The Importance Of Sina Corp's Monetization Of Weibo In 2012

| About: Sina Corporation (SINA)

During Q3, Sina (NASDAQ:SINA) introduced Weibo’s virtual currency, called Weibi, which users can use to purchase virtual items on Weibo. Each Weibi equals Rmb 1. To further improve Weibo’s monetization, Sina began to charge fees for certain Weibo account numbers.

The Weibo accounts are divided into three types:

The Gold Series accounts, which include multiple Chinese lucky numbers such as “8” “6” or “7”, have a one-time fee of as much as 400 Weibi and a monthly fee of 5 Weibi. Users can choose the Gold Series accounts that have 6, 7, 8, or 9 digits. The accounts with lesser number of digits cost more due to ease of memorization.

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The Silver Series accounts contain 8 or 9 digits, and have a one-time fee of 10 – 20 Weibi and a monthly fee of 2 Weibi. The Silver Series accounts are comparable to the lower quality Gold Series accounts in terms of price (~10 – 20 Weibi).

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Finally, Copper Series accounts consist of those with randomly generated numbers and are free to use.

In my view, the monetization of Weibo account numbers could be significant because it generates reoccurring revenue for Sina and transforms Weibo into a powerful monetization platform.

As of last quarter, Weibo has 250 million subscribers. Assume that Weibo’s total user base does not increase and that 5% of Weibo’s total users are evenly split between Gold and Silver Series, my sensitivity analysis indicates that Sina could generate $83 million in recurring revenue, or 14% of the estimated 2012 revenue.

If 10% of the users are evenly split between Gold and Silver Series accounts, then Sina could generate ~$165 million in reoccurring revenue. I would like investors to note that this calculation is conservative because it does not include the one-time registration fee.

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However, North American investors will find it difficult to grasp the significance of the account number monetization, because Twitter users in the western culture do not pay monthly fees for its products and services.

To fully appreciate this concept, investors need to understand that lucky numbers are essential components of the Chinese culture, in which the people prefer to have something that symbolizes good fortune. For example, the number “8” is especially important because it symbolizes wealth and prosperity. In May 2011, Lee Kat-Kit, the son of Hong Kong billionaire Lee Shau-Kee, purchased the Gold Series “888888” Weibo account for Rmb 1.5 million, or $234,000, based on the conversion rate of 6.4 CNY:USD.

To have a better understanding of numbers in the Chinese culture, I recommend investors to read this.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.