Shares of Chinese social networking giant Weibo Corp (ADR) (NASDAQ:WB) were up-ended on Thursday after the government agency responsible for policing unlicensed media transmissions shut down the website’s video and audio features.
As it turns out, the Chinese like to talk politics as much as the western world likes to volley back and forth on the matter via Facebook Inc (NASDAQ:FB).
Unlike the United States, though, government censorship and a (deliberately) loose interpretation of what qualifies as audio and video media can and will quell such debate in that country.
WB stock fell 8.5% on the news, but was hardly alone. Phoenix New Media Ltd ADR (NYSE:FENG) and Sina Corp (NASDAQ:SINA) were off 2.2% and 5.4%, respectively.
It wasn’t clear from Weibo’s official notification if the same government action also targeted Sina and Phoenix New Media, in that both of those other venues also facilitate unlicensed media transmissions, but investors were quick to assess the risks and connect the dots.
What It Means for WB Stock
The news was delivered to Weibo stock holders this morning. A notification from the company explained it had received notice from the State Administration of Press, Publication, Radio, Film and Television of the People’s Republic of China (SAPPRFT) that it was to suspend several of its video and audio services because the company doesn’t have the proper license.
It’s not the first time SAPPRFT has taken aim at curbing certain types of speech and topics of communication. But, this one is a higher-profile move than most of those previous efforts. It’s also just a part of a more recently ramped-up effort to quell such communications.
It’s also not clear to what extent SAPPRFT can shut down these communications altogether. In response from Jefferies explained following the news:
“According to a statement made by SAPPRFT today, platforms which do not have the Internet Audio-Visual Program Transmission License, including Weibo, Acfun and ifeng, are required to suspend video broadcasting service as an effort to clean up politica/new/commentary-related content. However, we also note that all video and live streaming content on Weibo is hosted exclusively through Miaopai and Yizhibo respectively, both of which are owned by Yixia Technology, a parent company with the required license.”
Terrible Timing
The news couldn’t have come at a worse time for owners of WB stock.
Through Wednesday, shares were up nearly 40% since the end of April, with the bulk of that gain materializing in the middle of last month following an impressive first-quarter report. Revenue and income improved even more than expected, as did the number of active users.
Though the rally stalled a bit after the surge, it at least held its ground, with traders wanting to remain positioned on the chance more great news was coming now that the microblogging site’s growth was reaching escape velocity.
Now it’s not clear if that growth can be sustained. If (like its American counterparts) members primarily log into the platform to debate political news, that key draw was just doused, growth could be stymied.
Looking Ahead for WB Stock
The scope of the selloff today was significant, but not necessarily merited. Rather, it was a knee-jerk reaction to headlines, without much understanding of what the SAPPRFT action is ultimately doing. In the grand scheme of things, it doesn’t spell doom … to the extent the impact can be weighed.
That doesn’t mean WB stock can’t slide even lower than it already is today. It might. But, any further downside from here may stem more from sheer profit-taking than true fear of what this licensing crackdown will do. Any more selling may only be an effort to close the May 17 gap, which starts at $63.96.
Indeed, any further selling may well be a buying opportunity.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
