important to our business operations, including the Internet Content Provision License, the Online Culture Operating Permit and domain names. Under our contractual arrangements, the shareholders of the VIE may not voluntarily liquidate the VIE or approve the VIE to sell, transfer, mortgage or dispose of its assets or legal or beneficial interests in the business in any manner without our prior consent. However, in the event that the shareholders breach this obligation and voluntarily liquidate the VIE, or the VIE declares bankruptcy, or all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Furthermore, if the VIE or its subsidiary undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of its assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

Contractual arrangements we have entered into with our VIE may be subject to scrutiny by the PRC tax authorities. A finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.

Pursuant to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We may be subject to adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our PRC subsidiary, the VIE and its shareholders are not on an arm’s length basis and therefore constitute favorable transfer pricing. As a result, the PRC tax authorities could require that the VIE adjust its taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by increasing the VIE’s tax expenses without reducing the tax expenses of our PRC subsidiary, subjecting the VIE to late payment fees and other penalties for under-payment of taxes, and resulting in our PRC subsidiary’s loss of its preferential tax treatment. Our results of operations may be adversely affected if our VIE’s tax liabilities increase or if it is subject to late payment fees or other penalties.

If the chops of our PRC subsidiary, the VIE and the VIE’s subsidiary are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, the VIE and the VIE’s subsidiary are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these

 

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entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the holders of such chops at our VIE failed to employ them in accordance with the terms of the various VIE-related agreements or removed them from the premises, the operation of the VIE could be significantly and adversely impacted.

Risks Relating to Doing Business in China

Regulation and censorship of information disseminated over the internet in China may adversely affect our business and subject us to liability for information displayed on our platform.

The PRC government has adopted regulations governing internet access and the distribution of information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet content that, among other things, impairs the national dignity of China, is reactionary, obscene, superstitious, fraudulent or defamatory, or otherwise violates PRC laws and regulations. Failure to comply with these requirements may result in the revocation of licenses to provide internet content and other licenses and the closure of the concerned websites. The website operator may also be held liable for such censored information displayed on or linked to the website.

In addition, the MIIT has published regulations that subject website operators to potential liability for content displayed on their websites and for the actions of users and others using their systems, including liability for violations of PRC laws prohibiting the dissemination of content deemed to be socially destabilizing. The Ministry of Public Security has the authority to order any local internet service provider to block any internet website at its sole discretion. From time to time, the Ministry of Public Security has stopped the dissemination over the internet of information which it believes to be socially destabilizing. The State Administration for the Protection of State Secrets is also authorized to block any website it deems to be leaking state secrets or failing to meet the relevant regulations relating to the protection of state secrets in the dissemination of online information.

Although we attempt to monitor the content posted by users on our platform, we are not able to effectively control or restrict content (including comments as well as pictures, videos and other multimedia content) generated or placed on our platform by our users. In March 2012, we had to disable the Comment feature on our platform for three days to clean up feeds related to certain rumors. To the extent that PRC regulatory authorities find any content displayed on our platform objectionable, they 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. In addition, the Judicial Interpretation on the Application of Law in Trial of Online Defamation and Other Online Crimes jointly promulgated by the Supreme People’s Court and Supreme People’s Procuratorate, which became effective on September 10, 2013, imposes up to a three-year prison sentence on internet users who fabricate or knowingly share defamatory false information online. 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, which in turn may impact the results of our operations and ultimately the trading price of our ADSs. Although our active user base has increased over the past several years, regulation and censorship of information disseminated over the internet in China may adversely affect our user experience and reduce users’ engagement and activities on our platform as well as adversely affect our ability to attract new users to our platform. Any and all of these adverse impacts may ultimately materially and adversely affect our business and results of operations.

We are required to verify the identities of all of our users who post on Weibo, but have not been able to do so, and our noncompliance exposes us to potentially severe penalty by the Chinese government.

The Rules on the Administration of Microblog Development, issued by the Beijing Municipal Government in 2011, stipulate that users who post publicly on microblogs are required to disclose their real identity to the

 

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microblogging service provider, though they may still use pen names on their accounts. Microblogging service providers are required to verify the identities of their users. In addition, microblogging service providers based in Beijing were required to verify the identities of all of their users by March 16, 2012, including existing users who post publicly on their websites. The user identity verification requirements have deterred new users from completing their registrations on Weibo, and a significant portion of the registrations in which user identity information was provided were rejected because they do not match the Chinese government database.

We have made significant efforts to comply with the user verification requirements. However, for reasons including existing user behaviors, the nature of the microblogging product and the lack of clarity on specific implementation procedures, we have not been able to verify the identities of all of the users who post content publicly on Weibo. While the rules are not clear regarding the type and extent of penalties that may be imposed on non-compliant microblogging service providers, we are potentially liable for our noncompliance and may be subject to penalties including the deactivation of certain features on Weibo, termination of Weibo operations or other penalties imposed by the Chinese government. Any of the above actions may have a material and adverse impact on the trading price of our ADSs.

We may have to register our encryption software with Chinese regulatory authorities, and if they request that we change our encryption software, our business operations could be disrupted as we develop or license replacement software.

Pursuant to the Regulations for the Administration of Commercial Encryption promulgated in 1999, foreign and domestic companies operating in China are required to seek approval from the Office of the State for Cipher Code Administration, the Chinese encryption regulatory authority, for the commercial encryption products they use. Companies operating in China are allowed to use only commercial cipher code products approved by this authority and are prohibited to use self-developed or imported cipher code products without approval. In addition, all cipher code products shall be produced by those producers appointed and approved by this authority. Additional rules became effective in 2006 regulating many aspects of commercial cipher code products in detail, including development, production and sales.

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. We may be required to register or apply for permits for our current or future encryption software. If the PRC authorities request that we register our encryption software or change our current encryption software to an approved cipher code product produced by an appointed producer, it could disrupt our business operations.

Regulations on virtual currency may adversely affect our game operations revenues.

We have provided Weibo Credit as an online virtual currency for users to purchase in-game virtual items or other types of fee-based services on our platform. The Notice on the Strengthening of Administration on Online Game Virtual Currency, jointly issued by the Ministry of Culture and the Ministry of Commerce in 2009, broadly defined virtual currency as a type of virtual exchange instrument issued by internet game operation enterprises, purchased directly or indirectly by the game users by exchanging legal currency at a certain exchange rate, saved outside the game programs, stored in servers provided by the internet game operation enterprises in electronic record format and represented by specific numeric units. Virtual currency is used to exchange internet game services provided by the issuing enterprise for a designated extent and time, and is represented by several forms, such as online prepaid game cards, prepaid amounts or internet game points, and does not include game props obtained from playing online games. In 2009, the Ministry of Culture further promulgated the Filing Guidelines on Online Game Virtual Currency Issuing Enterprises and Online Game Virtual Currency Trading Enterprises, which specifically defines “issuing enterprise” and “trading enterprise” and stipulates that a single enterprise may not operate both types of business. Although we believe we do not offer online game virtual currency trading services, we cannot assure you that the PRC regulatory authorities will not take a view contrary to ours, in which case these regulations could have an adverse effect on our game-related revenues.

 

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Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business.

Substantially all of our operations are conducted in China and substantially all of our revenues are sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regions and between economic sectors. The PRC government exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the Chinese economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the Chinese economy since 2012. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our products and services and adversely affect our competitive position.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection available to you and us.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

We may be adversely affected by the complexity, uncertainties and changes in PRC licensing and regulation of internet businesses.

The PRC government extensively regulates the internet industry, including the licensing and permit requirements pertaining to companies in this industry. Internet-related laws and regulations in China are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty. As a result, it may be difficult to determine what actions or omissions may be deemed to be violations of applicable laws and regulations in certain circumstances.

Our VIE holds the Internet Content Provision License and the Online Culture Operating Permit that are necessary for operating our current business in China. However, we cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing

 

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licenses or obtain any new licenses if required by any new laws or regulations. The VIE is currently in the process of applying for an internet publishing permit. See “PRC Regulation—Regulations on Online Game Operations and Cultural Products.” In addition, companies engaging in internet broadcasting activities must first obtain an audio/video program transmission license. See “PRC Regulation—Regulations on Broadcasting Audio/Video Programs through the Internet” for more details. Currently, all the audio/video programs posted on our website are delivered through third-party websites. The VIE is not qualified to obtain the internet audio/video program transmission license under the current legal regime as it is not a wholly state-owned or state-controlled company and it was not operating prior to the issuance of the Rules for the Administration of Internet Audio and Video Program Services, commonly known as Circular 56. The VIE plans to apply for an internet audio/video program transmission license when feasible to do so. Also, the VIE is in the process of applying for an inter-regional Value-Added Telecommunications Services Operating License for provision of value-added telecommunication services nationwide. See “PRC Regulation—Regulations on Value-Added Telecommunications Services.” Further, we may need to apply for an internet news publication license. See “PRC Regulation—Regulations on Internet News Dissemination.” If we fail to obtain such licenses or any additional licenses required by new laws and regulations in a timely manner or at all, we could be subject to liabilities and penalties.

Foreign investment in online game operation is prohibited under PRC law. We currently provide our online game services through our VIE and its subsidiary. However, certain contracts relating to our online game services were entered into between our PRC subsidiary, the VIE and the game developers, under which our PRC subsidiary, together with the VIE, provides certain technical services through our website. Under these agreements, our PRC subsidiary, a foreign-invested enterprise, may be deemed to be providing value-added telecommunication services without the necessary licenses. If so, we may be subject to sanctions, including payment of delinquent taxes and fines, which may significantly disrupt our operations and materially and adversely affect our business, results of operations and financial condition.

Furthermore, the operation of online games in China is highly regulated by the PRC government. Once a new online game or a significant enhancement of an existing online game is launched, approval must be obtained from the General Administration of Press and Publication for online publication of the game and the game must be filed with the Ministry of Culture within 30 days after its launch. If the online games operated on our platform failed to obtain or maintain any of the required permits, approvals or registrations or to make any necessary filings on a timely basis, the operator of the relevant game may be subject to various penalties and the operation of the relevant game will be discontinued or limited, which could adversely affect our business.

In addition, due to the increasing popularity and use of the internet, online games and other online services, it is possible that additional laws and regulations may be adopted with respect to the internet, online games or other online services covering issues such as user privacy, pricing, content, copyrights and distribution. The adoption of additional laws or regulations may decrease the growth of the internet, online games or other online services, which could in turn decrease the demand for our products and services and increase our cost of doing business.

PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary.

We may transfer funds to our PRC subsidiary or finance our PRC subsidiary by means of shareholder loans or capital contributions upon completion of this offering. Any loans from us to our PRC subsidiary, which is a foreign-invested enterprise, cannot exceed statutory limits based on the difference between the registered capital and the investment amount of such subsidiary, and shall be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Any capital contributions we make to our PRC subsidiary shall be approved by the Ministry of Commerce or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability

 

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to provide loans or capital contributions to our PRC subsidiary in a timely manner may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In addition, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and may not be used for equity investments in China. Foreign-invested companies may not change how they use such capital without SAFE’s approval, and may not in any case use such capital to repay RMB loans if proceeds of such loans have not been utilized. Violations of these regulations may result in severe penalties. See “PRC Regulation—Regulations on Foreign Exchange.” Also, the Circular on Issuers concerning Strengthening the Administration of Foreign Exchange Business, which was promulgated by SAFE in 2010, requires banks and local counterparts of SAFE to examine closely the authenticity of the settlement of net proceeds from offshore offerings and whether the net proceeds are settled in the manner described in offering documents. These regulations may significantly limit our ability to transfer the net proceeds from this offering and subsequent offerings or financings to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in China.

We may be subject to penalties, including restriction on our ability to inject capital into our PRC subsidiary and our PRC subsidiary’s ability to distribute profits to us, if our PRC resident shareholders beneficial owners fail to comply with relevant PRC foreign exchange rules.

The Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Offshore Special Purpose Vehicles, often known as Circular 75, was issued by SAFE in 2005. Circular 75 requires PRC residents to register with the local SAFE branch in connection with their establishment or control of any offshore special purpose vehicle for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore special purpose vehicle acquires or controls onshore assets or equity interests held by the PRC residents. In addition, such PRC residents must update their SAFE registrations when the offshore special purpose vehicle undergoes material events, including events relating to increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments or external guarantees. Subsequent regulations further clarified that PRC subsidiaries of an offshore company governed by the SAFE regulations are required to coordinate and supervise the completion of the SAFE registrations in a timely manner by the offshore holding company’s shareholders who are PRC residents. If these shareholders fail to comply, the PRC subsidiaries are required to report to the local SAFE branches and may be prohibited from making any distributions to the offshore special purpose company, and the offshore special purpose company may also be prohibited from making additional capital contribution to its subsidiaries in China.

We have requested all of our current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of Circular 75 and its guidance and will urge relevant shareholders and beneficial owners, upon learning they are PRC residents, to register with the local SAFE branch as required under Circular 75 and its guidance. However, we may not be fully informed of the identities of all our shareholders and beneficial owners who are PRC residents, and as Circular 75 and its related foreign exchange regulations are relatively new and evolving and their interpretation and enforcement involve significant uncertainties, we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents have fully complied or will comply with our request to make, obtain or update any applicable registrations or have fully complied or will fully comply with other requirements required by Circular 75 or other related rules in a timely manner. For example, some of our PRC resident employees who participated in our 2010 Share Incentive Plan have excised their option and became our shareholders. These shareholders plan to register with SAFE or its local branch together with our PRC resident employees who participate in our share incentive plans when our company becomes publicly listed in the United States. However, if SAFE or its local branch determine that the registrations under Circular 75 are necessary for these PRC resident shareholders, we cannot assure you that these PRC resident shareholders will successfully obtain SAFE registrations under Circular 75. The failure or inability of such individuals to comply with the registration requirement may subject us to fines or

 

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legal sanctions, restrictions on our cross-border investment activities or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

We and/or our Hong Kong subsidiary may be classified as a “PRC resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.

The Enterprise Income Tax Law provides that an enterprise established outside China whose “de facto management body” is located in China is considered a “PRC resident enterprise” and will generally be subject to the uniform 25% enterprise income tax on its global income. Under the implementation rules of the Enterprise Income Tax Law, “de facto management body” is defined as the organizational body which effectively manages and controls the production and business operation, personnel, accounting, properties and other aspects of operations of an enterprise.”

Pursuant to the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, issued by the State Administration of Taxation in 2009, a foreign enterprise controlled by PRC enterprises or PRC enterprise groups is considered a PRC resident enterprise if all of the following conditions are met: (i) the senior management and core management departments in charge of daily operations are located mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders’ meetings are located or kept within the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. Although the notice states that these standards only apply to offshore enterprises that are controlled by PRC enterprises or PRC enterprise groups, such standards may reflect the general view of the State Administration of Taxation in determining the tax residence of foreign enterprises.

We believe that neither our company nor our Hong Kong subsidiary is a PRC resident enterprise because neither our company nor our Hong Kong subsidiary meets all of the conditions enumerated. For example, board and shareholders’ resolutions of our company and our Hong Kong subsidiary are adopted in Hong Kong and the minutes and related files are kept in Hong Kong. However, if the PRC tax authorities were to disagree with our position, our company and/or our Hong Kong subsidiary may be subject to PRC enterprise income tax reporting obligations and to a 25% enterprise income tax on our global taxable income, except for our income from dividends received from our PRC subsidiary, which may be exempt from PRC tax. If we and/or our Hong Kong subsidiary are treated as a PRC resident enterprise, the 25% enterprise income tax may adversely affect our ability to satisfy any of our cash needs.

In addition, if we were to be classified as a PRC “resident enterprise” for PRC enterprise income tax purpose, dividends we pay to our non-PRC enterprise shareholders and gains derived by our non-PRC shareholders from the sale of our shares and ADSs may be become subject to a 10% PRC withholding tax. In addition, future guidance may extend the withholding tax to dividends we pay to our non-PRC individual shareholders and gains derived by such shareholders from transferring our shares and ADSs. In addition to the uncertainty in how the new “resident enterprise” classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If PRC income tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our non-resident shareholders, the value of your investment in our ADSs or ordinary shares may be materially and adversely affected.

 

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Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.

We are a holding company, and we rely principally on dividends and other distributions from our PRC subsidiary for our cash needs, including the funds necessary to pay dividends to our shareholders or service any debt we may incur. Current PRC regulations permit our PRC subsidiary to pay dividends only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary is required to set aside at least 10% of its after tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital. Apart from these reserves, our PRC subsidiary may allocate a discretionary portion of its after-tax profits to staff welfare and bonus funds at its discretion. These reserves and funds are not distributable as cash dividends. Furthermore, if our PRC subsidiary incurs debt, the debt instruments may restrict its ability to pay dividends or make other payments to us. We cannot assure you that our PRC subsidiary will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.

Distributions made by PRC companies to their offshore parents are generally subject to a 10% withholding tax under the Enterprise Income Tax Law. Pursuant to the Enterprise Income Tax Law and the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, the withholding tax rate on dividends paid by our PRC subsidiary to our Hong Kong subsidiary would generally be reduced to 5%, provided that our Hong Kong subsidiary is the beneficial owner of the PRC sourced income. Our PRC subsidiary has not obtained approval for a withholding tax rate of 5% from the local tax authority and does not plan to obtain such approval in the near future as we have not achieved profitability. However, the Notice on How to Understand and Determine the Beneficial Owners in a Tax Agreement, also known as Circular 601, promulgated by the State Administration of Taxation in 2009, provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and similar arrangements. According to Circular 601, a beneficial owner generally must be engaged in substantive business activities. An agent or conduit company will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. For this purpose, a conduit company is a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits. Although our PRC subsidiary is wholly owned by our Hong Kong subsidiary, we will not be able to enjoy the 5% withholding tax rate with respect to any dividends or distributions made by our PRC subsidiary to its parent company in Hong Kong if our Hong Kong subsidiary is regarded as a “conduit company.”

In addition, if Weibo HK were deemed to be a PRC resident enterprise, then dividends payable by Weibo HK to Weibo Corporation may become subject to 10% PRC dividend withholding tax. Under such circumstances, it is not clear whether dividends payable by Weibo Technology to Weibo Corporation would still be subject to PRC dividend withholding tax and whether such tax, if imposed, would be imposed at a rate of 5% or 10%.

Restrictions on the remittance of RMB into and out of China and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China. We receive substantially all of our revenues in RMB and substantially all of our cash inflows and outflows are denominated in RMB. Under our current corporate structure, our revenues are primarily derived from dividend payments from our subsidiary in China after it receives payments from the VIE under various service and other contractual arrangements. We may convert a portion of our revenues into other currencies to meet our foreign currency obligations, such as payments of dividends declared in respect of our ordinary shares, if any. Shortages in the availability of foreign currency may restrict the ability of our PRC

 

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subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Discontinuation of preferential tax treatment or imposition of any additional taxes could adversely affect our financial condition and results of operations.

The Enterprise Income Tax Law and its implementing rules have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China. The Enterprise Income Tax Law and its implementing rules also permit qualified “software enterprises” to enjoy a two-year income tax exemption starting from the first profit making year, followed by a reduced tax rate of 12.5% for the subsequent three years. Weibo Technology, our PRC subsidiary, was qualified as a “software enterprise” on December 19, 2011, and will be eligible for the relevant preferential tax treatment upon filing with the relevant tax authorities. Weibo Technology has not applied for any preferential tax treatments yet due to its cumulative loss, and it may apply for preferential tax treatment as a “software enterprise” when it begins to generate profits. Its qualification as a “software enterprise” is subject to annual evaluation and a three-year review by the relevant authorities in China. If Weibo Technology fails to maintain its “software enterprise” qualification, its applicable corporate income tax rate would increase to 25%, which could have an adverse effect on our financial condition and results of operations.

Our financial condition and results of operations could be materially and adversely affected if recent value added tax reforms in the PRC become unfavorable to our PRC subsidiary or VIE.

In 2012, China introduced a value added tax, or VAT, to replace the previous 5% business tax. Our PRC subsidiary and the VIE have been subject to VAT at a base rate of 6% since September 1, 2012. The VIE’s subsidiary has been subject to VAT at a base rate of 6% since July 1, 2013. The rules related to VAT are still evolving and the timing of the promulgation of the final tax rules or related interpretation is uncertain. Our financial condition and results of operations could be materially and adversely affected if the interpretation and enforcement of these tax rules become materially unfavorable to our PRC subsidiary and VIE.

Failure to comply with PRC regulations regarding the registration requirements for stock ownership plans or stock option plans may subject PRC plan participants or us to fines and other legal or administrative sanctions.

Under SAFE regulations, PRC residents who participate in an employee stock ownership plan or stock option plan in an overseas publicly listed company are required to register with SAFE or its local branch and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of such overseas publicly listed company, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of these participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise or sale of stock options. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes.

 

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We and our PRC resident employees who participate in our share incentive plans will be subject to these regulations when our company becomes publicly listed in the United States. If we or our PRC resident option grantees fail to comply with these regulations, we or our PRC resident option grantees may be subject to fines and other legal or administrative sanctions. See “PRC Regulation—Regulations on Employee Stock Options Plans.”

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar.

Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB, whereas our reporting currency is the U.S. dollar. Any significant depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position as reported in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

PRC laws and regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

A number of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors adopted by six PRC regulatory agencies in 2006, or the M&A Rules, the Anti-monopoly Law, and the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the Ministry of Commerce in August 2011, or the Security Review Rules, have established procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time consuming and complex. These include requirements in some instances that the Ministry of Commerce be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the Ministry of Commerce be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review or security review.

The Security Review Rules were formulated to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which was promulgated in 2011. Under these rules, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises have “national security” concerns. In addition, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review, the Ministry of

 

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Commerce will look into the substance and actual impact of the transaction. The Security Review Rules further prohibits foreign investors from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions.

There is no requirement for foreign investors in those mergers and acquisitions transactions already completed prior to the promulgation of Circular 6 to submit such transactions to the Ministry of Commerce for security review. As we have already obtained the “de facto control” over our affiliated PRC entities prior to the effectiveness of these rules, we do not believe we are required to submit our existing contractual arrangements to the Ministry of Commerce for security review.

However, as these rules are relatively new and there is a lack of clear statutory interpretation on the implementation of the same, there is no assurance that the Ministry of Commerce will not apply these national security review-related rules to the acquisition of equity interest in our PRC subsidiary. If we are found to be in violation of the Security Review Rules and other PRC laws and regulations with respect to the merger and acquisition activities in China, or fail to obtain any of the required approvals, the relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income, revoking our PRC subsidiary’s business or operating licenses, requiring us to restructure or unwind the relevant ownership structure or operations. Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations. Further, if the business of any target company that we plan to acquire falls into the ambit of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by acquiring other companies operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation in December 2009 with retroactive effect from January 1, 2008, where a non-PRC resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the non-PRC resident enterprise, being the transferor, must report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

In 2011, the State Administration of Taxation released SAT Public Notice (2011) No. 24 to clarify several issues related to Circular 698. According to this notice, the term “effective tax” refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company, and the term “does not impose income tax” refers to the cases where the gain derived from disposition of the equity interests of an

 

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overseas holding company is not subject to income tax in the jurisdiction where the overseas holding company is a resident.

There is uncertainty as to the application of Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or made any formal declaration as to the process and format for reporting an Indirect Transfer to the competent tax authority of the relevant PRC resident enterprise. In addition, there are no formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to reduce, avoid or defer PRC tax. Circular 698 may be determined by the tax authorities to be applicable to previous investments by non-PRC resident investors in our company, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our existing non-PRC resident investors may be at risk of being taxed under Circular 698 and may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which may have a material adverse effect on our financial condition and results of operations or such non-PRC resident investors’ investments in us. We have conducted and may conduct acquisitions involving corporate structures, and historically our shares were transferred by certain then shareholders to our current shareholders. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us.

We face certain risks relating to the real properties that we lease.

We primarily lease office space from third parties for our operations in China. Any defects in lessors’ title to the leased properties may disrupt our use of our offices, which may in turn adversely affect our business operations. For example, certain buildings and the underlying land are not allowed to be used for industrial or commercial purposes without relevant authorities’ approval, and the lease of such buildings to companies like us may subject the lessor to pay premium fees to the PRC government. We cannot assure you that the lessor has obtained all or any of approvals from the relevant governmental authorities. In addition, some of our lessors have not provided us with documentation evidencing their title to the relevant leased properties. We cannot assure you that title to these properties we currently lease will not be challenged. In addition, we have not registered any of our lease agreements with relevant PRC governmental authorities as required by PRC law, and although failure to do so does not in itself invalidate the leases, we may not be able to defend these leases against bona fide third parties.

As of the date of this prospectus, we are not aware of any actions, claims or investigations being contemplated by government authorities with respect to the defects in our leased real properties or any challenges by third parties to our use of these properties. However, if third parties who purport to be property owners or beneficiaries of the mortgaged properties challenge our right to use the leased properties, we may not be able to protect our leasehold interest and may be ordered to vacate the affected premises, which could in turn materially and adversely affect our business and operating results.

Our significant deposits in certain banks in China may be at risk if these banks go bankrupt or otherwise do not have the liquidity to pay us during our deposit period.

As of December 31, 2013, we had approximately $496.2 million in cash, bank deposits and short term investments, such as time deposits, with large domestic banks in China. Our remaining cash, cash equivalents and short-term investments were held by financial institutions in the United States and Hong Kong. The terms of these deposits are, in general, up to twelve months. Historically, deposits in Chinese banks were viewed as secure due to the state policy on protecting depositors’ interests. However, the new Bankruptcy Law that came into

 

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effect in 2007 contains an article expressly stating that the State Council may promulgate implementation measures for the bankruptcy of Chinese banks based on the Bankruptcy Law, so the law contemplates the possibility that a Chinese bank may go bankrupt. In addition, foreign banks have been gradually permitted to operate in China since China’s accession to the World Trade Organization and have become strong competitors of Chinese banks in many respects, which may have increased the risk of bankruptcy or illiquidity for Chinese banks, including those in which we have deposits. In the event of bankruptcy or illiquidity of any one of the banks which holds our deposits, we are unlikely to claim our deposits back in full since we are unlikely to be classified as a secured creditor based on PRC laws.

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspection.

Our auditor, the independent registered public accounting firm that issued the audit reports included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. Our auditor is located in China and the PCAOB is currently unable to conduct inspections on auditors in China without the approval of the PRC authorities. Therefore, our auditor, like other independent registered public accounting firms operating in China, is currently not inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures, and to the extent that such inspections might have facilitated improvements in our auditor’s audit procedures and quality control procedures, investors may be deprived of such benefits.

We may be adversely affected by the outcome of the administrative proceedings brought by the SEC against the Big 4 PRC-based accounting firms.

In December 2012, the SEC brought administrative proceedings against the Big 4 accounting firms in China, including our independent registered public accounting firm, alleging that these accounting firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit papers and other documents related to certain PRC-based companies that are publicly traded in the United States.

On January 22, 2014, the Administrative Law Judge presiding over the matter reached an initial decision that the firms had each violated the SEC’s rules of practice by failing to produce the audit work papers and related documents directly to the SEC. The initial decision further determined that each of the firms should be censured and barred from practicing before the SEC for a period of six months. The Big 4 PRC-based accounting firms recently appealed the initial administrative law decision to the SEC. The initial administrative law decision will not become effective until and unless it is endorsed by the full SEC. The accounting firms can then further appeal the final decision of the SEC through the federal appellate courts.

While we cannot predict the outcome of the SEC’s review, nor that of any subsequent appeal process, if the Big 4 PRC-based accounting firms, including our independent registered public accounting firm, are ultimately temporarily barred from practicing before the SEC, we may not be able to meet the reporting requirements under the Exchange Act following the listing of our ADSs in the U.S., which may ultimately result in our deregistration by the SEC and delisting from the [New York Stock Exchange/NASDAQ Global Market], in which case our

 

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market capitalization may decline sharply and the value of your investment in our ADSs may be materially and adversely affected.

Risks Relating to Our ADSs and This Offering

An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

We have applied to list our ADSs on the [NYSE/NASDAQ Global Market]. Prior to the completion of this offering, there has been no public market for our ADSs or the ordinary shares underlying our ADSs, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected. The initial public offering price for our ADSs will be determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.

The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

 

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variations in our revenues, earnings and cash flow;

 

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announcements of new investments, acquisitions, strategic partnerships or joint ventures;

 

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announcements of new services and expansions by us or our competitors;

 

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changes in financial estimates by securities analysts;

 

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detrimental adverse publicity about us or SINA;

 

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additions or departures of key personnel;

 

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release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

 

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potential litigation or regulatory investigations.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.

In January 2014, CNNIC released a report in Chinese stating that the number of microblog users in China had declined by 9.2% from 2012 to 2013. Because weibo is the Chinese word for “microblog” and Chinese

 

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characters do not distinguish between proper nouns (“Weibo” meaning Weibo Corporation) and common nouns (“weibo” meaning microblog), various media sources, including a number of prominent international media, reported that the number of our users had declined by 9.2% from 2012 to 2013. The share price of our parent company SINA fell substantially in the weeks following the CNNIC report. Media reports about our company in the future, whether due to this kind of misunderstanding or for any other reason, could have a material adverse effect on the trading price of our ADSs.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

The trading market for our ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our ADSs, the market price for our ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our ADSs to decline.

Alibaba has an option to acquire shares in our company at a discount to the per share price at which we are offering ADSs to you in this offering. To the extent that it exercises this option, your interest in our company will be diluted and the trading price of our ADSs may be adversely affected.

Ali WB, an affiliate of Alibaba Group, holds 30,046,154 preferred shares and 4,846,154 ordinary shares, representing in the aggregate approximately 18% of the shareholding in our company prior to this offering on an as-converted basis. Pursuant to the shareholders’ agreement, as amended, between our company, Ali WB and SINA, Ali WB has an option to acquire additional ordinary shares in our company at a discount to the public offering price in this offering. The price per ordinary share will be the lower of (i) 15% less than the public offering price in this offering and (ii) a price per ordinary share that implies an equity valuation (exclusive of the purchase price to be paid by Ali WB for these ordinary shares) of $5.5 billion for our company on a fully diluted basis. Ali WB may give us notice of its decision to exercise the option at any time prior to two days before the public filing of our registration statement on Form F-1 of which this prospectus is a part. If the option is exercised, the settlement date will be contemporaneous with the completion of this offering. The maximum number of Class A ordinary shares that Ali WB may purchase pursuant to this option is the difference between 30% of our ordinary shares on a fully diluted basis on the date of settlement (excluding ordinary shares sold in this offering) and the 34,892,308 Class A ordinary shares it will hold after the conversion of its preferred shares upon the closing of this offering. Assuming no change in Ali WB’s shareholding and assuming that we do not issue any additional ordinary shares between now and the settlement of Ali WB’s option, Ali WB will have the right under this option to purchase up to                      Class A ordinary shares. To the extent that Ali WB exercises this option, your interest in our company will be diluted and the trading price of our ADSs may be adversely affected.

The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.

Sales of substantial amounts of our ADSs in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially

 

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impair our ability to raise capital through equity offerings in the future. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be                      ADSs (equivalent to                      ordinary shares) outstanding immediately after this offering, or                      ADSs (equivalent to                      ordinary shares) if the underwriters exercise their option to purchase additional ADSs in full. In connection with this offering, we and our officers, directors and existing shareholders have agreed not to sell any ordinary shares or ADSs for 180 days after the date of this prospectus without the prior written consent of the underwriters, subject to certain exceptions, including the exercise by Ali WB of its rights to acquire additional Class A ordinary shares under its shareholders’ agreement with SINA and us. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See “Underwriting” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

Our proposed dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

Our ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering. Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to three votes per share. We will issue Class A ordinary shares represented by our ADSs in this offering. All of the outstanding ordinary shares held by SINA as of the date of this prospectus will be automatically redesignated or converted into Class B ordinary shares immediately prior to the completion of this offering. All other ordinary shares or preferred shares that are outstanding as of the date of this prospectus will be automatically redesignated or converted into Class A ordinary shares immediately prior to the completion of this offering. We intend to maintain the dual-class voting structure after the completion of this offering. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder thereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted into the equal number of Class A ordinary shares.

Due to the disparate voting powers attached to these two classes of ordinary shares, SINA will own approximately         % of our total issued and outstanding ordinary shares on an as-converted basis and             % of the voting power of our outstanding shares immediately after this offering, assuming that Ali WB will fully exercise its option to acquire additional Class A ordinary shares and assuming no exercise of the underwriters’ over-allotment option. Therefore, SINA will have decisive influence over matters requiring shareholders’ approval, including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

 

 

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Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of approximately $                     per ADS (assuming that no outstanding options to acquire ordinary shares are exercised). This number represents the difference between our pro forma net tangible book value per ADS of $                     as of December 31, 2013, after giving effect to this offering and the assumed initial public offering price of $                     per ADS, the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus. See “Dilution” for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

We have not determined a specific use for a portion of the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.

We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ADSs.

Under the Enterprise Income Tax Law and its implementation rules, subject to any applicable tax treaty or similar arrangement between the PRC and your jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of ADSs or shares by such non-PRC resident enterprise investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC, unless a tax treaty or similar arrangement otherwise provides. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of American depositary shares or shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and similar arrangements and PRC laws. Although

 

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substantially all of our business operations are in China, it is unclear whether dividends we pay with respect to our ADSs, or the gain realized from the transfer of our ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we were considered a PRC resident enterprise, as described above. If PRC income tax were imposed on gains realized through the transfer of our ADSs or on dividends paid to our non-PRC resident investors, the value of your investment in our ADSs may be materially and adversely affected. Furthermore, our ADS holders whose jurisdictions of residence have tax treaties or similar arrangements with China may not qualify for benefits under such tax treaties or arrangements.

We may be classified as a passive foreign investment company under U.S. tax law, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs.

Depending upon the value of our assets, which is determined based on the market value of our ordinary shares and ADSs, and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Based on our current income and assets and projections as to the value of our ordinary shares and ADSs pursuant to this offering, we do not expect to be classified as a PFIC for the current taxable year. While we do not anticipate becoming a PFIC for the current taxable year, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for the current or any subsequent taxable year.

We will be classified as a PFIC for any taxable year if either (i) 75% or more of our gross income for the taxable year is passive income or (ii) 50% or more of the value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. Although the law in this regard is unclear, we treat our VIE as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of this entity but also because we are entitled to substantially all of its economic benefits, and, as a result, we consolidate its results of operations in our combined and consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of our VIE for U.S. federal income tax purposes, we would likely be treated as a PFIC for our current taxable year and any subsequent taxable year. Because of the uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for current the taxable year or any future taxable year. The overall level of our passive assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

If we were to be or become classified as a PFIC, a U.S. Holder (as defined in “Taxation—Material United States Federal Income Tax Considerations—General”) may be subject to reporting requirements and may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules. Further, if we were a PFIC for any year during which a U.S. Holder held our ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. Holder held our ADSs or ordinary shares. You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, holding, and disposing of ADSs or ordinary shares if we are or become classified as a PFIC. For more information see “Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

The approval of the China Securities Regulatory Commission may be required in connection with this offering under PRC law.

The M&A Rules, which were adopted in 2006 by six PRC regulatory agencies, including the CSRC, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and this offering

 

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may ultimately require approval from the CSRC. If CSRC approval is required, it is uncertain how long it will take us to obtain the approval and any failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, results of operations and financial condition.

Our PRC counsel, TransAsia Lawyers, has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to submit an application to the CSRC for the approval of the listing and trading of our ADSs on the [New York Stock Exchange/NASDAQ Global Market] because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation, and (ii) our wholly owned PRC subsidiary was established by foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the M&A Rules. However, we cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ADSs. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of the ADSs.

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

We will adopt amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering. Our new memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law of the Cayman Islands (2013 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as

 

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from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

The Cayman Islands courts are also unlikely:

 

•

to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and

 

•

to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands (2013 Revision) and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital—Differences in Corporate Law.”

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in China. In addition, a majority of our current directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 for so long as we are an emerging growth company until the fifth anniversary from the date of our initial listing.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

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We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

•

the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;

 

•

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

•

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

•

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of [NASDAQ/the NYSE]. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your ordinary shares.

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our amended and restated memorandum and articles of association that will become effective immediately upon completion of this offering, the minimum notice period required for convening a general meeting is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings unless:

 

•

we have failed to timely provide the depositary with notice of meeting and related voting materials;

 

•

we have instructed the depositary that we do not wish a discretionary proxy to be given;

 

•

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

 

•

a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

 

•

the voting at the meeting is to be made on a show of hands.

 

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The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may experience dilution of your holdings due to inability to participate in rights offerings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND INDUSTRY DATA

This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

 

•

our goals and strategies;

 

•

our future business development, financial condition and results of operations;

 

•

expected changes in our revenues, costs or expenditures;

 

•

the growth of social media, internet and mobile users and internet and mobile advertising in China;

 

•

PRC governmental policies relating to media, the internet, internet content providers and online advertising.

You should read thoroughly this prospectus and the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This prospectus also contains statistical data and estimates that we obtained from industry publications and reports generated by third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $             million, or approximately $             million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of $             per ADS, the midpoint of the range shown on the front cover page of this prospectus. A $1.00 change in the assumed initial public offering price of $             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease the net proceeds of this offering by $             million, or approximately $             million if the underwriters exercise their option to purchase additional ADSs in full, assuming the sale of              ADSs at $             per ADS, the midpoint of the range shown on the front cover page of this prospectus and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.

The primary purposes of this offering are to enhance our brand recognition, retain talented employees by providing them with equity incentives, and obtain additional capital. We will use approximately $250 million of the net proceeds we receive from this offering to repay loans we owe to SINA, our parent company and controlling shareholder. The loans from SINA have no fixed repayment date and accrue interest at prevailing market interest rates, by reference to the three-month time deposit rate of the People’s Bank of China, which have ranged from 2.55% to 3.05%. We intend to use the remainder to invest in technology, infrastructure and product development, to expand sales and marketing efforts, and for working capital and other general corporate purposes. Additionally, we may use a portion of the net proceeds to invest in or acquire complementary businesses, products, services or technologies. However, we do not have agreements or commitments for any material acquisitions as of the date of this prospectus. The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business. Accordingly, our management will have significant flexibility in applying the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

In utilizing the proceeds of this offering, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund its capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See “Risk Factors—Risks Relating to Doing Business in China—PRC regulations of loans to PRC entities and direct investment in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary.” The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

Pending use of the net proceeds, we intend to hold our net proceeds in demand deposits or invest them in interest-bearing government securities.

 

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DIVIDEND POLICY

We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiary for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See “Risk Factors—Risks Relating to Doing Business in China—Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.”

Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2013:

 

•

on an actual basis;

 

•

on a pro forma basis to reflect the automatic conversion of all of our outstanding preferred shares into 30,046,154 Class A ordinary shares upon the completion of this offering; and

 

•

on a pro forma as adjusted basis to reflect (1) the automatic conversion of all of our outstanding preferred shares into 30,046,154 Class A ordinary shares immediately upon the completion of this offering; (2) the issuance of              Class A ordinary shares upon the exercise of the outstanding option held by Ali WB at an assumed exercise price of US$             per share, which represents a             % discount to the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus; and (3) the sale of                      Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of $             per ADS, the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with our combined and consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

		As of December 31, 2013
		Actual				Pro forma(1)				Pro forma as adjusted(2)
		(in $ thousands, except for share and per share data)
Mezzanine Equity:
Mezzanine equity ($0.00025 par value; 100,000,000 shares authorized, 30,046,154 shares issued and outstanding on an actual basis; none outstanding on a pro forma or pro forma as adjusted basis)			479,612				—				—
Shareholders’ (Deficit)/Equity:
Ordinary shares ($0.00025 par value; 600,000,000 shares authorized, 150,391,552 shares issued and outstanding on an actual basis; 180,437,706 outstanding on a pro forma basis;              outstanding on a pro forma as adjusted basis)			37				45
Additional paid-in capital			31,352				510,956
Accumulated other comprehensive income			521				521
Accumulated deficit			(274,851	)			(274,851	)
Total shareholders’ (deficit) equity			(242,941	)			236,671
Total mezzanine equity and shareholders’ equity			236,671				236,671

 

Notes:

(1)	The combined and consolidated balance sheet data as of December 31, 2013 are adjusted on a pro forma basis to give effect to the automatic conversion of all of our outstanding preferred shares into 30,046,154 Class A ordinary shares immediately upon the completion of this offering.

(2)

The combined and consolidated balance sheet data as of December 31, 2013 are adjusted on a pro forma as adjusted basis to give effect to (i) the automatic conversion of all of our outstanding preferred shares into 30,046,154 Class A ordinary shares immediately upon the completion of this offering; (ii) the issuance of              Class A ordinary shares upon the exercise of the outstanding option held by Ali WB at an assumed exercise price of US$             per share, which represents a             % discount to the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus; and (iii) the sale of                  Class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of $         per ADS, the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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DILUTION

Our net tangible book value as of December 31, 2013 was approximately $             per ordinary share and $             per ADS. Net tangible book value per ordinary share represents the amount of total tangible assets, minus the amount of total liabilities, divided by the total number of ordinary shares outstanding. Pro forma net tangible book value per ordinary share is calculated after giving effect to the automatic conversion of all of our outstanding preferred shares. Dilution is determined by subtracting pro forma net tangible book value per ordinary share from the assumed public offering price per ordinary share.

Without taking into account any other changes in such net tangible book value after December 31, 2013, other than to give effect to (1) the issuance of              Class A ordinary shares upon the exercise of the outstanding option held by Ali WB at an assumed exercise price of US$             per share, which represents a             % discount to the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus; and (2) our issuance and sale of                  ADSs in this offering, at an assumed initial public offering price of $             per ADS, the midpoint of the estimated public offering price range, and after deduction of underwriting discounts and commissions and estimated offering expenses payable by us (assuming the over-allotment option is not exercised), our pro forma as adjusted net tangible book value as of December 31, 2013 would have been $             per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, or $             per ADS. This represents an immediate increase in net tangible book value of $             per ordinary share, or $             per ADS, to existing shareholders and an immediate dilution in net tangible book value of $             per ordinary share, or $             per ADS, to purchasers of ADSs in this offering.

The following table illustrates the dilution on a per ordinary share basis assuming that the initial public offering price per Class A ordinary share is $         and all ADSs are exchanged for Class A ordinary shares:

 

Assumed initial public offering price per Class A ordinary share		$
Net tangible book value per ordinary share		$
Pro forma net tangible book value per ordinary share after giving effect to the automatic conversion of all of our outstanding preferred shares		$
Pro forma net tangible book value per ordinary share as adjusted to give effect to the automatic conversion of all of our outstanding preferred shares, the issuance of Class A ordinary shares upon Ali WB’s exercising its option in full and this offering, as of December 31, 2013		$
Amount of dilution in net tangible book value per ordinary share to new investors in the offering		$
Amount of dilution in net tangible book value per ADS to new investors in the offering		$

A $1.00 change in the assumed public offering price of $             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease our pro forma as adjusted net tangible book value after giving effect to the offering by $             million, the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by $             per ordinary share and per $             ADS and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by $             per ordinary share and $             per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

 

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The following table summarizes, on a pro forma basis as of December 31, 2013, the differences between the shareholders as of December 31, 2013 and the new investors with respect to the number of Class A ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid at an assumed initial public offering price of $             per ADS before deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

Ordinary Shares Purchased

Total Consideration

Average Price Per Ordinary Share

Average Price Per ADS

Number

Percent

Amount

Percent

Existing shareholders

New investors

Total

A $1.00 change in the assumed public offering price of $             per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease total consideration paid by new investors, total consideration paid by all shareholders, average price per ordinary share and average price per ADS paid by all shareholders by $            , $            , $             and $            , respectively, assuming the sale of                  ADSs at $            , the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The discussion and tables above also assume no exercise of any outstanding stock options outstanding as of the date of this prospectus. As of the date of this prospectus, there were                      ordinary shares issuable upon exercise of outstanding stock options at a weighted average exercise price of $             per ordinary share, and there were                      ordinary shares available for future issuance upon the exercise of future grants under our 2010 Plan. To the extent that any of these options are exercised, there will be further dilution to new investors.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We are registered under the laws of the Cayman Islands as an exempted company with limited liability. We are registered in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides less protection for investors. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors.

We have appointed              as our agent to receive service of process with respect to any action brought against us in the U.S. District Court for the Southern District of New York under the federal securities laws of the United States or of any State in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Maples and Calder, our counsel as to Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (1) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (2) entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States.

Maples and Calder has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty; and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

TransAsia Lawyers, our counsel as to PRC law, has advised us that (1) it would be highly unlikely that the courts of the PRC would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, and (2) there is uncertainty as to whether the courts of the PRC would entertain original actions brought in the PRC against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States.

 

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TransAsia Lawyers has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law. TransAsia Lawyers has advised us further that under PRC law, a foreign judgment, which does not otherwise violate basic legal principles, state sovereignty, safety or social public interest, may be recognized and enforced by a PRC court, based either on bilateral treaties or international conventions contracted by China and the country where the judgment is made or on reciprocity between jurisdictions. As there currently exists no bilateral treaty, international convention or other form of reciprocity between China and the United States governing the recognition of judgments, including those predicated upon the liability provisions of the U.S. federal securities laws, it would be highly unlikely that a PRC court would enforce judgments rendered by U.S. courts.

 

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CORPORATE HISTORY AND STRUCTURE

Corporate History

Our parent, SINA, launched Weibo in August 2009, originally as a microblogging service. In 2010, SINA incorporated a subsidiary, T.CN Corporation, in the Cayman Islands to hold the assets associated with the Weibo business. In 2011, Weibo was upgraded with social networking features and improved open-platform architecture to support internally developed and third-party developer applications on our platform. In 2012, T.CN Corporation was renamed Weibo Corporation. In April 2013, Alibaba invested $585.8 million through Ali WB Investments Holding Limited, or Ali WB, its wholly owned subsidiary, to purchase ordinary and preferred shares representing approximately 18% of Weibo Corporation’s then total outstanding shares on a fully diluted basis.

Weibo Corporation holds 100% of the equity of Weibo Hong Kong Limited, or Weibo HK, which in turn holds 100% of the equity in Weibo Internet Technology (China) Co., Ltd., or Weibo Technology, our wholly owned subsidiary in China.

We are a holding company, and we conduct our business in China through Weibo Technology and our VIE, Beijing Weimeng Technology Co., Ltd., or Weimeng, and Weimeng’s subsidiary. See “Risk Factors—Risks Relating to Our Corporate Structure.” We rely principally on dividends and other distributions from Weibo Technology for our cash needs, including the funds necessary to pay dividends to our shareholders or service any debt we may incur. Weimeng holds an Internet Content Provision License and other permits that are necessary for operating our business in China. We gained control and became the primary beneficiary of Weimeng in 2010 through a series of contractual arrangements between Weibo Technology and Weimeng and Weimeng’s shareholders.

In December 2013, Weimeng acquired from SINA the entire equity interest in Beijing Weibo Interactive Internet Technology Co., Ltd., or Weibo Interactive, a PRC company engaged in the online game business, for consideration of $10.1 million.

Corporate Structure

The following diagram illustrates our corporate structure, including our subsidiaries, our VIE and the VIE’s subsidiary, as of the date of this prospectus:

 

 

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		Equity interest.
		Contractual arrangements including loan agreements, share transfer agreements, loan repayment agreements, agreements on authorization to exercise shareholder’s voting power, share pledge agreements, exclusive technical services agreement, exclusive sales agency agreement and trademark license agreement.
(1)		The shareholders of Weimeng are four non-executive PRC employees of our company or SINA, Y. Liu, W. Wang, Y. Lu and Z. Cao, holding 30%, 30%, 20% and 20% of Weimeng’s equity interest, respectively. The shareholders of Weimeng are not shareholders of our company.

Contractual Arrangements with Weimeng

The capital investments in Weimeng were funded through Weibo Technology and recorded as interest-free loans to the shareholders of Weimeng. As of the date of this prospectus, the total amount of interest-free loans to the shareholders of Weimeng was RMB10 million (US$1.7 million). Under various contractual agreements, the shareholders of Weimeng are required to transfer their ownership in Weimeng to our wholly owned subsidiary in China, Weibo Technology, when permitted by PRC laws and regulations, or to our designees at any time for the amount of the outstanding loans, and all voting rights of Weimeng are assigned to Weibo Technology. Weibo Technology has the power to appoint all directors and senior management personnel of Weimeng. Through Weibo Technology, we have also entered into an exclusive technical services agreement and other service agreements with Weimeng, under which Weibo Technology provides technical services and other services to Weimeng in exchange for substantially all of the economic benefits of Weimeng. In addition, the shareholders of Weimeng have pledged their shares in Weimeng as collateral for repayment of loans and payment of fees on technical and other services due to us.

The following is a summary of the agreements with Weimeng:

Loan Agreements. Weibo Technology has granted interest-free loans to the shareholders of Weimeng with the sole purpose of providing funds necessary for those shareholders to make capital injections to Weimeng. The term of the loans is 10 years and Weibo Technology has the right, at its own discretion, to shorten or extend the term of the loans if necessary. In our combined and consolidated financial statements, these loans are eliminated with the capital of Weimeng during consolidation.

Share Transfer Agreements. Each shareholder of Weimeng has granted Weibo Technology an option to purchase his shares in Weimeng at a purchase price equal to the amount of capital injection. Weibo Technology may exercise such option at any time until it has acquired all shares of Weimeng, subject to applicable PRC laws. The options will be effective until the earlier of (i) Weibo Technology and the shareholders of Weimeng have fully performed their obligations under these agreements, and (ii) Weibo Technology and the shareholders of Weimeng agree in writing to terminate these agreements.

Loan Repayment Agreements. Each shareholder of Weimeng has agreed with Weibo Technology that the interest-free loans under the loan agreements shall only be repaid through share transfers. Once the share transfers are completed, the purchase price for the share transfer will be set off against the loan repayment. These agreements will be effective until the earlier of (i) Weibo Technology and the shareholders of Weimeng have fully performed their obligations under these agreements, and (ii) Weibo Technology and the shareholders of Weimeng agree in writing to terminate these agreements.

Agreement on Authorization to Exercise Shareholder’s Voting Power. Each shareholder of Weimeng has authorized Weibo Technology to exercise all his voting power as a shareholder of Weimeng on all matters requiring shareholders’ approval under PRC laws and regulations and the articles of association of Weimeng, including without limitation appointment of directors, transfer, mortgage or dispose of Weimeng’s assets, transfer of any equity interest in Weimeng, and merger, split, dissolution and liquidation of Weimeng. The authorizations are irrevocable and will not expire until Weimeng dissolves.

 

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Share Pledge Agreements. Each shareholder of Weimeng has pledged all of his shares in Weimeng and all other rights relevant to his rights in those shares to Weibo Technology as security for his obligations to pay off all debts to Weibo Technology under the loan agreements and for the payment obligations of Weimeng under the trademark license agreement and the technical services agreement. In the event of default of any payment obligations, Weibo Technology will be entitled to certain rights, including transferring the pledged shares to itself and disposing of the pledged shares through sale or auction. During the term of the agreements, Weibo Technology is entitled to receive all dividends and distributions paid on the pledged shares. The pledges will be effective until the earlier of (i) the third anniversary of the due date of the last guaranteed debt, (ii) Weimeng and its shareholders have fully performed their obligations under these agreements, and (iii) Weibo Technology consents to terminate these agreements.

Exclusive Technical Services Agreement, Exclusive Sales Agency Agreement and Trademark License Agreement. Weimeng has entered into an exclusive technical services agreement, an exclusive sales agency agreement and a trademark license agreement with Weibo Technology. Under the exclusive technical services agreement, Weibo Technology is engaged to provide technical services for Weimeng’s online advertising and other related businesses. Under the exclusive sales agency agreement, Weimeng has granted Weibo Technology the exclusive right to distribute, sell and provide agency services for all the products and services provided by Weimeng. Due to its control over Weimeng, Weibo Technology has the right to determine the service fee to be charged to Weimeng under these agreements by considering, among other things, the technical complexity of the services, the actual cost that may be incurred for providing such services, the operations of Weimeng, applicable tax rates, planned capital expenditure and business strategies. The term of these agreements will not expire until Weimeng dissolves. Under the trademark license agreement, Weibo Technology has granted Weimeng trademark licenses to use the trademarks held by Weibo Technology in specific areas, and Weimeng is obligated to pay license fees to Weibo Technology. The term of this agreement is one year and is automatically renewed provided there is no objection from Weibo Technology. In the year ended December 31, 2013, the total amount of service fees that Weibo Technology received from Weimeng under these service agreements and the trademark license agreement was $79.2 million, which was based on the actual cost incurred for providing the services and the cash position and operations of the VIE. No service fees were charged for the years ended December 31, 2011 and 2012.

Although we have been advised by our PRC counsel, TransAsia Lawyers, that our arrangements with Weimeng are not in conflict with current PRC laws and regulations, we cannot assure you that we will not be required to restructure our organization and operations in China to comply with changing and new PRC laws and regulations. Restructuring of our operations may result in disruption to our business. If PRC tax authorities were to determine that our transfer pricing structure was not done on an arm’s-length basis and therefore constitutes favorable transfer pricing, they could request that Weimeng adjust its taxable income upward for PRC tax purposes. Such a pricing adjustment may not reduce the tax expenses of Weibo Technology but could adversely affect us by increasing Weimeng’s tax expenses, which could subject Weimeng to late payment fees and other penalties for underpayment of taxes and/or could result in the loss of tax benefits available to Weibo Technology in China. Any of these measures may result in adverse tax consequences to us and adversely affect our results of operations.

 

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OUR RELATIONSHIP WITH MAJOR SHAREHOLDERS

SINA and Ali WB are currently the two largest shareholders of our company and will remain as our major shareholders after the completion of this offering. Below are summaries of our relationship with these two shareholders.

Our Relationship with SINA

We are a majority-owned subsidiary of SINA. Historically, SINA has provided us with financial, accounting, administrative, sales and marketing, legal and human resources services, as well as the services of a number of its executive officers and other employees, the costs of which were allocated to us based on proportion of revenues, infrastructure usage and labor usage attributable to our business, among other things. We have begun to invest in our own financial, accounting, administrative, sales and marketing, human resources and legal services functions separate from SINA’s, and we will further establish other support systems of our own or contract with third parties to provide them to us after we become a stand-alone public company. Prior to the public filing of our registration statement on Form F-1 of which this prospectus is a part, we plan to enter into agreements with SINA with respect to various ongoing relationships between us. These will include a master transaction agreement, a transitional service agreement, a non-competition agreement and a sales and marketing services agreement. The following are summaries of these agreements and of an intellectual property license agreement that we entered into with SINA in April 2013. For the complete text of these agreements, please see the copies to be included as exhibits to the registration statement filed with the SEC of which this prospectus is a part.

Master Transaction Agreement

The master transaction agreement contains provisions relating to our carve-out from SINA. Pursuant to this agreement, we are responsible for all financial liabilities associated with the current and historical social media business and operations that have been conducted by or transferred to us, and SINA is responsible for financial liabilities associated with all of SINA’s other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under which we and SINA indemnify each other with respect to breaches of the master transaction agreement or any related inter-company agreement.

In addition, we have agreed to indemnify SINA against liabilities arising from misstatements or omissions in this prospectus or the registration statement of which it is a part, except for misstatements or omissions relating to information that SINA provided to us specifically for inclusion in this prospectus or the registration statement of which it forms a part. We also have agreed to indemnify SINA against liabilities arising from any misstatements or omissions in our subsequent SEC filings and from information we provide to SINA specifically for inclusion in SINA’s annual reports or other SEC filings following the completion of this offering, but only to the extent that the information pertains to us or our business or to the extent SINA provides us prior written notice that the information will be included in its annual reports or other subsequent SEC filings and the liability does not result from the action or inaction of SINA. Similarly, SINA will indemnify us against liabilities arising from misstatements or omissions in its subsequent SEC filings or with respect to information that SINA provided to us specifically for inclusion in this prospectus, the registration statement of which this prospectus forms a part, or our annual reports or other SEC filings following the completion of this offering.

The master transaction agreement also contains a general release, under which the parties will release each other from any liabilities arising from events occurring on or before the initial filing date of the registration statement of which this prospectus forms a part, including in connection with the activities to implement this offering. The general release does not apply to liabilities allocated between the parties under the master transaction agreement or the other inter-company agreements.

Furthermore, under the master transaction agreement, we have agreed to use our reasonable best efforts to use the same independent certified public accounting firm selected by SINA and to maintain the same fiscal year

 

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as SINA until the first SINA fiscal year-end following the earlier of (1) the first date when SINA no longer owns at least 20% of the voting power of our then outstanding securities and (2) the first date when SINA ceases to be the largest beneficial owner of our then outstanding voting securities (without considering holdings by certain institutional investors). We refer to this earlier date as the control ending date. We also have agreed to use our reasonable best efforts to complete our audit and provide SINA with all financial and other information on a timely basis so that SINA may meet its deadlines for its filing of annual and quarterly financial statements.

Under the master transaction agreement, the parties also agree to cooperate in sharing information and data collected from each party’s business operation, including without limitation user information and data relating to user activities. The parties agree not to charge any fees for their cooperation provided under the agreement unless they separately and explicitly agree otherwise.

The master transaction agreement will come into effect on the date when the registration statement on Form F-1 is first publicly filed with the SEC and will automatically terminate five years after the first date upon which SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities, provided that the agreement on sharing information and data will terminate on the earlier of (1) the fifteenth anniversary of the commencement of the cooperation period or (2) five years after the first date upon which SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities. This agreement can be terminated early or extended by mutual written consent of the parties. The termination of this agreement will not affect the validity and effectiveness of the transitional services agreement, the non-competition agreement and the sales and marketing services agreement.

Transitional Services Agreement

Under the transitional services agreement, SINA agrees that, during the service period, as described below, SINA will provide us with various corporate support services to us, including but not limited to:

 

•

administrative support;

 

•

operational management support;

 

•

legal support;

 

•

technology support; and

 

•

provision of office facilities.

SINA also may provide us with additional services that we and SINA may identify from time to time in the future.

The price to be paid for the services provided under the transitional service agreement will be the actual direct and indirect costs of providing such services. Direct costs include labor-related compensation and travel expenses and materials and supplies consumed in performing the services. Indirect costs include office occupancy, information technology supervision and other overhead costs of the department incurring the direct costs of providing the services.

The transitional service agreement provides that the performance of a service according to the agreement will not subject the provider of such service to any liability whatsoever except as directly caused by the gross negligence or willful misconduct of the service provider. Liability for gross negligence or willful misconduct is limited to the lower of the price paid for the particular service or the cost of the service’s recipient performing the service itself or hiring a third party to perform the service. Under the transitional services agreement, the service provider of each service is indemnified by the recipient against all third-party claims relating to provision of services or the recipient’s material breach of a third-party agreement, except where the claim is directly caused by the service provider’s gross negligence or willful misconduct.

 

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The transitional services agreement provides for a service period commencing on the date when the registration statement on Form F-1 of which this prospectus forms a part is first publicly filed with the SEC and ending on the expiration of five years thereafter. We may terminate the transitional services agreement with respect to either all or part of the services by giving 90-day prior written notice to SINA and paying a termination fee equal to the direct costs incurred by SINA in connection with its provision of services at the time of the early termination. SINA may terminate this agreement with respect to either all or part of the services by giving us a 90-day prior written notice if SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities, without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not with the purpose or the effect of changing or influencing control of our company.

Non-competition Agreement

Our non-competition agreement with SINA provides for a non-competition period beginning upon the completion of this offering and ending on the later of (1) five years after the first date when SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (2) fifteenth anniversary of the completion of this offering. This agreement can be terminated early by mutual written consent of the parties.

SINA has agreed not to compete with us during the non-competition period in the business that is of the same nature as the microblogging and social networking business operated by us as of the date of the agreement. We have agreed not to compete with SINA during the non-competition period in the businesses currently conducted by SINA, as described in its periodic filings with the SEC, other than the microblogging and social networking business currently operated by us as of the date of the agreement.

The non-competition agreement also provides for a mutual non-solicitation obligation that neither SINA nor we may, during the non-competition period, hire, or solicit for hire, any active employees of or individuals providing consulting services to the other party, or any former employees of or individuals providing consulting services to the other party within six months of the termination of their employment or consulting services, without the other party’s consent, except for solicitation activities through generalized non-targeted advertisement not directed to such employees or individuals that do not result in a hiring within the non-competition period.

Sales and Marketing Services Agreement

Under our sales and marketing services agreement with SINA, we agree that SINA will be our sales and marketing agent within the service period commencing on the date that the registration statement on Form F-1 of which this prospectus forms a part is first publicly filed with the SEC and ending on the earlier of (1) the fifteenth anniversary of the commencement of the service period or (2) five years after the first date upon which SINA ceases to own in aggregate at least 20% of the voting power of our then outstanding securities.

The fee to be reimbursed for the services provided under this agreement shall be the reasonably allocated direct and indirect costs of providing such services. Direct costs include labor-related compensation and travel expenses and materials and supplies consumed in performing the services. Indirect costs include office occupancy, information technology support and other overhead costs of the department incurring the direct costs of providing the service.

Intellectual Property License Agreement

The intellectual property license agreement was entered into by and between SINA and us as a part of Ali WB’s purchase of our ordinary and preferred shares in April 2013. Under the intellectual property license agreement, SINA grants us and our subsidiaries a perpetual, worldwide, royalty-free, fully paid-up, non-sublicensable, non-transferable, limited, exclusive license of trademarks, including “ ,” “ ” and

 

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“ ,” and a non-exclusive license of certain other intellectual property owned by SINA to make, sell, offer to sell and distribute products, services and applications on a microblogging and social networking platform. We grant SINA and its affiliates a non-exclusive, perpetual, worldwide, non-sublicensable, non-transferable limited license of certain of our intellectual property to use, reproduce, modify, prepare derivative works of, perform, display or otherwise exploit such intellectual property. This agreement commenced on April 29, 2013 and will continue in effect unless terminated by SINA in case of our breach as provided in the agreement.

SINA’s Registration Rights

SINA has the same registration rights as those that have been granted to Ali WB. See “—Our Relationship with Alibaba—Shareholders’ Agreement—Ali WB’s Registration Rights.”

Our Relationship with Alibaba

In April 2013, concurrently with forming a strategic alliance with several of our affiliated entities, Alibaba invested $585.8 million through Ali WB, its wholly owned subsidiary, to purchase our ordinary and preferred shares representing approximately 18% of our then total outstanding shares on a fully diluted basis. The following are summaries of our strategic alliance with Alibaba and major rights that Ali WB has as our shareholder.

Strategic Alliance with Alibaba

In April 2013, we entered into a strategic cooperation agreement and a marketing cooperation agreement to form a strategic alliance between several of our affiliated entities, including Weibo Technology, Weimeng, and Beijing SINA Internet Information Service Co., Ltd., an affiliate of SINA, and several entities affiliated with Alibaba, including Alibaba (China) Co., Ltd., Taobao (China) Software Co., Ltd., Zhejiang Tmall.com Technology Co., Ltd. and Alibaba (China) Internet Technology Co., Ltd., to jointly explore social commerce and develop innovative marketing solutions to enable merchants on Alibaba e-commerce platforms to better connect and build relationships with Weibo users. Under these agreements, the parties agreed to cooperate on a non-exclusive basis in respect of user account sharing, data sharing, platform integration, product development, payment supporting for both personal computer and mobile businesses, marketing activities and other aspects of the parties’ businesses. Assuming the successful development of new products and business models and the growth of effective traffic, the strategic alliance is expected to generate approximately RMB2.3 billion ($380 million) in advertising and marketing revenues in aggregate for SINA and us from 2013 to 2015, with SINA’s portion not exceeding 15% of the total revenues for each year. The initial term of these agreements is from April 2013 to January 2016. Alibaba has the right to terminate the strategic alliance if SINA (i) no longer holds 50% or more of the voting power in Weibo Corporation, Weibo Technology or Weimeng; (ii) no longer has the right to appoint a majority of the members of the board of directors of Weibo Corporation, Weibo Technology or Weimeng; or (iii) no longer directs the business of Weibo Corporation, Weibo Technology or Weimeng.

Shareholders’ Agreement

Concurrently with Alibaba’s purchase of our ordinary and preferred shares in April 2013, we entered into a shareholders’ agreement, with Ali WB and SINA which regulates our shareholders’ rights and obligations after Ali WB became our shareholder, which was amended and restated in February 2014. The following are summaries of certain rights that Ali WB is entitled to under the shareholders’ agreement which will either have an impact on our post-IPO shareholding structure or continue to be valid after the completion of this offering.

Ali WB’s Option. Ali WB has been granted an option to increase its ownership in our company up to 30% on a fully diluted basis (excluding Class A ordinary shares issued by us in this offering). The purchase price will be the lower of (i) 15% less than the public offering price in this offering, and (ii) a price per ordinary share that implies an equity valuation (exclusive of the purchase price to be paid by Ali WB for these ordinary shares) of $5.5 billion of our company on a fully diluted basis (as determined pursuant to the treasury method in accordance with US GAAP). Alibaba may exercise the option, in whole or in part, at any time, but not to exceed three times,

 

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prior to two days before the public filing of our registration statement on Form F-1 of which this prospectus is a part. If the option is exercised, the settlement date will be contemporaneous with the completion of this offering. The maximum number of ordinary shares that Ali WB may purchase pursuant to this option is the difference between 30% of our ordinary shares on a fully diluted basis on the date of settlement, excluding Class A ordinary shares sold in this offering, and the 34,892,308 Class A ordinary shares it will hold immediately prior to the completion of this offering. To the extent that Ali WB exercises this option, your interest in our company will be diluted.

Ali WB’s Right of First Offer. Ali WB has the right of first offer if (1) SINA or any of its wholly owned subsidiaries desires to sell all or any portion of our shares it holds to a third party other than up to 7,000,000 ordinary shares, or (2) any management shareholder desires to sell all or any portion of our shares such shareholder holds to a third party other than up to 20% of the ordinary shares held by such shareholder as of April 29, 2013.

Ali WB’s Board Representation Rights. If Ali WB exercises its option in full, it will have the right to appoint a number of directors in proportion to the percentage of its ownership in our company. Following the completion of this offering, Ali WB will have the right to appoint, in case of non-independent directors, or nominate, in case of independent directors, such number of directors as is proportional to the percentage of its ownership in our company on a fully diluted basis (such number of directors to be rounded down the closest integer). Nevertheless, the number of non-independent directors Ali WB is entitled to appoint shall be no fewer than one director. Ali WB’s board representation rights will terminate in the event that more than 50% of its acquired shares, being the total shares of our company acquired by Ali WB in April 2013 and through the exercise of Ali WB’s option under the shareholders’ agreement, are transferred by Ali WB or its permitted transferees to one or more third parties or are no longer held by Alibaba directly, or indirectly through certain subsidiaries. Ali WB may assign its board representation rights to a qualified new investor to whom Ali WB transfers at least 50% of its acquired shares and who meets the requirements set forth in the shareholders agreement and the directors to be appointed by such new qualified investor must meet qualifications set forth in the shareholders’ agreement. The board representation rights will be effected through an agreement by and among SINA, Ali WB and our company.

Ali WB’s Registration Rights. We are required to enter into a registration rights agreement with Ali WB within 30 days prior to the completion this offering. Ali WB will have the right to require us to register the public sale of all the shares owned by Ali WB as well as the right to participate in registrations of shares by us or any of our other shareholders. Ali WB will have customary rights under a registration rights agreement, such as at least two (2) demand registration rights, unlimited piggyback registration rights, Form F-3 registration rights and rights to request us to pay registration expenses and to bear indemnification liability. SINA, as our principal shareholder, will be entitled to the same registration rights. These registration rights will be effected through an agreement by and among SINA, Ali WB and our company.

 

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SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA

The following selected combined and consolidated statements of operations data for the years ended December 31, 2011, 2012 and 2013 and selected combined and consolidated balance sheet data as of December 31, 2012 and 2013 have been derived from our audited combined and consolidated financial statements included elsewhere in this prospectus. You should read this Selected Combined and Consolidated Financial Data section together with our combined and consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our combined and consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.

 

		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands, except for share, per share and per ADS data)
Selected Combined and Consolidated Statements of Operations Data:
Revenues:
Advertising and marketing revenues:
Third parties			—				51,049				99,291
Related parties Alibaba			—				—				49,135
Total advertising and marketing revenues			—				51,049				148,426
Other revenues			—				14,880				39,887
Total revenues			—				65,929				188,313
Costs and expenses:
Cost of revenues(1)(2)			29,527				46,429				59,891
Sales and marketing(2)			45,048				40,380				63,069
Product development(2)			36,921				71,186				100,740
General and administrative(2)			3,981				5,778				22,517
Total costs and expenses			115,477				163,773				246,217
Loss from operations			(115,477	)			(97,844	)			(57,904	)
Loss from equity method investment			(423	)			(1,340	)			(1,236	)
Remeasurement gain upon obtaining control			—				—				3,116
Interest and other income (expenses), net(3)			(1,750	)			(4,853	)			(2,884	)
Change in fair value of investor option liability			—				—				21,064
Loss before income tax expenses			(117,650	)			(104,037	)			(37,844	)
Income tax expenses (benefits)			—				(1,551	)			271
Net loss			(117,650	)			(102,486	)			(38,115	)

 

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		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands, except for share, per share and per ADS data)
Weighted average number of ordinary shares used in per share calculations:
Basic			140,000,000				140,830,822				146,820,108
Diluted			140,000,000				140,830,822				146,820,108
Loss per ordinary share
Basic		$	(0.84	)		$	(0.73	)		$	(0.26	)
Diluted		$	(0.84	)		$	(0.73	)		$	(0.26	)
Loss per ADS(4)
Basic
Diluted
Non-GAAP Financial Data:(5)
Adjusted Net Loss			(116,648	)			(100,649	)			(30,824	)
Adjusted EBITDA			(107,784	)			(80,955	)			(6,332	)

 

Notes:

(1)	Including cost of revenues from related party of $0, $3,484 thousand and $0 for the years ended December 31, 2011, 2012 and 2013, respectively.

(2)	Stock-based compensation was allocated in costs and expenses as follows:

 

		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands)
Cost of revenues			125				201				4,253
Sales and marketing			182				330				6,150
Product development			467				638				9,209
General and administrative			228				668				11,630
Total			1,002				1,837				31,242

 

(3)	Including interest expenses on amount due to SINA of $1,567 thousand, $4,923 thousand and $6,708 thousand for the years ended December 31, 2011, 2012 and 2013, respectively.

(4)	Each ADS represents              Class A ordinary shares.

(5)	See “Prospectus Summary—Summary Combined and Consolidated Financial Data—Non-GAAP Financial Measures.”

 

		As of December 31,
		2012				2013
		(in $ thousands)
Selected Combined and Consolidated Balance Sheet Data:
Cash and cash equivalents			2,906				246,436
Short-term investments			119,848				252,342
Total assets			205,558				606,934
Amount due to SINA			393,391				267,722
Investor option liability			—				29,504
Total liabilities			419,466				370,263
Mezzanine equity			—				479,612
Ordinary shares			36				37
Additional paid-in capital			21,781				31,352
Accumulated deficit			(236,736	)			(274,851	)
Total shareholders’ deficit			(213,908	)			(242,941	)

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Combined and Consolidated Financial Data” and our combined and consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

Weibo is a leading social media platform for people to create, distribute and discover Chinese-language content. By providing an unprecedented and simple way for Chinese people and organizations to publicly express themselves in real time, interact with others on a massive global platform and stay connected with the world, Weibo has had a profound social impact in China.

Users. Weibo combines the means of public self-expression in real time with a powerful platform for social interaction, as well as content aggregation and distribution. Weibo allows people to be heard publicly and exposed to the rich ideas, cultures and experiences of the broader world. Since our inception in August 2009, we have achieved significant scale. In December 2013, we had 129.1 million MAUs and 61.4 million average DAUs, increasing from 96.7 million MAUs and 45.1 million average DAUs in December 2012, respectively, and 72.9 million MAUs and 25.2 million average DAUs in December 2011, respectively. Over 70% of our average DAUs in December 2013 accessed Weibo through mobile devices at least once during the day in question.

Customers. We enable our advertising and marketing customers to promote their brands, products and services to our users. We offer a wide range of advertising and marketing solutions to customers ranging from large companies to SMEs and individuals. We generate a substantial majority of our revenues from the sale of advertising and marketing services, including primarily the sale of social display ads and to a lesser but increasing extent, promoted feeds and other promoted products. We have developed and are continuously refining our social interest graph recommendation engine, which is based on users’ demographics, social relationships, interests and behavior, in order to achieve greater reach, relevance and engagement and enhance the effectiveness of advertisements on Weibo. For the year ended December 31, 2013, we had approximately 350 key accounts and over 12,800 SME advertising and marketing customers, as compared to more than 260 key accounts for the year ended December 31, 2012.

Platform Partners. The value we create for our users and customers is enhanced by our platform partners, which include media outlets and developers of games and other applications. Our platform partners contribute a vast amount of content to Weibo, broadly distribute Weibo content across their properties, and develop products and applications on our platform, enriching the experience of our users while increasing our monetization opportunities. We have revenue-sharing arrangements with some of our platform partners, including game developers.

We began monetization of our platform in 2012 primarily through the sale of advertising and marketing services and, to a lesser extent, through game-related and other services. We have since experienced rapid revenue growth. Our revenues increased from $65.9 million in 2012 to $188.3 million in 2013, while our net loss decreased from $102.5 million to $38.1 million and our negative Adjusted EBITDA decreased from $81.0 million to $6.3 million for the same periods. See “Prospectus Summary—Summary Combined and Consolidated Financial Data—Non-GAAP Financial Measures” for a reconciliation of net loss to Adjusted EBITDA. Due to our limited operating history and evolving monetization model, comparisons of our results of operations from period to period may not be meaningful and are not indicative of our future trends.

 

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Our Relationship with SINA

We are a majority-owned subsidiary of SINA. Prior to the establishment of our company, our business was carried out by various subsidiaries and VIEs of SINA. Our combined and consolidated financial statements included elsewhere in this prospectus include the assets, liabilities, revenues, expenses and cash flows that were directly attributable to us throughout the periods presented. See “—Critical Accounting Policies, Judgments and Estimates—Basis of Presentation, Combination and Consolidation.”

Historically, SINA has provided us with financial, administrative, sales and marketing, legal and human resources services, as well as the services of a number of its executive officers and other employees, the costs of which were allocated to us based on the proportion of revenues, infrastructure usage, labor usage and other factors attributable to our business, and were included in our combined and consolidated financial statements for the periods presented. We have begun to invest in our own financial, administrative, sales and marketing, human resources, and legal functions separate from SINA’s, and we will further establish other support systems of our own after we become a stand-alone public company. SINA will remain our controlling shareholder upon the completion of this offering with         % of our then outstanding ordinary shares. We plan to enter into agreements with SINA with respect to various ongoing relationships between us. See “Our Relationship with Major Shareholders—Our Relationship with SINA.”

Trends in Our User Metrics

We review a variety of user traffic metrics for our platform, including the following key metrics, to evaluate our business and performance, identify trends affecting our business and make business plans and strategic decisions. We commenced operations in August 2009 and started generating revenues in the first half of 2012 primarily through the sale of advertising and marketing services. Our advertising and marketing revenues are primarily derived from social display ads. Based on our experience, our customers tend to look at the brand strength, market influence, scale of user base and quality of the advertising platform when deciding where to purchase online social display ads. Furthermore, our ability to monetize our user traffic depends to a large degree on how well the demographic profile and social interests of our users fit the audience profile that our customers hope to reach at any given time. Therefore, although our user growth and engagement may ultimately affect our customers’ decisions in using our services, we are unable to gauge the period-to-period growth of our revenues based on any particular user traffic metric.

Monthly Active Users (MAUs). We define MAUs as Weibo users who logged in and accessed Weibo through our website, mobile website, desktop or mobile applications, SMS or connections via our platform partners’ websites or applications that are integrated with Weibo, during a given calendar month. MAUs are a measure of the size of our active user base.

 

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The following chart shows our MAUs for each of the months indicated.

Monthly Active Users

(in millions, for the calendar month)

 

Note:

Excludes spam accounts that we have identified.

Daily Active Users (DAUs). We define DAUs as Weibo users who logged in and accessed Weibo through our website, mobile website, desktop or mobile applications, SMS or connections via our platform partners’ websites or applications that are integrated with Weibo, on a given day. Average DAUs for a month represent the average of the DAUs for each day during the month. DAUs are a measure of the size of our active user base and user engagement.

The following chart shows our average DAUs for each of the months indicated.

Daily Active Users

(in millions, daily average over the calendar month)

 

 

Note:

Excludes spam accounts that we have identified.

We treat each account as a separate user for purposes of calculating our active users, because it may not always be possible to identify people and organizations that have set up more than one account. Additionally, some accounts used by organizations are used by many people within the organization. Accordingly, the calculations of our active users may not accurately reflect the actual number of people or organizations using Weibo. These internal statistics have not been independently verified.

Major Factors Affecting Our Results of Operations

Major factors affecting our results of operations include the following:

Popularity of Social Media. We have benefited from the growth in popularity of social media in China and in Chinese communities around the world. However, social media is relatively new, especially in China, and our results of operations will be affected by the extent to which social media continues to grow in popularity and becomes further integrated into people’s everyday lives.

 

 

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User Growth. Our revenues are ultimately affected by the growth in our user base, and strategies we pursue to achieve user growth may affect our costs and expenses and results of operations. We have experienced rapid user growth since our inception in August 2009. In general, the proportion of internet users in more economically developed tier 1 and tier 2 cities in China who use Weibo is higher than in other parts of China. Our ability to grow our user base will depend in part on the success of our strategies to attract more new users from lower-tier cities and towns in China. As we are at the early stage of monetizing our platform and our monetization model is new and evolving, we are unable to gauge the period-to-period growth of our revenues based on any particular user traffic metric. As the size of our user base increases to an even bigger scale, our user growth rate may decrease. Therefore, our future revenue growth may become increasingly dependent on our ability to increase average revenue per user, or ARPU. We define ARPU as our total advertising and marketing revenues during a given period divided by average MAUs, which is the average of the MAUs of the last month of the prior period and of the current period. Our ARPU increased from $0.18 for the first quarter of 2013 to $0.26, $0.36 and $0.44 for the second, third and fourth quarter, respectively.

User Engagement. Changes in user engagement could affect our results of operations, especially since we began generating revenues from promoted marketing arrangements in 2013. We need to motivate our users to engage actively with the content on our platform, both to secure an abundant supply of user-generated content for our users and to ensure that we have a broad audience to consume the advertising that we sell. In particular, we need to further increase the use of Weibo on mobile devices, as we expect mobile usage in China and globally to increase at a faster rate than desktop computers usage for the foreseeable future. We plan to continue to enhance our user experience and engagement by improving our product features, offering new products, expanding our content offerings through collaborating with platform partners, and developing and integrating more mobile applications to drive mobile user engagement.

Monetization. We have a very short history of monetizing our platform and we are still exploring the most effective ways of monetization without adversely affecting user experience. Furthermore, social media platforms are still in the early stages of gaining acceptance as an effective means of advertising. Our advertising and marketing revenues will be affected by the number of customers and average spend per customer. We must monitor user engagement and adjust our pricing strategies to maximize the value of our platform for our users and our advertising and marketing customers. We plan to increase monetization of our platform by managing our inventory of advertising resources more effectively, improving the targeting capabilities of our advertising and marketing services, developing new products and formats for adoption by existing and new advertising clients, increasing mobile monetization, and continuing to expand our platform for application developers. We also plan to further diversify our monetization through growing our other services.

Competition. We face significant competition both for the time and attention of Chinese internet users and for the advertising spending of companies that market to Chinese businesses and consumers. Social media is relatively new as a means of advertising and we compete for advertising budgets with a wide variety of traditional and new media. We must compete effectively for users and for advertising and marketing customers in order to grow our platform and increase our revenues. We intend to continue to invest in product development, technology infrastructure and our sales and marketing capabilities to address the competition we face.

Products and Services Innovation. Social media is an innovative and fast-changing field, and we must develop innovative products and services that meet the disparate needs of users, advertising and marketing customers and platform partners and roll them out on a timely basis while controlling our product development expenses. We plan to continue to make significant investments in product development and we may invest in or acquire businesses or assets to enhance our products, services and technical capabilities.

Marketing and Brand Promotion. Part of our growth strategy is to attract new users and increase user engagement in less developed lower-tier cities and towns. To execute this strategy, we plan to engage in a variety of marketing and brand promotion campaigns across China, which may cause our sales and marketing expenses to increase significantly in the near future.

Investment in Technology Infrastructure. Our technology infrastructure is critical to providing users, customers and platform partners access to our platform, particularly during major events when activities on our

 

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platform increase substantially. We must continue to upgrade and expand our technology infrastructure to keep pace with the growth of our business and to ensure that technical difficulties do not detract from user experience or deter new users, customers or platform partners from accessing our platform.

Investment in Talent. Our employee headcount has increased significantly since our inception and we expect this trend to continue for the foreseeable future, especially since we will operate as a stand-alone public company after this offering. There is heavy demand in China’s internet industry for talented technical, sales and marketing, management and other personnel with necessary experience and expertise demanded by fast-growing, large-scale internet social media platforms like Weibo. We must recruit, retain and motivate talented employees while controlling our personnel-related expenses, including stock-based compensation.

Key Components of Results of Operations

Revenues

Advertising and Marketing Revenues. We generate advertising and marketing revenues principally from social display ad arrangements, which we introduced in 2012, and to a lesser extent from promoted marketing arrangements such as promoted feeds, which we introduced in 2013. Social display ad arrangements allow customers to place advertisements on particular areas of Weibo, in particular formats and over particular periods of time, with the fees calculated on the basis of the cost per thousand views, which is known as CPM, or the cost per day, which is known as CPD. Promoted feeds are marketing feeds placed in the information feeds of the users whom our customers target based on our social interest graph recommendation engine. Promoted feeds may be priced on a CPM basis or on the basis of cost per engagement, which is known as CPE. An engagement may include when a user clicks on a link, becomes a follower of the marketing customer’s account, reposts the promoted feed or saves the feed as a favorite. Revenues from our advertising and marketing services accounted for 77.4% and 78.8% of our total revenues in 2012 and 2013, respectively. Revenues from mobile advertising and marketing services accounted for 20.8% and 28.0% of our revenues from our advertising and marketing services in 2012 and 2013, respectively. We had $0 in revenues derived from advertising and marketing services in 2011. Our advertising and marketing revenues are presented net of rebates to advertising agencies.

We expect our advertising and marketing revenues to increase in the foreseeable future as we continue to introduce new advertising and marketing solutions and attract more customers. However, as we are at the early stage of monetizing our platform and our monetization model is new and evolving, we cannot guarantee that the monetization strategies we adopt can generate increasing revenues for us. See “—Risk Factors—Risks Related to Our Business—We generate a substantial majority of our revenues from advertising and marketing. A decline in our advertising and marketing revenues could harm our business.”

Other Revenues. We generate other revenues principally from fee-based services. Fee-based services include game-related services, VIP membership and data licensing services. Game-related service fees are generated primarily by the purchase of virtual items by game players on our platform. Players can convert the virtual currency into in-game credits and use them to purchase virtual items to use within games. VIP membership fees consist primarily of monthly or annual subscriptions for VIP membership, which entitles users to certain privileges. Data licensing service fees are fees we charge for licensed access to the data on our platform. We had $0 in revenues derived from other services in 2011. Other revenues accounted for 22.6% and 21.2% of our revenues in 2012 and 2013, respectively.

We expect our other revenues to increase in the foreseeable future as we continue to expand our fee-based services and attract more customers. However, we have a limited operating history in providing these services and we cannot guarantee that these services will result in increasing revenues to us. See “—Risk Factors—Risks Related to Our Business—Our new products, services and initiatives and changes to existing products, services and initiatives could fail to attract users and customers or generate revenues.”

Costs and Expenses

Our costs and expenses consist of cost of revenues, sales and marketing, product development, and general and administrative expenses, including costs and expenses allocated to us from SINA during the presented periods.

 

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Cost of Revenues. Cost of revenues consists mainly of costs associated with the maintenance of our platform, which mainly include bandwidth and other infrastructure costs, labor costs and turnover tax levied on our revenues, part of which were allocated from SINA. We plan to continue increasing the capacity and enhancing the capability and reliability of our infrastructure to support user growth and increased activity on our platform. We expect that our cost of revenues will increase for the foreseeable future.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, benefits and commissions for our sales and marketing personnel, marketing and promotional expenses, and expenses allocated to us from SINA relating to sales and marketing. We expect our sales and marketing expenses to increase in the foreseeable future as we plan to engage in more sales and marketing activities to attract new users and customers.

Product Development. Product development expenses consist primarily of payroll-related expenses and infrastructure costs incurred for expenses associated with new product development and product enhancements and expenses allocated to us from SINA relating to product development. We expect our product development expenses to increase in the foreseeable future as we continue to develop new products to attract new users and increase user engagement.

General and Administrative. General and administrative expenses consist primarily of payroll-related expenses, professional service fees, along with expenses allocated to us from SINA relating to general and administrative expenses. We expect our general and administrative expenses to increase in the future as our business grows and we incur increased costs related to operating as a stand-alone public company and complying with our reporting obligations under the U.S. securities laws.

Taxation

We generate the majority of our operating loss from our PRC operations and have recorded income tax provisions (benefits) for the periods presented. Income tax liability is calculated based on a separate return basis as if we had filed separate tax returns for all the periods presented.

Cayman Islands

We are not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to us levied by the government of the Cayman Islands.

Hong Kong

Our subsidiary incorporated in Hong Kong, Weibo HK, is subject to Hong Kong profit tax at a rate of 16.5%. Hong Kong does not impose a withholding tax on dividends.

China

Weibo Technology, Weimeng and Weibo Interactive are incorporated in China and are subject to enterprise income tax on their taxable income in China at a standard rate of 25% if they are not eligible for any preferential tax treatment. Taxable income is based on the entity’s global income as determined under PRC tax laws and accounting standards. Weibo Technology is qualified as a software enterprise and is entitled to an exemption from the enterprise income tax for two years beginning with its first profitable year and a 50% reduction to a rate of 12.5% for the subsequent three years.

Weibo Technology, Weimeng and Weibo Interactive are also subject to VAT and related surcharges at a combined rate of 6.7%. Weibo Technology and Weimeng have been subject to VAT since September 1, 2012,

 

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and Weibo Interactive since July 1, 2013. Previously, these entities had been subject to business tax and related surcharges at a combined rate of 5.6%. Certain of our advertising and marketing revenues are also subject to cultural business construction fees at a rate of 3%.

Dividends paid by our subsidiary in China, Weibo Technology, to our intermediary holding company in Hong Kong, Weibo HK, will be subject to PRC withholding tax at a rate of 10% unless they qualify for a special exemption. If Weibo HK satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and receives approval from the relevant tax authority, then dividends paid by Weibo Technology to Weibo HK will be subject to a withholding tax rate of 5% instead. See “Risk Factors—Risks Relating to Doing Business in China—Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.”

If our holding company in the Cayman Islands, Weibo Corporation, were deemed to be a “PRC resident enterprise” under the Enterprise Income Tax Law, it would be subject to enterprise income tax on its global income at a rate of 25%. See “Risk Factors—Risks Relating to Doing Business in China—We and/or our Hong Kong subsidiary may be classified as a ‘PRC resident enterprise’ for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.”

If Weibo HK were deemed to be a “PRC resident enterprise” under the Enterprise Income Tax Law, then dividends payable by Weibo HK to Weibo Corporation may become subject to 10% PRC dividend withholding tax. Under such circumstances, it is not clear whether dividends payable by Weibo Technology to Weibo Corporation would still be subject to PRC dividend withholding tax and whether such tax, if imposed, would be imposed at a rate of 5% or 10%. See “Risk Factors—Risks Relating to Doing Business in China—Any limitation on the ability of our PRC subsidiary to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to conduct our business or our financial condition.”

 

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Results of Operations for the Years Ended December 31, 2011, 2012 and 2013

The following table sets forth a summary of our combined and consolidated results of operations for the periods indicated. This information should be read together with our combined and consolidated financial statements and related notes included elsewhere in this prospectus. We only began to generate revenues in the first half of 2012, and 2013 was the first year in which we generated revenues for the entire fiscal year. Due to our limited operating history, period-to-period comparisons discussed below may not be meaningful and are not indicative of our future trends. See “Risk Factors—Risks Related to Our Business—We have a limited operating history in a new and unproven market, which makes it difficult to evaluate our future prospects.”

 

		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands)
Combined and Consolidated Statements of Operations Data:
Revenues:
Advertising and marketing revenues:
Third parties			—				51,049				99,291
Related party Alibaba			—				—				49,135
Total advertising and marketing revenues			—				51,049				148,426
Other revenues			—				14,880				39,887
Total revenues			—				65,929				188,313
Costs and expenses:
Cost of revenues(1)(2)			29,527				46,429				59,891
Sales and marketing(2)			45,048				40,380				63,069
Product development(2)			36,921				71,186				100,740
General and administrative(2)			3,981				5,778				22,517
Total costs and expenses			115,477				163,773				246,217
Loss from operations			(115,477	)			(97,844	)			(57,904	)
Loss from equity method investments			(423	)			(1,340	)			(1,236	)
Remeasurement gain upon obtaining control			—				—				3,116
Interest and other income (expenses), net(3)			(1,750	)			(4,853	)			(2,884	)
Change in fair value of investor option liability			—				—				21,064
Loss before income tax expenses			(117,650	)			(104,037	)			(37,844	)
Income tax expenses (benefits)			—				(1,551	)			271
Net loss			(117,650	)			(102,486	)			(38,115	)

 

Notes:

(1)	Including cost of revenues from related party of $0, $3,484 thousand and $0 for the years ended December 31, 2011, 2012 and 2013, respectively.

(2)	Stock-based compensation was allocated in costs and expenses as follows:

 

		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands)
Cost of revenues			125				201				4,253
Sales and marketing			182				330				6,150
Product development			467				638				9,209
General and administrative			228				668				11,630
Total			1,002				1,837				31,242

 

(3)	Including interest expenses on amount due to SINA of $1,567 thousand, $4,923 thousand and $6,708 thousand for the years ended December 31, 2011, 2012 and 2013, respectively.

 

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Revenues

We generate revenues primarily from advertising and marketing services to customers, including social display ad arrangements and to a lesser extent promoted marketing arrangements such as promoted feeds. We also generate other revenues from fee-based services, including game-related services, VIP membership and data licensing.

2013 Compared to 2012

Our revenues increased by 186% from $65.9 million in 2012 to $188.3 million for 2013. The increase in revenues was due to the growth of both advertising and marketing revenues and other revenues with the expansion of our user base and our introduction of new sources of revenues. As we only began to generate revenues in the first half of 2012 and continued to introduce new sources of revenues in subsequent quarters, this comparison is not indicative of future growth rates.

 

•

Advertising and marketing revenues. Our advertising and marketing revenues increased by 191% from $51.0 million in 2012 to $148.4 million in 2013, primarily due to the increase in revenues from our social display ads, including the revenues from Alibaba relating to the Business Cooperation Agreement dated April 29, 2013. Revenues from social display ads excluding Alibaba increased from $51.0 million in 2012 to $81.6 million in 2013. This increase was driven by the increase in the number of key accounts, who are our social display ad customers excluding Alibaba, from more than 260 in 2012 to approximately 350 in 2013, and the average spending per key account from approximately $195,000 in 2012 to approximately $231,000 in 2013. Advertising sold to Alibaba, accounted for $49.1 million, or 33.1%, of our advertising and marketing revenues in 2013. To a lesser extent, the increase in our advertising and marketing revenues was also due to new forms of marketing services we introduced in 2013 to further monetize our platform, including promoted feeds. In 2013, there were over 12,800 SME customers that purchased promoted marketing arrangements from us. Revenues from mobile advertising and marketing increased from $10.6 million in 2012 to $41.6 million in 2013 due to our introduction of promoted feeds in the second quarter of 2013.

 

•

Other revenues. Our other revenues increased by 168% from $14.9 million in 2012 to $39.9 million in 2013. The increase was mainly due to relatively low revenues for game-related services and VIP membership in 2012 as we only began to monetize our platform during the first half of 2012. Our revenue from game-related services increased from $12.7 million in 2012 to $22.9 million in 2013 primarily due to an increase in average revenue per paying account from $23.0 in 2012 to $43.3 in 2013. Our revenue from VIP membership increased from $2.2 million in 2012 to $11.1 million in 2013 primarily due to the increase in the number of our VIP members from 0.4 million as of December 31, 2012 to 0.7 million as of December 31, 2013. Our introduction of additional sources of other revenues in 2013 to further monetize our user base and the content on our platform, including data licensing, also contributed to the increase.

2012 Compared to 2011

We began to generate revenues in the first half of 2012.

 

•

Advertising and marketing revenues. We derived $51.0 million of our advertising and marketing revenues in 2012 from key accounts. We had over 260 key accounts in 2012.

 

•

Other revenues. We derived substantially all of our other revenues of $14.9 million in 2012 from game-related services and VIP membership.

Costs and Expenses

Our costs and expenses consist of cost of revenues, sales and marketing, product development, and general and administrative expenses, including costs and expenses allocated to us from SINA during the presented

 

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periods. Cost of revenues consists mainly of costs associated with the maintenance of our platform, which mainly include bandwidth and other infrastructure costs, labor costs and turnover tax levied on our revenues. Sales and marketing expenses consist primarily of marketing and promotional expenses and salaries, benefits and commissions for our sales and marketing personnel. Product development expenses consist primarily of payroll-related expenses and infrastructure costs incurred for expenses associated with new product development and product enhancements. General and administrative expenses consist primarily of payroll-related expenses and professional service fees.

2013 Compared to 2012

Our costs and expenses increased by 50.3% from $163.8 million in 2012 to $246.2 million in 2013.

 

•

Cost of Revenues. Our cost of revenues increased by 29.0% from $46.4 million in 2012 to $59.9 million in 2013, primarily due to an increase of $9.1 million in our VAT costs as a result of our higher revenues, an increase of $4.1 million in our stock-based compensation primarily related to the Alibaba transaction (see “—Critical Accounting Policies, Judgments and Estimates”), and an increase in labor costs. The increase was offset in part by a decrease in content licensing fees we paid to third parties.

 

•

Sales and Marketing. Our sales and marketing expenses increased by 56.2% from $40.4 million in 2012 to $63.1 million in 2013. This increase was primarily due to an increase of $9.7 million to $33.2 million in 2013 in marketing and promotional expenses to promote our products, an increase of $5.8 million in stock-based compensation primarily related to the Alibaba transaction, and an increase of $5.0 million in staff-related expenses related to our sales and marketing personnel resulting primarily from higher wages and other personnel-related costs, including commissions payable to our sales and marketing personnel.

 

•

Product Development. Our product development expenses increased by 41.5% from $71.2 million in 2012 to $100.7 million in 2013. This increase was primarily due to an increase of $12.4 million in staff-related expenses due to the expansion of our product development team, an increase in stock-based compensation costs of $8.6 million primarily related to the Alibaba transaction and an increase in infrastructure costs of $4.1 million representing data center expenses and other resources used by our product development team.

 

•

General and Administrative. Our general and administrative expenses increased by 290% from $5.8 million in 2012 to $22.5 million in 2013. The increase was primarily due to an increase of $11.0 million in stock-based compensation primarily related to the Alibaba transaction and an increase of $1.4 million of bad debt provision expenses, primarily resulting from the increase in advertising and marketing revenues.

2012 Compared to 2011

Our costs and expenses increased by 41.8% from $115.5 million in 2011 to $163.8 million in 2012.

 

•

Cost of Revenues. Cost of revenues increased by 57.2% from $29.5 million in 2011 to $46.4 million in 2012. This increase was primarily due to an increase of $5.7 million in turnover taxes and an increase of $4.4 million in infrastructure costs as well as an increase of $3.5 million in game platform maintenance costs.

 

•

Sales and Marketing. Our sales and marketing expenses decreased by 10.4% from $45.0 million in 2011 to $40.4 million in 2012. The decrease was primarily due to a decrease in brand promotion and marketing expenses of $17.2 million after Weibo became a more widely known social media platform in China, partially offset by an increase of $9.8 million in staff-related expenses as a result of increased headcount, wages and other personnel-related costs of our sales and marketing personnel to support our monetization efforts.

 

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•

Product Development. Our product development expenses increased by 92.8% from $36.9 million in 2011 to $71.2 million in 2012. The increase was primarily due to an increase of $23.6 million in staff-related expenses as we increased our product development team to support the expansion of our platform, and an increase of $6.6 million in infrastructure costs relating to data center expenses and other resources used by our product development team. The increase was also attributable to the increase of $11.0 million in expenses allocated by SINA.

 

•

General and Administrative. Our general and administrative expenses increased by 45.2% from $4.0 million in 2011 to $5.8 million in 2012, primarily due to an increase of $0.9 million in our bad debt provision expenses, as we began to monetize in 2012.

Interest and Other Income (Expense), Net

2013 Compared to 2012

Our net interest expense decreased from $4.9 million in 2012 to $2.9 million in 2013, primarily due to an increase of $3.7 million in interest income, which was partially offset by a $1.8 million increase in interest expenses. Interest expenses accrued prior to the Alibaba transaction were waived by SINA on April 29, 2013.

2012 Compared to 2011

Our net interest expense increased by 177% from $1.8 million in 2011 to $4.9 million in 2012 due to the higher interest expense, which arose from a higher average balance of amount due to SINA. Interest expenses accrued prior to the Alibaba transaction were waived by SINA on April 29, 2013.

Change in Fair Value of Investor Option Liability

The change in fair value of investor option liability of $21.1 million in 2013 was primarily due to a decrease in the expected life of the investor option liability.

 

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Selected Quarterly Results of Operations

The following table sets forth our unaudited combined and consolidated selected quarterly results of operations for the four quarters ended December 31, 2013. You should read the following table in conjunction with our audited combined and consolidated financial statements and related notes included elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period or for a full year. For factors that may cause our revenue and operating results to vary or fluctuate, please see “Risk Factors—Risks Related to Our Business.”

 

		For the Three Months Ended
		March 31, 2013				June 30, 2013				September 30, 2013				December 31, 2013
		(in $ thousands)
Combined and Consolidated Statements of Operations Data:
Revenues:
Advertising and marketing revenues:
Third parties			18,763				24,811				23,511				32,206
Related party Alibaba			—				5,145				20,152				23,838
Total advertising and marketing revenues			18,763				29,956				43,663				56,044
Other revenues			7,121				7,683				9,703				15,380
Total revenues			25,884				37,639				53,366				71,424
Costs and expenses:
Cost of revenues(1)			11,687				17,438				14,524				16,242
Sales and marketing(1)			8,451				15,005				16,753				22,860
Product development(1)			20,423				29,557				24,629				26,131
General and administrative(1)			1,738				12,556				3,225				4,998
Total costs and expenses			42,299				74,556				59,131				70,231
Income (loss) from operations			(16,415	)			(36,917	)			(5,765	)			1,193
Loss from equity method investment			(654	)			(582	)			—				—
Remeasurement gain upon obtaining control			—				3,116				—				—
Interest and other income (expenses), net(2)			(1,933	)			(1,173	)			(138	)			360
Change in fair value of investor option liability			—				864				664				19,536
Income (loss) before income tax expenses			(19,002	)			(34,692	)			(5,239	)			21,089
Less: Income tax expenses (benefits)			239				437				66				(471	)
Net income (loss)			(19,241	)			(35,129	)			(5,305	)			21,560
Adjusted Net Income (Loss) (Non-GAAP)(3)			(18,400	)			(11,197	)			(5,100	)			3,873
Adjusted EBITDA (Non-GAAP)(3)			(11,464	)			(3,823	)			253				8,702

 

Notes:

(1)	Stock-based compensation was allocated in costs and expenses as follows:

 

 

(2)	Including interest expenses on amount due to SINA of $1,968 thousand, $1,208 thousand, $1,763 thousand and $1,769 thousand, for the three months ended March 31, 2013, June 30, 2013, September 30, 2013 and December 31 2013, respectively.

 

(3)	See “Prospectus Summary—Summary Combined and Consolidated Financial Data—Non-GAAP Financial Measures.”

 

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We began to generate revenues in the second quarter of 2012 and have experienced rapid growth in revenues since then. Although the advertising industry in China experiences seasonality and advertising spending tends to be the highest in the fourth quarter of each year, the rapid growth in our business and revenues may potentially offset seasonality in the near term. Our short operating history and our rapid growth make it difficult for us to identify recurring seasonal trends in our business.

Our continued growth in quarterly revenues for the four quarters in the period from January 1, 2013 to December 31, 2013 was primarily due to the increase in our advertising and marketing revenues, including revenues from Alibaba beginning from the second quarter of 2013. To a lesser extent, the growth in quarterly revenues in the period from January 1, 2013 to December 31, 2013 was also due to our efforts to further monetize our platform through game-related services, VIP membership and data licensing services, especially in the fourth quarter of 2013.

Among the four quarters in 2013, we incurred the highest amount of costs and expenses in the second quarter of 2013 due to our stock-based compensation related to the Alibaba transaction (see “—Critical Accounting Policies, Judgments and Estimates”). Excluding the stock-based compensation, each category of our costs and expenses increased generally in the period from January 1, 2013 to December 31, 2013, primarily due to headcount increase and increased expenditures to support the growth of our business.

Liquidity and Capital Resources

The following table sets forth the movements of our cash and cash equivalents for the periods presented:

 

		For the Year Ended December 31,
		2011				2012				2013
		(in $ thousands)
Net cash used in operating activities			(99,541	)			(103,642	)			(9,369	)
Net cash used in investing activities			(42,565	)			(136,526	)			(153,365	)
Net cash provided by financing activities			136,291				229,368				406,753
Effect of exchange rate changes on cash and cash equivalents			908				18				(489	)
Net increase (decrease) in cash and cash equivalents			(4,907	)			(10,782	)			243,530
Cash and cash equivalents at the beginning of year/period			18,595				13,688				2,906
Cash and cash equivalents at the end of year/period			13,688				2,906				246,436

As of December 31, 2011, 2012 and 2013, our total cash, cash equivalents and short-term investments was $13.7 million, $122.8 million and $498.8 million, respectively. Our principal sources of liquidity have been loans from our parent company, SINA, cash collected from advertising and marketing services as well as other services beginning in 2012, and the private sale of ordinary and preferred shares to Alibaba in 2013. The substantial increase in our cash, cash equivalents and short-term investments as of December 31, 2013 was primarily attributable to the receipt of proceeds of $585.8 million from the sale of our ordinary and preferred shares in a private placement to Alibaba in April 2013. Of the $498.8 million in cash, cash equivalents and short-term investments that we held as of December 31, 2013, our Cayman Islands holding company held $435.2 million, our Hong Kong subsidiary held $1.5 million, HK$0.05 million ($0.01 million) and RMB7.0 million ($1.2 million), and our affiliated entities within China held RMB369.1 million ($60.9 million), of which RMB55.7 million ($9.2 million) was held by our VIE and its subsidiary.

As of December 31, 2013, we had outstanding interest-bearing loans payable to SINA in the amount of $267.7 million. These loan amounts were advanced by SINA to fund the establishment of our subsidiaries or to provide working capital for the daily operations of our business. The loans are calculated based on actual spending incurred by SINA for the development of the Weibo business at each period end and presented as amount due to SINA in the combined and consolidated balance sheets. The combined and consolidated

 

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statements of loss and comprehensive loss reflected a charge for interest on amount due to SINA, as well as on amounts included as accrued liabilities due to SINA, at prevailing market interest rate by reference to the three-month time deposit rate of the People’s Bank of China, which ranged from 2.55% to 3.05%. The loans have no fixed repayment date and are repayable upon demand by SINA. Repayment of the loans would materially and adversely affect our liquidity, financial position and cash flows. We intend to use the proceeds from this offering to repay the outstanding loans.

We believe that our existing cash, cash equivalents and short-term investments balance as of December 31, 2013 is sufficient to fund our operating activities, capital expenditures and other obligations for at least the next twelve months. However, we may decide to enhance our liquidity position or increase our cash reserve for future expansions and acquisitions through additional capital and/or finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

In utilizing the proceeds we expect to receive from this offering and the other cash that we hold offshore, we may (i) make additional capital contributions to our PRC subsidiary, (ii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC subsidiaries, or (iv) acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

 

•

capital contributions to our PRC subsidiaries, whether existing or newly established ones, must be approved by the Ministry of Commerce or its local counterparts; and

 

•

loans by us to our PRC subsidiaries, which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local branches.

See “PRC Regulation—Regulations on Foreign Exchange.”

Substantially all of our future revenues are likely to continue to be in the form of RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiary is allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. See “Risk Factors—Risks Relating to Doing Business in China—Restrictions on the remittance of RMB into and out of China and governmental control of currency conversion may limit our ability to pay dividends and other obligations, and affect the value of your investment.”

Operating Activities

Net cash used in operating activities in 2013 was $9.4 million. The difference between our net cash used in operating activities and our net loss of $38.1 million in 2013 was primarily due to an increase of $35.9 million in accrued liabilities due to third parties and employees, a decrease of $24.5 million in accounts receivable due from SINA, $21.5 million in depreciation and amortization and an increase of $12.6 million in deferred revenues, partially offset by an increase of $26.9 million and $21.3 million in accounts receivable due from third parties and Alibaba, respectively, and change in fair value of investor option liability of $21.1 million. The increase in accrued liabilities due to third parties and employees primarily arising from the increased amounts due to employees in connection with the Alibaba investment and increased payable for marketing expenses and sales rebates. Depreciation and amortization were primarily related to the servers, computers and other office

 

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equipment that we have purchased for conducting our business. The increases in deferred revenues and accounts receivable due from Alibaba and third parties were primarily due to the growth of our business.

Net cash used in operating activities for 2012 was $103.6 million. The difference between our net cash used in operating activities and our net loss of $102.5 million during the same period was primarily due to an increase of $26.6 million in accounts receivable due from SINA and an increase of $3.1 million in prepaid expenses and other current assets, partially offset by $16.4 million in depreciation and amortization, an increase of $4.9 million in interest payable on amount due to SINA and an increase of $2.2 million in deferred revenues. The increase in accounts receivable due from SINA was primarily due to our commencing monetization of our platform in 2012. The depreciation and amortization were primarily related to the servers, computers and other office equipment that we purchased for conducting our business. The increase in prepaid expenses and other current assets primarily included prepayments of rental expenses.

Net cash used in operating activities for 2011 was $99.5 million. The difference between our net cash used in operating activities and our net loss of $117.7 million during the same period was primarily due to $7.3 million in depreciation and amortization and increases of $5.1 million in accrued liabilities due to related parties and $3.6 million in accrued liabilities due to third parties and employees, partially offset by an increase of $1.1 million in prepaid expenses and other current assets. The increases in accrued liabilities due to related parties and accrued liabilities due to third parties and employees were primarily due to the relative absence of accrued liabilities at the end of the previous year, which was our first year in existence. The depreciation and amortization was primarily related to the servers, computers and other office equipment that we purchased for conducting our business. The increase in prepaid expenses and other current assets primarily included prepayments of rental expenses.

Investing Activities

Net cash used in investing activities in 2013 was $153.4 million. This was primarily due to the purchase of short-term investments of $250.0 million, purchases of property and equipment of $12.0 million and investment and prepayment in long-term investments of $8.9 million, partially offset by the maturity of short-term investments of $117.6 million.

Net cash used in investing activities for 2012 was $136.5 million. This was due to the purchase of short-term investments of $117.6 million, as well as purchases of property and equipment of $19.0 million.

Net cash used in investing activities for 2011 was $42.6 million due to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities in 2013 was $406.8 million. This primarily consisted of proceeds of $585.8 million received from Alibaba for the sale of our ordinary and preferred shares, partially offset by net repayment of $133.2 million in loans to SINA and our payments for ordinary shares and repurchased vested options of $45.9 million.

Net cash provided by financing activities for 2012 was $229.4 million. This was primarily due to funding of $233.7 million from SINA for operational purposes, partially offset by payments for ordinary shares and repurchased vested options of $4.3 million.

Net cash provided by financing activities for 2011 was $136.3 million, which mainly was a result of loans from SINA.

The loans from SINA are presented as cash flow from financing activities in our combined and consolidated statements of cash flows.

Capital Expenditures

Our capital expenditures are primarily incurred to purchase servers, computers and other office equipment. Our capital expenditures were $42.6 million in 2011, $19.0 million in 2012 and $12.0 million in 2013. We intend to fund our future capital expenditures with our existing cash balance. We will continue to make capital expenditures to meet the expected growth of our business.

 

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Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2013:

 

		Payment Due by Period
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
		(in $ thousands)
Operating lease commitment			10,226				6,561				3,665				—				—
Purchase commitments			37,165				32,441				4,407				139				178
TOTAL			47,391				39,002				8,072				139				178

Operating lease commitments consist of the commitments under the lease agreements for our office premises. We lease our office facilities under non-cancelable operating leases with various expiration dates through 2016. Our leasing expense was $2.6 million, $6.8 million and $8.8 million in the years ended December 31, 2011, 2012 and 2013, respectively. The majority of the operating lease commitments are from our office lease agreements in China. Purchase commitments primarily include minimum commitments for internet connection and marketing activities.

As of December 31, 2013, we had outstanding interest-bearing loans payable to SINA in the amount of $267.7 million. These loans were advanced by SINA to provide working capital for the daily operations of our business. The loans are repayable upon demand by SINA.

Internal Control over Financial Reporting

We will be subject to reporting obligations under the U.S. securities laws following this offering. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a report of management on the effectiveness of such company’s internal control over financial reporting in its annual report. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, an independent registered public accounting firm must issue an attestation report on the effectiveness of our internal control over financial reporting for the following fiscal year and thereafter. When we were a private company and a subsidiary of SINA, we were required to maintain an effective internal control over financial reporting as part of SINA’s compliance with Section 404 of the Sarbanes-Oxley Act. However, in light of our new status as a public company upon the effectiveness of the registration statement of which this prospectus forms a part, our management will have to evaluate our internal control system independently with new thresholds of materiality and to implement necessary changes to account for that status. During the course of such evaluation, documentation and testing, we may identify deficiencies which we may not be able to remedy in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We may incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.

Holding Company Structure

Weibo Corporation is a holding company with no material operations of its own. We conduct our operations primarily through Weibo Technology, Weimeng and Weibo Interactive, all of which are incorporated in China. As a result, our ability to pay dividends depends upon dividends paid to us by Weibo Technology, our PRC subsidiary. If Weibo Technology or any newly formed subsidiaries of ours incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, Weibo Technology is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of Weibo Technology, Weimeng and Weibo Interactive is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each

 

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of Weibo Technology, Weimeng and Weibo Interactive may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds, a discretionary surplus fund and an enterprise expansion fund at its discretion or in accordance with its articles of association. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. As of December 31, 2013, the amount restricted, including paid-in capital, as determined in accordance with PRC accounting standards and regulations, was approximately $106.6 million. Weibo Technology has never paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve funds.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our combined and consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Inflation

To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2011, 2012 and 2013 were increases of 4.1%, 2.5% and 2.5%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.

Market Risks

Foreign Exchange Risk

The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’s foreign exchange policies, among other things. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. The PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. In addition, there remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the RMB against the U.S. dollar. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB, whereas our reporting currency is the U.S. dollar. Any significant depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position as reported in U.S. dollars. To the extent that we need to convert U.S. dollars we received from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.

 

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Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, our future interest income may fall short of expectations due to changes in market interest rates.

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our combined and consolidated financial statements, which have been prepared in accordance with U.S. GAAP, appearing elsewhere in this prospectus. The preparation of these combined and consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates, judgments and assumptions on an on-going basis for taxes.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from such estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our combined and consolidated financial statements:

Basis of Presentation, Combination and Consolidation

Weibo was founded by our parent company, SINA, in August 2009. Prior to the establishment of Weibo Corporation, the Weibo business was carried out by various subsidiaries and VIEs of SINA. After the establishment of Weibo Corporation, Weibo HK, Weibo Technology and Weimeng, we gradually completed our reorganization in preparation for this offering, including the acquisition of Weibo Interactive from SINA effective in December 2013.

Our business was carried out by various subsidiaries and VIEs of SINA prior to our reorganization, and has been carried out by our own subsidiaries and our VIE and its subsidiary since the reorganization. Since we and SINA are under common control, our combined and consolidated financial statements include the assets, liabilities, revenues, expenses and cash flows that were directly attributable to the Weibo business for all periods presented. The assets and liabilities have been stated at historical carrying amounts. In addition, our combined and consolidated financial statements have been prepared as if the current corporate structure, including the transfer of Weibo Interactive in December 2013, had been in existence throughout the periods presented.

Only those assets and liabilities that were specifically identifiable to the Weibo business were included in our combined and consolidated balance sheets. For receivables related to us for which SINA first collects the payments from customers, such amount was recorded as accounts receivable due from SINA, any uncollectible losses arising from the accounts receivable due from SINA will pass through to us. For liabilities related to us for which SINA advanced the funding, such amount was included in the accrued liabilities due to SINA. Our combined and consolidated statements of loss and comprehensive loss consisted of all costs and expenses related to us, including costs and expenses related to us that were allocated from SINA. Allocations from SINA, including amounts allocated to cost of revenues, sales and marketing expenses, product development expenses and general and administrative expenses, were based on a methodology that took into consideration our proportion of the revenues, infrastructure usage and labor usage, among other things, that the management believes to be reasonable. Income tax liability was calculated as if we had filed separate tax returns for all the periods presented.

 

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To comply with PRC laws and regulations, we provide substantially all of our services in China via Weimeng and its subsidiary since our reorganization. Weimeng holds critical operating licenses that enable us to do business in China. Most of our revenues, costs and net income (loss) in China are directly or indirectly generated through our VIE and its subsidiary. We have signed various agreements with our VIE to allow the transfer of economic benefits from our VIE and its subsidiary to us. As a result of these contractual arrangements, we are considered the primary beneficiary of Weimeng and its subsidiary and combine and consolidate their results of operations, assets and liabilities in our financial statements.

Our combined and consolidated financial statements may not be reflective of our results of operations, financial position and cash flows had we been operating as a stand-alone company during those periods. Our historical results for any period presented are not necessarily indicative of the results to be expected for any future period. Although we believe that the assumptions underlying our combined and consolidated financial statements and the allocations made to us are reasonable, our basis of presentation and allocation methodologies required significant assumptions, estimates and judgments. Using a different set of assumptions, estimates and judgments would have materially impacted our financial position and results of operations.

Fair Value Measurements

On April 29, 2013, Ali WB, a wholly owned subsidiary of Alibaba, purchased our preferred and ordinary shares, representing an ownership interest of 18% on a fully diluted basis. As of the date of issuance, the fair value of the preferred shares was $481.0 million. The preferred shares have been classified as mezzanine equity instead of permanent equity in our combined and consolidated financial statements as these preferred shares are redeemable contingent upon the occurrence of a conditional event (i.e., a liquidation event), which is not solely within our control. Because the liquidation event was not probable as of the balance sheet dates, no accretion was recorded to adjust the carrying amount of the preferred shares.

The ordinary shares held by Ali WB were recognized at an initial fair value of $54.2 million as of the date of issuance. A portion of the ordinary shares were purchased by Ali WB directly from our employees and a portion were purchased from us. In order to facilitate the purchase, we issued ordinary shares to Ali WB on the date of issuance and then repurchased the options from our employees reflected the 3.5 million shares sold to Alibaba subsequent to such date. The consideration for both the ordinary shares and vested options were paid to us first and then paid (or to be paid) to our employees subsequently. The employees sold their shares and vested options above the current fair value and the difference between the proceeds received by the employees and the fair value of the ordinary shares or vested options sold was considered to be compensation for their past service in accordance with ASC 718-20. Therefore, stock-based compensation of $27.1 million was recorded for the year ended December 31, 2013.

We also granted an option to Ali WB to enable it to increase its ownership in Weibo Corporation up to 30% on a fully diluted basis at a mutually agreed valuation before the expiration of the call option. The option was recorded at fair value as of the grant date as option liability in the combined and consolidated balance sheets and is marked to market at each reporting period end, which requires an assessment of the probability weight for each exercise scenario.

We utilized the Binomial option pricing model with the assistance from an independent valuation firm to determine the fair value of the option liability. Determination of the estimated fair value requires complex and subjective judgments due to our limited financial and operating history, unique business risks and limited public information on companies in China similar to our business. Changes in these estimates and assumptions could materially impact our financial position and results of operations. Estimates of the volatility for the option pricing model were based on the volatility of ordinary shares of comparable companies. Estimates of expected life were based on the estimated time to liquidation event and the risk-free interest rate was based on the U.S. Treasury

 

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yield for a term consistent with the estimated expected life. The key inputs used in option liability valuation as of December 31, 2013 were as follows:

 

		As of December 31, 2013
Expected dividend yield			—
Risk-free interest rate			0.30	%
Expected volatility			53	%
Expected life (in years)			1.40
Fair value per ordinary share		$	14.10

Determination of these unobservable inputs requires complex and subjective judgments due to our limited financial and operating history, unique business risks and limited public information on companies in China similar to our business. Changes in these inputs might result in a significantly higher or lower fair value measurement and materially impact our financial position and results of operations.

Stock-Based Compensation

All stock-based awards to employees and directors, such as stock options and restricted share units, are measured at the grant date based on the fair value of the awards. Stock-based compensation, net of forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. We used the Black-Scholes option-pricing model to determine the fair value of share options and account for stock-based compensation expenses using an estimated forfeiture rate at the time of grant, which is revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. We recognize the estimated compensation of service-based restricted share units based on the fair value of our ordinary shares on the date of the grant. Stock-based compensation was recorded net of estimated forfeitures such that expense was recorded only for those stock-based awards that are expected to vest. If actual forfeitures differ materially from our estimated forfeitures, we may need to revise those estimates used in subsequent periods.

 

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In 2010, we adopted our 2010 Share Incentive Plan, which permits us to grant stock options, share appreciation rights, restricted share units and restricted shares of Weibo Corporation to employees, directors and consultants of our company and our affiliates. Under the plan, a total of 35,000,000 ordinary shares were initially approved for issuance. The maximum number of ordinary shares available for issuance will be reduced by one share for every one share issued pursuant to a share option or share appreciation right and by 1.75 shares for every one share issued as restricted shares or pursuant to a restricted shares unit. A summary of our share option grants from before 2011 through December 31, 2013 is presented below:

 

No.		Date of Tranche		Number of Options Granted				Exercise Price				Fair Value of the Options as of the Grant Date				Fair Value of the Underlying Ordinary Shares as of the Grant Date				Intrinsic Value as of the Grant Date
								$				$				$				$
1-3		Before 2011			26,793,200				0.36-0.41				0.1546-0.1760				0.36-0.41				—
4		March 28, 2011			1,400,000				0.96				0.4346				0.96				—
5		June 17, 2011			401,240				1.58				0.7202				1.58				—
6		July 27, 2011			77,900				1.80				0.8380				1.80				—
7		January 8, 2012			266,000				3.34				1.6416				3.34				—
8		April 4, 2012			602,000				3.35				1.6853				3.35				—
9		April 4, 2012			35,000				3.35				1.5134				3.35				—
10		July 20, 2012			596,381				3.36				1.6656				3.36				—
11		November 30, 2012			675,300				3.30				1.6363				3.30				—
12		January 1, 2013			233,500				3.25				1.6136				3.25				—
13		January 17, 2013			180,000				3.25				1.3193				3.25				—
14		January 17, 2013			1,020,000				3.25				1.5927				3.25				—
15		March 12, 2013			182,000				3.43				1.6976				3.43				—
16		April 12, 2013			588,578				3.45				4.9431				7.33				2,280,740
17		June 27, 2013			148,400				3.50				8.9159				11.63				1,206,492
18		October 8, 2013			726,600				3.50				9.4419				12.29				6,383,181
19		December 30, 2013			292,858				3.50				11.1685				14.10				3,105,466
Total					34,218,957																12,975,879

On November 8, 2013, we granted 800,000 restricted share units. The fair value of our ordinary shares on the grant date was $13.19.

The assumptions used to value our option grants were as follows:

 

		Year Ended December 31,
		2011		2012		2013
Stock options:
Expected term (in years)		4.8		3.5–4.8		3.5–4.8
Expected volatility		52%–55%		60%–63%		54%–61%
Risk-free interest rate		1.1%–1.8%		0.4%–0.8%		0.5%–1.2%
Expected dividend yield		—		—		—

 

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The fair value of each option grant is estimated on the date of grant. The following table summarizes assumptions used in the fair value estimates on the dates indicated.

 

No.		Date of Tranche		Expected Volatility(1)		Risk-Free Interest Rate (Per Annum)(2)		Expected Dividend Yield(3)				Expected Term (in Years)(4)				Expected Forfeiture Rate(5)
1-3		Before 2011		50.44%-50.83%		0.84%-1.08%			—				4.76				5.60	%
4		March 28, 2011		52.130%		1.76%			—				4.76				8.20	%
5		June 17, 2011		53.590%		1.11%			—				4.76				8.20	%
6		July 27, 2011		54.900%		1.14%			—				4.76				8.20	%
7		January 8, 2012		59.510%		0.63%			—				4.76				4.70	%
8		April 4, 2012		60.910%		0.79%			—				4.76				4.70	%
9		April 4, 2012		62.960%		0.79%			—				3.50				0.00	%
10		July 20, 2012		60.450%		0.44%			—				4.76				4.70	%
11		November 30, 2012		60.400%		0.48%			—				4.76				4.70	%
12		January 1, 2013		60.300%		0.59%			—				4.76				4.20	%
13		January 17, 2013		56.020%		0.59%			—				3.50				0.00	%
14		January 17, 2013		60.570%		0.59%			—				4.58				4.20	%
15		March 12, 2013		59.980%		0.65%			—				4.76				4.20	%
16		April 12, 2013		59.850%		0.52%			—				4.76				4.20	%
17		June 27, 2013		59.000%		1.02%			—				4.76				4.20	%
18		October 8, 2013		55.190%		1.07%			—				4.76				4.20	%
19		December 30, 2013		53.580%		1.24%			—				4.76				4.20	%

 

Notes:

(1)	We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical share prices of comparable companies with a time horizon close to the expected expiration of the term.

(2)	We estimated the risk-free interest rate based on the U.S. Treasury zero-coupon bonds with maturity terms similar to the expected term on the stock-based awards.

(3)	We have never declared or paid any cash dividends on our capital stock, and we do not anticipate any dividend payments on our ordinary shares in the foreseeable future.

(4)	Expected term (in years) represents the weighted average period of time that stock-based awards granted are expected to be outstanding giving consideration to historical exercise patterns. We used the simplified method to calculate the expected term.

(5)	Expected forfeiture rate is estimated based on historical employee turnover rate after each option grant.

For the purpose of determining the estimated fair value of our share options, we believe the expected volatility and the estimated fair value of our ordinary shares are the most critical assumptions. Changes in these assumptions could significantly affect the fair value of share options and hence the amount of stock-based compensation we recognize in our combined and consolidated financial statements. Since we did not have a trading history for our shares sufficient to calculate our own historical volatility, the expected volatility of our future ordinary share price was estimated based on the price volatility of the shares of comparable public companies that operate in the same or similar business.

Fair Value of Our Ordinary Shares

We, with the assistance of our independent valuation firm, evaluated the use of two generally accepted valuation approaches. We used the income approach if a revenue model had been established, the market approach if information from comparable companies had been available, or a weighted blend of these two approaches if more than one is applicable, to estimate our enterprise value for purposes of recording stock-based compensation in connection with employee stock options and recording fair value changes for our option liability to Alibaba. This approach is consistent with the guidance prescribed by the AICPA Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

 

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Before April 2013, the market approach was primarily used to determine the fair value of our ordinary shares. We selected guideline companies that engaged in a similar line of business with similar growth prospects and that were subject to similar financial and business risks.

The market approach was applied by developing relevant multiples for the comparative companies that relate value to underlying revenue, earnings, or cash flow variables, and then applying these multiples to the comparable underlying revenue, earnings, or cash flow variable for us. The value multiples can be derived from guideline publicly traded company transactions or guideline transactions of private companies.

For periods beyond April 2013, the income approach was applied since our revenue model had been established and projections of revenues, costs and expenses, incremental working capital and capital expenditures became available as our business developed.

The income approach involves applying the discounted cash flow analysis based on our projected cash flow using our best estimate as of the valuation dates. Estimating future cash flow requires us to analyze projected revenue growth, gross margins, effective tax rates, capital expenditures and working capital requirements. Our projected revenues were based on expected annual growth rates derived from a combination of our historical experience and the general trend in China’s social media industry. The revenues and cost assumptions we used are consistent with our long-range business plan and market conditions in the online advertising industry. We also had to make complex and subjective judgments regarding our unique business risks, the liquidity of our shares and our limited operating history and future prospects at the time of each grant. Other assumptions we used in deriving the fair value of our equity included:

 

•

no material changes will occur in the applicable future periods in the existing political, legal, fiscal or economic conditions and in the online advertising industry in China;

 

•

no material changes will occur in the current taxation law in China and the applicable tax rates will remain unchanged;

 

•

exchange rates and interest rates in the applicable future periods will not differ materially from the current rates;

 

•

our future growth will not be constrained by lack of funding;

 

•

we have the ability to retain competent management and key personnel to support our on-going operations; and

 

•

industry trends and market conditions for the advertising and related industries will not deviate significantly from current forecasts.

Our cash flows were discounted to present value using discount rates that reflect the risks we perceived as being associated with achieving the forecasts and were based on the estimate of our weighted average cost of capital, or WACC, on the grant date. The WACCs were derived by using the capital asset pricing model, a method that market participants commonly use to price securities. Under the capital asset pricing model, the discount rate was determined considering the risk-free rate, industry-average correlated relative volatility coefficient, or beta, equity risk premium, small size premium, country risk premium and company specific premium. Using this method, we determined the appropriate WACC as of September 30, 2012, April 29, 2013, June 30, 2013, September 30, 2013 and December 31, 2013 was 18.5%, 17%, 17%, 17% and 16%, respectively. The risks associated with achieving our forecasts were appropriately assessed as company specific premium when we determined the appropriate discount rates. If different discount rates had been used, the valuations could have been significantly different.

Option-pricing method was used to allocate enterprise value to preferred and ordinary shares, taking into account the guidance prescribed by the Practice Aid. The method treats ordinary and preferred shares as call options on the enterprise’s value, with exercise prices based on the liquidation preference of the preferred shares.

 

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The strike prices of the “options” based on the characteristics of our capital structure, including number of shares of each class of equity, seniority levels, liquidation preferences, and conversion values for the preferred equity.

The option-pricing method also involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board of directors and management. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares. Volatility of 50% to 63% was determined by using the mean of volatility of the comparable companies as of the grant date. Had we used different estimates of liquidity event timing and volatility, the allocations between preferred and ordinary shares would have been different. In evaluating comparable companies, we determined they should:

 

•

operate in the same or similar businesses;

 

•

have a trading history comparable to the remaining life of our share options as of each valuation date; and

 

•

either have operations in China, as we operate primarily in China, or are listed companies with similar businesses in the United States, as we plan to become a public company in the United States.

We also applied a discount for lack of marketability to reflect the fact that, at the time of the grants, we were a closely held company and there was no public market for our equity securities. To determine the discount for lack of marketability, we and the independent appraisers used the Finnerty Put Option model. Pursuant to that model, we used the cost of a put option, which can be used to hedge the price change before a privately held share can be sold, as the basis to determine the discount for lack of marketability. A put option was used because it incorporates certain company-specific factors, including timing of the expected initial public offering and the volatility of the share price of the guideline companies engaged in the same industry.

The following table sets forth the fair value of our ordinary shares and preferred shares estimated at different times with the assistance from an independent valuation firm.

 

Date of Valuation		Fair Value Per Share ($)				Discount of Lack of Marketability (DLOM)				Discount Rate
September 30, 2012 (ordinary shares)			3.300				34%				18.5	%
April 29, 2013 (ordinary shares)			11.189				21%				17	%
June 30, 2013 (ordinary shares)			11.633				20%				17	%
September 30, 2013 (ordinary shares)			12.285				20%				17	%
December 31, 2013 (ordinary shares)			14.104				10%				16	%
April 29, 2013 (preferred shares)			16.001				10.5%				17	%
June 30, 2013 (preferred shares)			16.298				10%				17	%
September 30, 2013 (preferred shares)			16.837				10%				17	%
December 31, 2013 (preferred shares)			17.336				5%				16	%

The determined fair value of the ordinary shares increased from $3.30 per share as of September 30, 2012 to $11.19 per share as of April 29, 2013. We believe the change in the fair value of our ordinary shares was primarily attributable to the development of the Weibo business in relation to the expansion of revenue-generating activities. Moreover, the increase of the fair value of our ordinary shares also relate to the strategic alliance with affiliated entities of Alibaba. Under such agreement, we and Alibaba are expected to jointly explore social commerce and develop marketing solutions to enable merchants on Alibaba e-commerce platforms to better connect and build relationships with Weibo’s users. Change in the fair value of our ordinary shares from $11.19 per share as of April 29, 2013 to $14.10 per share as of December 31, 2013 was primarily due to the growth of our company over the last three quarters of 2013, including increases in our MAU and DAU numbers, our improved financial performance, and the successful introduction of new products in 2013 such as

 

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performance-based ads and data licensing services. The fair value of our ordinary shares increased to $3.34 per share as of December 31, 2011 due to the significant increase of active users and plan for commercial launch of our Weibo platform.

Revenue Recognition

Advertising and Marketing Revenues. Our advertising and marketing revenues are derived principally from online advertising and marketing, including social display ads and promoted marketing.

Social Display Ad Arrangements. Social display ad arrangements allow customers to place advertisements on particular areas of our platform in particular formats, which are displayed over particular periods of time, which is typically no more than three months. We recognize social display ad arrangements based on the number of times that the advertisements have been displayed on a CPM basis. Our social display ads may also be charged on a CPD basis, under which we recognize revenues ratably over the contract periods.

Promoted Marketing Arrangements. Promoted marketing arrangements are primarily priced on a CPM or a CPE basis. An engagement may include when a user clicks on a link, becomes a follower of the marketing customer account, reposts the promoted feed or marks the feed as a favorite. Under the CPM model, customers are obligated to pay when the advertisement is displayed, while under the CPE model, customers are obligated to pay based on the number of engagements with the marketing feed.

Revenues are recognized only when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the price is fixed or determinable; (3) the service is performed; and (4) collectability of the related fee is reasonably assured. The majority of our revenue transactions are based on standard business terms and conditions, which are recognized net of agency rebates. Advertising arrangements involving multiple deliverables are broken down into single-element arrangements based on their relative fair value for revenue recognition purposes. We have adopted the new revenue recognition policy on multiple-deliverable revenue arrangements, which requires the arrangement consideration to be allocated to all deliverables at the inception of the arrangement on the following basis: (a) vendor-specific objective evidence of the selling price, if it exists; otherwise, (b) third-party evidence of the selling price. If neither (a) nor (b) exists, then we must use (c) our best estimate of the selling price of the deliverable. Currently, we primarily use vendor-specific objective evidence to allocate the arrangement consideration if such selling price is available. For the deliverables that have not been sold separately, our best estimate of the selling price is used, which has taken into consideration the pricing of advertising areas of our platform with similar popularity and advertisements with similar format. We recognize revenues on the elements delivered and defer the recognition of revenues for the undelivered elements until the remaining obligations have been satisfied.

Other Revenues

We generate other service revenues principally from fee-based services, including game-related services, VIP membership and data licensing. Revenues from these services are recognized over the periods in which the services are performed, provided that no significant obligations remain, collection of the receivables is reasonably assured and the amounts can be accurately estimated.

Game-Related Services. Game-related revenues are generated from the purchase of virtual items by game players through our platform. We collect payments from the game players in connection with the sale of virtual currency, which will later be converted by the game players into in-game credits (game tokens) that can be used to purchase virtual items in online games. We remit certain predetermined percentages of the proceeds to the game developers when the virtual currency is converted into in-game credits.

We have determined that the game developers are the primary obligors for the game-related services given that the game developers are responsible for developing, maintaining and updating the online games and have

 

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reasonable latitude to establish the prices of virtual items for which in-game credits are used. We view the game developers to be our customers, and our primary responsibility is to promote the games of the third-party developers, provide virtual currency exchange services, maintain the platform for game players to easily access the games and offer customer support to resolve registration, log-in, currency exchange and other related issues. Accordingly, we record game-related revenues net of predetermined revenue-sharing with the game developers.

Virtual currencies in general are not refundable once they have been sold unless there are unused in-game credits at the time a game is discontinued. Sale of virtual currencies net of the game developer proceeds are recognized as revenues over the estimated consumption period of in-game virtual items, which is typically from a few days to one month after the purchase of in-game credits. Virtual currency sold for game-related services in excess of recognized revenues is recorded as deferred revenues.

Game-related revenues recognition involves management judgments, such as the determination of the principal in providing game-related services and estimating the consumption period of in-game credits. We assess the estimated consumption period periodically, taking into consideration the actual consumption information, types of virtual items offered in the game and user behavior patterns, including average recharge interval and estimated user relationship on the game. Using different assumptions to calculate the revenue recognition of game-related revenues may cause the results to be significantly different. Any adjustments arising from changes in the estimate would be applied prospectively on the basis that such changes are caused by new information indicating a change in the user behavior pattern.

VIP Membership. VIP membership is a service package consisting of user certification, preferential benefits such as daily priority listings and higher quota for follower numbers. Prepaid VIP membership fees are recorded as deferred revenues. Revenues are recognized ratably over the contract period for the VIP membership.

Data Licensing. Since 2013, we started to offer data licenses that allow platform partners to access, search and analyze historical data on our platform. We generally license these platform partners to access a portion of data for a fixed period, which is typically one year, and we recognize data licensing revenues ratably over the contract period.

Allowances for Doubtful Accounts

We maintain an allowance for doubtful accounts which reflects our best estimate of amounts that will not be collected. We determine the allowance for doubtful accounts based on factors such as historical experience. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required which could materially impact our financial position and results of operations.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax credit carryforwards. Management is required to make assumptions, judgments and estimates to determine our current provision for income taxes and our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the income taxes recorded in our combined and consolidated statements of loss and comprehensive loss. Our assumptions, judgments and estimates related to the value of a deferred tax asset take into account predictions of the amount and category of

 

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future taxable income, such as income from operations. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates and, thus, materially impact our financial position and results of operations. Income tax liability is calculated based on a separate return basis as if we had filed separate tax returns for all the periods presented.

Uncertain Tax Positions. To assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Recent Accounting Pronouncements

In February 2013, the FASB issued revised guidance on “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This revised guidance does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this revised guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This revised guidance was effective prospectively for reporting periods beginning after December 15, 2012 for public entities. This revised guidance did not have a material impact on our combined and consolidated financial statements.

In July 2013, the FASB issued Accounting Standards Update (ASU) 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carry Forward Exists”, which is an update to provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carry forward exists. The guidance requires an entity to present an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for a net operating loss carry forward, except for when a net operating loss carry forward is not available as of the reporting date to settle taxes that would result from the disallowance of the tax position or when the entity does not intend to use the deferred tax asset for purposes of reducing the net operating loss carry forward. The guidance is effective for fiscal years beginning after December 15, 2013 and for interim periods within that fiscal year. We are currently evaluating the impact on our combined and consolidated financial statements of adopting this guidance.

 

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INDUSTRY

Growth of China Internet and Mobile Market

China is the largest internet market in the world, with 617.6 million internet users as of December 31, 2013, according to the China Internet Network Development Statistical Report dated January 2014 by CNNIC, or the 2014 CNNIC Report. However, the internet penetration rate remains relatively low in comparison to those of developed countries such as the United States and Japan. China’s internet penetration rate was 45.8% as of December 31, 2013 according to the 2014 CNNIC Report, whereas the penetration rates for the United States and Japan were 81.9% and 80.4% as of the same date, respectively, according to data from Euromonitor.

The chart below sets forth the number of internet users and internet penetration rate in China as of the end of the periods presented.

 

Source: China Internet Network Development Statistical Report dated January 2014 by CNNIC.

We believe the proliferation of mobile devices such as smartphones and tablets will drive further internet penetration in China. According to the World Cellular Forecasts 2012-2018 by the World Cellular Information Service, smartphone connections in China reached 336.0 million in 2012 and are expected to grow to 572.2 million in 2015, representing a three-year compound annual growth rate, or CAGR of 19.4%. Trends such as the rapid 3G infrastructure buildup and 4G LTE rollout in China, the high growth rate in per capita income and the rising popularity of smartphones and tablets are expected to further fuel the growth of mobile internet usage in China. As a result, China’s mobile internet user base is expanding rapidly and overall internet usage is gradually shifting from personal computers to mobile devices. According to the 2014 CNNIC Report, there were 500.1 million mobile internet users as of December 31, 2013, more than quadrupled from 117.6 million as of the end of 2008. As of December 31, 2013, 81.0% of Chinese users accessed the internet via mobile devices, according to the 2014 CNNIC Report. During the first six months in 2013, Chinese internet users spent 11.8 hours per week on mobile devices, out of the approximately 21.7 hours per week that they spent on the internet in total, according to the China Internet Network Development Statistical Report dated July 2013 by CNNIC, or the 2013 CNNIC Report.

The chart below sets forth data regarding mobile internet users in China as of the end of the periods presented.

 

Source: China Internet Network Development Statistical Report dated January 2014 by CNNIC.

 

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The Emergence and Increasing Importance of Social Media in China

With growing internet usage, people in China are increasingly shifting their media consumption and social communications from offline to online. To serve fast-changing user behavior and demand, social media, social networks and messengers in China have evolved in different ways. Social media, social networks and messengers can be distinguished by:

 

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the public vs. private nature of the platform; and

 

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the degree to which user activities are driven by interests or relationships.

Social media platforms, such as Weibo, combine microblogging and social networking features and are public in nature. On such social media platforms, feeds can be viewed by any follower and are not limited to a particular audience. They are also characterized by a relative emphasis on interests, meaning that users tend to follow users that they are interested in or that share the same interests with them. On the other hand, social networks and messengers, such as Renren and Tencent WeChat, connect users by allowing friends and families to communicate and interact within a primarily private network. The asymmetric follow model of Weibo enables a less private and broader range of social relationships and engagements to develop between people, organizations and objects of interest.

 

Development of Social Media in China. Before social media emerged, the media industry in China evolved through several major stages. In the late 1990s, internet portals emerged to aggregate and categorize professional media content as a result of the market reforms in China’s media industry. Around 2000, blogging services and online forums developed, which enable individuals to create and publicize content. Blogging services do not have the distribution ability to allow their users to be heard while online forums usually do not require log-ins and thus lend no credibility to their authors.

The advent of social media, such as Weibo, has enabled their users’ voices to be heard as they facilitate real-time public delivery of content through broad social distribution. Since users must log in to share, users of social media have more credibility when they post and comment. Social media is a new way for online interaction that promotes openness and transparency of information.

 

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Monetization. Similar to social media in developed markets such as the United States, we believe that social media in China has enormous monetization potential given its differentiated ability to reach a broad audience and target specific user behaviors and interests. Social media can offer a full spectrum of advertising and marketing solutions to address the needs of businesses ranging from large brand advertisers to SMEs and individuals. In addition, the combination of the increasing amount of user data and increasing sophistication of data analytics create new monetization opportunities for participants in the entire internet ecosystem. Synchronizing social media and TV advertising can also be incorporated into a brand’s marketing campaign to enhance its effectiveness. The increasing adoption of mobile devices may also create new monetization opportunities such as location-based services, social commerce and e-commerce.

According to the China E-Commerce Industry Annual Report (2012-2013) issued by iResearch, China’s e-commerce market is expected to grow rapidly from $30.0 billion in 2012 to $93.8 billion by 2015, representing a three-year CAGR of 46.3 %. Within the online retail segment, the percentage of mobile transactions in China has increased from 2.9% in the first quarter of 2012 to 8.6% in the second quarter of 2013, according to the same report. Brands, merchants and retailers are increasingly focusing on leveraging social media to drive sales. Social interest graph recommendations can impact consumers throughout their purchase process, influencing their pre-purchase selection, their purchase decisions, and their post-purchase behavior.

Growth of China Advertising Market and Increasing Adoption of Online Marketing

Growth of the Advertising Market in China. China was ranked as the world’s third largest advertising market, with a market size of $37.2 billion, representing 0.5% of GDP in 2012, according to the Advertising Expenditure Forecasts dated September 2013 by ZenithOptimedia, or the 2013 Advertising Expenditure Forecasts. However, China’s advertising market remains small compared to that of the United States. The advertising market in the United States reached $161.2 billion or 1.0% of GDP in 2012, according to the same source. Given China’s projected economic growth, growing consumption spending and increasing brand awareness, China’s overall advertising market is expected to grow significantly to $50.2 billion by 2015, representing a three-year CAGR of 10.5%, according to the same report.

Marketing Spending Shifting from Offline to Online. The online advertising market in China has been growing much faster than the overall advertising market. According to the 2013 Advertising Expenditure Forecasts, online marketing has grown from $2.7 billion in 2008 to $7.0 billion in 2012, representing 13.1% and 18.8% of the total advertising market respectively, and it is expected to be the fastest growing segment from 2012 to 2015, at a three-year CAGR of 31.4%. By 2015, online marketing is expected to reach $15.9 billion, representing 31.6% of the total advertising market and constituting the second largest advertising spending category in China, behind only television.

The chart below sets forth data regarding online marketing spending in China for the periods presented.

 

Source: Advertising Expenditure Forecasts dated September 2013 by ZenithOptimedia.

Online marketing will continue to be attractive to customers as their targeted consumers spend more time online, away from traditional media such as newspapers, radio and television. In addition to the shift in consumer

 

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behaviors, improvements in ad solutions, targeting and result measurement capabilities should also continue to drive the growth of online marketing over time.

Advertisers Seeking a Full Spectrum of Online Marketing Services. To serve different purposes, advertisers choose different formats of online marketing to reach targeted audiences. Brand owners use online marketing to drive brand awareness among Chinese internet users. Therefore, formats such as banner display, online video and rich media are desirable in reaching a broad user base for such brand owners. SMEs and online merchants focus more on generating interest leads and conversion to sales, and thus they generally rely on performance-based online marketing formats such as general keyword search and vertical search. In addition, advertisers conduct loyalty marketing to manage and retain existing customers through online channels.

The charts below set forth forecasted CAGRs and market share of online marketing in China from 2012 to 2015.

 

Online Marketing Growth by Category in China 2012-2015E CAGR		Online Marketing in China Breakdown by Formats

Source: China Internet Advertising Industry Annual Report (2012-2013) by iResearch. “Other” includes text-link, classified and email formats.

Advertisers’ Increasing Focus on Effectiveness of Online Marketing. Advertisers’ key objectives can be categorized into brand awareness, interest generation, conversion marketing and customer loyalty. Social media online marketing is increasingly becoming an attractive solution to achieve these multiple objectives for advertisers. A range of online marketing solutions enable advertisers to maximize their return on investments across multiple metrics and improve the effectiveness of their marketing efforts in areas such as brand awareness, loyalty and engagement, as well as in specific actions such as purchase or direct response to a campaign. The following trends in social media online marketing demonstrate how the medium has evolved to meet advertisers’ demands:

 

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Combination of Highly Viral and Performance-based Marketing: The public and distributed nature of social media allows advertisers to reach a large audience base in a very short period of time through viral distribution among its users who are not only connected via relationships but also interest graphs, which is highly valuable to brand advertisers. In addition, advertisers can leverage user data analytics to improve targeting capability of marketing campaigns and drive up interest generation and conversions.

 

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Innovative Online Marketing Formats: New social media marketing formats, such as native ads, have started to gain popularity among online advertisers. Through native ads, advertisers can attract user attention by providing relevant content based on the users’ interest without disrupting or detracting from the user experience. Long-tail advertising is a cost-effective approach for advertisers, particularly for SMEs, to target specific groups of customers based on social and interest graphs.

 

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Complementary to Television Ads: Social media complements television ads by amplifying reach and engagement of audience for advertisers and content providers. In the United States, Twitter and Nielsen

 

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launched “Nielsen Twitter TV Ratings” in October 2013 to measure the number of people generating tweets about TV content and the number of people reading these tweets. The ratings enable a better assessment of the relationship between social media and TV engagement before, during and after shows. Advertisers can also quantify the effectiveness of real-time marketing activities across the two media. Social interaction in the context of watching television is becoming more mainstream not only in the United States, but also in China. According to CTR Market Research, 36% of Chinese internet users surveyed used microblogs to engage in conversation about the 2013 Chinese New Year Gala on CCTV during the show, more than other means of communication such as messengers, short messaging, social networking services and telephone. According to the World Media & Marketing Forecasts by GroupM, TV continued to be the leading category of advertising spend with an estimated 51% share in China in 2013. Consequently, social media in China also have a huge potential not only to enhance TV content but also to enable advertisers to engage with users who have been exposed to their ads on television, making brand messages more engaging and interactive.

 

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Emergence of New Measurement Metrics: Advertisers are increasingly adopting new metrics in terms of audience building, brand awareness and customer relations to evaluate the performance of social media marketing. According to a report published by CMO Survey in February 2013, advertisers are increasingly focused on referral measures such as friends, followers and buzz and text analysis rating instead of traditional return on investment metrics such as revenue or profit per customer on their social media spending.

Advertisers integrate social media as an important part of their advertising and marketing strategies to enhance return on investments and also to enable audience and customer relations building. Social media offers advertisers targeted reach at scale, amplifies their brand exposure to users based on social and interest attributes, and increases the potential for user engagement.

Strong Growth of Mobile Online Marketing. There is an increasing shift of advertising spending to mobile online marketing in China. Social media is well positioned to capture a greater share of mobile online marketing spending, given its high adoption rate on mobile devices and its ability to be highly targeted by leveraging a powerful combination of users’ identity, local information and interest graph on a real-time basis. The increasing usage of mobile devices, coupled with technological advancement such as location-based services and emergence of more sophisticated technologies for customers, are expected to drive the growth of mobile online marketing. The mobile online advertising market in China is expected to grow from $154.3 million in 2012 to $940.2 million in 2015, according to the 2013 Advertising Expenditure Forecasts. Mobile online marketing spending in China is expected to grow at a CAGR of 82.6% from 2012 to 2015 and become 5.9% of the overall online advertising market in 2015.

The chart below sets forth data regarding mobile online marketing spending in China for the periods presented.

 

Source: Advertising Expenditure Forecasts dated September 2013 by ZenithOptimedia.

 

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BUSINESS

Overview

Weibo is a leading social media platform for people to create, distribute and discover Chinese-language content. By providing an unprecedented and simple way for Chinese people and organizations to publicly express themselves in real time, interact with others on a massive global platform and stay connected with the world, Weibo has had a profound social impact in China.

Since our inception four years ago, Weibo has amassed a large user base in China and in Chinese communities in more than 190 countries. In December 2013, Weibo had 129.1 million MAUs and 61.4 million average DAUs, increasing from 96.7 million MAUs and 45.1 million average DAUs in December 2012, respectively, and 72.9 million MAUs and 25.2 million average DAUs in December 2011, respectively. A microcosm of Chinese society, Weibo has attracted a wide range of users, including ordinary people, celebrities and other public figures, as well as organizations such as media outlets, businesses, government agencies and charities.

Weibo represents a new online experience in China by combining the means of public self-expression in real time with a powerful platform for social interaction, as well as content aggregation and distribution. Any user can create and post a feed of up to 140 Chinese characters and attach multimedia or long-form content. User relationships on Weibo may be asymmetric; any user can follow any other user and add comments to a feed while reposting. The simple, asymmetric and distributed nature of Weibo allows an original feed to become a live viral conversation stream. Over 2.8 billion feeds were shared on Weibo in December 2013, including 2.2 billion feeds with pictures, 81.7 million feeds with short videos and 21.5 million feeds with songs.

Weibo has become a cultural phenomenon in China. For many people in China, Weibo allows people to be heard publicly and exposed to the rich ideas, cultures and experiences of the broader world. Media outlets use Weibo as a source of news and a distribution channel for their headline news. Government agencies and officials use Weibo as an official communication channel for disseminating timely information and gauging public opinion to improve public services. Individuals and charities use Weibo to make the world a better place by launching charitable projects, seeking donations and volunteers and leveraging the celebrities and organizations on Weibo to amplify their social influence.

In addition to users, Weibo’s ecosystem includes customers and platform partners:

 

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Customers. We enable our advertising and marketing customers to promote their brands, products and services to our users. We offer a wide range of advertising and marketing solutions to customers ranging from large companies to SMEs to individuals, including social display ads and native ads. Our performance-based native ads allow our customers to reach a targeted audience based on the social interest graphs of our users. In addition, our customers can benefit from the potentially viral effect of their promoted feeds generated from the public and distributed nature of our platform, commonly known as “earned media”.

 

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Platform Partners. We have attracted a large number of platform partners, including media outlets and developers of games and other applications. Our platform partners contribute a vast amount of content to Weibo, broadly distribute Weibo content across their properties and develop products and applications for our platform, enriching the experience of our users while increasing our monetization opportunities.

Designed with a “mobile first” philosophy, Weibo displays content in a simple information feed format, and we have begun to offer native ads that conform to the information flow on our platform. To support the mobile format, we have developed a social interest graph recommendation engine that makes it easier for our users to discover content and allows advertisers to promote more relevant advertisements to our users. With a limit of 140 Chinese characters per feed, the high information-density of Chinese characters and users’ ability to personalize content information flow, Weibo is particularly suited for mobile use, and we have seen significant mobile

 

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adoption. Approximately 70% of our average DAUs in December 2013 accessed Weibo from mobile devices at least once during the day in question, and we had over 120 million check-ins in the fourth quarter of 2013. Mobile revenues accounted for 28.0% of our advertising and marketing revenues in 2013.

We began monetization of our platform in 2012. We generate revenues primarily from customers who purchase advertising and marketing services, and to a lesser extent from platform partners who develop games for our users to play. We provide most of our services to users free of charge, with VIP membership services being the primary exception. In 2012 and 2013, we generated 77.4% and 78.8% of our revenues from advertising and marketing services, 19.3% and 12.2% from game-related services, and 3.3% and 5.9% from VIP membership services, respectively. While we distinguish between users, customers and platform partners in classifying our products and analyzing our revenues, the same person or organization may simultaneously be included in two or more of the categories.

We have since experienced rapid revenue growth. Our revenues increased from $65.9 million in 2012 to $188.3 million in 2013, while our net loss decreased from $102.5 million to $38.1 million and our negative Adjusted EBITDA decreased from $81.0 million to $6.3 million for the same periods. See “Prospectus Summary—Summary Combined and Consolidated Financial Data—Non-GAAP Financial Measures” for a reconciliation of net loss to Adjusted EBITDA. Due to our limited operating history and evolving monetization model, comparisons of our results of operations from period to period may not be meaningful.

We are a majority-owned subsidiary of SINA and thus a “controlled company” as defined under [NYSE/NASDAQ] rules. For so long as SINA owns more than 50% of our total outstanding voting securities, we are permitted to elect to rely on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors, and an exemption from the rule that our director nominees must be selected or recommended solely by independent directors. Historically, SINA has provided us with many services essential to our operations and administration, and we plan to enter into agreements with SINA with respect to various ongoing relationships between us. The accompanying combined and consolidated financial statements include all assets, liabilities, revenues, expenses and cash flows that were directly attributable to our business for all periods presented. See “Our Relationship with Major Shareholders—Our Relationship with SINA” and “Risk Factors—Risks Related to Our Carve-out from SINA and Our Relationship with SINA.”

Our Core Attributes

Our priority is to provide the best possible user experience for creating, distributing and discovering Chinese-language content online and to differentiate our social media platform through the scale of our user base and user engagement. We have designed our platform around five core attributes:

 

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Public. Content open to everyone.

 

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Real-time. Instantly broadcasted.

 

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Social. Interactive and engaged.

 

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Aggregated. Content from everywhere.

 

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Distributed. Broad viral reach.

Public

Any user can choose to follow the feeds of any other user. This asymmetric relationship significantly enriches the content on Weibo, as people not only come to our platform to follow breaking news, live events and original feeds but also participate in public discussions. The asymmetric nature of Weibo also allows feeds to reach users several degrees of followings away. Getting heard by thousands or even millions of people and reaching people one might not have otherwise is a life-changing experience for ordinary people in China. Weibo is also the public forum of choice for many celebrities and other public figures.

 

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EXAMPLE #1. The popular Chinese-American musician Leehom Wang chose Weibo for the public announcement of his engagement in November 2013:

 

“In the last few years, the message I have gotten most often from you all on Weibo is ‘Hurry up and find your Forever Love.’ I am very fortunate to have met a girl with whom I can share my future. Because she is not in the entertainment world, you do not know her yet. But I don’t want you to learn about her through some other channel…”

Real-time

News breaks on Weibo from ordinary people at the scene of a headline event, from public figures who have a personal announcement to make, and from businesses, government agencies and other organizations that want direct access to a public audience. People use Weibo to follow news and events around the world. Media outlets also use Weibo because it is original, real-time and viral.

 

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EXAMPLE #2. When an Asiana Airlines flight carrying a large number of Chinese passengers crashed on its final approach into San Francisco International Airport on July 6, 2013, one of the Chinese passengers, Da Xu, used Weibo to notify his family and friends that he was safe and posted pictures of the smoking wreckage with his mobile phone. CCTV, the largest television network in China, used Mr. Xu’s Weibo feed and pictures to report on the plane crash on its prime time news program Focus Interview:

 

Mr. Xu’s eyewitness feed:		CCTV citing Mr. Xu’s feed:

“The plane crashed while landing in San Francisco.

I’m fine; my luggage is gone.”

Social

People come to Weibo to join in public discussions and see and learn from each other’s comments. Social engagement comes in many forms, as when a user Likes a feed, Comments on a feed with an emoticon or casts a Vote on a particular issue. In December 2013, over 2.8 billion feeds were shared on Weibo. Some of these were original and the rest were reposted by other users, many times with comments added. The unique feature that allows a user to insert comments into a feed while reposting permits the collective thought process to develop as a feed chain grows. Users can also add comments directly to a feed or a hot topic posting, essentially starting a discussion forum on the subject. Such live, public, social interaction not only broadens users’ view of the world and shapes their minds but also stimulates new ideas and promotes information sharing among users from all walks of life, even allowing public figures to join in on conversations between ordinary people.

 

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EXAMPLE #3. When a famous food critic posted a picture on Weibo of a particular drunken crab dish, the feed attracted a long chain of comments. When one user asked where he could get the dish, the critic responded personally with the name of the restaurant:

 

Aggregated

Content on Weibo is contributed by ordinary people, public figures and organizations, including media outlets, government agencies and businesses. Through Weibo Connect, our over 340,000 platform partners enable their users to share content from their websites and applications to Weibo and attract our users back to their properties to access the content. Many of the most popular media outlets in China, such as CCTV, Hunan Satellite Television Station, Jiangsu Satellite Television Station, Phoenix TV, TVB, Reference News, People’s Daily and Wall Street Journal China, frequently use Weibo as a platform to distribute content and engage with audiences. We also work with companies with large online content libraries of videos, songs, mobile applications, books and points of interest (such as restaurants, hotels and theaters), to create Weibo Pages for their content. Our users can visit these Weibo Pages to watch a movie, listen to a song, download an application, or locate a nearby theater and read its movie listing using Weibo’s location-based service feature. Organic content creation from our users and content contributed by our platform partners resulted in the sharing of over 2.8 billion feeds on Weibo in December 2013, including 2.2 billion feeds with pictures, 81.7 million feeds with short videos and 21.5 million feeds with songs.

Distributed

We allow content to be easily and virally distributed on our platform and to the properties of our platform partners, as well as to other online and offline media outlets. Our broad distribution reach and the original, real-time and viral nature of Weibo make it a top choice for many public figures, businesses, government agencies and other organizations as their official channel for public communication.

 

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EXAMPLE #4. During the high-profile trial of a former high-ranking government official, Xilai Bo, in August 2013, the Ji’nan Intermediate People’s Court posted dozens of updates on its official Weibo Page to keep the public informed on the progress of the trial. In September 2013, the Court also released its verdict on Weibo. Throughout the trial, media outlets used Weibo as the source of news in their news coverage.

Reporters crowding around a computer monitor outside the courtroom showing updates from the court’s Weibo account:

 

 

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A Phoenix TV anchor checked Weibo feeds on her mobile phone to get the latest news while she was live on the air reporting on the trial:

 

When a user called attention to this on Weibo, she responded on Weibo in the following way:

 

“To put it precisely, I was not ‘looking at’ Weibo or playing with Weibo, I was ‘reporting’ Weibo. Given that the court’s Weibo account was the only news source for this trial, was it wrong to use my mobile phone? It was just the most convenient and handy ‘tool,’ and surely it was better to lower my head to report the latest news than to raise my head and have nothing to say? It’s the age of new media.”

It’s the age of new media in China, and Weibo is changing how individuals and organizations in China deliver news to the public.

Our Value Proposition to Users

Users are our first priority. Weibo is used in many ways by different users. Some examples include:

 

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Ordinary people use Weibo to express their ideas, thoughts and feelings, to participate in public discussions, to keep abreast of local and world news and events and to discover content that matches their interests.

 

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Celebrities, opinion leaders and other public figures use Weibo to engage directly with their fans, to make public announcements and publicize social causes they care about. We have over 700,000 verified individual accounts on our platform, including those of actors and actresses, singers, business leaders, athletes and media personalities.

 

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Large companies and SMEs use Weibo to create brand awareness, engage with potential and existing customers, launch new products and services, make public announcements and manage customer relationships. More than 400,000 businesses have opened Weibo enterprise accounts, which enable them to create Weibo Pages as landing pages on our platform free of charge. In January 2014, we partnered with Alipay to offer a payment solution for businesses and other organizations to facilitate purchases through Weibo.

 

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Government agencies use Weibo as an official channel for disseminating timely information and gauging public opinion to improve public services. More than 80,000 government agencies and officials at the local and national levels across China have established Weibo accounts and the total number of their followers exceeded 250 million as of December 2013.

 

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Not-for-profit and other organizations use Weibo to recruit and engage with their supporters and to broadcast announcements to the public at large.

Users come to Weibo for many reasons. Below are some examples:

Express Themselves to the World

Users come to Weibo to express, share and publicize their opinions, ideas, photos, activities and other content and comment on feeds from other users. It is an unprecedented experience for people in China to be able to publicly express themselves in real time on a platform with a vast scale. Much of our content is created by people who have something to say and want to find a wider audience for it. A charismatic or interesting user can quickly amass a large following on Weibo.

EXAMPLE #5. Dr. Ying Yu is a doctor in the emergency room at the Peking Union Medical College Hospital who opened a verified account on Weibo under the moniker “ER Superwoman Yu Ying.” She began to post interesting behind-the-scene stories of her daily life at work. Her vivid writing style and candor provided a window for other people into the life of an ER doctor, and she built a following of more than 2.6 million.

 

 

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EXAMPLE #6. Entertainers have used Weibo as their own personal distribution channel to distribute content directly and quickly to their fans. For example, the popular singer Feng Wang used our platform to launch a new song exclusively through our platform, bypassing the record companies and radio stations. Within nine hours of its release, the song was streamed more than one million times from Weibo.

 

Discover Relevant and Rich Content

Users come to Weibo to discover and learn more about what is going on with the people, organizations and topics that interest them. Weibo offers a vast amount of rich content, including photos, videos, songs, mobile applications, books and points of interest shared by users from China and Chinese communities in more than 190 countries worldwide, as well as from over 340,000 platform partners. Weibo allows users to search our rich content and filter it into highly personalized information streams by choosing the users, events, topics and subjects that they want to follow. We try to improve our users’ content discovery experience by recommending content based on their social interest graphs, which we formulate based on their demographics, social relationships, interests and behavior on Weibo.

EXAMPLE #7. We work with television stations and producers to create Weibo Pages for TV shows, which add a unique, social, online dimension to popular offline content. For example, fans of the popular television reality show “Where Are We Going, Dad?” can visit the show’s official Weibo Page to follow trends, participate in live chats, view photos and videos and interact with other fans of the show.

Below is an example of the feed that Hunan Satellite Television Station, which broadcasts the show, sent to promote the show’s Weibo Page with prize giveaways:

 

 

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Stay Current and Connected

Users come to Weibo to stay current on the latest trends and events and connect with other users who share similar interests. On our platform, users can witness and discuss live events in the making, whether through ordinary people providing eyewitness accounts of news events, celebrities sharing their latest experiences with fans, or traditional media using Weibo as a second screen to enhance the overall user experience. Users can find scheduled events like television shows, celebrity updates and new product launches, as well as breaking news and other events as they unfold. Because our users actively interact with the content they discover, the very fact that content is shared on Weibo can transform it into something unique. For the 2014 CCTV New Year Gala, a popular television event in China, 118 million engagements (including Post, Repost, Comment and Like) related to the show were generated over the two days the show was broadcast and many more engagements were generated leading up to and following the show.

Make a Social Impact

Weibo helps people come together to realize common goals, and to accomplish things that they could not accomplish on their own.

 

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EXAMPLE #8. A three-year-old boy was kidnapped in May 2008. His father searched for him for more than two years without turning up any trace of him. However, there was an investigative journalist named Fei Deng who had taken up the cause of kidnapped children, and this journalist used his Weibo account to post photos of the boy and keep the case alive. In February 2011, a student who had seen the boy and recognized him from the pictures on Weibo contacted the father. The police reunited the boy with his father four days later. Mr. Deng sent out the announcement in a feed from his Weibo account with a picture of the boy reunited with his father:

 

“Father and son overjoyed together in a Jinjiang hotel room in Pizhou (Jiangsu Province). They say they want to send out a picture to thank all the people who have helped them over the last three years…”

We sponsor Weibo Charity to help charities and individuals to launch charitable projects, seek fundraising and recruit volunteers for public service. Weibo Charity lends credibility to charities and individuals through a

 

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verification process, offers a payment solution to accept donations on their behalf and helps drive awareness of worthy projects through its official Weibo account. Services such as Weibo Charity enrich our platform and magnify the social impact of our users.

EXAMPLE #9. Our platform attracts many celebrities, and just as they use Weibo to communicate with their fans about their personal lives and professional careers, many of them also use Weibo to raise awareness of charitable causes. The Free Lunch for Children Program is a charity program initiated on Weibo to raise public awareness of the hardships of poor children in remote rural areas and offer financial assistance to them. When Nicholas Wu, a Taiwanese singer and actor with over 31 million followers on Weibo, posted a feed to express his support for this charity, it was reposted over 11,000 times and attracted over 46,000 comments:

 

Engage with Followers

Weibo offers organizations such as businesses, government agencies, media outlets and schools the ability to engage and interact with their followers to create commercial and social value. An organization can apply for a Weibo enterprise account by going through our verification process, in the course of which we review a copy of its business license or other documentation, feeds that it has created and user comments on its feeds. Weibo enterprise accounts are built on open platform architecture that allows businesses and other organizations to download organic and third-party-developed applications to increase the features on their Professional Pages to engage with users, such as to conduct polls, distribute coupons, display interactive maps and contact information, set up photo galleries and product displays, and make sales. Businesses and other organizations use Professional Pages together with our advertising and marketing services to attract followers, create brand awareness, drive interest generation, convert sales, conduct loyalty marketing and stimulate engagement with potential and existing customers. Building an audience base on Weibo by attracting and engaging with those followers

 

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provides businesses and other organizations with a cost-effective way to disseminate product, promotion and branding information and ultimately facilitates targeted marketing.

EXAMPLE #10. The NBA is very popular in China and its Weibo account has more than 25 million followers. The NBA not only provides a large amount of content through its Weibo account, it also uses the features of Professional Page to increase engagement with its Chinese fans. For example, hundreds of thousands of votes were cast on the NBA’s Professional Pages in connection with the events of the 2013 NBA All-Star Weekend. Below is an illustration of one of the voting pages:

 

Weibo has also become an official channel for public communication for other organizations, including government agencies and not-for-profit organizations.

EXAMPLE #11. China’s central bank announced in December 2013 that banks would be allowed to trade negotiable certificates of deposit in the inter-bank market. Some Weibo users asked detailed questions about the new policy, and the central bank posted a feed on its official Weibo account with an expandable long form document to address these questions:

 

 

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Our Value Proposition to Advertising and Marketing Customers

We have developed a comprehensive database of our users’ social interest graphs as a result of the activities taking place on our platform. With a reach of 129.1 million MAUs as of December 2013, we offer compelling advertising and marketing solutions tailored to the different needs of a variety of customers. Although businesses and organizations can use Weibo to communicate with their followers free of charge, many choose to purchase our advertising and marketing services to reach a broader audience and further promote their brands, products and services. Our advertising and marketing solutions provide our customers with the following benefits:

Targeted

Our customers have the ability to improve the relevance of their advertising based on users’ social interest graphs, which draw upon a variety of factors, including demographics, social relationships and interests. Interests are tracked based on user actions such as Follow, Comment and Like.

EXAMPLE #12. In 2013, Nike promoted summer sports activities via a hashtag trend by targeting users who had shown or might have interest in their brand, such as Nike’s followers and other users who had viewed virally reposted Nike feeds during a specified period. Nike used promoted feeds such as the one below to reach this audience group, driving traffic to Nike’s Weibo Page:

 

 

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EXAMPLE #13. A bakery in Guangzhou that wanted to target local users between the ages of 15 and 35 with a promotion of its rainbow cake was able to do so on a small ad budget using our promoted feed:

 

Earned Media and Reach

We enable advertising and marketing customers ranging from large companies to SMEs and individuals to selectively target our large user base. Our customers also have the ability to incorporate social elements with their marketing messages by highlighting the connections of their products and services with friends, celebrities and other influential figures. Weibo feeds, whether organic or promoted, have the potential to spread virally due to the public and widely distributed nature of our platform. Our customers are charged for the initial advertising exposure or engagement, and they can further benefit from users down the chain reposting the ads across our platform at no additional cost. This is often referred to as “earned media,” and it has a powerful influence on a user’s interest and purchase decisions when the recommendations come from friends, celebrities and other influential figures.

Ads that our users find inherently interesting, entertaining or relevant tend to go viral on Weibo because they are viewed more as content than as an interruption in content. Therefore, the incentive of increasing advertising reach and effectiveness through earned media encourages our customers to consider relevance, content value and user experience in the design of their advertising and marketing campaigns.

 

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EXAMPLE #14. Below is an example of earned media. When a professional Chinese soccer player reposted Nike’s promotion mentioned above, his feed (including Nike’s promotion) was Reposted more than 25,000 times:

 

“On summer evenings, I will be dunking on the basketball court. Dare to take me on?”

Native Ads

We launched our first native ad product, promoted feeds, in the second quarter of 2013 to enable SME customers to reach our users. In the third quarter of 2013, we began testing Fans Headline, another native ad offering, to enable individuals to more effectively target their followers. In the fourth quarter of 2013, we began testing native ad offerings for our key accounts, which are primarily large brand advertisers. Native ads allow our customers to communicate in a similar format as organic feeds and capture user attention as users consume information feeds. This solution is particularly mobile friendly, as the small screens of typical mobile devices have limited space for banner ads and other display format ads. Given the market opportunity for mobile advertising and the fact that approximately 70% of our average DAUs access Weibo from mobile devices at least once during the day in question, native ads are a key product offering for our advertising and marketing customers.

Engagement

Through enterprise accounts, we give businesses and other organizations the opportunity to engage and build relationships with our users by building Professional Pages. Based on an open platform architecture, Weibo enterprise accounts allow businesses and other organizations to download organic and third-party developed apps to increase the features and functionalities of their Professional Pages. Any verified organization can create a Professional Page from its enterprise account to attract followers, create brand awareness, drive interest generation, convert sales, conduct loyalty marketing and stimulate engagement with potential and existing customers.

 

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Example #15. Procter & Gamble wanted to increase brand awareness and drive purchase intent for a new product under one of its key brands, SK-II. They purchased social display ads on Weibo (bottom left) and directed participating users to their Professional Page (bottom center), which showed the entry to their event marketing Professional Page (bottom right), where users were given free product samples by sharing the event with their friends on Weibo:

 

Tailored Solutions

We offer a wide range of advertising and marketing solutions for customers ranging from large companies to SMEs to individuals. For large brand advertisers, we offer social display ads with wide reach and are currently testing targeted native ad solutions as well. For SMEs, we offer promoted feeds in native ad format to allow them to reach our users with a smaller budget. For individuals, we offer Fans Headline to enable them to more effectively reach their followers.

Performance-Based Solutions

We offer advertising and marketing solutions based on performance-based pricing, such as cost per engagement. Customers who choose cost per engagement-based solutions only pay to the extent that the targeted users engage with their ads, such as when users click on a link in the ad, repost the ad, save it as a favorite or follow the advertiser’s Weibo account. Advertising and marketing customers are charged only for the initial exposure or engagement. Thus, any earned media resulting from users reposting the ad allows our customers to achieve a lower effective advertising and marketing cost.

Complementary to Traditional Media

Weibo collaborates with traditional media such as television shows to add a unique, social, online dimension to popular offline content, amplifying a show’s reach and buzz and helping it build a lasting following. Traditional media leverage Weibo to broaden discovery and generate buzz before a show airs, encourage audience participation during the show through promotions and offerings on Weibo and prolong interest in the show by stimulating post-air conversations. For “Voice of China” and “Where Are We Going, Dad?”, two popular TV shows aired in China in 2013, 59 million and 58 million engagements (including Post, Repost, Comment and Like), respectively, were generated on Weibo relating to the show. This collaboration has been welcomed by advertising sponsors of such shows who seek to increase consumer reach and engagement and reinforce their brand exposure. Non-TV advertisers may also leverage Weibo’s complementary nature to TV and engage with a show’s audience on Weibo without running expensive TV ads.

We recently partnered with CSM Media Research, a joint venture of CTR Market Research and Kantar Media, to enhance TV ratings with Weibo data. CSM Media Research plans to use such results to help TV

 

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producers and advertisers better understand the social activities of their TV audience. We believe that the partnership will encourage more traditional media partners to work with Weibo in order to better understand their audiences, increase the popularity of their shows, and generate greater value for their advertisers.

EXAMPLE #16. As mentioned above, Weibo Pages are available for popular TV shows, where our users can follow their favorite personalities, access photos and videos, participate in live discussions and connect with people who share the same interests. Voice of China is a popular televised singing competition in China. Lenovo, one of the sponsors of Voice of China, launched a marketing campaign on Weibo to complement its advertising on the TV show. Lenovo announced its smartphone giveaway through Weibo promoted feeds, where a user who clicked on the promoted feed (as shown in the users’ information feed at left below) would land on the Weibo Page of Voice of China (shown at right below) and have a number of activities to choose from, one of which (the last choice at the bottom) was to participate in the Lenovo smartphone giveaway drawing.

 

Our Value Proposition to Platform Partners

Our open platform creates a network effect that increases the value to both our users and platform partners simultaneously. The scale and vibrancy of our platform have attracted a broad range of platform partners, including third-party websites, media outlets and application developers. We offer a set of open application programming interfaces with embedded widgets and development tools that allow our platform partners to share their content to our platform through their users and distribute our content across their properties. Others, like developers, also use our open application programming interfaces to build applications, such as online games integrated on Weibo. As of December 31, 2013, we had over 340,000 platform partners.

We are focused on growing our open platform network by offering and improving the following benefits to our platform partners:

Social Distribution of Content

We enable our platform partners to share their content to our platform, expand their reach and interact with our users through Weibo Connect. We provide platform partners with a set of embedded widgets like “Weibo

 

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Log-in” or “Weibo Share” that allow users to log in to our platform partners’ websites or apps using their Weibo accounts and share content from their websites or apps through the social relationships that they have with other users on our platform. For example, a Weibo user who watches a video on Youku Tudou can share that video to Weibo and anyone who clicks on the link in the feed can access the video. TV programming can also leverage Weibo as a complementary second screen to drive tune-in and awareness of their original and relevant content in real time. Many popular TV shows in China use on-screen messaging to invite their audience to their Weibo Pages in order to increase social interaction and further build engagements with their viewers. For example, on the last day of the Lunar New Year Holiday in 2014, CCTV’s daily prime time news program Xinwen Lianbo (also known as News Network Broadcast) aired a special holiday session where they showed family photos submitted by the audience. Through rolling on-screen messages, the program encouraged its viewers to post and view more family pictures at CCTV’s official Weibo account.

 

“@CCTV News”

Building with Weibo Content

Our platform partners leverage Weibo content to create or enhance their product and service offerings. For example, online and traditional news media often link to or cite feeds from Weibo as their source of news. As another example, one of our platform partners uses Weibo data to generate reports for brands to help them keep up with current trends in their industry and manage public relations.

Monetization and Payments

We help our platform partners create and enhance their monetization opportunities. We also provide an online payment infrastructure that enables our platform partners to receive payments from our users in an easy-to-use, secure and trusted environment. For example, users who play games on Weibo can buy Weibo Credit, our virtual currency, and use it to purchase in-game virtual items. The game developers receive part of the revenues from such purchases and have enhanced monetization opportunities.

 

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Our Strategies

We intend to further enhance Weibo’s value to our users, advertising and marketing customers and platform partners by pursuing the following strategies:

Continue to Grow Our User Base and User Engagement

The growth of our user base and user engagement are fundamental drivers for our business growth. We intend to focus on growing our user base and user engagement through the following means:

Emphasize Mobile First. We plan to continue to improve our mobile functionality to drive the growth of our mobile user base. For example, we are developing more ways for advertising and marketing customers to take advantage of location-based services to market themselves to users, and for users to discover other users who are in the same geographic location on mobile devices. We are also improving support for users to produce short videos using their mobile devices.

Increase User Penetration. We plan to grow our user base by increasing our penetration in China, especially in less developed, lower-tier cities. We plan to educate potential new users in these cities through promotions and other marketing activities and customize our products and services to address this segment. We will also seek to increase our penetration among the overseas Chinese population.

Improve User Engagement. We plan to continue to improve user experience and engagement by improving our product functionalities, offering new products and bringing more content to our platform. We will focus on encouraging more users, particularly celebrities and other public figures, brands and businesses, to create and distribute more content and to participate more actively in discussing topics. We will help content providers to attract more users through improved content search capability and recommendation engine. We will also invest in our technology infrastructure to improve the quality of services to our users.

Increase Monetization Opportunities

We believe we can increase the value of our platform for our customers by improving existing and developing new advertising and marketing solutions, developing new advertising and marketing solutions to improve adoption by both existing and new customers, and further diversify our sources of revenues by growing our value-added services as well as developing new monetization methods.

Improve Existing Advertising and Marketing Solutions. We plan to improve our existing and develop new advertising and marketing solutions, including our TV targeting capabilities to better leverage Weibo’s complementary nature to TV as well as our mobile offerings and our location-based services capabilities, and provide additional analytical data and tools to our customers. We intend to improve our social interest graph abilities to enhance the relevance of our advertising.

Expand Our Advertising and Marketing Customer Base. We believe that continuous improvements in our advertising and marketing solutions will help us expand such business. In addition, we plan to expand and optimize our advertising and marketing distribution network to attract more customers nationwide, and overseas customers who are interested in targeting users in China. We also plan to both broaden our coverage of and further penetrate specific industry sectors to increase our customers from these sectors. We believe the vast and growing number of SMEs throughout China will present a significant opportunity for us to attract more customers for our performance-based marketing solutions.

Explore Monetization Opportunities in Social Commerce. We believe social commerce presents another promising monetization opportunity for us. We have formed a strategic alliance with affiliated entities of Alibaba to jointly explore social commerce and develop marketing solutions to enable merchants on Alibaba’s

 

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e-commerce platforms to better connect and build relationships with Weibo users. We intend to further explore opportunities in social commerce to benefit our customers and partners.

Grow Non-advertising Services. We plan to continue to develop new sources of non-advertising revenues. For example, we will encourage more users to subscribe for VIP memberships by adding more features and benefits for members. We plan to improve the offering of data services and enter into more data licensing agreements with customers. We also intend to give more support to third-party platform partners, so as to attract more games and other applications.

Further Expand and Improve Our Open Platform

We expect growth in our platform partners and their content to stimulate overall user growth, user engagement and commercial value. We aim to create a complete ecosystem on our platform for users, customers and platform partners.

Expand Partner Network. We plan to continue to attract more platform partners. We are working to attract more content-rich website and mobile application partners to connect their properties to our platform and make Weibo Log-in a universal option among our platform partners. We are also recruiting a wider variety of platform partners to cooperate with us.

Strengthen Partnership with Traditional Media. We plan to continue to build on our complementary relationship with traditional media partners such as television networks to allow them to share more relevant content with their followers, encourage tune-in and enhance awareness of their original content via Weibo. We will also leverage our recent partnership with CSM in TV ratings to complement existing metrics and better quantify the impact of Weibo as a second screen and create more values for our advertising and marketing customers and platform partners.

Improve Platform Products and Services. We plan to continue to improve our products, for example, to make it easier for users to log in and share content from other websites or mobile apps. We also plan to improve our services to our app development platform partners. For example, we plan to improve our existing application programming interfaces to make them easier to use and more adaptable to different user environments.

Products and Services

Our product categories include those for users, advertising and marketing customers and platform partners.

Products for Users

Our product development approach is centered on building simple and useful tools to enable our users to access Weibo to create, distribute and discover content and interact with others on our platform in real time. We employ a “mobile first” philosophy and have designed our platform around the capabilities of mobile devices. Our platform is compatible with all major mobile operating systems, including Android, iOS, Symbian, Windows and Blackberry, and is accessible through mobile apps, mobile websites, personal computer apps and personal computer websites. Our users range from ordinary people to celebrities, businesses, government agencies and other organizations.

Self-Expression Products. We offer the following products to enable our users to express themselves on our platform:

 

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Feeds. Weibo enables users to express and share their ideas, opinions and stories in the form of text and attach multimedia, including photos, music, short videos and long-form content. The text in a feed is limited to 140 Chinese characters. Since Chinese characters are much more information-dense than

 

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letters of the alphabet, more meaning can be conveyed in 140 Chinese characters than in the same number of letters. Feeds on Weibo, therefore, tend to be content-rich, descriptive and vivid, while still fitting onto the screen of a mobile device. Over 2.8 billion feeds were shared on Weibo in December 2013, increasing from 1.9 billion feeds and 1.3 billion feeds in December 2012 and 2011, respectively.

 

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Pages. Each user has a Page that displays the user’s profile and feeds. Basic information about a user, including the username, Weibo account number, geography and a short biography, is available on the user’s Page. Users with verified authentic identity information will have a “V” mark on their profile picture. Users can personalize their Pages by selecting and changing their cover photo and profile picture at any time.

 

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Professional Pages. Businesses and other organizations with verified identities can apply for enterprise accounts, which entitle them to enterprise services through the download of Page apps on our platform. Page apps enable organizations to customize their Weibo Pages and to perform marketing events, ad campaigns and payment processing on Weibo. For example, an e-commerce merchant can install Page apps to facilitate purchase activities through Weibo.

Social Products. We offer the following mechanisms to promote social interaction between users on our platform:

 

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Follow. Users can establish relationships with other users by electing to follow them. Feeds that are posted or reposted by a user will automatically appear in the information feed of the user’s follower. Relationships may be asymmetrical. The user being followed does not need to approve the follower’s decision to follow them, although a user can choose to limit access to certain feeds or to blacklist a certain follower.

 

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Repost, Comment, Favorite, Like. By clicking on the Repost button, users can repost feeds from other users. When a feed is reposted, the original author is able to virally reach and influence users beyond that author’s own circle of followers, leveraging the network of the followers of the author’s followers, sometimes many degrees away. Users can add their own comments when they repost and share their view on the original feed with their followers. Users can also leave comments on a feed by clicking on the Comment button. If they like a feed, they can click on the Like button to express their support for the feed. At the bottom of each feed, users can see how many people have Reposted, Commented on or Liked the feed. Users can also save feeds into their favorites by clicking on the Favorite button.

 

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@Mention. Users can view their history of interactions with other users by going to the @Mention Page, which allows users to access all the feeds in which they are mentioned by other users. In addition, users can see a list of comments from other users on their own feeds, as well as the Likes on their feeds.

 

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Messaging. Users can send private messages in the form of text or voice recordings and can attach photos, short videos or other files.

Discovery Products. We offer the following products to help users discover content on our platform:

 

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Information Feeds. The information feed resides on the user’s home page. Each user’s information feed displays a regularly updating flow of feeds posted by that user and by other users he or she has decided to follow. Since Weibo allows users to follow other users without establishing a reciprocal relationship, users are able to personalize whom to follow based on their interests. In other words, users can as easily follow celebrities and strangers as they follow friends and acquaintances. The default setting for the information feed is the timeline, where the most recent feed is shown at the top. Users can also customize their information feed by social groups or interest.

 

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Search. Our search function allows users to search our platform for feeds, users, apps and pictures by keyword and hashtag.

 

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Object Pages. We work with companies with large online content libraries of videos, songs, mobile applications, books and points of interest (such as restaurants, hotels and movie theaters) and create Weibo Pages for their objects, otherwise known as object Pages. Users can visit these object Pages to find rich content on these objects and interact with other users of similar interest. For example, users can stream songs, watch videos, read excerpts of a book and download apps from the respective object Pages. With Weibo location-based services, users can locate popular points of interest, find information about them, such as show times for movie theaters and menus for restaurants, access promotional offers, post comments, and see reviews shared by other users.

 

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Trends. Trends are lists of hot topics on Weibo. A user can start a topic discussion by adding hashtags (#) around a word or phrase in a feed. The key word or phrase then becomes searchable with a single click. Users may view feeds under each trending topic and participate in the discussion.

Notifications. Users can choose to be notified of Weibo account activities through SMS or push notification on their device.

Weibo Games. We offer third-party online games, including role playing games, card games, strategy games and real life simulation games. Weibo games allow players to interact with each other and send feeds to their followers while playing. Most Weibo games are offered for free and some games allow users to purchase virtual currency, known as Weibo Credit, to redeem virtual items. Weibo receives part of the revenues from such purchases through arrangements with the game developers.

VIP Membership. Weibo VIP membership offers our users certain services and functions that are not available to regular users. With these additional functions, VIP members can follow more users, have more ways to personalize their Pages, can send voice feeds, enjoy more cloud storage, receive additional options to manage information flow and followers, receive SMS notification of Weibo account activity and have access to premium games. VIP membership is available through monthly or annual subscriptions.

Weibo Apps. We have developed mobile apps to further enrich the service offerings of Weibo. For example, we recently released Weibo Headlines, which aggregates news and information from Weibo and delivers them in an information feed format based on the level of popularity on Weibo as well as a user’s social interest graph. Other apps include Weibo Weather, a leading weather app in China that features photos from cities where the users choose to keep track of weather as well as other interesting information from Weibo, and WeiDisk, a cloud-based app for both mobile devices and personal computers that allows users to store and share documents, photos and other large files within Weibo’s virtual storage space and set access restriction based on Weibo relationships.

Products for Advertising and Marketing Customers

We seek to provide advertising and marketing solutions to enable our customers to promote their brands and conduct effective marketing activities. We provide our customers with analytical tools to enable them to track and improve the effectiveness of their marketing campaigns on our platform. Our advertising and marketing customers include both large companies and SMEs that seek a full spectrum of online advertising and marketing services ranging from brand awareness to interest generation, sales conversion and loyalty marketing.

Social Display Ads. Social display ads appear on a user’s home page and other pages. When users click on the social ad, they may be redirected to the advertiser’s Weibo Page for further engagement.

Promoted Marketing. Our promoted marketing products include the following:

 

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Promoted Feeds. Promoted feeds appear in the user’s information feed alongside of organic feeds. We encourage our customers to produce feeds that have relevant information value similar to that of the users’ organic feeds. Customers may use our social interest graph recommendation engine to improve the relevance of the ad to the users. As with other feeds, users can Repost, Comment on and Like

 

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promoted feeds, amplifying the visibility and reach of the original promoted feed and producing earned media value to our customers. Targeting different customer segments, we