Tencent-Backed Weimob's Big Investors Head for Exit Doors

Key takeaways:

• Several of Weimob’s big-name shareholders have been selling down their stakes in the company over the last three months
• Tencent-backed Weimob announced a HK$1 billion share buyback last month to relieve the selling pressure

By Doug Young

Fall 2021 might well be called the season of the “big exit” for Weimob Inc. (2013.HK).

The provider of e-commerce services closely tied to internet giant Tencent (0700.HK) has been aggressively purchasing its owns shares since announcing a HK$1 billion share buyback in August. Now we know who exactly has been selling all those shares – many of the names on the A-list of big global investors who were previously some of Weimob’s biggest fans.  

We’ll review that list shortly, which also includes a couple of notable arrivals who perhaps smell some opportunity from the company’s sagging shares.

Truth be told, it isn’t difficult to see why investors aren’t so bullish at the moment. The company has consistently lost money over the last few years, with the exception of small profits in 2017 and 2019. It continued its money-losing streak in the first half of this year, disappointing investors who had been hoping for a modest profit.

And even at its current stock price, the company commands a hefty premium to some of its peers that are now profitable.

The bottom line is that people who invested in Weimob’s Hong Kong IPO in early 2019 have done quite well. The company sold shares that year at HK$2.80 apiece, raising HK$756 million. The shares posted decent gains after that and spent most of their history at or below the HK$12 level, before briefly soaring above HK$30 in February during a broader wave of euphoria for China tech stocks.

They’ve given back most of the gains since then amid a broader retreat for Chinese tech shares due to concerns about regulatory tightening at home. But even at Monday’s close of HK$12.20, the stock still trades at more than triple its IPO price.

In valuation terms Weimob also trades at a lofty price-to-sales (P/S) ratio of 16 based on its 2020 results. Its rival Baozun BZ, which is closely tied to e-commerce giant Alibaba BABA, trades at a far lower P/S of 1.7, even though Baozun is profitable. Even similarly profitable U.S. peer Salesforce.com CRM trades at a lower P/S of 10.

One of the things keeping Weimob’s stock high was most likely its impressive A-list of investors, which represented a big vote of confidence in the company’s future. That group included the likes of UBS, Black Rock, Credit Suisse and JPMorgan. Those big institutions rarely dip their toe into small- and mid-cap Chinese stocks like Weimob, whose latest market cap of HK$31.7 billion ($4.1 billion) puts it squarely in mid-cap territory.

That all-star fan club lost an important member in July when Credit Suisse disclosed it had slashed its long position in the company to 3.79% from 6.75%. The global banking giant held an even larger 9.12% of Weimob at the end of last year, and had been a regular underwriter for several of its secondary share offerings after the IPO. That news sparked a 20% selloff in Weimob’s shares, prompting the board to issue a statement saying nothing was amiss.

Stampede Effect

While perhaps nothing was amiss on an operating level, it seems that many of the company’s other big-name backers took note and decided perhaps it was a good time to exit and pocket some of the profits they had earned since first buying their stakes.

Credit Suisse hometown rival UBS has also sold down its long position in the company from 7.1% at the end of June to a present level of less than 5% – the threshold below which investors don’t need to report their holdings in individual companies. JPMorgan also sold down its stake from 9.77% at the middle of the year to a current 7.04%.

Rounding out the profit-takers was asset management giant Black Rock, whose stake has also fallen below the 5% threshold from 6.17% at the end of June. Unlike the other three institutional investors, which also had big short positions in Weibo, Black Rock’s sell-down was notably different because the U.S. giant’s bet on Weibo was mostly a long position.

But the news hasn’t been all bad for Weimob. Morgan Stanley disclosed in late August it had accumulated a stake of over 5% in Weimob, with the figure rising to 5.07% in its latest disclosure. And mid-tier fund manager Brown Brothers Harriman & Co. also disclosed on Oct. 7 that its interest in Weimob had briefly risen above the 5% threshold, though since then the figure has fallen back below that level.

After looking at the company’s latest financial report, it’s not that difficult to see why the big names were selling down their stakes.

Weimob’s revenue rose 44.5% to 1.38 billion yuan ($215 million) in the first six months of the year, representing growth that was impressive but certainly not eye-popping. That figure did beat out Baozun, whose first-half revenue was quite a bit larger at 4.3 billion yuan but was up just 18% year-on-year. Salesforce.com’s revenue also rose by a slower 23% in the first half of the year.

But as we’ve said already, Baozun and Salesforce.com are both profitable. By comparison, Weimob posted a first half loss of 584.3 million yuan, widening slightly over a 545.7 million yuan loss a year earlier. Even on an adjusted basis, which usually excludes costs related to employee share-based compensation, Weimob still posted a 118.8 million loss in the first half of the year, reversing a 52.3 million yuan profit in the year-ago period.

At the end of the day, it does look like an era of big-name support for Weimob could be coming to an end, at least for now. While it’s likely that UBS, Credit Suisse and Black Rock still maintain stakes in the company below the 5% level, the group are likely to continue selling down those stakes until they see signs that justify a reversal in direction. The most important signal in that regard would be a move into long-term profitability, though it’s far from clear when that might actually happen.