Contrary to the wisdom in self-help books, sky-high expectation is mostly met with crushing disappointment. Take Sina, China’s second-biggest news portal. It trades at a frothy 47 times this year’s earnings. The hope? That Sina Weibo, its Twitter-like microblog, will start generating enough sales to save its parent from an otherwise maturing business.
The reality, however, is that Sina’s average annual sales growth rate has halved over the past three years compared with the prior three as advertising spend shifts away from display advertising to online video and search. And Sina has warned that advertising sales will be down by a quarter in the first three months of this year, versus the end of 2011. This is a traditionally quiet period, but the drop is twice that seen in the past two years.
Charles Chao, chief executive, promises that Weibo can make revenues soon. But those sales are to be led by advertising to computer users, even though he admits that there are more mobile users.
Then there is the problem of rival company Tencent. Its service claims 120m monthly active users compared with Sina’s 100m. Although Sina’s microbloggers are more active, Tencent has a stronger foothold in China’s smaller cities – exactly the market Sina must tap for its growth to keep up. Quarterly growth in the overall number of microbloggers has halved from a year ago, according to Analysys. Beijing’s insistence on using real names – microbloggers must enter identification details to be checked against a government register – may also hurt Sina most since its tweets are more political. The word “democracy” pulls up 11m tweets on Sina’s microblog, three times more than on Tencent’s.
Tencent’s sales have grown at twice the rate of Sina’s over the past five years, yet its earnings multiple is half the latter’s. Sina cannot afford to disappoint at that price.
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