Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Weibo Inc.'s monthly user growth dropped below 30 percent last quarter for the first time since its 2014 U.S. listing.

That minor slowdown didn't stop the Chinese social media player from posting sales and net income that beat estimates, but I've long been suspicious of the uncanny stability in its growth figures.

The dip to 28 percent annual growth, if we believe the numbers, should be just the start of an inevitable slowdown, because there's a natural ceiling to Weibo's total addressable market in China -- and the Twitter-like service barely exists outside of its home country. 

Minor Hiccup
Weibo's monthly active user growth dipped below 30 percent for the first time in 2Q
Source: Weibo, Bloomberg Gadfly

Another figure that's confounding is the rate of engagement Weibo is experiencing from new users. Put simply, latecomers seem as sticky as early adopters. Although not perfect, one metric to look at is daily active users divided by monthly active users. This weakened slightly in the second quarter to 44 percent from as high as 46 percent through parts of last year.

One explanation for this rigidity is that Weibo enjoys a honeymoon effect: When new users sign up they spend a lot of time on the platform initially because it's a shiny new toy. Investors will need to watch for any dip in coming quarters, especially considering that Tencent Holdings Ltd.'s WeChat commands a lot of user time, drawing attention away from Weibo.

Stickiness
One measure of engagement, daily active users divided by monthly active users, has remained stable at Weibo
Source: Weibo, Bloomberg Gadfly

If user growth slows and engagement softens, then this could weaken Weibo's clout with advertisers. This doesn't seem to have happened yet, as those solid second-quarter numbers show. A relative decline in revenue from services such as premium accounts highlights the importance of its advertising and marketing business, which is so fundamental to earnings that the company just cannot afford to slip up. 

Services Slip
The relative contribution from Weibo's value-added and other services revenue is shrinking
Source: Weibo, Bloomberg Gadfly

Parent company Sina Corp., which owns around half of Weibo, has noticed that gap and is looking to plug it with an expansion into new areas like financial services. In its own earnings call, Sina executives announced a $500 million fund to put into companies selling fintech products such as wealth management and insurance. 

As Bloomberg's David Ramli points out, many of these partners would be so large as to offer Sina only a minority stake given its relatively small budget. But that's okay, because there's much benefit to be derived from such investments beyond a pure equity return. 

Unlike Weibo, Sina has been boosting its contribution from non-advertising businesses. To be clear, there's some double-counting here because Sina wraps Weibo sales -- including premium accounts -- into its own P&L. But non-Weibo contributions do also include financial services.

Elsewhere
Sina has done a better job of deriving revenue from non-ad businesses than Weibo
Source: Bloomberg

Sina lags Alibaba Group Holding Ltd. JD.Com Inc. and of course Tencent in jumping into finance. What that $500 million buys is a seat at the table so that it can start testing ways in which to leverage its user base and extract more non-ad revenue, something Weibo itself should be exploring.

So while Sina may be late to the fintech party, it's better late than never.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net