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Sina Corp. (SINA), which runs the Twitter- like Weibo service in China, slid to the lowest in five weeks in New York after the company suspended user comments on its microblogging platform.
Sina dropped 2.1 percent to $63.66 at the close on the Nasdaq Stock Market, the lowest price since Feb. 27. The stock earlier tumbled as much as 4.9 percent to $61.85. The amount of shares traded reached 8.7 million, or 49 percent above their average three-month volume in U.S. trading, data compiled by Bloomberg show.
Shanghai-based Sina, which has more than 300 million registered users, started a 72-hour suspension of Weibo’s comment function from 8 a.m. in Beijing on March 31, citing a need to “clear up rumors and illegal information,” according to a statement on the site. Users opening a microblogging site run by Tencent (700) Holding Ltd., China’s biggest Internet company by market value, saw a similar notice.
“Initially, there was a knee-jerk reaction to the potential of a stricter regulatory environment,” Andy Yeung, a New York-based analyst for Oppenheimer & Co said by telephone. It’s “a signal by the government to social networking sites to take steps internally to be more careful in the future.”
China arrested 1,065 suspects and deleted more than 208,000 “harmful” online messages as part of a nationwide crackdown on Internet-related crimes since mid-February, the official Xinhua News Agency reported on March 31, citing an unnamed spokesman from the Beijing City Police’s cyber-security department. On March 30, Beijing Police announced the detention of six people for “fabricating and spreading rumors” on the Internet and forced 16 websites to close.
The prospect of further government-ordered shutdowns of Weibo will weigh on Sina’s share price, Echo He, a New York- based analyst who covers Chinese Internet stocks for Maxim Group LLC, said by telephone, reiterating her sell recommendation and a $51 price estimate for the shares.
“Even though I would think Sina will try their best to prevent this from happening again, the possibility of another shutdown is not going to go away,” He said. “Regardless of the suspension it’s very hard to make money in Chinese online advertising.”
Sina recorded 76 percent of its revenue from ads last year and said in February that ad sales in the first quarter will be “disappointing” as customers cut spending.
The closing of Sina’s comment function is “negative, as we believe that comment functionality is key to Weibo user engagement,” Qi Guo, a San Francisco-based analyst at ThinkEquity Partners LLC, wrote in a research note today.
Guo reiterated a buy rating on Sina, and a 12-month price target of $87. Analysts at three other securities companies reiterated their buy ratings on Sina today.
Tencent was unchanged at HK$216.60 in Hong Kong today, after dropping as much as 2 percent.
To contact the reporters on this story: Belinda Cao in New York at firstname.lastname@example.org; Leon Lazaroff in New York at email@example.com
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