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SINA Weibo Enterprise User Activity Update JL Warren Capital www.jlwarrencapital.com (001)646-398-9973 Feb 13, 2013

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Summary: Using Goldpebble Weibo Activity Monitoring System (GPWAMS), we see Weibo user activities have been growing over the past months. Weibo paying enterprise users has surged while daily/monthly blogging user growth has decelerated. Total Weibo users, daily blogging users and monthly blogging users reached a new high of 363mn*, 14.7mn* and 50.9mn* respectively in December 2012. The number of enterprise users accelerated to 354k* from 328k* in November. The number of paying users more than doubled from 308k* in November to 691k* in December. The bear view is that the fast-growing Tencent(HKEX:0700) Wechat app has taken a majority user share from Weibo. We disagree after looking into the reasons behind the recent paying user surge. Sixty-eight percent of Weibo users log on to Weibo with a mobile handset now. With the CEO in charge of Weibo business and the whole company focusing on mobile device usage, 2013 will be the start of the platform’s monetization. At the same time, Sina has sped up testing its new forms of social-based advertising (mid Jan, 2013), released its ‘Like’ button feature to third-party websites and apps (early Jan, 2013), added an app store on its Weibo app (mid Jan, 2013), harshly cracked down on the unofficial advertisement activities (mid Jan, 2013), and acts as a sales platform for Smart cars and Xiaomi handsets. We estimated the revenue from Weibo’s banner ads for branding clients will be limited by its display space and capped at $371mn* per year based on current user activities and rate card. Sina needs to develop a social-based advertising system to increase the revenue from SMEs without compromising user experience. We think Sina is ready to release priority display on followers’ pages and is testing suggested posts, locations, and search result recommendations. These features are based on a very similar technology framework that Facebook (NASDAQ:FB) has implemented. The fixed banner advertising client of Weibo overlaps with the sina.com.cn portal. We have been counting Weibo’s advertising banners on PC, Android phone and iPhone for the past several weeks. We found Weibo already penetrated over 60 top global brands

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http://sina.com.cn/


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as well as top local brands. We further did a screen of top global 500 brands to 219* and got Weibo enterprise accounts with an average of 334k* fans/followers. China has its unique culture, internet development, consumption pattern, and online spending behavior. The monetization path Sina is following is unprecedented in China. Weibo is doing more than advertising. We looked into its monetization of its 229* web games, 15,697* Weibo apps and Android app store inside the Weibo app, and recently fulfilled sales transactions. A strategic partnership with current P4P search providers like Baidu (NASDAQ:BIDU) (search links) or Alibaba (Taobao Through Train) may bring mutual benefits to both parties. Baidu is the largest online advertising platform with more than $1 billion in quarterly revenue and Taobao Through Train is earning around $700 million* in quarterly revenue. Sina, with $100 million earned from fixed banner ads from the portal and $20 million from fixed banner ads on Weibo, may instantly monetize its traffic while Baidu and/or Alibaba can not only get revenue but access the traffic of one of the best mobile apps in China. Alibaba's Taobao and Sina's Weibo are already referring two-way traffic leads to one another, thus creating more synergy between the two. It has been confirmed by several media reports that Alibaba and Baidu are both in talks with Sina about buying a part of Weibo.



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Weibo User Activities Plateauing, at a Very High Level

Goldpebble developed Goldpebble Weibo Activity Monitoring System (GPWAMS) in September 2012 and is able to randomly sample millions of Weibo users per month. With this system, we did a research in 2H12 about Weibo’s users and found the majority of Weibo’s registered users are dormant (or ‘zombie users’). At the same time, Wechatgrew its number of users significantly to 300mn, with less than half of the time as Weibo. Investors are interested in trying Wechat, and thus image Weibo’s activities are declining. It is a typical bias of own experience.

Chart: Sina Registered User and TencentWeibo Registered User

Source: Sina, Tencent

Our GPWAMS data show, however, Weibo user activities are still growing, though at a slower pace. But the number of paying users and enterprise users is still increasing at a very high speed month over month. We saw total users, daily blogging users and monthly blogging users reached new high to 363mn, 14.7mn and 50.9mn respectively in December 2012. The number of enterprise users accelerated to 354k. The number of paying users more than doubled from 308k to 691k in December.



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Table: User Activities for Oct to Dec, 2012

Source: GPWMS, www.goldpebble.com

The paying Weibo users got 24 features. Most of the features are ‘ornaments,’ but there are certain features with good utilizations. For example, Sina launched more space of Weidisk for paying users since mid-September 2012. The paying user can get 100GB to 1TB of cloud storage for free. With the 10 RMB per month Weibo paying user fee, the Weibo paying user’s cost for cloud storage is merely a fraction of Dropbox’s $19.99-$49.99 per month for 100-500GB storage.

Chart: Weibo Paying User Privilege

1. Identity Privilege: Exclusive symbol, Exclusive theme， Exclusive medal， Exclusive number account, Exclusive customer service 2. Feature Privilege: Block function, Priority weibo, Increase the up limit of group function,Accelerating growth level, Recommend, User-defined cover page, Priority place displayed at friends, Huge storage space in Weidisk, Increase the up limit of follow, Follow secretly 3. Mobile Privilege: Voice weibo,Special follow function withsms, Birthday remind, Exclusive theme on client software 4. Safty Privilege: Smssecurity remind, Sms password reset 5. Game Privilege: Exclusive game gift, Game privilege card

Source: Weibo.com

Organization Restructure Boost Weibo Monetization



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At the end of 2012, Charles Cao, CEO of Sina, announced organization restructure of Sina. In an open letter to his colleagues, he illustrated the strategy of ‘Mobile First’ in 2013 for Sina. The company will be divided into two business units. Charles Cao is the head of Weibo business, and the COO, Hong Du, is the head of its portal business. The Weibo app is one of the most popular app’s on mobile handsets in China. According to Sina, Weibo has 42mn daily active users, and the daily average usage for an active user on Weibo is around 1 hour. In a recent conference call, Sina said that 68% of Weibo users log to Weibo with a mobile handset (47% log on to Weibo with a PC). With the whole company focusing on going mobile, 2013 will see some of Weibo’s milestone developments. At the same time, Sina has sped up testing its new forms of social-based advertising (mid Jan, 2013), released its ‘Like’ button feature to third-party websites and apps (early Jan, 2013), added an app store on its Weibo app (mid Jan, 2013), harshly cracked down on the unofficial advertisement activities (mid Jan, 2013), and acts as a sales platform for Smart cars and Xiaomi handsets.

Social Based Monetization Accelerating, targeting SMEs

Weibo started its monetization in Q2 2012 and recorded $10mn in advertising revenue for Q2 2012 and $20mn in advertising revenue for Q3 2012. Current Weibo monetization is mainly from fixed banner advertising. The clients are all brand owners who advertise for the purpose of branding. Although Weibo advertisement revenue is still growing very fast, we are inevitably seeing the bottleneck of the limited fixed/banner advertisement inventory.

Given that there are 42mn daily active users, and that each user will see roughly six banners every day, there will be 252mn views per day. Together with an average of 25 RMB per CPM, daily revenue can be topped at RMB 6.3mn for Weibo (or $371mn per year). This is why Sina must develop other forms of advertisement, including, app recommendations, enterprise account recommendations, web game operations, and paying user features. We are seeing that Sina has spent a lot effort on developing a social-based advertisement system so as to expand its revenue potential. At the same time, social-based advertisements have less negative influence on the user experience.

Algorithm Sort Starting on June 18, 2012, Weibo enabled users to read the Weibo interface in an algorithm-sorted order rather than chronological order. This is a very similar function to that which Facebook introduced in November 2011. We think it is one of the foundation functions to plug on the social-based advertisement.



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Weibo/Facebook can insert social-based ads into users’ news feed panels according to the users’ relationships, blogging and other profiles.

Chart: Intelligence Sort Feature of Weibo and Facebook:

Source: Weibo and Facebook

Priority Display on Follower’s Panel: This feature enables enterprise users to pay for each display on the top of their follower’s page. It was tested by a big banner client during the summer of 2012, and Sina is going to open this feature to all its 340k* enterprise accounts. This is a very good monetization idea that hurts very few of the users; for instance, if a user “follows” BMW on Weibo, he or she will see BMW’s current promotion on top of its page. We are seeing the infrastructure for enterprise users are partially ready, and the preliminary pricing is out (bidding by CPF or/and CPE starting from RMB 5 and RMB 0.5 each).

Chart: Advertisement Center for Priority Display on Follower’s Panel

Source: Weibo.com



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Suggested Post: Sina did a test on Suggested Posts in mid-January 2013. The form is very similar to Facebook’s wherein it inserts related advertisements into the reading panel. It is further enhanced by the Expanded Blog feature to display not only a short form of 140 characters but also the video, picture and links.

Chart: Weibo Suggested Post and Facebook Suggested Post

Source: Weibo.com

Chart: Expanded Blog

Source: Weibo.com



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Suggested Location: In the past couple of weeks, Sina is also testing location-based suggested posts. It is currently to blend a Weibo in your screen based on your geographic information and your friends’ check-in action, which displays when your friend has visited a restaurant or a place nearby your current location.

Search Result Recommendation: Weibo started to recommend its own content based on search query. We believe it will be open to enterprise users in the future.

Chart: Weibo Suggested Location Post Chart: Recommended search result

Source: Weibo.com, Weibo Android App

Fixed Banner for Brands, Mobile to Catch Up

The fixed banner advertising client of Weibo has a big overlap with the sina.com.cn portal. The portal, sina.com.cn, ranked number 4 in China and 16 globally by Alexa, is currently making $400mn a year(Weibo.com ranked sixth in China).We have been counting the banners on PC, Android phone and iPhone for a whole week and found Weibo already penetrated a lot global top brands, including Coke, Philips, Adidas, Estee Lauder, Louis Vuitton, Mercedes, Jonny Walker, Samsung as well as top local brands (Appendix 1: Weibo Banners Ads, the last week of January 2013).



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We further did a screen of the top 500 global brands to find that 219 of the top 500 brands opened Weibo with 334K fans/followers each.(Appendix 2: Top Brands with Weibo Accounts)

In a recent conference call, Sina said that 68% of Weibo users log on to Weibo with a mobile handset (47% log on to Weibo with a PC). Fifteen percent of users log on to Weibo with both a PC and a mobile. The mobile is already the primary screen for Weibo users. However, when we look into current advertisement rates for Weibo business, we found that mobile advertisements are much under-monetized. For example, Weibo PC advertisement lists as RMB 20-40 per CPM (depending on location of the banner) while the top banner advertisement on the android app charges only RMB 8 per CPM and the iPhone app charges only 12 per CPM. During our advertisement counts, we also found fewer banners on its apps. This finding is in line with the fact that global advertisers have not found sufficient technology to do advertising on mobile versus on a PC. We think we are starting to see a bigger gap between mobile time spent versus advertisement budget in China. It is our opinion that this gap will be narrowed over time.

Chart: Major Banner Rate Card

Top Banner (PC): RMB 40/CPM

Activity Banner (PC): RMB 25/CPM



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Login Banner (PC): RMB 35/CPM

Top Banner for Android App: RMB 8/CPM

Top Banner for Apple App: RMB 10/CPM

Source: Sina Rate Card, November – December 2012 Rooted differently – Diversified Monetization for China’s User

Even today, investors are making the comparison between Weibo and Twitter because of the 140-character limit and its appeal to the public. However, there is one fundamental difference, which is that 140 Chinese characters contain significantly more information content than 140 English characters. The information entropy of Chinese characters is 11.3 while the information entropy of English characters is 4.7. With the



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expanded blog feature, the information one Weibo post can contain far more than one Twitter.

China has a unique culture, average income level, internet development, and online spending behavior. The monetization path that Sina is currently undertaking has never been practiced in China. Sina is trying to monetize in its own way.

Weibo’s monetization is at its early stage, compared with Facebook and Twitter. More notably, Weibo’s current $20mn quarterly revenue comes mainly from fixed banners, while Facebook’s and Twitter’s revenue comes mostly from social-based ads. Since Weibo’s monetization just started 7 months ago, it is far less than even the combined revenues of Facebook and Twitter.

Table: AdvRevenue, per User Revenue of Weibo, Facebook and Twitter

Source: Sina Q3 2012 result, Goldpebble Weibo MAU estimate, Facebook Q4 2012 result, Twitter Announcement

We are seeing many more revenue forms for Sina Weibo than Twitter. Besides banner advertising, social-based priority/suggested posts, and the paying user scheme, we are seeing that Weibo is generating revenue from webgames, open platform apps, Weibo app store, and fulfilled sales transaction.

Web Game: Weibo launched its web game platform on July 18, 2011. It started free for developers and now charges a 30% cut from revenue generated. Currently, there are about 229 web games running onWeibo,32 of which got more than 500,000 registered users (number of Weibo users who played that game). Weibo users can play and pay for the games directly with their Weibo accounts without other registration.

Weibo Facebook TwitterMAU 100mn 1,000mn 200mnQuarterly Adv Revenue ($) 20mn 1,330mn 100mnPer MAU per month revenue ($) 0.067 0.443 0.333



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Table: Weibo Web Game Count

Source: SinaWeibo, Goldpebble Research

Third party platform: Weibo also maintains a third party app platform that currently hosts15,697*Weibo apps. Those apps are as simple as account-link functions to the third party applications (on web, mobile or PC) or as complicated as a full set of software. Some of those Weibo apps are starting to charge their users and thus, Weibo may charge those developers for profit sharing. However, this app platform is just to show that Weibo is trying some other monetization; it is not as profitable as those web games.

Table: Weibo App Count

Source: SinaWeibo, Goldpebble Research

App Store within Weibo App: Just several weeks ago, Weibo integrated an app store in its Android app to recommend apps to its user by traditional categories and featured topics. It is currently charging app developers for recommendations.

No. of Games with User >1mn >100k, <1mn <100k TotalSimulation 2 19 13 34Strategy 2 9 23 34Role 2 22 34 58Card 5 7 18 30Casual 2 6 19 27Single Player 0 11 35 46Total 13 74 142 229

No. of Apps with User >10mn >1mn, <10mn >100k,<1mn <100k TotalCasual 10 34 245 6,151 6,440 Life 1 11 38 3,277 3,327 Social 11 46 142 2,891 3,090 News 4 5 26 942 977 Tool 1 26 105 1,731 1,863 Total 27 122 556 14,992 15,697



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Chart: Weibo App Store in Weibo App

Source: SinaWeibo

Fulfill Sales Transaction:Weibo has been trying to fulfill the merchandise transactions so that the social interaction between brand owner and its followers/fans can finally lead to sales, within the same platform. Through Weibo, Xiaomi has sold 50,000 handsets just in minutes in December 2012 and Mercedes sold 666smart cars just in hours in January 2013.Those transactions, including the payment, are all fulfilled by the Weibo platform.

Chart: Smart Car Weibo Page

Source: SinaWeibo



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Coop with Alibaba or Baidu, the gate to immediate SME revenue

Since November, there have been reports that Alibaba and/or Baidu are acquiring part of Weibo. According to an interview with Tong Shihao, a partner at Qiming VC, Alibaba and Baidu are both speaking with Sina about buying a part of Weibo. We understand that it makes great sense for Weibo to cooperate with Taobao Through Train or with Baidu’s P4P business. This can be a trigger for valuation realization in the market.

Sina’s current advertisers are big brand owners who can afford millions of dollars in advertising budget per year (mostly for branding), while bringing in more revenue depends on social-based advertisement from SMEs. Both Baidu and Taobao have expertise in dealing with those SME advertisers.

Baidu tried browser, Chinese input, voice search, video, travel, music player, and map with apps, but has never developed a hit mobile and Weibo can be its strategic traffic channel for mobile. Baidu had 390,000 active online marketing customers in 3Q12 and the quarterly revenue for each active customer was only RMB 16,000. Sina got 354k enterprise accounts on its Weibo and most of them are SMEs. The cooperation between Sina and Baidu can be very complimentary to both parties, especially given that Baidu made $995mn in 3Q12 and Weibo only made $20mn, while Sina’s total revenue was $152mn for 3Q12. This can be an immediate revenue model for current enterprise accounts on Sina.

Taobao, although a c2c and b2c platform, acquires its revenue mainly from P4P Taobao Through Train. In 2012, its GMV reached RMB 1trn and we guessed its advertising revenue at around $3bn, just next to Baidu in China’s online advertising space. The users for Taobao are mostly young people while Sina Weibo users are mostly middle class white collars. There are many unofficial advertising activities on Weibo that already lead Weibo’s traffic to shop on Taobao. Taobao is the best at fulfilling its platform and the Alipay system. Taobao is quite meaningful to Weibo business as it can directly enable Weibo to generate sales for big clients in some categories, such as group buying sites as well as SMEs.



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