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Investment Overview for Sina (NYSE:SINA)
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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
- Display Advertising Gross margin: We estimate that this figure will increase from 53.5% in 2012 to 57.6% by the end of our forecast period, as growing Weibo monetization is expected to outpace costs in the future. However, there could be a downside of about 8% to our price estimate if gross margins decline to 50%. On the other hand, there could be an upside of 6% if the margins increase to around 63.5%.
- Sina's Share of China Online Ad Market: We estimate that this figure will decrease from 7.2% in 2012 to 6.3% by the end of our forecast period, due to higher growth pace in the overall internet advertising market of China as compared to Sina's advertising business. However, there could be a downside of about 7% to our price estimate if market share of the company declines to around 5.5%. On the other hand, there would be a 10% upside if the market share reaches 7.5% 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.
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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.
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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.
Lesser dependency
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 $380 million in revenues for Weibo over the next three years.
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Changes in operator policies
Sina depends on China Mobile, China Unicom and China Telecom to provide its mobile value added services to users. These operators change their policies frequently which greatly impacts Sina's business. We expect that such policy changes will continue to be a risk factor for their MVAS business. The changing operator policies coupled with the intense competition in the MVAS business has led to a decline in MVAS gross margins we expect this trend to continue in the future as well.
Government regulations
The Chinese government has enacted an extensive regulatory scheme governing the operation of businesses with respect to the Internet, such as telecommunications, Internet information services etc. Any policy changes by the government could have an adverse impact on Sina's business.
Uncertainties in advertising market in China
Advertising market is China is still at a nascent stage of growth. Advertisers have limited experience with the Internet as an advertising medium. Traditionally, they have not devoted a significant portion of their advertising expenditures or other available funds to web-based advertising. Moreover, increasing usage of advertising blocking software may result in advertisers choosing not to use this medium.
Trefis Forecast Rationale for China Online Display Advertising Market
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${forecast} is the total revenue generated from online disply advertising in China by the major players like Baidu, Alibaba,Google China to name a few. It does not include search advertising.
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${forecast} increased from $1.2 billion in 2007 to $5.7 billion in 2012. We expect the same to continue growing for the rest of our forecast period.
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We considered the following factors for our forecast:
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- Higher disposable incomes in China
- The average disposable income in China has increased significantly in the past few years. Additionally, an increasing number of Chinese consumers are shopping online.
- We expect this rise to continue and lead to an increase in online ad spending by companies targeting Chinese consumers.
- Increasing popularity of PCs
- With the increasing popularity PCs, the online advertising market is expanding rapidly in China.
- Robust growth in internet users is causing a shift in advertising budgets from traditional media to online media.
- Coverage of popular events
- Coverage of popular events like the World Cup is carried out extensively on the internet.
- Advertisers capitalize on such events to generate greater revenues.
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- Uncertainties in advertising market in China
- Advertising market is China is still new and developing.
- Advertisers have limited experience with the Internet as an advertising medium.
- Traditionally, they have not devoted a significant portion of their advertising expenditures or other available funds to web-based advertising.
- Mobile monetization challenges
- The Chinese internet market is undergoing a transition with increasing usage of mobile devices for accessing the internet.
- However, mobile devices contribute lower monetization on account of their smaller screen size.
- Recent macroeconomic weakness in China
- The recent macroeconomic weakness being felt in China is expected to have an impact on the internet advertising market.
Back to Company OverviewHow 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.
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