New data is highlighting an online trend that I wrote about last year, namely that microblogs have peaked in popularity and are starting to decline, in a bad sign for leading web portal Sina (Nasdaq: SINA) as it rushes monetize and list its popular Weibo service. Frankly speaking, I’m not too optimistic anymore about the prospects for Sina Weibo, which is really just a copy of US social media pioneer Twitter (NYSE: TWTR) and hasn’t shown much ability to innovate in the rapidly changing social networking (SNS) space. All that said, I imagine this latest report from the China Internet Network Information Center (CNNIC) is prompting new urgency for Sina to separately list its Weibo unit, and that such an IPO could come later this year.
The figures that revealed a decline in microbloggers were part of a broader year-end report from CNNIC, which showed that the overall number of Chinese Internet users rose 9.5 percent last year to 618 million at the end of December. (Chinese article) In a very important sub-trend, the data also showed that 80 percent of China Internet users now access the web over their smartphones, translating to more than 500 million mobile Internet users. That trend has helped to fuel the rapid rise of a newer generation of SNS services led by Tencent’s (HKEx: 700) WeChat, which are optimized for mobile users.
According to the latest CNNIC figures, the number of Chinese who use microblogs, known collectively as weibo, actually dropped 9 percent last year to 281 million by the end of December. I expect that figure refers to people who actively use their microblog accounts, since companies often like to trumpet higher figures for their number of registered accounts, which in Sina Weibo’s case is more than 500 million. The data marked the first time the number of microblog users had dropped since CNNIC started tracking the figure in 2010.
One report cited a Sina spokeswoman saying the company’s base of active microblog users rose in the first three quarters of last year, though she declined to be more specific. Sina previously said its Weibo service had about 60 million active daily users in the first 9 months of 2013, far smaller than its registered user base.
It’s quite possible that Sina’s active microblogging user base continued to grow in the fourth quarter as more people abandoned less popular services from rivals like Tencent and NetEase (Nasdaq: NTES). But I suspect that even Sina’s growth rates are quickly slowing and are now in the mid to low single-digits, and that the figures could start to mirror the broader industry decline by the end of this year.
Many of Sina’s former fanatics are flocking to WeChat, which has become the hot ticket of the day in China’s SNS realm. The trend parallels a similar migration around 2009 that saw SNS users flock to microblogging services as they abandoned Facebook-like (Nasdaq: FB) domestic sites like Renren (NYSE: RENN) and Kaixin. More broadly speaking, this latest migration shows how quickly things can change in China’s young Internet space, where today’s superstar can often become tomorrow’s faded giant.
All that said, the big question now is: What’s in store for Sina Weibo, which made headlines last year when e-commerce leader Alibaba bought 18 percent of the company for $586 million? That deal valued Sina Weibo at a hefty $3.3 billion, equal to the total market value of Sina at the time. I suspect this latest CNNIC report is probably causing a mild panic at both Sina and also perhaps at Alibaba, who will accelerate their rush to list Sina Weibo before user figures start to decline. Look for such an IPO to value Weibo at $2.5 billion or less, and for the latest CNNIC news to put downward pressure on Sina’s shares in the months ahead.
Bottom line: New data showing a broader contraction for China’s microblogging market are a bad signal for Sina, which may accelerate IPO plans for its Weibo service to aim for a listing this year.