Sina's Ad Revenue Shows Modest Growth Though Profitability Declines

| About: Sina Corporation (SINA)

Sina (NASDAQ:SINA), an online media company achieved net revenues of $139.1 million in Q4 2012, marking an annual increase of 4%. An increase in online advertising revenues which rose by 7% y-o-y in Q4 contributed to this growth. However, non-advertising revenues declined by 4% annually due toa significant decline in the mobile value added services (MVAS) business. (Sina’s CEO Discusses Q4 2012 Results – Earnings Call Transcript, Seeking Alpha, February 19, 2013) While Sina’s topline recorded growth, its profitability declined during the period on account of higher personnel costs, lease expenses and infrastructure spending. Its net margin declined to 2% in Q4 from 7% in the same period last year.

Going forward, we believe Sina will continue to focus on its advertising business and Weibo platform to fuel its growth. We feel it will reduce its focus on MVAS business which contributes low margins and instead divert its resources to Weibo-related value added services.

Online Advertising Revenues

Online advertising revenues were recorded at $110.7 million in Q4 2012, marking an annual increase of 7% despite challenging macro economic conditions. Sectors that contributed to this growth included telecommunications, IT, fast moving consumer goods (FMCG) and automotive companies.

Weibo advertising revenues increased by 10% sequentially in Q4 to reach $21.3 million, on account of increased advertisers on the platform. The share of Weibo advertising revenues in total advertising revenues grew from 16% in Q3 2012 to 19% in Q4 2012. Owing to increased efforts by Sina to monetize Weibo platform, we expect this share to increase in the future.

Focus On Weibo

While the popularity of Weibo grew in Q4, it faced some negative effects due to competition from WeChat (a mobile messaging application by Tencent). While the number of registered users on Weibo witnessed a sharp rise, the growth in active user base slowed down from 16% in Q3 to 9% in Q4. Moreover, the company recorded a slight decline in average time spent by active users.

Shift to Mobile Strategy for Weibo

Due to increased usage of Weibo through the mobile platform, Sina is focusing on a mobile first strategy to prioritize mobile platform for any new product development. We believe these efforts will enhance the revenue contribution of mobile platform in total advertising revenues and will help the company in addressing the growing competition from other mobile applications such as WeChat.

Non-Advertising Business

In Q4 2012, non-advertising revenues declined by 4% annually to reach $28.5 million. This was caused mainly due to a significant decline in MVAS revenues, which were down by 38% y-o-y. However, the rest of non-advertising revenues increased by more than 150% owing to growth in Weibo value added services. Going forward, we believe Sina will divert its resources from MVAS business to other value added services, as MVAS business is susceptible to various risks, including operator policies changes and growing adoption of smartphones.

Outlook for Q1 2013

  • Non-GAAP net revenues to be in the range of $115 million to $119 million.
  • Advertising revenues to be between $94 million and $96 million.
  • Non-GAAP non-advertising revenues to be in the range of $21 million to $23 million.

We are in the process of estimating our new price estimate for Sina’s stock.