LAST week on December 16th, Beijing Municipal government Information Office and Beijing Police Department released the “Beijing Micro-blog Development Management Rules”, which require Weibo account users to use their real identities and that microblogging service providers should verify users’ identities before account initiation. The rules have been effective since December 16th.
On the day when the news was published, Sina’s (SINA) stock price fell as much as 11% before closing the day up 5% when investors realized that the policy is not nationwide.
Despite the fact that the policy only applies to the Beijing Municipality, I would like to point out that investors should not rule out the possibility that it will become a national policy in the near-term because major cities are often used as testing grounds by the government to gauge public sentiment. The planned expansion of real-name Weibo rule in Guangdong province is an indication that the policy is gradually expanding, and it is likely that it will become a national policy by the middle of 2012, given the Chinese government’s history of imposing local regulations prior to expanding them into nationwide policy.
Contrary to the overall market, I believe that real-name Weibo policy will have minimal impact on Weibo monetization in the long-term as Weibo becomes an online platform for news and information.
According to a study done by Chinese Academy of Social Sciences, 70% of microbloggers in China use Weibo as their primary source of news, and 60% believe the news is trustworthy. In another report by by Shanghai Jiaotong University and Public Opinion Research Center titled, 2011 China Government Affairs Weibo, Weibo is the number 2 platform for popular social topics behind the Internet.
In the long-term, Weibo could become an important information and news platform in China, paving the way for further monetization and putting pressure on traditional news portals owned by Sina (SINA), Sohu (SOHU), and Tencent (TCEHY.PK). As an added kicker, monthly fees from paid accounts will generate recurring revenue in addition to the usual advertising revenue.
In regards to the regulatory risk over Weibo, it is important for investors to understand that the Chinese government is unlikely to censor or shut down Weibo. The market always overreacts to the censorship concern, but the fact is that Sina already hires over 700 people who work around the clock to monitor and censor Weibo to minimize politically or socially sensitive information. Furthermore, the government will not shut down Weibo because it is becoming an essential tool for government agencies and officials to communicate with the Chinese people. According to the same report by Shanghai Jiaotong University, approximately 20,000 government agencies and officials have set up Weibo accounts to efficiently deliver information to their respective followers.
Sina currently offers an attractive entry point as I feel that the recent sell-off regarding the regulatory risk is unjustified and shows the lack of understanding that the market has on the platform. Hence, I remain overweight on Sina’s future prospects.