(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By John Foley
BEIJING, Aug 15 (Reuters Breakingviews) - Weibo or WeChat? Of the two Chinese internet superstars, mobile chat app WeChat has investors more fired up. Owner Tencent’s (0700.HK) shares have more than doubled since the beginning of 2012, while shares in Sina (SINA.O), which runs microblog Weibo, are up 58 percent. Yet Sina may be the better bet.
Both have experienced phenomenal growth. WeChat has 236 million active monthly users, while Weibo has 54 million users who log on every day. There the similarity ends. Weibo’s revenue model leans on advertising, while WeChat has just introduced gaming in the hope that users will pay for in-game extras. For both, e-commerce is in the works.
For innovation and usefulness, WeChat wins. Mobile users now spend almost three times as long on the chat app as they do on Weibo, according to iResearch. In terms of profit potential, however, it may be different. The digital ad market could grow 35 percent in 2013, Nomura reckons, around three times as fast as online gaming. Gaming requires constant investment in new titles, and has fairly low barriers to entry.
In valuation terms, there’s little in it. Tencent’s enterprise value is 6.8 times forecast revenue for 2014, a shade above Sina’s. But getting direct exposure to Wechat is harder. Tencent is predominantly a maturing gaming business: even if WeChat hits analysts’ estimates of $500 million of revenue by 2014, it would account for just 4 percent of its parent’s total income. Weibo already provides a quarter of Sina’s top line.
Weibo’s deal with Alibaba, China’s biggest e-tailer, adds potential. The partnership will allow Alibaba’s sellers to market themselves on Weibo, and Weibo users to buy through the microblog. That should create synergies without either side having to reinvent the wheel. Alibaba contributed $5 million of Sina’s $30 million of advertising revenue in the second quarter, even though the tie-up was only signed in late April.
The clincher may be friends in high places. Weibo has a political role to play, channeling public opinion and exposing corruption. Provided Sina abides by censorship requirements, a newcomer would struggle to get a look-in. WeChat’s games won’t enjoy such special status – and its promise of cheaper messaging pits it against China’s big state-owned telecom firms. In the internet bake-off, that could give Sina the edge.
- Tencent said revenue increased 37 percent to 14.4 billion yuan ($2.4 billion) in the second quarter of 2013, compared to a year earlier. Earnings of 3.7 billion yuan were 11 percent lower than the average estimates of analysts, according to Thomson Reuters Eikon. The shares rose 2.2 percent by midday on Aug. 15 in Hong Kong, to HK$361.20.
- Tencent launched a new version of its WeChat mobile chat application, known in China as Weixin, on Aug. 5, including a gaming centre through which users can purchase in-game virtual items. WeChat and Weixin had 236 million monthly active users at the end of the second quarter, 2.7 times the number a year earlier.
- Sina, which operates the Weibo microblog, on Aug. 14 reported year-on-year revenue growth of 20 percent to $158 million for the second quarter. The company made a net loss of $11.5 million, including a $27 million charge related to April’s tie-up with online retailer Alibaba.
- Alibaba bought an 18 percent stake in Weibo for $586 million, with an option to increase its holding to 30 percent later. Advertising from Alibaba added $5 million of revenue for Sina in the second quarter, and Sina has estimated the three-year revenue benefit at $380 million.
- Reuters: Tencent shares fall 5 pct on smaller-than-expected Q2 profit [ID:nH9N0G102M]
- Reuters: Sina shares climb after strong third quarter forecast [ID:nL2N0GE11U]
Opening Sesame [ID:nL3N0DH0SO]
Money talks [ID:nL3N0CQ3AC]
- For previous columns by the author, Reuters customers can click on [FOLEY/]
(Editing by Peter Thal Larsen and Katrina Hamlin)
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