Sina’s Success With Weibo Supports Our Revised $78 Price Estimate
Sina (NASDAQ:SINA), an online Chinese media company, recently posted net revenue growth of 20% annually in Q2 2013, surpassing its initial guidance. Sina’s Twitter-like Weibo platform contributed to this strong revenue growth and shows that Sina is having success in monetizing this popular services. Encouraged by these earnings, we are raising our price estimate for Sina’s stock from $66 to $78, representing a change of around 20%. This is in line with the current market price.
In this article, we discuss the key reasons that led us to change our price estimate. We believe Sina’s revenue growth will accelerate in the future driven by its partnership with Alibaba and its profitability is also likely to improve.
Check out our complete analysis of Sina
- Why Sina’s Revenues Will Likely See Only A Marginal Growth in 2020
- Decline In Sina’s Q3 Advertising Revenue Isn’t A Cause For Concern Yet
- Can Sina’s Revenue Growth Numbers Recover This Year?
- Sina’s Strength In Fintech Should Make Up For Weakness In Weibo Going Forward
- Sina Likely To Report Forgettable Q1 Results, But Revenues Should Recover Sharply In The Near Future
- How Much Can Chinese Stimulus Impact Sina’s Valuation?
Increasing Monetization On The Weibo Platform
Weibo’s popularity and improving monetization is leading to the acceleration of Weibo’s revenue growth, and this is the key reason behind our increased price estimate. The 209% annual growth in Weibo advertising revenue in Q2 2013 was encouraging, and we expect the robust growth to continue in the future backed by Sina’s partnership with Alibaba. According to Sina, this deal is expected to rake in $380 million in advertising and other revenues for Weibo over the next three years.
We believe the growing pace of monetization on the Weibo platform will help Sina’s advertising revenue grow almost in line with the overall online display advertisement market in China. While Sina has lost its share in this market in the past, we estimate it to remain steady over our forecast horizon.
The key risk to consider is that increasing monetization on the Weibo platform could result in the cannibalization of Sina’s Portal business. Advertising revenues from the Portal accounted for around 75% of the total online advertising revenues in Q2 2013. If this business struggles to grow at the same pace as the overall industry, Sina could lose its share in the Chinese online display advertisement market. Our readers can modify this market share to assess the impact on Sina’s valuation.
Higher Profitability
We believe that Sina’s display advertising gross margin could climb over our forecast horizon as Sina scales up its advertising business, and the strategic partnership between Alibaba and Sina starts to pay off.
In addition, we believe that Sina’s SG&A expenses and R&D costs as a percentage of gross profit could decline over the long run as revenue and gross profits grow at a faster rate than the company’s costs. Sina has incurred huge costs with respect to Weibo in the past, and we believe the rising monetization on this platform could result in increased profitability in the future.
However, Sina may need to keep its expenses high over the next two or three years as it rapidly invests in mobile platform development and marketing activities to address rising competition in the Chinese social networking market. Product development for Alibaba merchants could also keep expenses high in the short term.
Our $78 price estimate for Sina’s stock is broadly in line with the current market price.
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