Sina Earnings Preview: Ad Revenues To Continue To Be Driven By Weibo

Sina Corporation (NASDAQ:SINA) is scheduled to announce its fourth quarter earnings after market close on February 22. ^[1] The Chinese internet company reported strong growth in ad revenues last year due to the increasing popularity of its websites and apps such as the Sina mobile app and social media platform Weibo. The company generates a significant portion of its revenues from online brand advertising and marketing on its websites and social media platforms. Other revenue streams such as mobile value added services (MVAS) and other fee-based services for data licensing, corporate accounts and other gaming related services form a small portion of the company’s top line.

Weibo Drives Ad Revenues

Sina’s advertising revenues were up by 16% y-o-y to $602 million through the first three quarters of the year, as shown below. Comparatively, non-advertising revenues – which include MVAS revenues, Weibo value-added services and other services revenues – increased by around 11% to $116 million. A key point to note here is that within the advertising segment, Weibo has been instrumental in driving growth for the company while portal advertising revenues on Sina’s platforms have struggled this year. Weibo-ad revenues were up by 40% y-o-y to $383 million, while portal advertising revenues (generated from online brand advertising on Sina.com and Sina mobile properties) from January through September this year fell by around 10% year-over-year to $219 million.

A key reason for growth in Weibo revenues has been the number of active monthly users on Weibo’s social media platform, which has some similarities to Twitter (NYSE:TWTR), Facebook (NASDAQ:FB) and Instagram. Weibo has over 600 million registered users with almost 400 million monthly active users (MAUs) by the end of Q3 this year. As a result, Weibo has become a popular advertising space among digital brand advertisers in China. ^{[2] [3]} Ad revenues from Weibo’s advertising segment have been boosted by a robust contribution from small and medium enterprise (SME) customers. Sina launched self-service ads in late 2014 to further help SME accounts post more relevant ads. ^[4] As a result, ad revenues from SME customers have contributed significantly to growth in ad revenues. This is likely to continue to drive ad revenue growth in the long run.

Margins, Profits Surge This Year

Driven by strong growth in ad revenues and advertising segment gross margins, Sina’s company-wide gross margin improved by 350 basis points to 64.2% through the first three quarters of the year. Advertising segment gross margin for the first three quarters of the year was higher than the company-wide gross margin at just under 65%. Comparatively, the non-advertising segments have gross margins of less than 60%.

In addition to strong growth from major revenue streams, Sina was successful in restricting growth in the net operating expenses as shown below. Sina’s non-GAAP operating expenses through the three quarters of the year were roughly flat over the comparable prior year period at $359 million, which led operating income (non-GAAP) to grow almost five-fold to $97 million. Resulting year-to-date net income and earnings per share were also significantly higher than the prior year period.

We expect future revenue growth and improvement in gross margins for Sina’s advertising segment to continue in the coming years, driven primarily by Weibo’s growing customer base and user engagement. In addition to revenue growth, Weibo’s strong presence in China’s social media market should help the company monetize its user base more effectively. We forecast advertising revenues for the full year to be around 19% higher at $884 million.  Similarly, the advertising segment could report healthier gross margin for the full year as shown below.

We have a $54 price estimate for Sina’s stock, which is over 20% lower than the current market price. Sina’s stock price has fluctuated between $41 and $84 in the last year.

See our complete analysis for Sina.

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1. SINA Corporation to Report Fourth Quarter and Fiscal Year 2016 Financial Results on February 22, 2017, Sina Press Release, July 2016 [↩]
2. Weibo’s Revival: Sina Weibo Is China’s Twitter, YouTube & InstaGram, What’s On Weibo, November 2016 [↩]
3. How Western Companies Use Weibo to Seize Market Opportunities in China, Mav Social, April 2015 [↩]
4. Sina’s Weibo has a balancing act: Increase revenue or preserve the user experience, Morning Star, November 2016 [↩]