Why Weibo Is Crucial For Sina’s Long-Term Growth

Sina (NASDAQ:SINA) generates a significant portion of its revenues from online brand advertising and marketing on its Sina website and on social media and microblogging website Weibo. Additionally, advertising revenues have been the only growing segment of revenues for Sina in the last few years. As a result, the contribution of advertising revenue to Sina’s net revenue has increased from 79% in 2013 to 84% of net revenue last year. Within the advertising segment, Weibo has been a key growth driver for the company, with limited revenue growth for its portal advertising platform. Sina’s portal advertising includes revenue generated from online brand advertising on Sina.com and Sina mobile properties.

Weibo’s social media platform has similarities to both Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB). Weibo has over 600 million registered users, of which almost 130 million are monthly active users. As a result, Weibo has become very popular among brand advertisers in China in recent years. The social media platform gives major brand retailers a huge opportunity to cater to the fast-growing user base. ^[1] Weibo’s advertising revenues have surged from $148 million in 2013 to over $400 million in 2015 – a compound annual growth rate of 65%. Similarly, Weibo’s value added services (VAS) revenues have also risen at a CAGR of almost 40% in the same period.

Ad revenues from Weibo’s advertising segment were up primarily due to a massive increase in revenue contribution from small and medium enterprise (SME) customers. Revenue from SME accounts has been the fastest-growing revenue stream over the past few years, which was also boosted by Sina’s launch of self-service ads in the December quarter of 2014. Moreover, growth was driven by higher social display advertising revenue, and revenues generated from key accounts (typically large brand advertisers), which improved due to an increase in user growth and user engagement.

Complementing the revenue growth, Weibo’s gross profit and profit margin have also improved over the last few years. As shown in the table below, the gross profit margin of the Weibo segment has improved from 68% in 2013 to over 70% in 2015, resulting in enhanced profitability for the company. Comparatively, weak revenues from other revenue streams – particularly non-advertising divisions – have weighed on margins.

The divisional expenses for the advertising revenue streams include expenses related to production of websites and fees paid to third parties for Internet connection, content acquisition costs and service fees. In addition, the expenses related to Weibo advertising include maintenance of the Weibo platform including bandwidth acquisition costs, and other infrastructure costs. Although the company has witnessed an increase in these expenses, the rate of increase of expenses is lower than revenue growth, mainly because of the organic growth in traffic. Continuing the trend from the last couple of years, we expect the revenue growth and improvement in gross margins for Sina’s advertising segment to continue in the coming years. We forecast the advertising segment to drive top line growth for the company in the coming years, primarily driven by a sustained rise in advertising on Weibo. Furthermore, we expect the company-wide gross margins to continue to be positively impacted by Weibo’s presence, even as portal advertising and non-ad revenue streams show weakness.

See our complete analysis for Sina.

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1. How Western Companies Use Weibo to Seize Market Opportunities in China, Mav Social, April 2015 [↩]