Rising Weibo Monetization Propels Revenue Growth At Sina

Sina (NASDAQ:SINA), an online Chinese media company, posted stronger than expected growth in the third quarter of 2013, which led to about a 10% rise in its stock price. Its net revenue rose by 21% annually to $184.6 million, which was at the high end of its initial guidance. Rising monetization on the Weibo platform, coupled with growth at the Sina portal contributed to this strong performance.

The company’s profitability also rose during the quarter, with improvement in both the gross and operating margins. Gross margin rose from 54% in Q3 2012 to 64% in Q3 2013 owing to acceleration in revenue growth which outpaced an increase in expenses. Operating margin grew to 12.6% from 2.5% in Q3 2012, and we expect the profitability to further rise in the coming quarters. The acceleration of revenue growth on the Weibo platform will contribute to increased profitability in the future.

We believe the company’s financial results in Q3 are promising. Weibo results have outperformed during the quarter, and they are further expected to improve in the future. For the fourth quarter, Sina’s management has guided to a non-GAAP net revenue growth of 41%-44%, with advertising revenue forecast to rise by about 45% -46%. We believe that Sina’s revenue growth will continue to accelerate in the coming quarters, driven by increased scalability of the advertising business. ^[1]

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Online advertising segment saw strong growth during the quarter

Online advertising revenue rose by 26% annually to $151.6 million, due to 7% and 125% growth at Sina portal and Weibo platform respectively. ^[1] Revenue growth at the portal was seen despite tough y-o-y comparisons, due to higher advertising spending in sectors such as automobile, e-commerce and online gaming. We expect continued strength at the Portal business in the near-future owing to improving macroeconomic trends in China.

Rising Weibo monetization was the highlight of the quarter. Weibo advertising revenue rose to $43.7 million, due to increased popularity with brand advertisers, Alibaba e-commerce merchants, as well as small to medium enterprises. Revenue contribution from Alibaba partnership increased to $20 million in Q3, as compared $5 million in the previous quarter, and this figure is further expected to rise over the coming quarters. ((SINA Corporation’s CEO Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, November 13, 2013))

The popularity of the Weibo platform continued to increase during the third quarter. The daily active users on the Weibo platform rose by 11.2% sequentially to reach 60.2 million in September. In contrast, the daily active user base had grown by 8.3% sequentially in the prior quarter. ^[1] Sina is bolstering Weibo monetization by introducing measures, such as a new page system and improved messaging features. Also, the collaboration between Alibaba and Sina is being strengthened, with tighter integration between Weibo users and Taobao merchants, and the use of Alipay to enhance mobile monetization.

Growth in the non-advertising business was curtailed by the decline in the mobile VAS business

Non-advertising revenue grew by 4% annually to $33.1 million, mainly due to 121% growth in Weibo value-added services business, which comprises of revenue contribution from web games and Weibo membership fees. The mobile value added services segment saw a revenue decline during the quarter, and this trend is likely to continue in the future, due to headwinds such as operator policy changes and rising smartphone adoption in China.

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

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1. SINA Corporation’s CEO Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, November 13, 2013 [↩] [↩] [↩]