Here’s Why We Have Changed Sina’s Price Estimate To $48

-4.57%
Downside
43.26
Market
41.29
Trefis
SINA: Sina logo
SINA
Sina

We have recently changed our price estimate for Sina‘s (NASDAQ:SINA) stock from $40 to $48, which represents a near +20% change. Net cash comprises over 60% of our valuation, owing to the presence of significant cash and cash equivalents (along with both short and long-term investments) in the company’s balance sheet. Additionally, we have also updated our forecasts for revenue,  earnings, and capital expenditures to derive at the new valuation for the company. In our current forecasts, we expect Sina’s top-line to rise from $768 million in 2014 to over $1.3 billion by 2021 and we foresee a significant improvement in the EBITDA margin over our forecast period. We expect capital expenditure as a percentage of revenue to come down considerably over the coming years, driven by operating leverage and the non-capital-intensive nature of the company’s business model.

See our complete analysis of Sina here

Top-Line Is Estimated To Rise Modestly At 8% CAGR Over Our Forecast Horizon

Relevant Articles
  1. Why Sina’s Revenues Will Likely See Only A Marginal Growth in 2020
  2. Decline In Sina’s Q3 Advertising Revenue Isn’t A Cause For Concern Yet
  3. Can Sina’s Revenue Growth Numbers Recover This Year?
  4. Sina’s Strength In Fintech Should Make Up For Weakness In Weibo Going Forward
  5. Sina Likely To Report Forgettable Q1 Results, But Revenues Should Recover Sharply In The Near Future
  6. How Much Can Chinese Stimulus Impact Sina’s Valuation?

We estimate Sina’s revenues to grow from $768 million in 2014 to $1,324 million by the end of our forecast horizon, owing to high growth in Weibo advertising and value-added services revenues.

  • While the Chinese online advertising market has been forecast to surge from $25 billion in 2014 to more than $80 billion by 2021, we have estimated Sina’s market share to fall from 2.6% in 2014 to less than 1.5% over the long run.
  • We believe advertising revenues generated on Weibo could continue to rise at a strong pace over our forecast horizon, driven by an increase in user base and engagement levels on the platform.
  • Moreover, the rapid rise in mobile advertising revenues will continue to bolster the company’s top-line. The  share of mobile ads in overall Weibo advertising revenues surpassed 58% recently, in fact.
  • On the other hand, we expect the challenges in the portal advertising business to continue in the near future, due to reduced usage on PC devices. While mobile advertising revenues could rise sharply in this business, it may not be enough to offset the fall in traditional PC business. This will weigh on Sina’s overall market share in the Chinese online advertising market.
  • For non-advertising revenues, we forecast a mixed trend as sluggish demand in the mobile value added services (MVAS) business will be offset by a rise in Weibo value added services revenues (which includes membership services and gaming). The MVAS business faces challenges arising from the increasing adoption of mobile Internet in China, coupled with frequent changes in operator policies.

EBITDA Margin Is Estimated To Rise To Over-25% By 2021

Though Sina’s EBITDA margin was seen at around 8.8% in 2013, it fell to 2.5% in 2014 due to increased expenses associated with mobile platform development. We expect these margins to improve over our review period to more than 25% by 2021.

  • We expect revenue growth to outpace the increase in R&D and SG&A expenses over the coming years, as Sina’s growth will be fast-tracked by its investments on the mobile platform.
  • Further, the future growth in expenses will be limited by the relative stabilization and maturity of  the company’s business model.

Capital Expenditure As A Percentage Of Revenue Could Decrease From Over 13% In 2014 To 7.4% By 2021

We estimate the capital expenditure as a % of revenue to decrease significantly in the coming years because of the non-capital intensive nature of the company’s business model. We believe the company’s requirement for new data centers and other infrastructure will decrease in the future with slower growth in the user base. Additionally, we have pegged a discount rate of 14.5% and terminal growth rate of 3.0% for the company in our valuation. We’d encourage our readers to tweak our estimates to see the impact on Sina’s valuation.

Our $48 price estimate for Sina’s stock represents a near-15% premium to the current market price. The recent volatility in the company’s stock price has also been caused by the recent trends in the overall Chinese equity market, which has seen some selling pressure in the recent past after several months of active bull-run.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid CapMore Trefis Research