Summary of recent developments. Sina (SINA) shares have risen 8.2% since the company reported solid 4Q10 results on March 1, primarily driven by encouraging data points on microblogging service Sina Weibo and the launch of its "Weibo Air" desktop client software. By the end of February, Sina Weibo had reached 100 million users, surging 100% in a four-month span. Despite losing the race to the 100-million milestone to Tencent (TCEHY.PK), the largest Chinese Internet company in market cap, Sina Weibo attracted much more browsing time than any other competitors, according to management citing third-party research. "Weibo Air" enables Sina Weibo users to chat with each other via instant messaging in a desktop software, challenging Tencent's core product - Tencent QQ. In light of the heightened rivalry with Tencent, Sina management has decided to significantly increase the investment in Weibo, but not to make its monetization as a priority in 2011.
Entering an all-out battle against Tencent. I believe the race to the 100-million landmark and the launch of "Weibo Air" indicates the competition between Sina and Tencent has ascended into an all-out battle, spreading from users' browsers to desktops, and putting billions of market caps at stake. My research shows in Sina's over $5 billion market cap, investors have assigned a $1 billion-$3 billion valuation for Sina Weibo. I thus believe Sina's shareholders cannot afford losing this "microblogging battle" to Tencent, a company with impressive track record of conquering new territories leveraging its huge instant messaging user base (636.6 million as of September 30, 2010).
Sina shareholders should stick to the stock for now. Despite its $1 billion-$3 billion market cap at stake in the "microblogging battle", I believe Sina remains the best publicly traded stock for U.S. investors to play the promising social media theme because of three reasons: First, industry leaders Facebook and Twitter are still privately owned despite their high valuation; Second, Tencent shares will not have much upside potential even if Tencent wins the battle because Tencent's current stock price has already reflected its well-known status as the "Facebook of China". Tencent has a lot at stake, but not much to gain from this battle, in my opinion. Third, I am positive for Sina's outlook in the "microblogging battle" because I clearly feel that Sina "wants it more": In an interview with China's central televison station CCTV, while Tencent management told reporters that Microblog was a "strategic product," Sina CEO Charles Chao said that Sina was devoting almost all of its resources into Weibo. I believe investors should give Sina the benefit of the doubt for now, and wait and see what happens in the rest of 2011, the "Year of Microblogging" in China.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.