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Rating Action:

Moody's assigns first-time Baa1 issuer and senior unsecured rating to Weibo; outlook stable

 The document has been translated in other languages

20 Jun 2019

Hong Kong, June 20, 2019 -- Moody's Investors Service has assigned a first-time Baa1 issuer rating to Weibo Corporation.

At the same time, Moody's has assigned a Baa1 senior unsecured rating to the proposed USD notes to be issued by Weibo Corporation.

The outlook is stable.

The proceeds from the bonds will be used for general corporate purposes.

RATINGS RATIONALE

"The Baa1 rating reflects Weibo's strong market position as the leading social media platform in China, and its ability to attract content providers, users, and advertisers, allowing it to capture an increasing share of the online advertising market," says Lina Choi, a Moody's Senior Vice President.

"The rating also reflects Weibo's strong financial profile, with above-industry average profit margins and steadily growing free cash flow," adds Choi.

Weibo is an influential online social media platform in China that accounted for 16.7% of social advertising revenue market share as of the end of 2018, based on iResearch, an independent internet consultancy's market revenue estimates, and the company's reported financials.

Moody's forecasts Weibo's revenue and EBITDA will grow 8%-12% per annum over the next two year to USD2.2 billion and USD800 million by the end of 2020, from USD1.7 billion and USD711 million in 2018.

This steady revenue growth will be driven by an increasing number of advertisers, and by companies allocating a growing share of their budgets to online and social advertising. As the leading social media platform with a very large target audience, Weibo is set to benefit from this growth in online social advertising budget. Weibo had 462 million monthly active users at the end of December 2018.

Both content providers and users are attracted to Weibo because of the high degree of engagement on the platform. The interactive nature of the platform, with a large volume of content creation and consumption, in turn attracts advertisers. Moreover, Weibo is able to provide advertisers with insight into consumer profile, including the preferences and interests of various target groups. They can then use this information to market their products in a targeted way.

The rating also considers Weibo's strategic cooperation with Alibaba, which is helping boost revenue and cash flow. Alibaba owned a 30.2% stake in Weibo and held 15.8% of voting rights as of 31 March 2019. Weibo derives meaningful advertising revenues from Alibaba and its ecosystem companies, and offers tailored e-commerce advertising solutions to merchants from Alibaba's platforms. Alibaba and Weibo also have strategic collaboration in the fields of social e-commerce, payment solutions and data integration, etc.

Weibo maintains a solid financial profile, as seen by its strong USD250-550 million annual cash flow generation in the last three years.

Moody's expects Weibo's adjusted EBITDA margin to remain stable around 38%-40% in the next two to three years, which is high when compared to the 10%-25% margins reported by other Chinese internet platforms. Unlike most other advertising business models that focus on the acquisition or production of media and entertainment content, most of Weibo's content is generated by its users and third-party publishers. This differentiation helps keep its cost base low and supports profitability.

The company has also maintained low debt leverage, a strong and liquid balance sheet, and a net cash position over the past few years. Its strong financial profile serves as a buffer against any cyclicality or business expansion requirement.

Moody's expects the company will maintain its debt leverage at around 2.0x in the next 12 to 18 months.

Weibo has strong liquidity, with a net cash position. The company had around USD1.8 billion in cash and cash-like assets at the end of December 2018 and no debt maturing over the next 12 months.

Moody's expects Weibo's planned capital spending and acquisitions to be adequately covered by its estimated operating cash flow of around USD660-680 million and its cash on hand. This strong cash balance, together with the strong and stable cash flow, should be sufficient to cover its investment needs.

Weibo's issuer rating also considers: (1) China's competitive online advertising market; (2) rising acquisition risks related to the company's efforts to gradually broaden its business scope; and (3) potential regulatory risks.

Weibo derives most of its revenue from advertising, which is tied closely to the economic cycles. Moreover, as a market leader, Moody's expects it will become increasingly difficult for Weibo to continue growing its revenue at the same fast rate of the past few years.

Weibo's ability to monetize its products is directly linked to platform traffic, which in turn relies on the content generation and user experience. As such, Weibo competes with other online media platforms for user traffic and time, as well as for content and advertising budgets.

Competitive pressure is partially mitigated by Weibo's market position as the leading social media platform in China. Weibo built up its large and active user base, long-term partnerships with content providers and sticky relationships over a long period of time, and Moody's believes it will be difficult for potential competitors to replicate this quickly.

China's evolving regulatory environment also poses some risks, with Weibo's key social media platform under frequent scrutiny by industry regulators, including the Ministry of Public Security and Ministry of Industry and Information Technology (MIIT).

However, Moody's believes that China's regulatory policies aim to foster the long-term sustainable growth of the industry.

In terms of environment, social and governance (ESG) considerations, in addition to the aforementioned potential regulatory risks, Moody's has taken into account the high concentration of voting power in the company's key shareholder, SINA.com. This risk is mitigated by the board oversight exercised through the presence of strategic minority shareholder Alibaba and two independent board directors.

Weibo's senior unsecured bond rating is not affected by subordination to claims at the operating company level. This is because the holding company owns key licenses to operate its business, which will support an expected recovery in the holding company's debt. In addition, the holding company benefits from contractual cash flow upstreams from its operating companies.

The stable rating outlook reflects Moody's expectation that Weibo will maintain its strong position in China's online social advertising market and will carefully balance its growth targets with (1) solid liquidity and financial profiles; and (2) low debt leverage.

Upward rating pressure could emerge over the medium to long term if the company achieves its growth targets while maintaining a strong financial profile, thus overcoming the execution risks associated with its rapid business growth and intense competition

Specifically, the rating could be upgraded if Weibo significantly expands its business scale and scope while maintaining a strong financial profile, with (1) adjusted debt/EBITDA consistently below 1.0x; (2) retained cash flow to debt around 50%-80%; and (3) a solid net cash position.

Downward rating pressure could arise if the company (1) fails to fend off competition and experiences substantial disruptions in its social advertising business that have the potential to weaken its revenue growth and cash flow generation for a prolonged period of time; (2) deviates from its prudent financial policy and grows its user base, business scope or content library at the expense of its currently strong financial profile; or (3) engages in aggressive acquisitions that strain its balance-sheet liquidity or weaken its overall risk profile.

Specifically, the issuer rating could be downgraded if (1) debt/EBITDA rises above 2.0x-2.5x; (2) retained cash flow coverage of debt declines on a sustained basis; or (3) the company records a sustained and enlarging net debt position.

Adverse developments in China's regulatory regime that affect Weibo's operations or business model would also be negative for the ratings.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Weibo Corporation is one of the largest online social media platforms in China. The company provides services through its website "Weibo.com" and through its apps, allowing users to create and share contents in text, pictures and videos and engage in social interaction.

Weibo was founded by Sina Corporation, its parent, in 2009. The company was listed on NASDAQ in April 2014.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Lina Choi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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