Can Sina Sustain Its Massive Revenue Growth?

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Sina (NASDAQ:SINA) announced its second quarter earnings on August 9, reporting nearly 50% growth in revenues to $537 million. Revenues were higher than our expectations of around $500 million, with Weibo advertising being the largest contributor to the revenue growth. However, operating expenses (non-GAAP) were also up by a massive 80% on a y-o-y basis to $272 million, due to which the operating margin (non-GAAP) compressed almost 3 percentage points to under 30% for the quarter. The resulting net income and earnings per share were up 26-27% to $66.5 million and $0.89 per share, respectively, which was also slightly higher than our expectations.

We have created an interactive Sina full-year earnings expectations dashboard that summarizes our forecasts for Sina. You can change expected segment revenue and margin figures for Sina to gauge how it will impact expected EPS for the full year.

Based on the strong performance by Weibo, we expect the strong revenue growth to continue through the current year. Weibo revenues are expected to continue to outpace growth in other segments. In recent quarters, portal advertising has remain subdued compared to Weibo advertising. In the six-month period ended June, Sina’s core portal revenues were up only 7% y-o-y to $148 million. Comparatively, Weibo advertising and marketing revenues have surged 74% over the comparable prior year period to $673 million. Additionally, this was achieved with only a limited increase in Weibo’s cost of revenues. The resulting gross margin of Weibo segment expanded by 5 percentage points to 84%.

Going forward, we expect combined advertising revenues to continue to drive top line growth, particularly due to strength at Weibo. Ad revenues are expected to increase 40% to over $1.85 billion for the full year. Similarly, non-advertising revenues are also expected to continue to increase by around 30% through the year to $350 million. However, we expect margins to be slightly lower than the comparable prior year period as the company intends to scale up its marketing expenses for the next few quarters. This could result in lower operating margins through the current year. Our forecast for the full year non-GAAP operating profit margin stands at 27%, which is nearly 3 percentage points lower than 2017 levels. Our EPS forecast for Sina stands at $3.17 for the year, which is in line with consensus estimates. 

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