Why We Revised Our Price Estimate For Sina To $65

April 20th, 2017 by Trefis Team
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SINA
Sina

We recently revised our price estimate for Sina (NASDAQ:SINA) from $54 to $65. The two primary reasons for the price estimate revision were improved margins and a healthier balance sheet. Sina reported a strong end to 2016, with 17% annual growth in revenues complemented by a 3 percentage point improvement in gross margins. Moreover, the company reduced its debt significantly through the year, leading to a nearly 40% rise in its stock price in the last year. It is interesting to note that net cash (around $2.8 billion) remains a significant contributor to the company’s value.

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Sina reported a 22% annual increase in Q4 revenues to $313 million, while full year revenues were up 17% to just over $1 billion. [1] Revenue growth was driven by both the advertising segment, which includes display ads on Sina and Weibo, and non-advertising revenues, which include value added services on weibo.com. Additionally, Sina’s company-wide gross margin (GAAP) for the quarter improved by almost 5 percentage points to 70%, while the full-year gross margin was up by almost 4 percentage points to 65.6%. The key differences in our previous estimate for Sina and our revised estimate includes an improved EBITDA margin and the increase in net cash as shown below.

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In its Q4 earnings call, Sina’s management reported that the company used its cash and short-term investments to repay its debt through the year. Sina used short-term investments to repay roughly $650 million of its convertible debt in the fourth quarter, which was partially offset by the cash inflow and proceeds from disposal of certain investments. [2]

As a result, its net debt fell from around $1.1 billion at the end of Q2 to under $600 million by the end of the year. Moreover, its net cash remained roughly flat at around $3.4 billion, as shown below. This was a key factor that drove our price estimate upwards for Sina, given that cash contributes a significant portion of the company’s value.

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You can modify the interactive charts in this note to observe the impact a change in these key drivers can have on our price estimate for the company. Our revised price estimate for Sina is slightly lower than the current market price. 

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Notes:
  1. SINA Reports Fourth Quarter 2016 Financial Results, Sina Press Release, February 2017 [↩]
  2. Sina Q4 Earnings Call Transcript, Seeking Alpha, February 2017 [↩]