No Alias for Weibo Users in China

Sina Corp. ( SINA - Analyst Report ) ), the operator of popular micro-blogging platform Weibo.com in China, expects that approximately 60.0% of its users will register their real identities with the company by the end of March 16, 2012, as per a deadline set by the Chinese government in December 2011.

As per the directive from a number of city governments (Beijing, Guangzhou, Tianjin, Shenzhen, Shanghai), Sina users are also required to register their mobile numbers, which will go through a verification process. Only verified mobile users will be allowed to post messages on weibo. Sina, however, believes that this regulation will hurt user growth going forward.

Sina’s weibo has gained massive popularity over the last couple of years. The micro-blogging platform, which is somewhat similar to Twitter, has garnered more than 250 million registered users. Sina has been continuously adding consumer centric features such as apps, games and virtual currency to weibo and has managed to transform the micro-blog platform to a full fledged social network website.

However, over the last few months, Sina has been under pressure from the Chinese government to impose restrictions on user content. Weibo users post approximately 100 million comments and messages every day and until now, Sina has been somewhat lenient with weibo content compared to some other websites. The company deletes some of the more inflammatory posts but allows the majority to stay on the site.

Some time back, Sina and a host of other Internet companies were reprimanded by the ruling communist party and asked to tighten control over online material, particularly sensitive information that spreads dissent among the general public. The Beijing Internet Media Association, a government-sanctioned industry group, also called on its 104 member companies to filter Internet content.

The Chinese government argued that micro-blogs are the epicenter of baseless rumors and false news, which are tarnishing the government’s image to the public. China has been very sensitive regarding the Internet over the years and has imposed significant restrictions on online search and other social-networking activities. The Chinese government has already blocked Twitter, Google’s ( GOOG - Analyst Report ) YouTube and social-networking website FaceBook.

Although these tough regulations did not deter the micro-blog market, which soared 296% year over year and accumulated 250 million users at the end of 2011, we believe that stricter regulations will definitely hurt subscriber growth. We believe that users will refrain from registering their real names not only due to the fear of any government backlash (for criticizing government on any issue) but also on rising security concerns. This will hurt Sina’s weibo monetization efforts and result in lower advertising revenue going forward.

We remain Neutral over the long term (6-12 months). Currently, Sina has a Zacks #5 Rank, which implies a Strong Sell rating in the near term.