Sina (NASDAQ:SINA), a leading Chinese online media company, reported its Q3 2012 earnings on November 15. The company reported a strong quarter backed by additional advertising revenue due to the London Olympic games as well as increased acceptance of its newly-launched Weibo advertising platform. (Read: Sina Still Cautious On Ad Spending But Weibo Monetization Shows Promise)
Sina derives more than 75% of its revenue from display advertisement on its website and we estimate the segment to contribute over 66% to the company’s valuation. Though the macro headwinds have slowed down growth in the overall Chinese display ad market, the same continues to grow at a rapid pace.
However, despite the steady increase in the Chinese online display market, Sina’s market share has significantly declined since 2008 as growth in Sina’s advertising revenue has lagged behind growth in China’s online advertising market. Though the pay-offs from the monetization of Weibo are not likely to be very prominent this year, we expect Weibo to be a major factor driving growth in Sina’s online display revenues.
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Increase In Weibo’s User Base
In Q3 2012, the total number of registered users on Weibo increased to 424 million, a 15.2% increase from 368 million at the end of June 2012 and a 31% increase from March 2012. Additionally, Sina also marked a 16% increase in its number of daily active users, which crossed the 42 million mark by the end of the third quarter.
Increased user activeness on the Weibo platform implies its growing acceptance among users. We think until Sina starts realizing significant monetization benefits from growth in Weibo’s user base, it should focus on expanding the current user base and improving user stickiness through product innovation.
Launch Of Weibi & Weibo Version 5
Sina launched a new product named Weibi, which is fully connected to the Weibo platform and allows users to participate based on topics and interests as opposed to user relations. Additionally, the company recently launched an updated version of Weibo, which apart from improvising the existing profile page, also offers an added feature that allows users to privately share information and content among close circles. By enhancing the overall user experience, we think the new products will increase user stickiness on the platform and further equip Weibo to benefit from its rapidly expanding user base.
Steps Taken To Monetize Weibo
1. Weibo Display Advertising System: Sina launched the Weibo display advertising system for brand advertising in April this year. By incorporating a social and Internet graphs recommendation engine, the new system allows relevant advertising to be more targeted, thereby increasing its relevance.
2. New Feed Advertising System: Sina started testing the advertising system in a news feed, which targets small and medium-size enterprises, in Q3 2012. This advertising system allows any user to place sponsored feed at the top of the news feed for its followers. The company intends to launch the complete promoted feed advertising system by the end of this quarter.
Advertising revenues from Weibo as a proportion of Sina’s total advertising revenues increased to 16% in Q3 2012, a significant jump from the 10% in Q2 2012. We expect the proportion to be even higher in the coming quarters.
Increasing Mobile Internet Initiatives
Sina claims to be witnessing a strong migration from PCs to mobile terminals and expects to see an increase in Internet usage moving towards mobile terminals. With the increasing adoption of mobile devices among users, Sina is seeing a strong shift from its PC terminals to mobile terminals across its product lines.
In its Q3 2012 earnings call, Sina declared that around 72% of its daily active users accessed Weibo either through mobile or through both mobile and PC in September, compared to 69% in June.
Expecting to see a continuous increase in mobile traffic in the future, Sina has adopted a strategy to make mobile the first priority for any product development as well as for its other future product initiatives. Though mobile monetization remains a big challenge, we think Sina’s growing efforts to focus on developing the Weibo mobile platform would augur well for its valuation.
We have updated our price estimate for Sina to $67.51, which marks our valuation at a premium of over 20% to the current market price.