It’s been a roller coaster ride this past week for leading web portal Sina (Nasdaq: SINA), which has just fallen victim to a government clampdown targeting illicit content like pornography on the Internet. The clampdown sparked a sell-off in Sina’s shares, reversing gains from an earlier rally fueled by strong performance of its newly listed Weibo (Nasdaq: WB) microblogging unit, often called the Twitter of China. But Sina should be accustomed to this kind of roller coaster ride, and its shares could easily bounce back in the next week or two as investors realize this latest crackdown is largely meaningless and won’t have any impact on the company’s business.
This kind of government crackdown is fairly common in China, often targeting pornography, spam and excessively violent content on the Internet and mobile phones. Sina took a big hit after one such crackdown nearly a decade ago that targeted mobile spam, which at that time was one of its main businesses. By comparison, this latest crackdown is aimed at Sina’s online literature and video services, neither of which is an important contributor to its revenue or profits.
According to the latest reports, Sina had its publishing and audio-visual content licenses revoked after pornographic content was found on its online literature and photo sharing sites. (English article; Chinese article) A government announcement stated that more than 20 cases of pornographic literature were found on Sina’s online literature site, and another 4 cases of illicit content were found on its photo sharing site. It said Sina would be banned from the 2 areas, and could face fines of 5-10 times the revenues it derived from the illicit content.
Sina’s shares tumbled as much as 8 percent during the trading session after the reports, though they clawed back much of that ground and closed down a more modest 3 percent. The company’s shares have been all over the map over the last 2 weeks, largely due to the spotty record for Weibo’s IPO.
Weibo fell far short of its initial fund-raising target, which was ultimately cut by nearly half from an original $500 million due to weak demand. As that happened, Sina shares lost nearly 7 percent of their value. But then Sina’s stock recovered most of those losses after Weibo rose nearly 20 percent on its first trading day. (previous post) Weibo’s shares would go on to rally as much as 40 percent from their IPO price, helping to lift Sina’s shares as well. But a week after the debut Weibo’s shares have given back some of the gains, and Sina’s shares have moved in tandem.
After all that news, including the latest sell-off, Sina’s shares are down about 15 percent from their levels at the beginning of this month. To be fair, it’s worth noting that the recent longer-term sell-off is in line with other China Internet stocks, which have been falling out of favor with US investors in recent weeks.
So what’s the bottom line from this latest pornography crackdown? It’s probably fair to say that Weibo’s performance over the months ahead will have a far bigger impact on Sina’s shares than the loss of its video or publishing licenses. At the end of the day, this new crackdown is part of a regular cycle from Beijing. In this case the move looks largely symbolic, since it attacks a big name like Sina but is aimed at inconsequential parts of the company’s business. The company could suffer from negative publicity for the next few days due to the clampdown, but any impact beyond that is likely to fade in the next few days and the whole incident will be quickly forgotten.
Bottom line: A government clampdown on Sina over illicit content on its video and literature sites looks largely symbolic, and is unlikely to have any longer-term impact on the company.
(NOT FOR REPUBLICATION)