Sina (SINA) Rallies After the Company Stumbles Over Lowered Expectations
Shares of Chinese online media company Sina Corporation (SINA: Charts, News) surged yesterday, after the company topped analyst estimates on both the top and bottom lines. Sina is a digital portal website, similar to Yahoo (YHOO: Charts, News) with a focus on social connections.
The company's claim to fame is Weibo - its social media micro-blogging site that is often referred to as the "Twitter of China". The company's main source of revenue is online display advertising. Daily Chart
For its fourth quarter, Sina posted earnings of 14 cents per share, or $2.4 million, on revenue of $139.1 million. That was a steep 74% drop in earnings from the prior year quarter, but revenue rose 4.3%. Analysts at Thomson Reuters had been expecting the company to do far worse, with an average consensus of 5 cents per share on revenue of $133.9 million. Although its earnings topped those low estimates, its growth was far from sensational. Sina attributed its weakening bottom line to slower gains in advertising revenue at Weibo as well as investment losses. Sina logged a $4.4 million loss from equity investments, which was associated with a $1.8 million impairment charge. Advertising revenue, which had been expected to be weak due to macro weakness in Asia, rose 6.8% to $110.7 million, while non-advertising revenue (which includes investments) slid 4.2% to $28.5 million. In 2012, China's online advertising market grew 46.8%, a substantial gain that still didn't measure up to 57.6% growth it posted in 2011. That perceived slowdown, combined with a slowing Chinese GDP, has also severely weighed on Sina's advertising dependent peers Baidu and Sohu.com. Sina has been criticized for failing to capitalize on Weibo's popularity. Although Weibo is China's largest social media platform, the company has been slow to monetize it with effective ad revenue - a dilemma that its Western peers Facebook FB and Twitter have also struggled with. Sina recently introduced a somewhat intrusive paid function, that allows advertisers to promote' tweets to users who are not following them, similar to Facebook's News Feed advertisements. It also launched a platform that links the most followed micro-bloggers on the network to advertisers - offering a form of social media sponsorships. Meanwhile, Sina's rival Tencent Holdings advanced in the social media market with its popular WeChat text and voice messaging application, which is available across all major smartphone platforms. Sina CEO Charles Chao stated that more people are spending less time on Weibo as a result of WeChat, and he expects the trend to continue into next year. However, he also stated, "Weibo has reached a critical mass and will continue to grow in user base and user activity given its network effect." In other words, it will become a self-growing system similar to Facebook. If WeChat is affecting Weibo's numbers, its fourth quarter didn't reflect it. During the fourth quarter, Weibo's daily active users surged 82% over the prior year quarter, to 46.2 million users. Smartphone ads generated 30% of Weibo's total revenue - a growing trend that Chao expects to continue, given the increased adoption rate of smartphones. At the end of the fourth quarter, 75% of Weibo's users were accessing the site through mobile devices. At first glance, Weibo's success in China is a paradox. China's tight restrictions ban the use of social media sites Facebook or Twitter, which the government fears can transfer information too fast for censors to keep up. The government requires all Internet users to provide their real names, and has cracked down on sites such as Weibo, and other message boards, that are deemed to contain "illegal" information. Therefore, Sina is required to hire its own self-policing censors, that erase offensive or controversial messages before being spotted by the Chinese authorities. This requires Sina to hire a large number of censors in order to remain in good standing with authorities - which has raised concerns about rising labor costs. Sina acknowledged this, stating that expenses will likely rise throughout 2013 due from the personnel, networking infrastructure and sales departments. Looking ahead, Sina expects more of the same, forecasting first quarter revenue to come in between $115 to $119 million, in line with the average consensus estimate of $117 million. The company expects to generate $94 and $96 million in advertising revenue for the quarter - a sequential decline from the previous quarter. Shares of Sina trade at 33.95 times forward earnings with a 5-year PEG ratio of 2.99 - which means its stock price might be overheating with slow growth potential ahead. It does not pay a dividend. Other News About SINA Sina Weibo Ad Sales Rise In Q4, Sending Stock Soaring
"China's Twitter" posts a surprising gain in ad revenue. Sina Surges 8% on Earnings Beat, Analysts Ponder What's Next
Analysts wonder if Sina can maintain momentum in 2013. Other Stocks in the News Consider This Chinese Stock For Your Portfolio
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Published on Feb 22, 2013
By Leo Sun