’s fortune-telling strategy comes back to bite them

This is really odd. Not even the financial analysts covering had any idea that a massive chunk of its revenues were coming from fortune-telling and horoscopes.

Shares of Sina are down 18 percent at $22.45.

Heretofore, Sina – which makes money when mobile users access content – referred to such services in an ambiguous way by calling them “usage-based” or “value-added.” It was a business that grew 56 percent in the fourth quarter, faster than the 49-percent increase in overall sales. Moreover, the mobile services accounted for 63 percent of the $56.9 million in total sales in that period.

The problem was that no one really asked what “usage based” meant.

James Mitchell, an analyst at Goldman Sachs, conceded in a note to his clients that he didn’t know that “fortune telling” made up nearly one-third of Sina’s value-added services.

This lack of knowledge about Sina “should be seen as a failure of research on our part,” he said.

Indeed, even Mitchell intimates that if he’d known that fortune-telling services were driving Sina’s business, he wouldn’t have been so optimistic, given that that type of business isn’t exactly a service that can give Sina a sustainable competitive advantage over other portals.

This discovery of Sina’s business came about late Monday, after Sina warned that the Chinese government clamped down on “fortune telling” advertising.

Unfortunately for Sina, it was the advertising on radio and TV that helped the company attract customers who wanted to get mobile-phone text messages about astrology and horoscopes.

The company is now poised to lose tens of millions of dollars. Why didn’t they see this coming in the tea leaves?

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