A Strengthening Advertising Business Will Help Sina To Offset Declining MVAS Revenues

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Sina (NASDAQ:SINA) is set to release its results for the fourth quarter and complete fiscal year 2013 on February 20 (tentative). The online Chinese media company generated net revenues of $185 million in the third quarter, representing an annual increase of 21%. Rising monetization on the Weibo platform, coupled with growth at Sina portal, contributed to the strong top line growth. [1] Sina’s portal business offers distinct and targeted professional content, and also provides information and entertainment content to users, while its Weibo platform offers microblogging and social networking features that enable users to follow celebrities and share user-generated content. We expect Sina to post strong growth in advertising revenues in Q4, mainly on the back of its robustly growing Weibo platform.

Sina also registered an improvement in profitability in Q3, with expansion in both gross and operating margins. While gross margins grew sequentially from 54% to 64%, operating margins grew from 2.5% to 12.6%. [2] This enhancement was driven by the company’s efforts to scale its core advertising business profitably and also by the increasing mix of higher margin Weibo value added services. We believe that Sina’s profitability will further improve in the coming quarters, since we expect increasing monetization on the Weibo platform to outpace increases in costs.

We have a price estimate of $83 for Sina’s stock. We will revise our estimate after the upcoming results are announced.

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See our complete analysis of Sina here

Online Advertising Business To Continue Growing Strongly

Online advertising contributes over 80% to total company revenues, and it is thus the primary business for Sina. In Q3, the company posted 26% year-on-year growth in online advertising revenues, topping $151 million. The improvement was driven by healthy growth in both of the company’s advertising businesses, Sina portal and Weibo. [2]

Sina portal generated about $108 million in revenues in Q3, registering a year-over-year growth rate of 7% despite tough prior year comparisons, due to higher advertising spending in sectors such as automobile, e-commerce and online gaming. [2] We expect to see continued strength in the portal business in the near future, owing to improving macroeconomic trends in China.

The Weibo platform demonstrated strength in particular, growing revenues by 125% year-on-year to $44 million. [2] Weibo benefited from its rising popularity among users and SMEs. The number of daily active users on Weibo rose by 11.2% sequentially to reach 60.2 million in September. [1] Weibo also benefited from the partnership with Alibaba. Last year, Alibaba bought an 18% stake in Weibo. The collaboration is aimed at bringing the two companies closer in areas of user account connectivity, data exchange, online payment and online marketing. Sina expects the deal to rake in $380 million in advertising and other revenues for Weibo over the 2013–2015 period. The partnership generated about $20 million in Q3 and this figure is expected to rise over the coming quarters. [1]

Sina is bolstering its monetization on Weibo 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. Based on these factors, we expect the monetization on Weibo to further improve in the future.

MVAS Revenues To Continue Declining

Sina’s Mobile Value Added Services (MVAS) allow users to receive news and information, download ring tones, mobile games and pictures etc. The company’s ability to offer MVAS to users is highly influenced by the policies of the various operators such as China Mobile, China Unicom and China Telecom. The industry is subject to various regulations which keep changing, making it difficult for online companies to keep astride with the changes. This resulted in Sina’s MVAS revenues falling by 29% year-on-year to $13.5 million in Q3. [2] We expect this trend to continue going forward.

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Notes:
  1. SINA Corporation’s CEO Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, November 2013 [] [] []
  2. SINA Reports Third Quarter 2013 Financial Results, www.sec.gov, November 2013 [] [] [] [] []