Why Weibo's User Base Could Be Decreasing

Why Weibo's User Base Could Be Decreasing

Internet company SINA is famous for operating Weibo, one of the most important social networks in China. Weibo is a microblogging service similar to Twitter , with more than 600 million registered users, and is utilized by more than 30% of China's Internet users.

More than 100 million messages are posted each day on Weibo. This has allowed the company to grow revenue quite quickly. However, according to a report from China Internet Network Information Center, the microblog service's user base could be decreasing. The report suggests that many young users may be migrating their online activity to Tencent Holdings' messaging app, WeChat, which is more suitable for mobile devices. Is Sina's Weibo really losing users to Tencent? More importantly, how can Weibo protect its business?

The fight for China's social media market
According to government-backed China Internet Network Information Center, Weibo's user base fell 9% to 280.9 million, down from 308.6 million the year before. This figure suggest that the habits of Chinese Internet users may be changing fast, from accessing the Internet via PCs to using social media platforms optimized for smartphones.

This is where WeChat comes in. WeChat is the fastest-growing app in China and is particularly popular among young users. According to a study by Global Web Index, WeChat saw a 1,201% increase in usage among youths between the first and third quarter of 2013. What's interesting is that, unlike Weibo, Tencent plans to make WeChat a truly global messaging platform. The app has more than 100 million registered users outside of China.

Tencent's WeChat is a massive hit
Not surprisingly, 37.4% of users who stopped using Weibo began using WeChat, according to the same report. This trend could continue, as WeChat moves beyond simple messaging. In an attempt to become a global social network, the app started supporting social integration with Facebook. It also allows users to have a profile and share pictures, not just with friends, but with everybody, like the "public" feature on Facebook.

To improve localization, Tencent has also released a collaborative translation platform for WeChat, where fans help translate the app into Japanese, Spanish, Indonesian, and several over languages. The company is also rumored to be planning to open an office in the U.S. to ramp up its fight against WhatsApp, Viber, and Facebook.

From now on
Despite losing 28 million users recently, Weibo is still one of the most popular apps in China, with an active user base well above the 232 million users that Twitter reported before its initial public offering.

Because Weibo and WeChat have quite different functions, and because Weibo seems to be focused mainly on China, it may be hard for Weibo to catch up, in terms of user growth.

However, there's still plenty of things that Weibo can do to remain an attractive investment. For example, the company's focus could shift from user growth to monetization. With more than 60 million daily active users, Weibo remains in a good position to monetize traffic by offering targeted marketing solutions to advertisers.

In the medium run, the company could gain significant revenue from its premium membership service. Third-party games, e-commerce, and online payments via Weibo wallet, should also help to improve monetization. Finally, let's not forget Weibo has a partnership with Alibaba, which will increase advertising revenue. In the next three years, Weibo is expected to deliver roughly $380 million worth of advertising to Alibaba.

Final Foolish takeaway
There will always be a place for Weibo on China. Despite losing users to Tencent's WeChat, Weibo still remains in a good position to monetize traffic using premium memberships, ads from Taobao, game fees, and online payments. In this context, Sina's $5 billion current market valuation may be too cheap.

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The article Why Weibo's User Base Could Be Decreasing originally appeared on Fool.com.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Sina and Twitter. The Motley Fool owns shares of Sina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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