By Gerry Shih and Yimou Lee
SAN FRANCISCO/HONG KONG (Reuters) - Weibo Corp executives on Thursday toasted the Chinese social media firm's debut at Nasdaq's New York headquarters. Hours earlier in Beijing, Charles Xue, a Chinese-American venture capitalist and prominent Weibo user, celebrated a different kind of coming-out: his release after eight months in jail.
The timing of the two events, though coincidental, highlights the fundamental challenge for Shanghai-based Weibo: progressing from being a microblogging phenomenon in China to becoming an entrenched member of the international social media industry.
Xue's arrest for soliciting prostitutes stemmed from a government campaign launched last autumn to clamp down on online dissent, political analysts claim. Now, as Weibo celebrates its warm reception on international financial markets, its conflicts with censors at home raise the question of whether the firm known as the "Twitter of China" may eventually be derailed by government interference.
Over the past year, a series of detentions of influential online commentators may have hurt Weibo's user numbers, some researchers say.
A study released in January by Britain's Telegraph newspaper and East China Normal University in Shanghai claimed that the number of Weibo posts have fallen as much 70 percent since its peak in 2012, after the government required users to display their real names to post content.
However, the company's regulatory filings said that monthly active users have grown for eight straight quarters, including a 34-percent gain to 144 million in the quarter ending last month.
Investors chasing growth aren't fazed for now. Weibo shares rose 19 percent from its offered price of $17 on Thursday, the eighth-best debut for a U.S. listed tech stock this year.
"Weibo has to answer to two different bosses: one is the Party and one is the stockholders," said Min Jiang, a professor of communication studies at the University of North Carolina, Charlotte who studies Chinese Internet issues.
Jiang said the Chinese government enacted a series of policies - requiring real names on social media in early 2012 and introducing new laws prohibiting "rumor-mongering" last September - after the Facebook- and Twitter-fueled Arab Spring protests swept the Middle East.
"Especially after the Arab Spring there has been a top-down push to implement policies that have a real impact on the user population," Jiang said.
Chinese officials have argued the necessity of containing malicious rumors and Internet defamation in order to uphold social order in the world's most populous country.
In its prospectus distributed to potential investors, Weibo described the new online speech laws as a risk. "The implementation of this newly promulgated judicial interpretation may have a significant and adverse effect on the traffic of our platform and discourage the creation of user generated content," it said.
Weibo spokesman Matthew Lindberg said the company could not immediately respond to questions about censorship on Thursday.
On its face, the opportunity for Weibo remains enormous, with China boasting more than 600 million Internet users.
But while Weibo could see healthy growth, Mizuho analyst Marvin Lo said the public relations effect from censorship controversies could hurt, especially as Weibo competes against Weixin — the messaging app operated by rival Tencent Holdings Ltd that has gained enormous popularity partly because it is private by nature.
Weixin, known as WeChat internationally, may now have about 400 million users, according to forecasts by Barclays. Its revenue may reach almost $500 million this year, Barclays said.
The China Internet Network Information Center, a state-run agency tracking Internet statistics, said in its annual report released in January that it saw a decline in social media use, particularly among microblogs like Weibo.
The agency noted that while growth in Weibo dropped 9 per cent in 2013, mobile messaging services saw explosive growth, with apps such as WeChat logging more than 78 million new users.
Though it remains unprofitable, Weibo boosted revenues almost three-fold to $188.3 million in 2013 from $65.9 million in 2012, while its net loss fell to $38.1 million in 2013 from $102.5 million the previous year.
Still, many analysts argue that Weibo will remain competitive precisely because its public broadcast platform differs from messaging tools like WeChat. In the U.S. market, Twitter has established itself as an influential social media company even though messaging apps such as Whatsapp - acquired by Facebook for $19 billion - enjoy higher user adoption and engagement rates.
In an interview with Reuters Television on Thursday, Weibo Chairman Charles Chao said Weibo and Weixin could both thrive.
"If you really look at the features of these two applications they're very different," Chao said. "Weibo is more public, more media-centric. WeChat is more a private network, more communication-centric. A lot of people in China use both. They are quite complementary to each other."
Meanwhile, Chinese authorities have closed dozens of Weixin accounts in recent months, according to media reports in China, suggesting that content shared on the closed messaging platform has not escaped official scrutiny.
Xue, who confessed to the prostitution charges, was released on bail this week on grounds of serious illness, the government said, but not before he sent a message to the public.
In September, Xue, who has 12 million followers on Weibo, appeared in handcuffs and prison garb in a state TV interview and apologized for "irresponsible posts," saying that "freedom of speech cannot override the law."
Separately on Thursday, a Chinese court convicted a microblogger for the first time under its new online rumor-mongering laws. Qin Zhihui, a microblogger with 12 separate Weibo accounts, pleaded guilty to spreading lies and was sentenced to three years in prison for inventing a false story about the government paying compensation to a foreign passenger killed in a train crash, according to the official Xinhua News Agency.
Jiang, the U.S.-based communication professor, said Weibo continues to be the public forum for hot topics such as the Malaysian aircraft disappearance, but user interest could dwindle if more substantial discussions spread to other platforms.
"To be honest, if Weibo had gone public last year or the year before, it would have had better results," Jiang said. "It was still the hot thing. Now Weixin is a serious competitive threat."
(Editing by Edwin Chan and John Pickering)