Sina (NASDAQ:SINA) announced its earnings for Q4 2011 last week.  Its overall revenue in 2011 grew to $482 million, up 20% from 2010. Most of the growth was contributed by its primary business – display advertising – which grew 27% year-over-year to $368 million. However, its operating expenses in 2011 have increased much faster than revenues, which has led to a decline in income from operations. Its net income in 2011 was further hammered by a loss from its equity investments. However, Sina’s display advertising revenue growth seems very encouraging, and we expect it to continue as Weibo gains traction in the Chinese social networking space. We also expect it to gradually decrease its operating expenses throughout the forecast period.
Sina is primarily an online media company which also offers mobile value added services in China. It operates online news and content through Sina.com, a Twitter-like microblog – Weibo.com and Mobile Value Added Services (MVAS). Sina makes money primarily through its display advertising and mobile value added services. The company faces competition in its different verticals from Internet giants such as Baidu (NYSE:BIDU), Tencent and Sohu (NASDAQ:SOHU) and other companies.
Display advertising revenue growth is encouraging
Sina generates a major portion of its revenues from display advertising on its online properties like Sina.com and Weibo.com. Though Sina’s display advertising revenues have shown a significant increase in the last couple of years after showing a dip in 2009, its market share has declined significantly as the overall display advertising market has expanded at a much rapid pace. We expect its market share in 2011 to be around 7.7%, and forecast a marginal decline throughout the forecast period.
However, its revenues are expected to grow steadily throughout the forecast period as Weibo continues to gain traction and helps stem the decline in Sina’s Chinese display ad market share. Weibo’s user base is now up to 300 million registered users, and Sina is taking a number of steps to increase its display ad revenue by introducing a new system with advanced features for advertisers. On the flip side, China’s new real ID policy for social network users could lead to a decline in user growth for Weibo, directly impacting Sina’s display ad revenues.
Operating expenses continue to rise
Sina’s operating expenses, specifically its sales & marketing and research expenses have risen significantly in 2011. Its SG&A expenses as a percentage of gross profit have increased to 58%, weighing down on its overall profit margins. Much of the increase can be linked to Sina’s increased investment in Weibo, which has led to Weibo’s user base growing to more than 300 million registered users. Even its R&D expenses have almost doubled.
Going forward, we expect Sina to clamp down on its sales & marketing, as well as research & development expenses. However, if Sina is unable to control its spending over the years, it could mean significant downside to its current price estimate.
We are updating our Trefis price estimate for Sina, which should be available on our site soon.Notes:
- SINA Reports Fourth Quarter and Fiscal Year 2011 Financial Results, Press Release [↩]