Twitter CEO’s China Call: Reconsidering The Market?

By newsdoug on March 17, 2014

Word that Twitter (NYSE: TWTR) CEO Dick Costolo is making a trip to China just 4 months after his company’s IPO will almost certainly set to world tweeting about whether the social networking giant could be considering a play for the world’s largest Internet market. Such a move seems just a tad unlikely in the very near future, since Costolo has previously said that China isn’t a place where Twitter can operate due to the country’s tough self-censorship laws. But much has happened in the last 4 months that could be causing him to re-think his position, including the recent entry to China by corporate networking giant LinkedIn (NYSE: LNKD) and the upcoming $500 million New York IPO for Sina (Nasdaq: SINA) Weibo, often called the Twitter of China.

According to my sources, Costolo will be coming to Shanghai later this week, where his agenda includes a stop at one of China’s top journalism departments, which also happens to be where I teach. There’s no topic given for his speech, though I do plan to attend to see what he has to say about his company’s latest thoughts on the China market.

China was only tangentially mentioned in the prospectus for Twitter’s IPO back in November. (previous post) Most of the discussion centered on China as an example of political risk the company could face in places where governments closely monitor social networking sites (SNS) like Twitter and rival social networking site Facebook (Nasdaq: FB). Twitter was more focused on talking about its existing businesses at the time, and ended up raising $1.8 billion in the high-profile offering. Since then its share price has roughly doubled from its IPO price of $26.

The rapid jump in its value has undoubtedly put pressure on Twitter to consider its global expansion options, which brings us back to China. The country is now the world’s biggest Internet market with more than 600 million web surfers, making it hard to ignore. Both Twitter and Facebook have been blocked in China since 2009, presumably because their sites contain sensitive content that they would have to delete under China’s strict censorship rules if they were formally operating in the market.

Facebook founder Mark Zuckerberg has previously said that he wants to bring his company to China and has even made several exploratory trips to the country. But those trips have yet to yield any results, despite earlier talk that the company might set up a joint venture with Chinese online search leader Baidu (Nasdaq: BIDU).

Twitter must certainly be casting an envious eye on Sina Weibo, which now has some 600 million registered users, even though its number of active daily users is about a tenth that amount. Weibo last week made its first public filing for a New York IPO to raise up to $500 million, and is likely to get a valuation in the $4-6 billion range. Just a few weeks earlier, LinkedIn announced its own formal entry to China, and is currently in the process of staffing up its main operation in Beijing. (previous post)

So, what are the chances that Twitter could be entering China anytime soon? My guess is that Costolo’s visit is probably just exploratory, though the fact that he’s coming indicates he’s clearly interested in the market. If Twitter did choose to enter China, it would face formidable rivals in Sina Weibo and also the popular Tencent (HKEx: 700) WeChat mobile messaging service. Still, Chinese users could be attracted by Twitter’s international ownership and reputation, which would carry less fears of having their conversations monitored. Accordingly, and there’s a very strong possibility that the company could change its position on the market in the next 2 years.

Bottom line: Twitter CEO Dick Costolo’s visit to China indicates he may be reconsidering the world’s largest Internet market despite Beijing’s tough censorship requirements.