Sina Worth $66 As It Banks On Monetization Of Weibo
Sina (NASDAQ:SINA), a leading online media company serving China and the global Chinese communities, announced its earnings for Q2 2012 on Wednesday, August 15. The company defied the current slowdown in economic growth in China, marking a 11% y-o-y increase in revenues. While non-advertising revenue was up 5%, advertising revenue registered a 12% increase over the same period last year. However, gross margins dropped down to 53% compared to 57% in 2010, primarily on account of a substantial increase in product development costs.
Last quarter, Sina announced its plans to focus on monetization of its microblogging service Weibo.com. Though Weibo is gradually becoming a significant revenue driver for Sina, the company claims that it is unlikely to produce any significant operating profits before 2013. Sina continues to invest heavily in developing the Weibo platform and aims at monetizing Weibo through socially-powered brand advertising and social recommendations to drive e-commerce sales.
Check out our complete analysis of Sina
- Why Sina’s Revenues Will Likely See Only A Marginal Growth in 2020
- Decline In Sina’s Q3 Advertising Revenue Isn’t A Cause For Concern Yet
- Can Sina’s Revenue Growth Numbers Recover This Year?
- Sina’s Strength In Fintech Should Make Up For Weakness In Weibo Going Forward
- Sina Likely To Report Forgettable Q1 Results, But Revenues Should Recover Sharply In The Near Future
- How Much Can Chinese Stimulus Impact Sina’s Valuation?
Potential Slowdown In The Chinese Display Ad Market
Display ads on the company’s websites contribute over 64% to our current price estimate of $66.34 for Sina. While the macroeconomic headwinds negatively impacted Sina’s display advertising revenue growth last quarter, the company registered a solid 31% sequential increase in Q2 2012. While the trend is encouraging, we maintain our view of a possible slowdown in the Chinese advertising business on account of the persisting weakness in the Chinese economy.
High Operating Expenses
Sina’s operating expenses, specifically its sales & marketing and research expenses, were at an all-time high in 2011. Even in Q2 2012, the company registered a 11% y-o-y increase in operating expenses. Much of the increase is due to Sina’s growing investment in Weibo.com, which has translated into the latter’s user base growing to around 368 million registered users as of June 2012.
We estimate operating expenses to decline during our forecast period. However, if Sina fails to clamp down its expenses and continues to spend at the current rate, its cost burden will weigh on its cash flows and impact its value significantly. You can change our estimate using the graph below to study the resultant impact on our price estimate for Sina.
We are in the process of updating our price estimate of $66.34 for Sina to incorporate the Q2 2012 earnings.
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