Sina Worth $66, Maps Out Way Ahead For Weibo
Sina (NASDAQ:SINA) announced its earnings for Q1 2012 on May 15 and reported revenues of $106 million, up 6%, but swung to an operating loss due to an increase in its operating expenses, especially R&D costs. Year-over-year advertising revenue growth was lower than expected and ad revenue actually dropped significant compared to Q4 2011, while mobile VAS related revenue continued to decline as expected.
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“Our brand advertising business got off to a relatively slow start in the first quarter due to the softening of macroeconomic conditions in China. Although we expect macroeconomic headwinds to continue into the second quarter, we have begun test trials of Weibo brand advertising, which is powered by a social interest graph recommendation engine, and expect this new product offering to have a meaningful impact on our brand advertising business in the second half of this year. The initial feedback from advertisers on our Weibo advertising is encouraging, and we believe it is critical that SINA continues its significant investments in social media and related initiatives,” said Charles Chao, CEO of SINA.
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Sina’s display advertising revenue growth has taken a hit. Sina’s declining market share and the slowdown in the overall Chinese display ad market both weighed down on Sina ad revenue this quarter. However, we expect Sina’s focus on monetizing Weibo through socially powered brand advertising and social recommendations to drive e-commerce sales to contribute additional revenue in the coming quarters, and compensate for any decline in its traditional display ad revenue.
Sina’s operating expenses were at an all-time high in 2011. We expect it to clamp down on its operating expenses in 2012, but if it continues to keep spending at its current rate, the cost burden could weigh on its cash flows and impact its value significantly.
Sina is an online media company which also offers mobile value-added services in China. It operates online news and content through Sina.com, a Twitter-like microblog – Weibo.com, and Mobile Value Added Services (MVAS). Sina makes money primarily through its display advertising and mobile value added services. The company faces competition in different verticals from Internet giants such as Baidu (NYSE:BIDU), Tencent and Sohu (NASDAQ:SOHU) and other companies.
We currently have a $66 Trefis price estimate for Sina, which stands nearly 20% above its current market price.