China's ENCS reported that Twitter (NYSE:TWTR) disclosed that it has roughly 10m users in China. Because VPNs are widely available in China, logging into US sites such as Twitter and Facebook are not as hard as it seems. For example, when living in Shanghai, my friends and I all have access to Facebook, Twitter and Instagram and it was never an issue with censorship because the VPNs are very reliable. In fact, anyone who visits a shopping mall and goes to an electronic reseller can purchase a VPN for as little as $8 USD. Because it is easy to obtain a VPN, I'm not surprised at Twitter's estimate that it has 10m users in China. In fact, I would think that 10m is too low because techcrunch.com estimated that Twitter has about 35m in the country. If we assume the midpoint, then 22.5m users in China is still impressive and this would be equal to 7% of the total monthly user base. Very impressive, in my view.
Does Twitter have a future in China? I strongly believe that.
First, Twitter is a very robust and informative news site that gives Chinese users superior access to western media and news. Although the Chinese media also report foreign news events, the quality of their reporting is stoic and poor. They often lack any unique insights and sometimes present a negative image of the event rather than highlighting the key point. For example, reporting on illegal immigration in the US would focus on how the US is not a welcoming country but fails to address the GDP contributions these immigrants bring to the country. Gun violence in the US is used to endorse the government's decision to ban fire arms in China as oppose to talk about the macro issues on gun control and the origin of the second amendment. Because of the somewhat distorted news flow in China, Twitter actually presents a more objective picture relative to the Chinese media.
Of course the key is for the user to understand English to fully appreciate Twitter's content. The good news is that English learning is accelerating in China thanks to affordable online platforms. I recently wrote an in-depth report on China Online Education (NYSE:COE) that specializes in online conversational English and I think the company is well positioned for growth. Please have a read: China Online Education: Best Of Both Worlds.
Second, although Twitter is blocked in China, Twitter should work with the government to create a filtered version of the app to appeal to the Chinese market. While I understand that some may argue that it is wrong to censor, it is also important to understand that in order to do business in China companies must censor sensitive information. Twitter's user growth has been slowing and engagement has been declining. Sooner or later Twitter will lose out to Facebook and become irrelevant. China could help Twitter build users and generate revenue growth but a certain amount of sacrifice is required.
Third, will Twitter succeed in China? I believe so. Twitter's growth will come at the expense of Weibo (NASDAQ:WB) which is a Chinese version of Twitter. Weibo exists because Twitter wasn't available in China but if Twitter can break into China then I believe Weibo users could migrate to Twitter to be on a better platform and gain international exposure. Besides, all the relevant updates from Weibo can be obtained from Wechat anyways so Chinese users are not giving up much by jumping to Twitter from Weibo.
In conclusion, I believe that Twitter has a real shot at China as its current user base acts as a good foundation and the quality of its content is much superior than the other microblogs.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.