SINA Corp. (SINA) recently entered into a partnership with Find Japan Inc., to market its microblog service “weibo”, as reported by the news agency Bloomberg.
Under the terms of the agreement, Find Japan Inc. will provide account verification services for Japanese businesses, institutions and celebrities from July 1, 2011.
According to Harvard Business Review (July-August 2010), Asian countries are the most active social networkers, generating approximately 45.0% of Internet users’ blogs, compared to approximately 15.0% for Americans.
Blogging in eastern countries is considered to be a vehicle for keeping in touch with family and friends, while in the western countries (US and Europe) blogs are usually considered a publishing outlet.
However, Japan is an exceptional case, generating less than 20.0% of Internet users’ blogs, despite Japan possessing a high Internet penetration rate of approximately 78.0%.
We believe the partnership will help SINA to gain significant market share in Japan, as SINA’s microblog has attained tremendous popularity in recent times, with registered users surpassing 140 million as of March, 2011. Sina expects to add more than 200 million users by the end of calendar year 2011.
According to a Credit Suisse analyst, weibo is expected to exceed Twitter in terms of top 100 bloggers’ followers in the second half of this year. The analyst expects SINA’s earnings to increase 5% this year due to higher advertising spending on Weibo.
According to financial group Mirae Asset, currently 14% of Chinese Internet users are microblog users, of which 54% are using weibo, with 21% going to Tencent. Accounting for page views, Sina Weibo has an 87% market share compared to a mere 8% for Tencent.
In late April, SINA introduced an English version of its iPhone app. The Sina Weibo app is available for free at iTunes app stores. The company also said that it is planning to commercialize the microblogging service going forward.
Moreover, SINA is expected to launch an English version of weibo, globally by the end of 2011. SINA noted that overseas users account for more than 10% of weibo users. With an imminent English version launch of the miniblog, we believe SINA will gain strong market share in international markets, which will drive revenue growth going forward, of course provided that its monetization efforts are successful.
Most importantly, international expansion will provide SINA a diversified market, as the company faces significant competition within its domestic market from large companies such as Baidu Inc. (BIDU), AirMedia Group, Microsoft Corp. (MSFT), Google Inc. (GOOG), Sohu.Com Inc. (SOHU), Tencent and Alibaba.
Despite the significant competition, we believe that SINA’s business has a competitive edge based on the site’s popularity in China, superior brand recognition, strong product pipeline, continuous investment in product development and marketing and a robust user base for its e-commerce and Weibo offerings.
However, weak non-advertising revenue growth is expected to hamper top-line growth going forward.
We maintain our Neutral recommendation over the long term. Currently, SINA has a Zacks #5 Rank, which implies a Strong Sell rating in the short term.
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