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Chinese Internet Monetizes, Hits ‘Adolescence’ as Censors Are Content

TAIPEI (TheStreet) -- A trio of Chinese Internet heavyweights announced plans this month to start a platform for independent news bloggers. The paid service comes as a bellwether for today's China as bloggers get fewer but more serious, providers learn to make money and the criticism-wary Communist government perfects content controls.

Sina's (SINA) Weibo (WB) platform will find advertisers linked to blog content as it plans to start by the end of July, according to Chinese tech media. Qihoo 360 (QIHU) will offer links to recommended content and UCWeb will suggest independent blogger articles to users of its browser.

This partnership follows Weibo's statement in May that it would monetize its platform to let independent bloggers get a share of revenues from ads on their posts.

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At the same time, China's blogging ranks are shrinking as dedicated commentators dig in while experimental ones drop out or shift to social media. Total bloggers dropped from 309 million in 2012 to 281 million last year. And the government's censorship scheme has expanded from blocking sites according to crude keyword searches some 10 years ago. Now censors use 60 local and central departments to keep track of text, images and innuendo.

"Blogging in China is far from dead. It has just moved from a nascent to an adolescent stage," says Danny Levinson, Beijing-based former CEO with marketing software firm Vocus. "Chinese regulations have always existed to frame how netizens shout, cry, laugh and smile online, and both those laws and expressions will not change anytime soon."

The trend offers increased safety to investors. Chinese Internet firms listed in the U.S. should report strong earnings as monetization efforts pay off. Polished censorship lowers the risk of a mass crackdown that could knock bloggers offline and threaten the income of their providers. Occasional flaps such as the porn sting against Internet portal Sina in April are just occasional.

A relief to censors wary of political content and monetization schemers looking for wealthy users, bloggers themselves increasingly fit a pro-business profile.

"Independent news" refers not to antigovernment stories but to any blog not under mainstream Chinese media. That crowd often covers fashion, food and sports, says Riley Hageman, analyst at tech research firm Marbridge Consulting.

Weibo's platform, backed by a household name among Chinese micro-bloggers, has registered 17,000 health professionals and 81,000 information technology experts, the tech media say. Those bloggers generate average yearly page views of 9.13 million per account.

"The independent blogger platform falls in line with strategies seen in China's video, online literature and other markets to develop grass roots stars on Internet platforms," Hageman says.

The quest for money may take blogs from their "adolescence" to adulthood, as businesses use them to sound out consumers. A buyer on Chinese auction site Taobao.com can now communicate with a shop through a microblog account, the shop's page on Taobao.com and the shop's blog on another platform, Levinson notes. "There is still growth in some areas," he says.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates SINA CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SINA CORP (SINA) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The share price of SINA CORP has not done very well: it is down 16.69% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 151.8% when compared to the same quarter one year ago, falling from -$13.17 million to -$33.17 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, SINA CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • SINA's debt-to-equity ratio of 0.70 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 5.71 is very high and demonstrates very strong liquidity.
  • SINA CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SINA CORP increased its bottom line by earning $0.59 versus $0.45 in the prior year. This year, the market expects an improvement in earnings ($0.78 versus $0.59).

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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