Sina (NASDAQ:SINA), an online Chinese media company, is scheduled to report its Q3 2013 earnings results on November 12, 2013. Investors will be keen to track the rising monetization on the Weibo platform and how mobile monetization is picking up for the company. Sina forecasted non-GAAP net annual revenue growth of 19% to 22% in Q3 2013, and we expect the growth to fall at the high end of this range.
We believe Sina’s profitability should improve in the coming quarters, considering that increasing monetization on the Weibo platform should outpace increases in costs. While the revenue contribution from Sina’s Alibaba partnership stood at $5 million in Q2, we believe this figure should rise significantly in Q3.
Recap of Q2 2013 results
Sina reported net revenue growth of 20% annually in Q2 2013 to $157.5 million, which came in ahead of its initial guidance. While online advertising revenue grew by 17% annually during the quarter, Weibo advertising revenue showed an excellent growth rate of 209%. With the Alibaba partnership expected to rake in around $380 million in advertising and other revenues for Weibo over the next three years, we believe this deal will continue to propel the revenue growth at the platform in the coming quarters.
Revenue from Weibo value added services (such as games and membership fees) increased by 186% to $7.7 million. We believe the revenue from these services will rise at a strong rate in the future as Sina is strengthening its value added services.
Mobile value added services revenue rose by 13% annually during Q2, mainly owing to a one-off revenue of $4.3 million. We believe this segment will see a revenue decline in the future owing to headwinds, such as operator policy changes and a trend towards smartphone adoption being seen in China.
Profitability could improve in the coming quarters
Sina’s operating margin decreased in Q2 2013 to -11.6%, as compared to 0.1% in Q2 2012. We believe the margins should increase during Q3 and Q4, as acceleration in revenue growth should outpace the growth in costs for the company. However, we will continue to track costs related to mobile strategy and product development for Alibaba merchants as these could influence bottom-line growth in the future.
Mobile platform development represents a key strategy for the company
There is a trend towards mobile Internet being seen in China. In order to leverage this trend, Sina has prioritized the mobile platform (over desktops) for any new product development and is making several efforts to optimize its mobile applications. Mobile advertising revenue grew by 43% sequentially in Q2 2013, outpacing the overall sales growth. We believe this trend should continue in the future, and the percentage of mobile advertising revenue in overall advertising revenue should rise in the future.
Our $78 price estimate for Sina’s stock is broadly in line with the current market price.