Sina Admits It Has Not Complied With Weibo Real Name Registration Rules

  • Posted by on April 28th, 2012 at 4:11 am
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Sina’s ($SINA) recently released 20-F filing has an interesting section on regulatory risk surrounding Weibo. The company admits it has not fully implemented real name registration. Perhaps this is just legal boilerplate that investors can ignore because, you know, the Chinese government is afraid of Weibo and would never dare to shut it down, even for a few days.

If you believe that I have bridge over a beautiful Beijing river that I’d like to sell you…

From Page 18 of Sina’s 20-F (bolding added by me]:

We are required to, but have not, verified the identities of all of our users who post on Weibo, and our noncompliance exposes us to potentially severe punishment by the Chinese government.

On December 16, 2011, the Beijing Municipal Government issued the Microblog Rules. Among other things, the Microblog Rules require users who post publicly on microblogs to submit their real identities to the microblogging service provider, which is required to verify the identities of its users. Under the Microblog Rules, users are required to disclose their real identity information only to the microblogging service provider and may still use a pen name to reflect their account name on the front end. In addition, microblogging service providers based in Beijing are required to verify the identities of all of their users, including existing users who post publicly on their websites by March 16, 2012. Although we have made significant efforts to comply with the verification requirements, for reasons including existing user behavior, the nature of the microblogging product and the lack of clarity on specific implementation procedures, we have not been able to verify the identifies of all of the users who post content publicly on Weibo. We believe successful implementation of user identity verification needs to be done over a long period of time to ensure a positive user experience. However, we may not be able to control the timing of such action, and, if the Chinese government enforces compliance in the near term, such action may severely reduce Weibo user traffic. The implementation of user identity verification has deterred new users from completing their registration on Weibo and a significant portion of those who have provided identity information to us was rejected by the Chinese government database, which means that these users will have limited posting ability in the future and may cause the level of activity of Weibo users to decrease over time. Furthermore, while the Microblog Rules are not clear regarding the type and extent of punishment that will be imposed on non-compliant microblogging service providers, we are potentially liable for noncompliance of the Microblog Rules or related government requirements, which may result in future punishment, including the deactivation of certain features on Weibo, termination of Weibo operations or other punishments determined by the Chinese government. Any of the above actions may have a material and adverse impact on our share price.

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New Registrations For Sina Weibo Appear To Have Fallen Off A Cliff

  • Posted by on February 7th, 2012 at 8:01 am
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At one point in 2011 Sina ($SINA) Weibo was seeing 20 million or so new registrations per month.

Today we learned that the government will require real name registration for all Weibo users on March 16. Currently only new users need to register with real names. Chinese news reports about the March 16 deadline state that since January 1 Sina has had approximately 3 million real name registrations. If that is accurate then the monthly run rate for new Weibo registrations would appear to have dropped precipitously to 2.5 million or so.

Assuming the 3 million number is correct, I can think of at least three possible reasons for the drop:

1. Sina Weibo has tens of millions of zombie/spam accounts and under real name registration the creation of new junk accounts has ceased;

2. Sina Weibo has already reached the vast majority of potential users and so user growth will slow dramatically as the company shifts to monetizing the existing user base;

3. Potential users are turned off by real name registration and so are avoiding Weibo.

Regardless of the reasons, Sina now needs to start delivering revenue and profit in Weibo. The stock trades at less than half of its 2011 high but is up 50% in a month or so.  My understanding is that the company has been working on a Facebook-like ad targeting system. Sina is hosting an industry event in March, and investors should hope the company announces this new system and an impressive roster of advertisers.

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Authorities Removing Apple iPads From Chinese Store Shelves? (Updated)

  • Posted by on February 12th, 2012 at 10:30 pm
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[UPDATE: Chinese Press Now Reporting Proview Will Also Request That PRC Customs Ban Imports And Exports Of iPads | DigiCha END UPDATE]

So says this report (Chinese) from Hebei Youth Daily.

Apparently as a result of the Proview iPad trademark infringement verdict, some local Administrations of Industry and Commerce (AIC) have started to confiscate Apple ($AAPL) iPads they find on sale. The article claims that many stores and resellers have taken the products off their shelves to avoid discovery by authorities, but if you ask for an iPad you can still buy one. It is not clear if this is going to happen nationwide or if this is just the action of a handful of local authorities, but Apple has a lot of risk in this case.

Stan Abrams predicted this possibility a few days ago:

What can the AIC do? It can raid premises, seize documents, equipment, products and counterfeit marks, and it can halt activity and lock down businesses. Once AIC makes a decision about infringement, it can order fines (these go to the government, not the trademark owner), revoke business licenses, and mandate a public apology.

Note that an AIC raid is often used by trademark owners as Step 1, with a civil lawsuit as Step 2. It would be interesting to know if Proview and its lawyers filed the AIC application in Beijing before filing the civil suit in Shanghai, and whether they have approached other AICs.

OK, so once again, in addition to the contract action in Guangdong, we have an infringement suit in Shanghai, and a pending AIC application in Beijing. According to the Beijing Evening News, which apparently talked to AIC, the authorities are sitting on this for the time being. Why is this happening?

I can only speculate that it’s political. Look, Beijing AIC can certainly claim that since this case involves a pending civil suit, they feel obligated to step back and wait for a resolution from the court in Guangdong. Maybe.

But AIC could act if it wanted to, and the court action is Guangdong is now an appeal that most folks expect Apple to lose. Proview is the owner of record of the trademark, and the infringement is crystal clear. No reason at all that AIC could not raid all the Apple stores and resellers in Xicheng District and effectively shut down all iPad sales there.

No, really. They could do so tomorrow if the political will was there.

So why are they sitting on this? My guess is that this one is just too high profile, Apple has too much clout (Proview who?), and AIC is worried about blowback. The pending court action is great cover behind which AIC can hide until, hopefully, a settlement is cobbled together by the parties.

Has Apple fired the employees and lawyers who screwed up the Proview deal?

[UPDATE: Xinhua has more on the iPad confiscations in Hebei:

The tablets have been confiscated from shelves in many retail shops and electronic stores due to a Chinese company's lawsuit against the Apple Inc over the trademark infringement, in Shijiazhuang city, capital of North China's Hebei province.

Some retailers have removed the iPad tablets to back storerooms, fearing that local Administration of Industry and Commerce will confiscate them.

An inspection squad of the Xinhua District's Administration of Industry and Commerce in Shijiazhuang city, launched a campaign to crack down the sale of the tablets on Feb 9 after receiving Proview Technology (Shenzhen)'s complaint. A total of 45 iPad tablets were confiscated by the authority in the district over two days.

Proview Technology (Shenzhen) claimed in early 2011 that Apple Inc had been infringing on its iPad trademark and launched court proceedings, said Xie Xianghui, a lawyer for Proview Shenzhen.

The company has extended its complaint to the Beijing Administration for Industry and Commerce and appealed to three courts in other places: Shenzhen Futian District People's Court, Huizhou Municipal Intermediate People's Court and Shanghai Pudong New Area People's Court.

Apple has a problem in China, and not just because it can not launch a product without an iRiot. END UPDATE]

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Chinese Press Reporting Proview Will Request That PRC Customs Ban Import And Export Of iPads

  • Posted by on February 13th, 2012 at 7:17 am
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In what appears to be an escalation of Proview’s battle with Apple ($AAPL) over the iPad trademark, Sina Tech News is reporting that Proview is preparing to request that the General Administration of China Customs ban the import and export of iPads.

Earlier today we learned that authorities in at least one city in Hebei Province had already started confiscating iPads from stores-Authorities Removing Apple iPads From Chinese Store Shelves? | DigiCha. The Sina Tech News article reports that Administration of Industry and Commerce in nearly 20 municipalities are investigating the sale of iPads, with several telling merchants to stop selling them openly.

Apple, how much are you going to pay Proview to make this go away?

[UPDATE: Stan Abrams at ChinaHearsay examines the possible Proview request to China Customs:

an action with the General Administration of Customs could be the nuclear option for Proview, and the Sina article suggests this might be in the works. This is a relatively simple procedure whereby an IP owner, in this case trademark owner Proview, files their trademark certificate with GAC, which is then “on notice” regarding Proview’s ownership rights.

Even before such a filing, GAC has the authority to stop any import/export of goods suspected of infringing intellectual property. Yes, that includes shipments of China-made iPads exported to overseas markets. Customs could go after those at any time if it so desired...

So the news here is that Proview may file their IP with Customs. This would be step one, and a big shot across Apple’s bow. Would they then go after iPad exports? That remains to be seen, but as with the infringement suits and AIC actions, Proview also has the law on its side when it comes to a Customs action.

 END UPDATE]

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Sina Weibo Trends Manipulated By Fraudulent Accounts?

  • Posted by on February 18th, 2012 at 10:06 pm
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So claims a new research paper written by a trio of researchers from HP Lab’s Social Computing Lab. In “Artificial Inflation: The True Story of Trends in Sina Weibo” Louis Lei Yu, Sitaram Asur and Bernardo A. Huberman write that:

We found that 49% of the retweets in Sina Weibo containing trending keywords were actually associated with fraudulent accounts. We observed that these accounts comprised of a small amount (1.08% of the total users) of users but were responsible for a large percentage of the total retweets for the trending keywords. These fake accounts are responsible for arti ficially inflating certain posts, thus creating fake trends in Sina Weibo.

We relate our fi nding to the questions we raised in the introduction. There is a strong competition among content in online social media to become popular and trend and this gives motivation to users to artifi cially inflate topics to gain a competitive edge. We hypothesize that certain accounts in Sina Weibo employ fake accounts to repeatedly repeat their tweets in order to propel them to the top trending list, thus gaining prominence as top trend setters (and more visible to other users). We found evidence suggesting that the accounts that do so tend to be verifi ed accounts with commercial purposes.

If correct this research is meaningful for Sina ($SINA), its investors and advertisers. Many claim that Weibo has much more use user engagement than Twitter, and that in fact it is the “Facebook+Twitter of China”. If a material percentage of the engagement turns out to be fraudulent, advertisers and investors may view the product in a different light. Real-name registration could help clarify these issues, as posting and retweeting by fraudulent/spam/zombie accounts should decline significantly, assuming real name registration is actually enforced.

It would not be surprising if Tencent, Sohu ($SOHU) and Netease ($NTES) Weibo have similar dynamics.

The full paper:

Artificial Inflation: The True Story of Trends in Sina Weibo

View more documents from Digicha

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Quick Thoughts Ahead Of Sina Earnings

  • Posted by on February 27th, 2012 at 12:23 pm
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Sina ($SINA) announces earnings after the close today.

I expect Q4 results and Q1 guidance will likely be as disappointing as Sohu’s ($SOHU).

At least as important as fundamentals will be Sina’s discussion of Weibo activity, monetization progress and details of the government-mandated real-name registration system.

Investors and/or analysts should push management to detail exactly how the real-name registration system will work, including disclosing all associated costs. I wrote a few weeks ago (New Registrations For Sina Weibo Appear To Have Fallen Off A Cliff) that according to Chinese press reports Sina had seen a dramatic slowdown in new Weibo registrations since January 1. The company subsequently told some investors and analysts that those reports were not true.

Sina needs to disclose the number of new registrations since January 1 as well as clarify whether or not they have forced new registrants to use their real names and ID numbers that the company then verified. There is some ambiguity over that point; I have heard from a few people that they were able to register a new account on Sina Weibo after January 1 without a real-name requirement.

Users who do not want to register with their real names will still be able to read posts but will not be allowed to write posts, comment, or forward posts. For those “watchers” Weibo may become more like a Web 1.5 product, and depending on how many users decline to give their real names much of the assumed engagement value (the Facebook+Twitter of china hype) may evaporate.

As for Weibo monetization, Sina has apparently been working on a Facebook-like ad targeting system and is hosting an industry event in March. Investors should hope the company announces this new system and an impressive roster of advertisers. The Weibo Android and iOS apps now carry banner advertising, and ThinkEquity’s Henry Guo analyst and Sina bull wrote in a recent note that:

The monetization potential is significant if these banner ads gain tractions. For iOS, RMB 2.8M/month for 25% of time => $21M annual revenue. For Android, RMB 2.3M/month for 25% of time => $18M annual revenue.

We believe pricing for banner inventory on desktop Weibo should be much higher than that on mobile app.

Sina has recently launched a food channel (http://food.weibo.com/) on Weibo to aggregate restaurants and give them a home to promote discounts, events etc. I believe this is free for now but should eventually be monetizable (and Dianping should be worried).

Sina needs to start delivering revenue and profit in Weibo. The stock trades at less than half of its 2011 high but is up 40% or so in just over month. The smart money has moved beyond the hype.

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Tweeting The Sina Q4 2011 Earnings Call

  • Posted by on February 27th, 2012 at 10:08 pm
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Sina reported disappointing Q4 2011 results and Q1 2012 guidance.

I tweeted the earnings call and have embedded some of my comments below. CEO Charles Chao did not sound confident and used the words “uncertain” and uncertainty” several times. The company is clearly concerned about the impact of real-name registration.

The legacy portal advertising business is under some pressure and the company blamed the disappointing Q1 guidance on a slowdown in Ecommerce and automotive sector advertising.

I would expect the stock to drop Tuesday and am curious to see how the sell side Sina bulls spin what can not possibly be called a positive release or conference call.

I have not had any position in Sina in almost two years but if it goes below $50 I may be a buyer. Weibo is still an amazing product with significant value, even if the “Facebook+Twitter of China” hype has blown off. The stock will probably get a bump around the Facebook IPO regardless.

Here are some of my tweets, apologies for any typos:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Groupon’s China Firesale

  • Posted by on April 19th, 2012 at 3:30 am
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Pando Daily has a summary of what looks to be the final deal for Gaopeng, Groupon’s ($GRPN) disastrous China venture. In Groupon’s China Effort Takes Another Slap in the Face the Pandos write that:

It has been well established that Groupon sucks in China, badly. Now, as if we needed it, we have further confirmation. Gaopeng, the daily deals company’s joint venture with Chinese Internet giant Tencent, is going to merge with a similar service FTuan before the end of next month.

Chinese tech blog Tech Node reports that the move shows Tencent is asserting its control over the money-losing venture. As it happens, Tencent is also an investor in FTuan, which effectively competes with yet another Tencent-owned daily deals service called QQ Tuan, which leverages the company’s 700 million instant-messenger users. Like Gaopeng, FTuan’s fortunes have been waning in recent months, with the service slipping out of the country’s top-10 deals services last October.

Tencent has apparently been dissatisfied with the way Gaopeng is being run, so it will transfer its stakes in the Groupon-led effort to FTuan, leading some Gaopengers to worry about losing their jobs in the likely event of downsizing. At last year’s TechCrunch Disrupt Beijing, Tencent founder Pony Ma was less than glowing about Groupon. In response to Sarah’s question about the company, Ma said “I don’t want to speak ill of a partner…” before going to say that in general it has proven that the Chinese market is vastly different than America’s.

Last July Groupon valued Gaopeng at 500 million dollars in a transaction to buy out much of the Samwer brothers’ stake. How on earth did they arrive at the valuation, and which accountant signed off on that absolutely ludicrous number?

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