Bottom line: Weibo's lessening dependence on Alibaba is making an acquisition of the former by the latter look less likely, and raises the possibility that Weibo could instead make a play for its parent, Sina.

I've been predicting for a while that e-commerce leader Alibaba (NYSE: BABA) would soon make a bid for Weibo (WB), often called the Twitter (Nasdaq: TWTR) of China, due to an increasingly cozy relationship between the two. But the latest results from Weibo could prompt me to revise my earlier prediction, with the revelation that Weibo actually appears to be weaning itself from its heavy dependence on Alibaba.

This story has a number of threads, underpinned by a landmark tie-up that saw Alibaba buy 18 percent of Weibo 3 years ago, and then later increase that to the current level of 30 percent. The idea was that Weibo, which was losing money at the time of the original tie-up, could milk Alibaba's connections with thousands of online merchants to find new business opportunities. Such a development did indeed occur, and last year business from Alibaba accounted for a whopping 30 percent of Weibo's total.

That increasingly interdependent relationship, combined with some other signals coming from Weibo parent Sina (Nasdaq: SINA), were the main factors prompting me to speculate that Alibaba was preparing to make an offer for Weibo, and possibly Sina as well. (previous post) But the latest results from Weibo show that its dependence from Alibaba is dropping sharply, even as the company continues to post impressive growth.

The key figure lies in the revenue breakdown from Weibo's latest results, which shows that revenue from Alibaba plunged to just $9.3 million in the third quarter, or just about a quarter of the $32.5 million from a year earlier. (company announcement) That means Alibaba-related contributions in the quarter accounted for just 5 percent of Weibo's total revenue of $176.9 million, down from 26 percent a year earlier.

But despite Alibaba's waning contribution, Weibo's overall revenue continued to post strong gains, rising 42 percent. The biggest factor offsetting Alibaba's waning influence appears to be a rising contribution from key accounts and small and medium sized enterprises. That figure doubled to $147.4 million, accounting for a whopping 83 percent of the total. Profit also more than doubled to $32.1 million.

Weibo's stock price has soared over the last year with the dramatic improvement in its performance, with the shares now trading nearly 4 times their level from a low in February. At its current price, the company is valued at nearly $10 billion and trades at a lofty price to earnings (PE) ratio of about 140. That compares with a $4.8 billion market value for Sina, which owned about 55 percent of Weibo at the end of last year.

Sina Undervalued?

Some quick math will show that Sina's stake of Weibo by itself should be worth about $5.5 billion, which is lower than Sina's own current market value. Part of that may be because there's not much other value in Sina, even though its core news and information portal business is still profitable and one of China's best-known and respected names for independent news.

All that brings us back to the question I raised originally, namely what's in the future for Weibo? A purchase by Alibaba looked more likely when Weibo was more dependent on the e-commerce giant. Alibaba would still probably like such a deal. But Weibo Chairman Charles Chao, who also happens to be chairman of Sina, may be less interested in such a deal now that his company appears to be doing quite well on its own.

One intriguing possibility could be that Weibo itself might make a bid for Sina, in what would be an unusual case of a unit company swallowing up its parent. After all, the unit is now worth far more than the parent, and most of the parent's actual value simply comes from its Weibo holdings. Such a move would also also allow Weibo to retake control of itself, and would give Sina some room to restructure its older web portal business out of the public eye.

At the end of the day, an Alibaba bid for Weibo does seem less likely in light of all the latest developments, mostly because Charles Chao may be losing interest rather than any loss of interest from Alibaba. A Weibo bid for Sina looks a little more tentative, though I might still peg the chances at 50-50 if Charles Chao decides he wants to reconsolidate his empire under a single company