(iChinaStock Report) A comparison of the stock price at Sina, Netease, Sohu, Tencent and Baidu over the past year reveals the superior performance of Sina, which is undoubtedly attributable to the rapid growth of Sina Weibo as China’s top micro-blogging service. Although Sina Weibo has not yet been spun-off (rumours started in June, but there is no timetable), we can assume Sina’s portal business will remain stable and therefore conduct an independent valuation of Sina Weibo.
To assess long-term value, investors need to examine Sina Weibo from four angles: users, product development, Sina’s new management, and the regulatory environment.
Users are Sina Weibo’s most valuable asset to-date. The ability to establish user loyalty and stickiness is critical to the monetization of Sina Weibo.
Sina Weibo’s userbase growth has maintained its momentum over the past two years. In terms of absolute number of users, Sina Weibo and Tencent Weibo share the high-end user and mid-end user markets. (Note: The latter pulls many users from its QQ IM product, whereas Sina Weibo almost “started from scratch.”)
In terms of number of registered users and activity, Sina Weibo has built a great advantage.
Weibo.com is now among the 10 largest websites in China (it ranks seventh, sixth and fifth in terms of traffic, unique IPs, and browsing time, respectively) and is growing fast, according to China International Capital Corporation (CICC). Shortly, Weibo will become the third biggest website in China, just after Tencent and Baidu. In China’s microblogging market, Sina Weibo accounts for 50% of active users and 85% of browsing time, according to iResearch iUserTracker data.
In July, CICC released a report on Sina Weibo that analyses user behaviour, degree of activity, and interaction of followers. It finds that the degree of activity of users of Sina Weibo (including celebrities and regular users) far exceeds that of Tencent Weibo, Sina’s one real competitor. The report also points out that even though many celebrities have weibo accounts on different platforms, in terms of number of followers, weibo frequency, and number of messages, Sina Weibo remains the first choice for users with accounts on multiple platforms (70% celebrities consider Sina Weibo as the first choice). In addition, regular users of Sina Weibo are more active than those on Tencent Weibo.
In what case could Sina Weibo see a loss of users?
Threat #1: Emergence of a new social platform – No such “Game Changer” on the horizon
As the social networks Kaixin001.com and MySpace show, a social product can sometimes lose users as fast as it once attracted them. And yet Sina Weibo remains one of China’s top social products, like Tencent’s Qzone. It is rare for weibo users to abandon Sina and turn to Tencent, Sohu, or Netease.
Threat #2: Due to regulatory issues or user’s own actions, there is a reduction in information shared on Sina Weibo – Unlikely
Sina Weibo is already a platform for a huge diversity of information. Message screening due to regulatory requirements will not have any substantial influence on the volume of content and quality. Most users are interested in information about entertainment and daily life, which would not be targeted by censors.
A July report by HP Labs finds that Chinese microbloggers tend to share jokes, pictures, videos and other entertainment content on Sina Weibo. That information is shared the most often and becomes the top trending topics. Among the top 100 “opinion leaders,” Sina Weibo has more unauthenticated users than Twitter. Most content on Sina Weibo comes from articles written by regular users, videos, pictures and jokes.
Threat #3: Big mistakes are made in Sina’s product development that lead users to abandon Weibo – The risk is low, but requires attention
In May, famous Chinese IT blogger Keso warned, “[Sina CEO] Charles Chao is trying to bite off more than he can chew, he could wreck Sina Weibo.” Keso’s concern was that Sina could prematurely rush to monetise or botch an attempt to transform Weibo into a Facebook-style social network.
Yet, at present, there is no evidence to that shows Sina Weibo users are posting significantly less content. In China’s first- and second-tier cities, Sina Weibo has become an exceedingly popular social total, just like IM.
2. Product Development
The upgrade and transformation of Sina Weibo is a key consideration. The results of this project will weigh heavily upon Sina Weibo’s monetization prospects.
Until now, Sina Weibo has done a satisfactory job of introducing new products and updates (as shown in the following table). In two years since launch, Sina Weibo has spread out to new mediums: the web interface, a desktop application, a mobile application, and an IM function that fits China’s market needs.
Most notably, Sina is trying to transform Weibo from a social media product (like Twitter) into a social network (like Facebook). In US, the latter is valued almost 10 times the former (Facebook was recently valued as high as $70 billion and Twitter at $8 billion).
With the launch of the enterprise edition of Weibo, and a new version of Weibo launched, Sina Weibo is shows a clear development path. Judging from the nature of these products, Sina Weibo is transforming from the “Chinese Twitter” into the “Chinese Facebook,” whose direct competitors are QZone, Renren and other social networks.
Since 2011, Sina Weibo has significantly accelerated its product development, rolling out a host of new features. Many of Sina Weibo’s new products seem to be developed with an eye towards monetization. The new version of Weibo, which features three columns, shows a complete profile that’s typical of a social network. It not only improves user experience, adds music, photo albums, polls, and same-city activities, and other functions that serve to foster user loyalty, but has also incorporates a gaming platform (“Wei Games”) and a payment processing system (“Wei Payment” and “Wei Credits”).
The enterprise edition could be an important monetization target for Sina Weibo. For now it is just a “plus”, not a “must.” As long as weibo as a platform does not change much, it is a foreseeable trend that the enterprise edition will become a “must.” Every single company needs a Weibo: not only for promotion, but as a homepage for the company (The Facebook page sees more traffic than the official homepage for some businesses). The enterprise edition can realise monetization through CPC, CPS, subscriptions, and data services (Details).
Until now, there has not been much development in Sina Weibo’s monetization efforts. But this has nothing to do with whether it has the capability to do so or not. Ultimately, what will have a profound influence on monetization is how to balance the needs of users and monetization. As Sina Weibo enters a period of monetization, this question becomes increasingly important. The founders of Facebook and Google dislike advertisements, but the two companies have reaped huge revenues from advertising. The key is that the design of the advertising system and the user experience is balanced.
As an Internet product, Sina Weibo often gets criticised for its poor technology. Theoretically, if the product has a clear position, technology is just a matter of time and money. However, the reality is that Sina is essentially a media company and its competitor Tencent is one with a strong engineering culture. The latter is obviously more attractive to good product technologists. It’s also a challenge for Sina in recruiting talent.
For Sina, whether technology is a core issue depends on what Sina would like to realise from existing technologies: regardless of whether Sina Weibo wants to be Twitter or Facebook, this has to be manifested in lines of code. The current issue is positioning. If Sina Weibo is determined to take the path of becoming a social network, it will inevitably be transformed into a technology-driven company. The challenge then will be whether the company has reached an internal agreement to successfully realise the transformation. Obviously, this is more than a matter of time and money: it’s a strategic vision that comes from the top.
From public reports, the management team of Sina, represented by CEO Charles Chao (who is generally considered the real driver of Sina Weibo), has a well-defined future plan for Sina Weibo. In terms of monetizing Sina Weibo, the management team has displayed rare patience and astuteness. From the history of the company, the management team has made some past moves that caused uneasiness among investors. The current team is the most stable one in the company’s history. Especially in pushing the development of Sina Weibo, the team has never been more determined.
In terms of capability, the management team of Sina is an ideal combination. CEO Charles Chao, COO Du Hong and Chief Editor Chen Tong have particular strengths in operations, government relations, business sense and capital management. From the development of the portal site, this is a strong group that is good at internal control. In addition, it has a highly aligned interest in the “Sina Weibo Company” which may well appear in the future. This also drives them to focus on the long-term development of Sina Weibo.
The management of Sina may face two challenges. In the short term, it may be confronted with the issue of how to handle the high expectations for Sina Weibo from investors. This will have influence on how to control the timing of the monetization process, meaning that managing investor expectations will be more and more important. In the long term, the management faces tests of internal control as it tries to guide operations to plan.
Risk of regulatory crackdown is the biggest concern of foreign investors. From September to October, almost all Sina stock price fluctuations were related to rumours about regulatory concerns for Sina Weibo. In reality, regulatory risk—a shutdown or tighter censorship requirements—should be the last concern when it comes to Sina Weibo’s prospects. Although the regulatory environment and the rumoured “Weibo licence” remains an uncertainty, past experience has indicated that in this field, Sina is undoubtedly the most experienced Chinese Internet company. Most of the time, Sina’s relationship with the government proves to be strong enough.
Tencent’s Monetization: Lessons for Sina Weibo
From the above chart, we can see that Tencent is virtually a gaming company, with its other revenue depending upon IM and QZone. Around 2000, Tencent was similar in profit model to Sina: Tencent ran an IM and Sina a media portal, but both relied on the service provider (SP) business and advertising.
Afterwards, Tencent and Sina developed in different directions. The former opened the domestic Internet value-added services (VAS) market via the game-changer QQ Show, while the latter developed as a strong media company, achieving what Yahoo failed to in the US. Tencent’s strength is in dealing with consumers, whereas Sina’s is in business clients. With its QQ.com portal, Tencent is attempting to build advertising revenues. With Weibo, Sina is entering into Tencent’s consumer space.
Tencent, has done well in monetizing among businesses including in value-added services with mobile service providers, advertising, and the current exploration of B2C e-commerce endeavours. Sina has always been good at serving business clients and it now has to figure out how to serve consumers. It has to transition from
In some sense, Sina Weibo “stands on the shoulder of giants.” Both domestically and internationally, Tencent and Facebook have verified the feasibility of many forms of monetization: advertising (display, interactive and long tail), social games, and subscription value-added services. On the surface, all Sina Weibo needs to do is to borrow via trial-and-error. But having amassed 200 million users in as little as two years, Sina needs to consider two extra aspects as opposed to Tencent:
The first is how long Weibo users will tolerate being guinea pigs for the trial-and-error of Weibo’s “new product.” Apart from the aforementioned product updates, Sina Weibo has been attempting various types of innovation on the platform: for example, the “Q-Version Weibo” and “Wei Tuan,” a group buying platform that was closed shortly after its launch. Tencent has been using Pengyou.com as an experimental ground for QZone, but there is just one Sina Weibo.
The second question is how Sina Weibo approaches monetization. Sina’s product development is a process of trial-and-error: tons of features are released and then cut if unsuccessful. Tencent, by comparison, is far more deliberate in its product development. While Sina’s trial-and-error process could work for free releases, it’s not likely to work for premium features that Sina wants to charge for.
Using Facebook’s valuation as a benchmark, we estimate Sina Weibo’s value at $1.97 billion.
In its most recent round of venture investment, Facebook was valued at around $70 billion. As Facebook does not disclose any data on revenue or profit, and Sina Weibo has not yet turned profitable, it is more suitable to estimate its value based on the number of users. According to the recent 3-month data from Alexa.com, time spent per user on Facebook is similar to that on Sina Weibo.
According to the official data, Facebook has over 800 million users. That translates into an ARPU of $87.5. By the second quarter of 2011, Sina Weibo had over 200 million users. Bookmarking to Facebook’s user value and cost of effectively acquiring clients among domestic e-commerce companies, we estimate that each user on Sina Weibo is worth 87.5 RMB.
The actual number of users on Sina Weibo is over 200 million and it is still growing. Due to the fact the monetization has not kicked in, however, we would multiply the above user value by 60%. That is, the estimated value of Sina Weibo is 87.5 X 200 million X 60% = 10.5 billion RMB. Considering its leading role in the industry and rapid growth, we add a 20% premium and reach a 12.6 billion RMB ($1.97 billion) estimated value.
By Sylvie Luk, iMeigu.com. Translated by iChinaStock.
Disclosure: the author of this is piece was long on Sina at the time of publication.
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