Two weeks ago, Chinese social media company Weibo (WB +2.08%) made its debut on the Nasdaq. At $17 per share, the company was priced at the low end of estimates, and shares quickly skyrocketed to $24 before settling down.
While Chinese social media companies tend to have business models that run parallel to their American counterparts, the comparisons are not exactly the same. Investors need to consider some key differences before making the decision to add these companies to their portfolios.
You've got Chinese social media wrong
Weibo is usually referred to as "The Twitter (TWTR +0.00%) of China," while social media company Renren (RENN +4.06%) is considered to be "The Facebook (FB +1.29%) of China." In truth, however, the comparisons are a bit more nuanced then at first glance.
Even though both Weibo and Twitter share many things in common, there are some important distinctions between the two companies.
Weibo: More features, more social
While Twitter offers a messaging feature for users, this aspect of the site is relatively unimportant. The primary focus of Twitter is in composing and reading "tweets."
Weibo's messaging feature, on the other hand, is much more versatile than Twitter's version. On Weibo, users can delete and forward messages, as well as add videos, pictures, and audio clips to their messages. This gives Weibo a greater social element that allows friends to interact with one another similarly to how they might on Facebook, while still allowing for the public element present with Twitter.
Does Weibo = Twitter + Facebook?
In addition to the importance of messaging prevalent with Weibo, the company also offers games and in-site apps to users. This creates an element to the website that more closely resembles Facebook. However, Weibo is not Facebook, nor is it Twitter.
Unlike Facebook, users are able to follow anyone on the platform without the other person's approval. Additionally, users are restricted to 140 characters, just as they would be on Twitter. Unlike Twitter, however, users are not restricted to a total of 140 characters for reposts, but instead can add an additional 140 characters to the messages, which allows greater flexibility in commenting on messages. In turn, this has led to a greater number of reposts.
Additionally, users are more likely to use Weibo for fun and entertainment, while Twitter users tend to rely on the website for reading news. These differences contribute to a social networking site that resembles something of a cross between Twitter and Facebook.
What about Renren?
If Weibo has aspects of both Twitter and Facebook, where does that leave Renren, which has also been referred to as the "Facebook of China"? Actually, Renren is more like the Myspace of China.
In December 2012, Renren had 56 million active monthly users. A year later, it had only 45 million. Renren has been declining in popularity, largely as a result of the rising popularity of Weibo, and if current trends continue, it will face the same predicament that Myspace did.
WeChat: The Facebook Messenger of China
While Weibo's messaging feature is extremely popular in China, and remains a main form of communication in the country, competition from WeChat is increasing.
WeChat is a mobile messaging application similar to Whatsapp or Line. Users can message friends, form chat groups, call people for free, or send pictures and audio files. In its most recent earnings report, Tencent, the holding company that owns WeChat, reported that it had nearly tripled its monthly active user count from a year ago to 236 million. Its popularity has been so huge, in fact, that many telecom operators have actually reported declines in revenue as a result of people messaging via WeChat, rather than sending text messages.
As WeChat continues to gain popularity in China and becomes more integrated into the daily lives of Chinese users, Weibo could lose some value as a social network platform.
While the number of active users on Weibo continues to increase, its growth rate has declined. Additionally, users on Weibo appear less active on the site than in the past, largely a result of WeChat's increasing popularity.
As use of WeChat messaging increases, the need for Weibo decreases, as WeChat offers an alternative platform that more directly targets what users want to do: communicate with friends.
A new way to view chinese social media
Considering how these sites are used, you gain a different view of Chinese social media companies compared to American counterparts.
Weibo is no longer the "Twitter of China," but a combination of Twitter and Facebook. Renren is a declining technology losing way to other social media sites, just as Myspace lost out to Facebook several years ago. WeChat is the "Facebook Messenger of China" that threatens Weibo's business model, but not its entirety.
Investors should understand the differences between these companies before they make any investment decisions.
