Rising Weibo Monetization Bodes Well For Sina’s Advertising Business

Sina (NASDAQ:SINA) is slated to release its results for the first quarter of fiscal year 2014 on Wednesday, May 21. The online Chinese media company registered year-on-year growth of 42% in net revenues ($197 million) in the final quarter of 2013, driven by improving monetization on its Weibo platform. Weibo is a microblogging and social networking website that enables users to follow celebrities and share user-generated content. Approximately 36% of the company’s net revenues were generated by Weibo—$56 million from Weibo’s advertising and $15.6 million from Weibo’s non-advertising business. ^[1]

According to a pre-announcement by Sina, net revenues for Q1 should come in at about $171 million, including $135 million from advertising and $36 million from non-advertising, representing an annual increase of 36%. ^[2] We believe that Weibo will continue to be the biggest contributor to Sina’s growth, at least in the near-term. Weibo is already growing rapidly and raised $285 million via a US IPO (initial public offering) last month. It intends to use about half of the proceeds to develop technology, infrastructure and products, to expand sales and marketing efforts, and to manage working capital needs. The remainder will be used to repay loans to its parent, Sina. (Read: Weibo Files For $500 Million U.S. IPO)

We will update our $83 price estimate for Sina after the upcoming quarterly results are announced.

See our complete analysis of Sina here

Weibo Is Bolstering Sina’s Growth In Online Advertising

Advertising contributes over 80% to total company revenues, and it is thus the primary business for Sina. The company’s advertising revenues increased by high double-digits in the last few quarters, largely driven by the increasing scale and monetization of Weibo. Launched in August 2009, Weibo started generating revenues in the back half of 2012. It earned about $66 million in 2012, which grew nearly three-fold to $188 million in 2013. ^[3]

A large chunk (25%) of the revenues in 2013 came from Weibo’s recent deal with Alibaba. The collaboration between the two companies is being strengthened, with tighter integration between Weibo users and Taobao merchants, and the use of Alipay to enhance mobile monetization.  As the two companies continue to collaborate in areas such as account connectivity, data exchange, online payment and online marketing, we expect Weibo’s monetization to pick up rapidly in the future. We also expect the platform to benefit as social media gains more acceptance for online advertising.

While Weibo’s top line grew robustly over 2012–2013, its net loss contracted from $102.5 million to $38 million during the same period due to the growing scale of its advertising business. We expect the company to turn profitable this year, as it is seeking to further strengthen its monetization capabilities in mobile, online gaming, e-commerce and other value-added services.

MVAS Has An Important Role In Mobile Strategy Even Though It Is Shrinking

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. Sina’s MVAS revenues slumped by 17% year on year in Q4 to $11 million, and are expected to decline further as Chinese users increasingly adopt 3G and 4G services. Despite this, Sina intends to continue operating its MVAS business as it believes that MVAS will help it leverage its existing ties in mobile for development of Weibo. ^[1]

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1. Sina Corporation’s CEO Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, February 25, 2014 [↩] [↩]
2. SINA Announces Preliminary Results For The Quarter Ended March 31, 2014, Sina Press Release, May 2014 [↩]
3. Form F-1 Registration Statement, www.sec.gov, March 2014 [↩]