Sina Looks to Generate Revenues From Users

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It is estimated that more than one-third of China's population – 420 million people – are internet users. But go back a few years ago and a big part of today's internet in China, microblogs, were a mere internet backwater. That began to change though in 2009 when Sina Corp. (NASDAQ: SINA) launched its Sina Weibo microblog, assuming the leadership position in that space. 

Since then Sina has accumulated more than 250 million registered users, in effect becoming the Twitter of China. The Sina Weibo microblog has attained a leading role in setting the country's news agenda and forming public opinion which has put it under increasing scrutiny from government sensors. 

Sina is not alone in that sector, however. Formidable competitors including (NASDAQ: SOHU) and Tencent Holdings (NASDAQOTH: TCEHY.PK) come to mind. Sohu, for example, is trying to catch Sina by adding popular features like a matchmaking service, special promotions and tying its news portal to its microblog. 

All of these companies have one problem in common – how turn microbloggers into revenue generating users. Tencent though does have broader revenue base than its competitors and is not as dependent on microbloggers or gamers. Leading microblog Sina Weibo has already pushed back the timetable for when revenue generation from its users is going to happen twice in the past year. And it is likely to do so again at its next investor presentation later this month. 

Sina blames the government's requirement that users register with their real name as part of the reason for the delay. China's government has a deadline of March 16 for this to happen or users will no longer to be allowed to post. These delays, along with sharply rising marketing costs, have hit the stock of Sina hard. It is down roughly 50% from its peak of $142.83 hit on April 19, 2011. 

Sina is a broad-based media company, though currently advertising accounts for approximately 77% of its 2011 revenues of $484 million. The company has recently launched a gaming platform and a virtual currency, for instance. Add in China's most popular microblog and it is easy to see why investors hope that the company can expand its revenue base beyond ads on its site, ala Facebook. A broader base of revenue will make it less vulnerable to economic slowdowns when advertising revenues slip. 

There are numerous skeptics though about Sina's ability to generate revenues. The gaming platform, for example, is free for the first year. Even if Sina begins to charge for its platform, most of the company's analysts have serious doubts about how many of Sina's user base – largely white-collar workers in China's largest cities – are serious gamers. 

The logical choice for Sina to generate revenues would be to target China's burgeoning e-commerce market and to do so through the use of targeted ads similar to those on Facebook. The problem is the lack of progress in targeted ads. The feeling is that, unlike Facebook, Sina may lack the technical capability at the moment to analyze all the data they have on their users. 

The good news for Sina is that many of China's leading e-commerce sites have already linked to its microblog, Sina Weibo. The company has declined so far to demand revenue sharing for that, but that is likely to change in the future and could be a game changer. 

Sina also has strengths which its competitors do not. As mentioned earlier, its users are better educated and with higher incomes. Its users are loyal, spending much more time on average on Weibo than users of its competitors do. The company is much more than just a Chinese clone of Twitter. 

Richard Ji, an analyst with Morgan Stanley, put it this way: “Weibo is becoming a new social ecosystem that will transform Chinese internet user behavior in the next few years.” Sina's shareholders are hoping it will become a profitable social ecosystem. 

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