Here’s How Market Share And Chinese Economy Risks Could Impact Sina’s Stock

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

Sina‘s (NASDAQ:SINA) stock has recently seen some weakness, following the decline in the broader Chinese equity market. While our $46 price estimate for the company’s stock represents a bullish outlook, we think there are certain scenarios that could swing the share price significantly over the coming years. More specifically, the company’s market share in Chinese online advertising and macro-economic problems in China could influence stock price changes for better or worse, respectively, in our view.

See our complete analysis of Sina here

Sina’s Market Share In The Chinese Online Ad Market Falls To Around 0.5% By 2021 (-10%): We currently anticipate Sina’s share in the Chinese online advertising market to drop from 2.6% in 2014 to 1.3% by 2021. We expect the company to under-perform the broader Chinese online advertising market, as its traditional Portal business is facing several challenges, owing to user shift towards mobile platform. Even while the mobile advertising revenues on Portal have risen significantly over the past few quarters, it was not enough to offset the fall in traditional PC business. We expect a continued decline in the Portal business to cause market share loss for Sina in the future. At the same time, we expect competition in the advertising market to heat up from both e-commerce and online video platforms, which could both gain share in the overall market.

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?

Another scenario is plausible, wherein Sina’s share in the Chinese online advertising market drops even further to 0.6% by the end of our forecast horizon. This scenario represents near-10% downside to our current price estimate. We think this scenario is plausible due to the following factors:  1) competition from other social platforms such as WeChat causes engagement levels to drop on the Weibo platform; 2) Sina may well be unable to re-invent its Portal business, which would induce a revenue decline over our forecast period; and, 3) new innovations by larger companies such as Alibaba, Tencent and Baidu could make Sina’s product offerings less competitive in the market.

Sina’s Market Share In The Chinese Online Ad Market Decreases To Only 2% By 2021 (+10%): Apart from the above given downside scenario, another situation is also possible wherein Sina’s share in the Chinese online advertising market decreases to only 2% by the end of our forecast horizon. For this optimistic scenario to play out, we believe a number of factors must exist, such as: 1) Weibo continues to gain popularity in the Chinese market, which leads to both user base and engagement growth on the platform; 2) Sina is able to effectively re-invent its Portal business by diversifying into verticals such as online finance and real estate; and, 3) Sina’s advertising offerings gain large-scale popularity with small and medium-sized enterprises (SMEs), as the budget of larger brand advertisers could go down, due to macro-economic challenges in China.

Chinese Online Advertising Market Grows At 15% CAGR to 2018 (-10%): We currently estimate the Chinese online advertising market to rise from $25 billion in 2014 to $64 billion by 2018. We have derived these estimates using the 2015 China Online Advertising Report by iResearch. [1] However, we believe these estimates represent a more base to optimistic scenario for the Chinese economy, which is currently facing several challenges. The country’s economy, which is heavily dependent on exports and investment, needs to attain a higher share of its GDP from consumption in order for it to stabilize. However, owing to soaring levels of debt along with declining returns to fixed asset investment in China, the risks to its economy are significant. The recent measures taken by the Chinese government to devalue the currency fueled even more concerns regarding the actual state of the economy.

Under a more pessimistic scenario for the overall Chinese economy, wherein the Chinese online advertising market rises at around 15% CAGR during 2014-2018, it would lead to around 10% downside to our price estimate to around $42. We believe the following factors make this scenario plausible: 1) consumption levels in China decrease due to recent troubles in the economy and in the stock market; 2) an economic slowdown increases political risks, making policy changes and reform measures more difficult to implement; and,  3) soaring levels of debt (coupled with problems in credit quality) could compound problems for China in the coming years.

View Interactive Institutional Research (Powered by Trefis):

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

Notes:
  1. 2015 China Online Advertising Report (Brief Edition), iResearch, May 25, 2015 []