Sina Earnings Preview: What We’re Watching February 27

SINA: Sina logo

Sina (NASDAQ:SINA) will announce its earnings for Q4 2011 on February 27, with the complete earnings report coming out later this week. Sina is primarily an online media company which also offers mobile value added services in China. It operates online news and content through, a Twitter-like microblog – Twitter and Mobile Value Added Services (MVAS). Sina makes money primarily through its display advertising and mobile value added services. The company faces competition in its different verticals from Internet giants such as Baidu (NYSE:BIDU), Tencent and Sohu (NASDAQ:SOHU) and other companies.

We currently have a $50 Trefis price estimate for Sina, which stands nearly 20% below its current market price.

Check out our complete analysis of Sina

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Display advertising to drive Sina’s revenue

Sina generates a major portion of its revenues from display advertising on its online properties like and Though Sina’s display advertising revenues have shown a modest increase in the last couple of years after showing a dip in 2009, its market share has declined significantly as the overall display advertising market has expanded at a rapid pace. We expect its market share in 2011 to be around 7.7%, and forecast a marginal decline throughout the forecast period.

Sina has been trying to increase Weibo’s user base, which is currently 250 million strong, through various moves like new apps like Weiyou. It even plans to launch its own based phone with Weibo integration to boost usage. Any impact in the visitors to or its other online properties could lead to a change in its Chinese display ad market share, directly impacting its overall revenues. Sina also reported that video advertising grew 125% in the last quarter. If the growth continues, it could generate a significant amount of revenue in the the coming years. On the other hand, Sina’s display ad revenues from could be negatively impacted by the recent ID requirements imposed by the Chinese government if there is a drop in user numbers. We will be watching the earnings call closely for any signs of any drop iin Weibo’s user base or user growth rate.

Operating expenses continue to rise

Sina’s operating expenses, specifically its sales & marketing and research expenses have risen significantly in 2011. Its SG&A expenses as a percentage of gross profit have increased to 61%, weighing down on its overall profit margins. Much of the increase can be linked to Sina’s increased investment in Weibo, which has led to Weibo’s user base growing to more than 250 million registered users.

Going forward, we expect Sina to clamp down on its sales & marketing, as well as research & development expenses. However, if Sina is unable to control its spending over the years, it could mean significant downside to its current price estimate.

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