Chinese micro blog users
declined by 9% to 280.8 million in 2013 due to the rising use of messaging
applications and stringent government regulations on micro blogging. This is
the first time since 2010 that the number of users on SINA’s Weibo has
declined. Tencent’s (TCEHY) WeChat has become a major threat since
approximately 37% of Weibo users moved to WeChat last year. Regulations have
also gone against SINA, as the government intends to take legal action against
users who post rumors that receive 5,000 visitors or are shared more than 500
times on social-networking sites. This has restricted the activity of users on
Weibo who have made the switch to WeChat in order to express their opinions
without fear of retribution.
The declining number of
users is not good for SINA, as the advertisers will shift to its competitors.
In the last quarter, SINA’s advertising revenue increased 26% year-over-year to
$151.6 million which was primarily driven by Weibo’s increasing advertising
sales. However, the next quarter may not be as strong, and growth will likely
slow down as a result of the falling user base. To counter competition from
messaging apps, SINA launched a new communication app, WeMeet, last year. The
app is similar to WeChat, with features such as a news feed, picture sharing,
and chat. This messaging app will give SINA a tailwind amid stringent
regulations and provide a new monetization opportunity.
While SINA’s global
counterpart, Twitter (TWTR), has seen a 39% year-over-year growth in its user
base during the third quarter, the growth rate of the users has been
disappointing. This may be due to new users not finding a large follower base,
and thus, losing interest in it. Twitter has been deploying new ad tools to get
the attention of advertisers. In December, it launched “tailored audiences,”
which allow advertisers to find users on Twitter who had visited their
websites. This was an important medium to reach mobile users since 75% of the
Twitter users access it from mobile devices.
On January 14th, Twitter
added new features to its tailored audiences, through which advertisers can
target users based on their email address. For example, if a discount is available
for members only, it can promote this discount on Twitter just to members based
on email IDs in its database. The company has been beefing up its product lines
and enhanced 23 products in its timeline, photos, and messaging services during
the fourth quarter of 2013. This could improve targeting capabilities of the
advertisers.
Payment partnership with
Tencent
SINA launched an online
payment system this month in partnership with Alibaba’s (ABABA) payment
provider, Alipay, to counter rising competition from Tencent. The payment
service, Weibo Zhifu, is accessible through its website and app, allowing users
to make online and offline payments through their Alipay accounts. The
partnership is a win-win for both companies because SINA has a large user base
of 500 million users and Alipay is China’s most widely used payment tool.
Alibaba, China’s largest e-commerce company, has recently expanded into social
media with the investment of $586 million in SINA Weibo. It has also ventured
into financial services by offering money market-like instruments. Similarly,
SINA is also diversifying into financial services and will launch an online
finance platform. Last year, it acquired an Internet and mobile payment
license, and is planning to integrate these functions into its new finance
platform. SINA could leverage its vast user base to target customers and offer
payment services to them.
Alibaba holds a dominant
position in China’s mobile payment market with a market share of 78.4%, far
ahead of Tencent’s payment service, Tenpay, which only has a market share of
4.2%. The mobile market is seeing massive growth as it increased from $26.4
billion in 2012 to more than $132.2 billion in 2013. Tencent, which also
launched its online payment service for WeChat last year, was proving to be a
threat for both Alibaba and SINA. WeChat has 600 million users out of which 30
million have used WeChat payment services. The combination of the social media
advantage with its robust payment system could give Alibaba a stronghold in
social e-commerce, which has gained wide acceptance in China due to the growing
counterfeit market. Around 40% of the Chinese online shoppers read product
reviews and rely on feedback of their peers on social media before making any
purchase. Therefore, SINA has become an effective marketing tool to combat
competitive pressure from Tencent.
Bottom-line
SINA’s share price fell for
the second consecutive day, declining by around 7% on January 17 after the
Chinese government disclosed micro blog user statistics. Jefferies has
downgraded the stock from buy to hold. SINA has already reached a milestone of
600 million registered users in China, but now the users are moving away from
micro blogging to messaging. This could have a near-term impact on its
advertising revenue in the fourth quarter of 2013 compared to revenue of its
global peer, Twitter.
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