Weibo Boosts Sina’s First Quarter Results, Portal Business To Face Pressure From Government Notices

Leading Chinese online media company, Sina (NASDAQ:SINA), posted a 36% year-on-year increase in revenues for the first quarter of fiscal year 2014, topping $170.5 million. While advertising revenue grew by 44% and contributed close to 80% of total revenues, non-advertising revenues increased by 13% to $35.8 million. The sharp jump in advertising revenues was the result of rapidly improving monetization on Sina’s Weibo platform. ^[1]

Weibo is a microblogging and social networking website that enables users to follow celebrities and share user-generated content. Advertising revenues on the Weibo platform grew by 176% year on year to $51.9 million helped by the partnership with Alibaba and newer revenue streams such as promoted feeds for small and medium enterprises. ^[1] Since Weibo offers higher margin services compared to Sina portal, overall company gross margins for advertising increased to 60% from 51% in the year-ago quarter. Gross margins for non-advertising also increased from 57% to 62% in the same period due to a shift in the revenue mix from low-margin value-added services to higher margin Weibo value-added services. ^[2]

We are in the process of updating our $83 price estimate for Sina, based on the company’s quarterly results that were recently announced.

Weibo Listing To Benefit Both Weibo And Sina

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 U.S. IPO (initial public offering) last month. Weibo’s listing will allow Weibo and Sina to focus on their respective operations. Weibo 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 main agenda behind these investments is to expand user base and enhance user engagement levels. (Read: Weibo Files For $500 Million U.S. IPO)

Sina launched Weibo in 2009 and has heavily invested in the platform since. This restricted Sina’s ability to invest in its portal advertising business. Now that Weibo has been spun as a public entity, Sina will be able to focus resources towards building and marketing mobile and video products. The contribution of mobile to Sina’s portal business has been less than 5% for the past few years and the company is aiming at tripling the percentage this year. ^[1]

Government Action To Impact Video And Internet Publishing Businesses

In the first half of the current quarter, Sina received notices from government bodies stating that the company’s license for Internet publication and for online transmission of video programs would be revoked due to certain indecent user-generated content posted on the company’s portal. As per the notice, the company can continue to offer certain video and online reading services to users, although the scope of such offerings is not very clear. Sina is working closely with the relevant government authorities to gain more clarity. ^[1] It is difficult to quantify the likely financial impact of the ruling. According to management, some of the company’s advertisers have become reluctant about buying video advertisements on its portal since the revoking warnings. The government move has also negatively impacted Sina’s stock price which has fallen by about 20%.

See our complete analysis of Sina here

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1. SINA’s (SINA) CEO Charles Chao on Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, May 22, 2014 [↩] [↩] [↩] [↩]
2. SINA Reports First Quarter 2014 Financial Results, Sina Earnings Release, May 21, 2014 [↩]