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Investment Overview for Sina (NYSE:SINA)
Below are key drivers of Sina's value that present opportunities for upside or downside to the current Trefis price estimate for Sina:
- Display Advertising Gross margin: We estimate that this figure will increase from 53.5% in 2012 to more than 62% in the long run, as growing Weibo monetization is expected to outpace costs in the future. However, there could be a downside of about 10% to our price estimate if gross margins decline to 51%. On the other hand, there could be an upside of around 10% if the margins increase to around 70%.
- Sina's Share of China Online Ad Market: We estimate that this figure will decrease marginally from 7.2% in 2012 to 7% by the end of our forecast period, as growing Weibo monetization will keep the growth in Sina's advertising business in line with the overall internet advertising market of China. However, there could be a downside of about 8% to our price estimate if market share of the company declines to around 6%. On the other hand, there would be a 10% upside if the market share reaches 8.0% by the end of our review period. This depends primarily on whether Sina is able to compete effectively and capture additional online advertising dollars in the increasingly competitive Chinese display ad market.
Sina is an online media company which also offers mobile value added services in China. The Company provides services mainly through SINA.com (online news and content), Weibo.com (microblog) and SINA Mobile (MVAS).
Sina makes money primarily through its display advertising and mobile value added services. They have employed a strategy targeting both short-term revenue opportunities such as banner advertising campaigns, as well as longer-term, higher-value contracts that include integrated marketing packages.
SINA's MVAS allow users to receive news and information, download ring tones, mobile games and pictures but is highly dependent on operator policies and government regulations.
The Display Advertising division accounts for majority of Sina’s valuation, as per our estimate, mainly due to the following reasons:
High Gross Margins
Gross margins were for display advertising stood at 54% in 2012 as compared to 39% margins for Mobile Value Added Services.
Display advertising is impacted by regulations that may be imposed by the government among other uncertainties. However, the other divisions are greatly influenced by changes in operator policies as well, which are very frequent and not in the hands of the company.
Growing Weibo monetization
With a registered base of more than 500 million users, Weibo is positioned as one of the leading social networks in China.
The monetization of Weibo platform has been growing in the recent past, and the recent stake sale to Alibaba is expected to accelerate monetization.
The deal will bring in $380 million in revenues for Weibo over the next three years.
Changes in operator policies
Sina depends on China Mobile, China Unicom and China Telecom to provide its mobile value added services to users. These operators change their policies frequently which greatly impacts Sina's business. We expect that such policy changes will continue to be a risk factor for their MVAS business. The changing operator policies coupled with the intense competition in the MVAS business has led to a decline in MVAS gross margins we expect this trend to continue in the future as well.
The Chinese government has enacted an extensive regulatory scheme governing the operation of businesses with respect to the Internet, such as telecommunications, Internet information services etc. Any policy changes by the government could have an adverse impact on Sina's business.
The growth pace of Chinese internet advertising market is forecast to slow down in the coming years
The Chinese online advertising market is forecast to grow at a slower pace in the future as compared to the strong growth witnessed in the previous years. This is due to relative maturity of the market, which was previously growing at a nascent stage. During 2013-2016, the Chinese online advertising revenue is estimated to increase at a CAGR of 26%, compared to the growth rate of 47% and 58% seen in 2012 and 2011 respectively. iResearch In addition to market maturity, macro headwinds in the Chinese economy and challenges associated with mobile platform monetization contribute to the slow down in growth pace.
Diversification of Weibo revenue stream
Sina is diversifying Weibo’s revenue stream to include e-commerce, games and other value added services. The recent deal with Alibaba will result in acceleration of e-commerce revenues from the Weibo platform.
Weibo monetization is picking up
Driven by strategic partnership between Alibaba and Sina, and increasing popularity of Weibo platform, its monetization is rapidly rising. In Q2 2013, Weibo advertising revenue rose by 209% annually and we expect this strong growth pace to continue in the future.
Prioritization of mobile platform
The Chinese internet market is in a transitional phase with a increasing number of users shifting from personal computers to mobile devices to access the web. In line with this trend, Sina is focusing on the mobile platform to tap this growing market and will invest heavily in its development over the next few years.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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