How Will Growth In The Chinese Online Advertising Market Impact Sina?
Online advertising comprises for nearly 30% of our valuation for Sina (NASDAQ:SINA). Hence, the company will significantly benefit from rapid growth in the Chinese Internet advertising market, which is forecast to rise at over 28% annually during the 2014-2018 period to reach $65.6 billion. Solid growth in mobile ad revenues, which could reach $34.4 billion by 2018 (according to iResearch) will fuel majority of the growth in this market. However, Sina’s market share in the overall advertising market could see some decline over the coming years, owing to continued challenges in the Portal business.
See our complete analysis of Sina here
Solid Growth On Mobile Platform Will Drive China Internet Advertising Market In The Future
The Internet advertising market in China (which includes advertising on PC and mobile platforms, with the exclusion of overlapping parts) is forecast to rise from RMB 157.3 billion ($24.6 billion) in 2014 at 28% CAGR to reach RMB 419.8 billion ($65.6 billion) in 2018, according to iResearch. [1] Macro-economic challenges and relative maturity in the market will lead to a deceleration in growth over the coming years. However, rapid growth in mobile advertising revenues, fueled by increase in mobile monetization rate, will propel growth over 2014-2018.
The mobile advertising market in China is expected to surge dramatically from RMB 29.7 billion ($4.6 billion) in 2014 to RMB 220.1 billion ($ 34.4 billion) in 2018, according to iResearch. The rapid rise in adoption of smartphones in China, coupled with improvement in mobile ad technologies, are the key factors that will drive demand in this market.
However, Sina’s Market Share In The Chinese Online Advertising Market Could Decrease In The Future
In our valuation model, we estimate Sina’s market share in the Chinese online ad market will decrease from 2.6% in 2014 to 1.3% by the end of our forecast period. Even, while advertising revenues are projected to rise rapidly on the Weibo platform, we think Sina’s traditional Portal business could face continued challenges in the future. This is as increased competition could impact ad revenue growth on the Portal business. A scenario wherein, the Portal business recovers and Sina’s market share drops only to 1.8% by 2022, will take our price estimate 10% higher to $55.
Our $50 price estimate for Sina’s stock, is almost at par with the current market price.
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- How Much Can Chinese Stimulus Impact Sina’s Valuation?
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Notes:- 2015 China Online Advertising Report, iResearch, May 25, 2015 [↩]