Will Egypt Kill Sina Weibo?
Beyond censorship, these actions now may have financial impact on Chinas most prominent Internet properties. Deutsche Bank last night downgraded their outlook for Sina, based on potential government action against Sina Weibo.
Although filtered, Sina Weibo has evolved into one of the most open media platforms in China. There have been many open critiques of the government on Weibo. These have included questioning official statistics, condemning corrupt officials and arguing against policies like the recent measures requiring a Beijing ID card to buy property in the capital.
Pressure via Weibo has brought change, since many of those using the service are high profile advisors to the governments, as delegates to the CPPCC. One example is the law protecting children that has been proposed in the wake of a Weibo-led campaign to save children from begging on the street.
Sina Weibo may, however, face constraints beyond censorship if the unrest carries on in the Arab world. Additional limits could include the slowing of speed to post (for government inspection) or limits to the number of re-tweets.
Deutsche Bank acknowledges Sinas dominance, innovation and leadership, but expressed concerns big enough to warrant an investment downgrade.
As Deutsche Bank put it (emphasis is theirs):
Run-up on weibo enthusiasm may reverse
While we continue to recognize Sinas dominance, innovation and leadership in the portal space, and view its weibo microblog service as a breakthrough in internet-based communications, we do believe that the risks of tightening government regulation around its Twitter-like service continue to mount. We believe the occurrence of (admittedly sparse and lightly attended) demonstrations across China over ! the week end may move the authorities to disable aspects of microblog services that they view as destabilizing. Further Mideast unrest could also lead to tightening.
Summary shutdown unlikely, paring back of service probable.
We would not expect Chinas major microblog services to be shut down, but instead handicapped in some fashion (eg, inserting 5-7 mins of latency between tweet and receipt, prohibiting extensive retweeting, etc.)
Downgrade on valuation.
We downgrade to Sell (from Hold) as Sina now stands at USD85.52, well above our PT of USD58. Our valuation methodology is based on 1.1X PEG using a 3-yr CAGR. PT implies 27x 2011E PE. Upside risks include lenient government regulations and strong weibo monetization. We aim to re-evaluate our assumptions going forward.
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