Will Tencent’s Weibo Spending Spree Destroy Sina’s Weibo Profit Potential?

• Posted by bbishop
• on June 9th, 2011

Tencent has fully engaged with Sina ($SINA) in the war of the Weibos, spending millions on marketing, including six- and seven-figure deals to lure celebrities to the Tencent Weibo platform. Sina has a head start, but Tencent has more than a billion dollars on its balance sheet and generates hundreds of millions in free cash flow each quarter. Tencent can spend tens of millions a quarter marketing its Weibo and investors might barely notice.

Sina on the other hand does not have nearly the business of Tencent. Weibo is do or die for its stock price, and as long as Sina can convince investors that it should be treated as a concept stock–the Twitter/Facebook of China–profits don’t matter. But Sina Weibo is not Twitter and it will never dominate the Chinese market the way Twitter dominates every major market but China. Tencent is here to stay, and appears willing to spend Sina into serious financial pain.

Are Sina investors starting to realizing the threat Tencent poses? Is Tencent one of the reasons the Sina management team is dumping stock?

You can follow me @Bill on Stocktwits, @Niubi on Twitter and @Billbishop on Sina Weibo.

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