SINA Corp. (SINA) will launch virtual currency “Weibi” for its Weibo microblogging service in the third quarter of 2011, according to a recent report from news agency Reuters.
Weibi (value equals to one yuan) will allow microblog users to buy virtual items and services provided by third-party application developers. Analysts believe that SINA intends to monetize the popular microblogging sevice through the roll out of this virtual currency. They also believe that this reflects SINA’s plans to expand Weibo as a full fledged social network platform.
However, SINA will likely face regulatory headwinds due to restrictions imposed by the Chinese government on the use of virtual currency over the Internet. The Chinese government has already blocked Twitter as well as Google Inc.’s (GOOG) YouTube and social-networking website FaceBook.
SINA’s microblog has attained tremendous popularity with registered users totaling more than 140 million as of March, 2011, second only to Tencent Holding's QQZone (160 million users). SINA expects to add more than 200 million users by the end of this year.
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.
In early April 2011, SINA moved to a new domain at weibo.com, which fueled possible spin-off rumors. However, the company said that both the new (weibo.com) and the old (t.sina.com.cn) domains will coexist and users will be able to log on using either. It will eventually be unified into a single domain — weibo.com — until the migration process is completed.
In late April, SINA introduced an English version of its iPhone App. The Sina Weibo app is available for free at iTunes app stores. SINA is also 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. The company also expects to launch a business version of the microblog going forward.
With an imminent English version launch of the microblog, we believe SINA will gain strong market share in international markets, which in turn will drive revenue growth going forward based on the current monetization efforts.
Our Take
SINA continues to face stiff competition from Tencent and Renren.com in the Chinese social media market. However, we believe the increasing popularity of weibo and its eventual international expansion will provide SINA a competitive edge.
We believe SINA is well positioned to take advantage of the growing trends in the Chinese wireless services market, as it can attract more users to its wireless services than its competitors through its popular website and the weibo service.
However, weak non-advertising revenue growth is expected to hamper top-line growth going forward.
We maintain our Neutral recommendation on SINA over the long term (6-12 months). Currently, SINA has a Zacks #5 Rank, which implies a Strong Sell rating in the short term.
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