SINA Corp (SINA): The Impact of China’s Anti-Porn Crackdown

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SINA Corp (NASDAQ:SINA) shares tanked 6.76% On Friday to close at $48.15 amid China’s anti-porn crackdown. According to Xinhua News Agency, Chinese government is going to suspend SINA’s Internet publishing license and the audio/video program transmission license. The Shanghai-based Internet giant is ‘accused’ of disseminating pornographic content on its websites.

Authorities found 4 inappropriate videos and 20 articles on SINA websites

The investigation into SINA Corp (NASDAQ:SINA)’s websites in part of the Chinese government’s “Cleaning the Web 2014” campaign against online pornography. The National Anti-Pornography Office has closed thousands of user accounts and hundreds of websites as part of the crackdown. The authorities have found four pornographic videos and 20 articles on Sina.com. The media and Internet are highly censored on China. Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR)’s services are banned in the world’s most populous nation.

JP Morgan analysts Alex Yao and Yong Wang said in a research note that it will take about two weeks before the government’s decision on whether to suspend the two licenses SINA Corp (NASDAQ:SINA) holds. Before the government’s final decision, the company may continue to use its Sina Literature and Sina Video sites, while conducting clean-ups of inappropriate content.

Ban on SINA’s video services may affect its revenues by 5-10%

JP Morgan has an Outperform rating on the stock. Analysts estimate that the worst-case scenario, where the government suspends the two licenses, would hurt SINA Corp (NASDAQ:SINA)’s 2014 revenues by 5-10%. But the real impact could be a little lower than that. SINA’s online literature services don’t contribute much to the company’s total revenues. However, the company generates about 10-20% of its portal revenue from video ads. So the impact of a ban on its video services would be more significant.

Though video is an important part of SINA Corp (NASDAQ:SINA)’s ads package for major events. In case its license of video services is suspended, the company may opt for other ways such as inserting videos from third-parties within news reports. The loss of video license doesn’t mean SINA’s video operations would be disabled. There are many video operators without a license.

The government crackdown comes just days after SINA Corp (NASDAQ:SINA)’s social media arm Weibo began trading on NASDAQ.

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