INTERNET: Microblogs Slump, Financial Services Surge in H1

Bottom line: Internet-based financial services should continue to boom over the next few years, while a rapid decline in microblogging could start to ease now that Weibo has consolidated its position as market leader.

Weibo consolidates microblogging market

China’s Internet data tracker has just released a slew of figures for the first half of the year, painting a rosy picture for companies like Alibaba (NYSE: BABA) and others that are moving aggressively into online financial services. At the other end of the spectrum, microblogging continued its rapid decline, as marginal players retreated and industry leader Weibo (Nasdaq: WB) consolidated its position.

On a broader level, I was surprised to see the growth rate in overall Internet users slow sharply in the first half of this year, even as the number of people accessing the web over their mobile phones continued to post strong growth. I also took the time to tally up the subscriber totals for China’s big 3 telcos in the first half of the year, which shows that the dominant China Mobile (HKEx: 941; NYSE: CHL) gained share on its 2 smaller rivals as it aggressively promoted its year-old 4G service.

Let’s start with the big picture, which showed that China had 668 million Internet users at the end of June, representing a penetration rate of about 50 percent, according to the China Internet Network Information Center (CNNIC). (English article; Chinese article) A big majority of those people accessed the Internet over their smartphones, with 594 million mobile Internet users at the end of June.

The total Internet figure was up just 3 percent from the end of last year, slowing from 5 percent growth in 2014. The mobile Internet growth rate was more than twice that, up 7 percent. The rapid slowdown for overall Internet growth looks a bit unusual, since China’s Internet penetration rate is still quite low when one considers that penetration for mobile phone use is nearly 100 percent. That slowdown could hint that China’s many Internet companies can also expect similar slowdowns in their breakneck growth of recent years.

CNNIC provided a wide range of half-year figures for various Internet sub-categories, but the clear winners were financial services that have explodes in popularity with the rise of products like online savings accounts and peer-to-peer (P2P) lending services. CNNIC said online brokerage and payment services surged in the first half of the year by 47 percent and 18 percent, respectively, as people abandoned traditional banks for Internet products that yield higher returns and more convenience.

Weibo Consolidates Leading Position

At the other end of the scale, users of microblogging services dropped by 18 percent to 204 million, accelerating from the 11 percent decline at the end of last year. Industry leader Weibo separately reported 198 million monthly active users in its latest quarterly report, meaning it now controls nearly all of the market after players like NetEase (Nasdaq: NTES) and Tencent (HKEx: 700) largely bowed out over the last 2 years.

Weibo said in its last quarterly report that its latest user figure was actually up 38 percent over a year earlier, as it consolidated its position by picking up the dwindling number of people using other services. Weibo may have difficulty posting similar growth now that it appears to control all of the market, but we’ll have to wait and see new figures in the next few quarters.

Finally we’ll close with the picture among China’s 3 main telcos, which showed some slight shifts in the first half of the year. China Mobile was the most aggressive, as it picked up market share after receiving its 4G licenses a year earlier than smaller rivals China Telcom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 763; NYSE: CHU).

China’s total mobile users at the end of June stood at about 1.3 billion, up just 1.5 percent from a year earlier as the market neared saturation. China Mobile boosted its share by 1 percentage point to 63 percent, while Unicom lost a point to fall to 22 percent and China Telecom stayed constant at 15 percent. Unicom and China Telecom have recently become more aggressive following their own receipt of 4G licenses, and thus they could pick up some share this year. But that said, I continue to rapidly lose interest in this trio of state-run behemoths due to their bureaucratic ways and inability to innovate.

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