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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
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
