Sina Acquires Lottery Website Aicai.com

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Sina (NASDAQ:SINA), the leading online media company in China, recently acquired a 100% stake in Shenzhen Zhong Wang Cai Network Technology, the operator of online lottery website Aicai.com. Aicai was established in 2007 with Sina as the majority stakeholder. The acquisition will strengthen Sina’s position in the Chinese online lottery industry, which is expected to grow by 70% this year from 42 billion Yuan ($6.7 billion) in 2013 due to the FIFA World Cup. [1]

According to the Ministry of Finance (MOF), China’s lottery industry generated 309.3 billion Yuan ($49.5 billion) in sales revenue last year, up by 18.3% compared to 2012, making it the second-largest lottery market in the world after the U.S. In the first quarter of the current year, the industry generated 80 billion Yuan ($13 billion), of which online channels had about 18% share. Aicai’s market share of online sales was 4.9%, behind taobao.com’s and 500.com’s market shares of 11.3% and 5.8%, respectively, according to Analysys International. [2]

The Internet does not cannibalize lottery tickets sales of traditional distribution channels since many people still prefer to buy tickets from lottery stores. It rather helps the lottery industry to generate incremental sales because buying tickets online is more convenient. In 2010, the MOF made online distribution a legitimate channel for authorized lottery distribution organizations. Since then, online lottery sales as a percentage of total lottery sales have increased from nearly 4% to over 18% today. We expect this to slowly converge with the online penetration in developed countries where over 30% of lottery tickets are sold online.

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We have a $72 price estimate for Sina’s stock which marks our valuation at a premium of about 50% to its market price.

See our complete analysis of Sina here

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Notes:
  1. Chinese lottery firms hope to cash in on World Cup, China Daily, June 5, 2014 []
  2. Winning ticket?, Global Times, May 13, 2014 []