Sina Earnings Preview: Weibo Growth To Offset Slowdown In Portal Advertising

SINA Corp (NASDAQ:SINA) is scheduled to announce its third quarter earnings on November 7. The Chinese internet company has reported strong growth in ad revenues over the past few quarters due to the increasing popularity and monetization potential of its social media platform Weibo. In addition, the company also generated advertising revenues from its own website (sina.com) and Sina mobile app. The company generates a significant portion of its revenues from online brand advertising and marketing on these platforms. Sina has had a strong year thus far, with a more than 40% growth in revenues. This top line growth was largely driven by Weibo, while Sina’s core portal advertising revenues have suffered this year.

We have a $78 price estimate for Sina’s stock,which is over 25% lower the current market price. Sina’s stock price has surged by over 80% since the beginning of the year due to a strong set of results in recent quarters, complemented by a healthier balance sheet.

See our complete analysis for Sina.

Strong Growth In Weibo Ad Segment

Sina’s advertising revenues have risen by 42% to $525 million through the first half of the year, while non-advertising revenues have also solared by over 50% to $112 million. Within the advertising segment, Weibo has been instrumental in driving growth for the company, while portal advertising revenues on Sina’s platforms have struggled in the last couple of years. Weibo’s ad revenues were up by 71% y-o-y to $388 million in the first half of the year, as shown below. On the other hand, portal advertising revenues (generated from online brand advertising on Sina.com and Sina mobile properties) fell by around 3% year-over-year to $138 million. This trend is consistent in recent quarters, with Weibo becoming a popular advertising space among digital brand advertisers in China, led by a significant increase in Weibo’s active user base.

Growth Spree Expected To Continue In 2017

We forecast ad revenues to continue to drive top line growth for Sina through 2017, with a significant contribution from Weibo. Despite a slowdown in portal ad revenue, Weibo revenues are likely to help Sina’s top line grow at mid-to-high double digits through the end of the year.

In addition to strong growth from its primary revenue streams, Sina has been successful in restricting growth in operating expenses. In line with the performance in the first half of the year, we expect margins to expand through the latter half of the year as well. We expect this trend is likely to continue through the end of the year, with operating expenses increasing by around 20% over 2016 levels, as shown below. This should help the company expand its margins, as shown below. We forecast Sina’s non-GAAP diluted earnings per share to stand at just over $3 per share for the year, compared to a Yahoo Finance consensus estimate of around $2.94.

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