Strong Third Quarter Results Send Sina’s Stock Higher

With 14% top-line growth, Sina (NASDAQ:SINA) delivered strong financial results during the third quarter of 2015, outperforming market expectations. This was driven by a stellar performance on the Weibo platform, which continued to see healthy increases in engagement and monetization metrics. While increased mobile revenues were primarily responsible for this performance, increased demand from the SME (small-to-medium-sized businesses) segment also lifted earnings. Even the Portal business showed some improvement, and we believe this business could return to growth starting next year. Additionally, we expect Sina’s margins to move northwards in the coming quarters, due to both operating leverage, as well as improved efficiency.

See our complete analysis of Sina here

Weibo Platform Saw Acceleration In Growth During The Third Quarter

The Weibo platform continued to display stellar growth during the third quarter, as the monthly active user base on the platform rose by 33% year over year to reach 222 million. ^[1] In addition, the daily active user base surpassed 100 million at the end of Q3. This contributed to an acceleration in ad revenue growth on Weibo, which grew by 62% year to year. Strong growth on the mobile platform and performance-based ad products, coupled with increased demand from non-Alibaba customers (mainly SME customers), were together responsible for this performance. Non-Alibaba ad revenue posted a 94% increase during Q3 and we believe this is an encouraging development, considering it reflects success in the company’s strategy to bolster demand from the SME segment.

While Portal Business Continues To Face Challenges, It Could Recover Next Year

Sina’s traditional Portal business continued to face headwinds during the third quarter, owing to decline on the PC platform, coupled with macro-economic challenges and increased competition. As a result, Portal advertising revenue decreased by 14% year over year and 1% quarter over quarter during Q3. ^[1] On the other hand, mobile ad revenue on the Portal more than tripled to account for roughly 30% of the overall ad business. Increased demand from SME customers also helped curb the decline in this business. The management forecasts that this segment will recover in 2016, on the back of increased monetization on the mobile platform. While this is encouraging, we think the business outlook in this segment could grow even further owing to initiatives in new areas such as finance, automobile and sports.

Operating Leverage Helped Lift Margins

Sina saw improvement in profitability during the third quarter, as the advertising gross margin rose by 200 basis points over the prior year level, due to the increasing popularity of self-service ad solutions (among the SME segment). In addition, operating income (in non-GAAP terms) rose to $28.4 million, as compared to a loss of $4.0 million in Q3 2014. This was caused by both operating leverage and efficiency improvements, and we expect this margin improvement to continue over the coming quarters.

We are in the process of revising our $46 price estimate for Sina’s stock.

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1. Sina’s (SINA) CEO Charles Chao on Q3 2015 Results – Earnings Call Transcript, Seeking Alpha, November 19, 2015 [↩] [↩]