Sina’s Results Show Rising Weibo Monetization

Sina (NASDAQ:SINA), an online Chinese media company, posted net revenue growth of 20% annually in Q2 2013 to $157.5 million, which exceeded its initial revenue guidance. Sina’s gross margin grew 54% as compared to 53% in Q2 2012, although its operating margin declined to -11.6% from 0.1% in Q2 2012.

The profitability declined in GAAP terms as a total stock-based compensation of $27.1 million related to the Alibaba deal was recognized in the second quarter. Non-GAAP operating income rose from -$0.8 million in Q2 2012 to $8.8 million, and non-GAAP net income rose to $14.2 million as compared to $3.7 million in Q2 2012.

We are encouraged by these results as it reflects rising monetization from the Weibo platform. This is partially being driven by the recent collaboration between Alibaba and Sina, and we expect this partnership to accelerate the revenue growth for the company over the future. We believe the profitability will also increase during the rest of 2013, as revenue growth should outpace costs. However, we will continue to track costs related to mobile strategy and product development for Alibaba merchants as these could impact bottom line growth in the future.

Check out our complete analysis of Sina

Revenue Growth Was Primarily Driven By Rising Weibo Monetization

Online advertising revenue rose by 17% annually and 28% sequentially to $120.6 million in Q2 2013. This increase was primarily driven by solid growth in Weibo monetization. Weibo advertising revenue increased by 209% annually to $30 million fueled by high demand from sectors including FMCG (fast moving consumer goods), automobile, telecommunication and e-commerce.

Investment By Alibaba Is Starting To Yield Results

We find the rising Weibo monetization encouraging as this is also being driven by the strategic partnership between Alibaba and Sina. Recently, Alibaba had bought an 18% stake in Weibo platform for $586 million, and this deal is expected to bring in $380 million in advertising and other revenues for Weibo over the next three years. This collaboration has starting to pay off as the revenue contribution from this partnership in Weibo advertising stood at $5 million in Q2. ^[1] As the two companies continue to collaborate in areas such as account connectivity, data exchange, online payment and online marketing, we expect Weibo monetization to pick up rapidly in the future.

Weibo Value Added Services Revenue Growth Is Also Driving the Top Line Growth

Non-GAAP non-advertising revenues rose by 35% y-o-y to $32.2 million due to an increase in both mobile value added services (MVAS) revenue as well as Weibo value added services revenue. MVAS revenues grew by 13% annually to $19.9 million primarily due to one-off revenue of $4.3 million. We believe the MVAS business will decline over the future due to headwinds such as operator policy changes and growing smartphone adoption in China. Sina is reducing its focus on the MVAS business and instead is trying to bolster its Weibo value added services revenues. Revenue from Weibo value added services, which includes games and membership fees rose by 186% to $7.7 million, and we expect this strong growth rate to continue in the future.

Mobile Strategy Is Gaining Momentum

Sina has prioritized the mobile platform (over desktop) for any new product development and continues to upgrade its mobile applications to leverage the trend towards mobile Internet being seen in China. During the second quarter, Sina made improvements to messaging and picture uploading features on its Weibo mobile application. This strategy is gaining traction as the new Weibo mobile application is gaining popularity among mobile users in China. Mobile advertising revenue rose by 43% sequentially in Q2 2013, surpassing the overall revenue growth. ^[1] We believe mobile monetization will continue to increase rapidly in the future, and its proportion in overall Weibo advertising revenue will rise over the long run.

Guidance for Q3 2013

– Non-GAAP net revenues in the range of $176 million and $180 million, representing annual growth of 19% to 22%

– This includes advertising revenues between $151 million to $153 million and non-GAAP non-advertising revenues in the $25 – 27 million range

We are in the process of updating our price estimate for Sina’s stock.

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1. SINA – SINA Corporation – Q2 2013 Earnings Call Transcript, Earnings Impact, August 12, 2013 [↩] [↩]