Weibo Stumbles In Mobile, Inflates Big Vs

Weibo: engaged in follower inflation?

A couple of separate reports are shining a spotlight on some of the shenanigans happening at former social networking (SNS) superstar Weibo (Nasdaq: WB), and also on its dimming prospects as it gets overtaken by more nimble, innovative rivals. The first and more entertaining of those reports details how Weibo routinely inflates the number of followers for some of the most popular people on its service through use of phantom “zombie” accounts. The second details a worrisome trend that says the number of mobile users for Weibo dropped sharply in August, hinting at problems ahead in this high-growth area.

From an investor’s perspective, Weibo has been a relatively solid performer since it made its IPO on the Nasdaq back in April. The company’s stock has been quite choppy since then, and last week reached a post-IPO high of $24.34, more than 43 percent above its offering price of $17. But since then the stock has fallen sharply and now trades at around $21 — still a solid gain over the IPO price but again reflecting how uncertain the company’s future looks due to the rapidly changing SNS landscape.

That uncertainty is reflected in a new report that says Weibo’s active users who access the service over their mobile phones dropped a worrisome 11 percent in August to 67.5 million, according to data from third-party firm EnfoDesk. (English article) Usage time for Weibo’s mobile app also dropped about 10 percent for the month.

Those declines contrast sharply with figures given out last month in the maiden quarterly earnings report from Weibo, which is controlled by leading Internet portal Sina (Nasdaq: SINA) and also counts e-commerce leader Alibaba as one of its major stakeholders. According to that report, Weibo’s total number of active monthly users grew 30 percent to 157 million as of June, while daily active users grew at a similar pace to 70 million. (company announcement)

So, why the big discrepancy? One of the biggest factors is the desktop vs mobile distinction. Weibo began its meteoric rise around 5 years ago before the mobile Internet was popular. Accordingly, a big portion of its users access the service over their desktop PCs. It’s probably significant that Weibo didn’t report any separate mobile user figures in its second-quarter report, since most Internet companies these days like to emphasize the growth potential in mobile if there’s any positive news to tell.

With more than half of China’s Internet users now accessing the Internet primarily over their mobile phones, the trends certainly don’t look too good for Weibo based on this latest data. Obviously one month of negative growth doesn’t equal a long-term trend. But the company certainly needs to focus more on the mobile space if it wants to ensure its longer-term survival and fend off the challenge from more aggressive players like Tencent’s (HKEx: 700) WeChat and Facebook’s (Nasdaq: FB) WhatsApp.

A separate report on inflation of the number of followers for some of Weibo’s most popular accounts is shining a spotlight on how even the company’s reported user numbers could be suspect, casting doubt on how fast those figures are really growing. That report details how Weibo routinely boosts the number of followers for some of its most popular accounts, often referred to as “Big Vs” because they are verified by Weibo as authentic and can have thousands and even millions of followers.

The report isn’t very scientific, but cites an independent analysis as determining that just 13 percent of the 1.1 million followers for the official Weibo account of the Canadian embassy are real people. (English article) It cites unnamed Canadian official saying the embassy doesn’t know where all the fake followers came from and that the embassy didn’t pay for them. It concludes by speculating that Weibo routinely assigns these phantom fake followers, sometimes called “zombies”, to “Big V” accounts that it wants to promote to and also to boost the service’s own status.

Obviously we can’t draw too heavy a conclusion from a single report like this, though I’ve always been suspicious of some Weibo accounts that boast millions of users. Such figure inflation is relatively routine throughout China, not only in tech but also other industries, and is the frequent basis for attacks by short sellers who question companies’ self-reported data. If Weibo really inflates follower numbers this way, it certainly wouldn’t come as a huge surprise if it engaged in similar inflation for other data.

Bottom line: Weibo’s falling usage for its mobile app looks like a worrisome trend despite its broader growth, as it loses ground to rivals like WeChat and WhatsApp.

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