How Sina’s Valuation Is Affected By Changes In Online Ad Market Share

Sina (NASDAQ:SINA) generates a significant portion of its revenues from online brand advertising and marketing on Sina.com and Weibo.com. According to our estimates, advertising revenue will be the key area of growth for the company’s top line through 2018. Since internet penetration has increased in China, complemented by a higher mix of smartphones sold, internet companies have been able to monetize customers better than in previous years. As a result, 2017 was a positive year for most Chinese internet companies, including Sina, Alibaba, Weibo, Baidu and Tencent, with their stocks surging throughout the year.

According to Trefis estimates, Sina’s share in the Chinese online ad market is expected to increase from around 2% in 2017 to 2.2% in 2018. However, there are two cases where Sina’s ad segment can witness stronger-than-anticipated growth in revenues. First is the company’s strength among small and medium enterprise SME customers. Sina has witnessed strong demand from SME customers in recent quarters, due to which the company has set up a nationwide SME distributor network to meet the marketing requirements in this segment. This could help in scaling up revenues without a similar hike in cost of goods sold. Secondly, a significant part of Sina’s ad revenues come from online brand advertising and marketing on social media and microblogging website Weibo, in which Sina has a majority stake.

Weibo announced strong Q4 results, with better than anticipated revenue growth. The company reported the seventh consecutive quarter of accelerating revenue growth.  Furthermore, the total monthly active users on Weibo were up nearly 30% y-o-y to 330 million. This could help drive Sina’s ad revenues higher. If Sina’s online ad market share in China reaches 2.4% for the year, there could be a nearly 5% upside to Sina’s valuation (assuming the market size, net income margin and Sina’s forward P/E multiple remain consistent). You can look at our interactive analysis and modify all the variables to arrive at your own price estimate for Sina. You can share your results and analysis using the share button at the top of the screen.

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