Sina Corp., owner of the Twitter- like Weibo service in China, plunged to a 15-month low after the company said that Beijing’s municipal government will force microblog users to verify their identifies.
Sina, China’s biggest Internet portal, sank 4.5 percent to $50.41 at 12:20 p.m. in New York. It earlier lost as much as 11 percent to $46.86, the lowest intraday price since September 2010. While Sina is based in Shanghai, the Weibo unit is based in Beijing, so the new regulations would apply to all users.
The new rules, effective today, ban users from setting up accounts with aliases and sending public messages containing state secrets or information that could harm national security. Sina is “evaluating the impact” the changes may have on the Weibo operation, the company said in a statement.
Chinese officials have pressured microblog services to strengthen supervision after a fatal rail crash in July sparked an outburst of criticism of the government on the Internet. Sina has blocked references to Wukan, a village in South China’s Guangdong province where armed police are engaged in a standoff with villagers after the death in police custody of a local butcher sparked protests this week.
Microblogs, which are used to publish short messages on the Internet, have at least 300 million registered users in China. Sina’s Weibo accounted for 66 percent of the market in August, according to a Sept. 15 report by BOCOM International. China had 485 million Internet users at the end of June, more than the combined populations of the U.S. and Japan.
Weibo’s Value
“Sina’s valuation incorporated the value of Weibo a lot,” said Echo He, a senior China analyst at Maxim Group LLC in New York, in a telephone interview. “This news probably will hurt the value of Weibo in the eyes of potential advertisers and game developers because they do prize Weibo’s large market reach and the time frequent users spend on it. If Weibo’s appeal declines, it definitely affects Sina’s value.”
Sina posted a net loss of $336 million in the third quarter, its largest as a public company, after doubling marketing expenses and engineering costs for Weibo. Sina will continue to “vigorously” invest in the service, and making money from it isn’t the company’s priority “at the current stage,” Chief Executive Officer Charles Chao said on a conference call with analysts Nov. 9.
Criticism of the government spread across Weibo after two high-speed trains collided in the eastern city of Wenzhou in July, killing 40 people. Users questioned the government’s handling of the crash and spread commentary and photos of the accident at odds with the official version of events.
‘Healthy’ Environment
The government will punish microblogs that spread lies or rumors as it seeks a “healthy, orderly microblogging environment,” Xinhua reported in October, citing Wang Chen, director general of the State Internet Information Office. Microblogs should promote science, culture and morality and shouldn’t carry “illegal information,” it said then.
Sina said in the statement today that Beijing government’s rules won’t force users to change account names, and won’t affect people who only use the service to read others’ messages. The rules are applicable to microblogging service providers within the Beijing municipality and their users.
Other cities may implement similar rules because it’s the central government’s intention to tighten the regulation on mircroblogs, according to Maxim’s He. The regulation hurts Sina more than its competitors because of its popularity, He said. The analyst added that she may lower her $45 price target for Sina once she can quantify the impact of the new rule.
Tencent, Sohu
Tencent Holdings Ltd. (700), based in Shenzhen, is the second- biggest operator of microblogs with a 25 percent share, according to BOCOM International. Beijing-based Sohu.com Inc. (SOHU), owner of the country’s fifth-most visited website, also offers similar services. Tencent rose 1.7 percent to $19.48 in New York, while Sohu added 2.7 percent to $47.62.
The news isn’t the “worst case scenario” for Sina as investors had already anticipated the tightening of government regulations, according to Adam Krejcik, an analyst at Roth Capital Partners.
“Following months of speculation we believe Sina’s management is relatively prepared and also believe the actual reporting of this news, versus numerous rumors, is better for the market,” Krejcik wrote in a note to clients. “We do not believe this signals the end of Weibo in China.”
Krejcik has a “buy” rating for Sina with a price target of $110.
Sina’s shares have lost 27 percent this year as rising costs and increasing competition squeeze profits.
Two telephone calls to the Internet information office at the Beijing city government weren’t answered today.