A Blessing In Disguise For SINA

Published in Investing on 30 March 2012

How SINA stands to gain from rules imposed by the Chinese government.

A version of this article initially appeared on our US site, Fool.com.

Strict rules imposed by government authorities in China on social media websites have stirred up a debate about its negative effects. SINA (NASDAQ: SINA.US) was recently given the task of verifying the identity of all its users. Now while this might sound like a huge negative, it actually unlocks more value for the company. How? Well, let's take a closer look.

The benefits of regulation

The logic is simple: if SINA verifies all the accounts on its Weibo platform, it will be able to provide key information regarding its users to advertisers and marketing agencies for a fee. Moreover, the process would filter out spam, along with duplicate and fake accounts, improving the quality of its user base and thereby driving the advertisers' interest even further.

Better yet, SINA announced that it would start monetising its Weibo platform later this year. And its current application could generate a lot of revenue -- possibly a lot more than if the restrictions were never loosened. But that's not all.

At the beginning of this year, the Chinese government also made it more difficult for advertisers to buy airtime from television broadcasters such as CCTV by banning commercial breaks during dramas. This inadvertently made online advertising a lot more attractive than it already was.

SINA's Weibo is the fourth-largest advertising platform. With around 250 million users, SINA would be the biggest beneficiary from these regulations, although not the only one. Online media company Sohu.com (NASDAQ: SOHU.US) also stands to gain from these developments through its microblogging platform. Sohu has an added advantage, given that Baidu (NASDAQ: BIDU.US) has started including microblog posts in its search results. Baidu, often touted as the "Google of China", also stands to gain immensely from the trend toward online advertisements.

The flip side

While precise user information could make any marketing executive salivate, the rules and restrictions being imposed could reduce the number of active users. Anonymous Weibo users would not be able to express themselves as freely as they did before, so the verification process could drive people away.

However, analysts believe that the loss of users would only occur in the short term. The unique real-time nature of a Twitter-like platform would surely bring back people and would have little impact on the number of users in the long term. I think that's a fair assumption.

The Foolish bottom line

You may not see it as yet, but rules that make users register using their real names could make any platform a potential goldmine for companies such as SINA (and for advertisers, as well). Having said that, I aim to keep a close watch on SINA until the money actually starts rolling in.

> Get the latest on investing and the markets, direct from the desk of David Kuo. You'll also receive a special free report on '10 Steps To Making A Million' if you join The Motley Fool Collective today.

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