Weibo Sinks as Chinese Social Media Gets Competitive

Jacob Harper |

Chinese microblogging service Weibo Corp ($WB) saw shares sink precipitously in May 22 trading action after reporting earnings for the first quarter of 2014. Losses more than doubled for the Chinese version of Twitter (TWTR) , and like their Stateside compatriot they too have faced slowing growth as a result of stiffer competition.

Since Twitter is banned in China, the government sanctioned, and reportedly government-censored, Weibo has had the advantage of being the only microblog to service China’s 1.35 billion citizens. But they’re certainly not the only social media service in the world’s most populous country, and are increasingly getting edged out by an upstart.

Even after IPOing in April, the Beijing-based Weibo has continued to be stymied by an increasingly crowded Chinese social media space, notably by the popular app WeChat. WeChat is similar to WhatsApp, in that it’s a streamlined messaging app, but it also sports some interesting, innovative features, like allowing users in close physical proximity who simultaneously shake their smartphone to connect and message each other.

A War Between Privacy and Publicity

While Weibo and WeChat target slightly different aspects of social media, the struggles of Weibo and surging success of WeChat suggest a global shift in what users want out of social media. That is, to closely control who they share information with.

Weibo, like Twitter, takes a decidedly less private approach to things, broadcasting microblogs to the entire public at large. WeChat allows users far more control over who sees their messages, and is primarily used for communicating with close friends and family.

Weibo’s function for quickly spreading news seems to have solidified but is also on the less popular end of the social media spectrum. With Facebook (FB) tightening privacy controls both on its flagship and subsidiary Instagram, and the rise of private messaging apps Snapchat and WeChat, the wordlwide trend in social media is certainly favoring privacy, and not more public, broadcasting-type services like Weibo. 

This is to say nothing of a place for public forums in the social media business. But Weibo very effectiveness as a public forum is suspect, to say the least, considering the government censorship endemic of Weibo. It's well known that the Chinese government deletes messages critical of them off the service, which certainly hampers the site's effectiveness as a truly open public forum. As well, the censorship has spurred a flurry of Weibo-critical websites that post the governement-deleted messages, like Free Weibo, which certainly undermines the government's mission, and from a business perspective, siphons Weibo's traffic.

The Multi-billion Conglomerates Behind the Curtain 

Like a lot of well-funded battles, Weibo versus WeChat isn't about two upstarts duking it out, but rather the giant conglomerates behind the scenes. Weibo is majority controlled by media empire Sina, who own 57 percent of the microblogging service. WeChat is controlled by rival Tencent Holdings. Hedging their bets slightly, Tencent also has their own version of Weibo called Qzone, which is primarily targeted at very young users. China’s Amazon and eBay rolled into one, Alibaba, owns a 30 percent stake in Weibo. Alibaba looks to have the biggest tech IPO in years sometime in 2014, which should affect Weibo considerably.

For their first quarter 2014 earnings, Weibo reported a net loss of $47.4 million, or $0.03 per share, versus the net loss of $19.2 million from the same period a year ago. Revenue for the quarter was $67.5 million, as compared to $25.9 million from the previous year. Analysts were expecting a net loss of $0.05 per share on revenues of $67 million.

Weibo forecasts revenue of $74 to $76 million for the next quarter. Analysts wanted $78 million as a minimum. The guidance miss is almost certainly the reason for Weibo’s resultant stock drop on the day.

After rising yesterday, by 2 PM EST shares of Weibo had fallen 9.48 percent to hit $18.33 a share. The quite volatile stock is now inching closer to its $17 a share IPO, and barring a significant change in social media trends looks to follow Twitter’s lead and continue edging downwards.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 117.03 1.63 1.41 13,681,635
TWTR Twitter Inc. 18.22 0.29 1.62 7,544,840
WB Weibo Corporation 48.09 1.69 3.64 1,068,091
PWESF PWC Capital Inc 0.09 0.00 0.00 0

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