Sina (SINA), a Chinese online media company, posted net revenue of $126 million in Q1 2013, which represented an annual growth rate of 19%, exceeding its initial guidance of 13%-17% growth. Advertising revenues, which account for about 75% of total revenue, rose by 20% annually in Q1 2013 to $94.3 million. Non-advertising revenues registered 14% y-o-y growth as the 17% annual decline in mobile value added services business was more than offset by significant growth in Weibo’s value-added services revenues.
While Sina’s profitability continues to remain week, it showed some signs of improvement during the quarter. Gross margin increased to 51.3% from 46.2% in Q1 2012 mainly on account of increased profits in the advertising business. Operating margin came in at -7.8% compared to -17% in Q1 2012. We expect profits to improve during the rest of 2013 as the revenue growth should outpace costs for the company. However, costs related to mobile strategy and product development for Alibaba merchants could cause headwinds to the bottom-line growth during the year.
In the earnings call, Sina’s management indicated that the Internet advertising market outlook in China looks soft in the short term. However, we think Sina could continue to see strong revenue growth in the future as its Weibo monetization initiatives appear to be kicking off and Alibaba partnership will boost revenues for the company over the long run.
Update Regarding the Recent Alibaba-Sina Deal
Alibaba (a major e-commerce player in China) had recently acquired an 18% stake in Weibo for $586 million. The partnership will see the two companies come closer in areas of account connectivity, data sharing, online payment, and online marketing for merchants. It will also help connect millions of merchants on Alibaba with the large user base on Weibo, which will accelerate the pace of monetization for Weibo. Sina and Alibaba will jointly explore opportunities in the social commerce and mobile commerce markets of China.
This recent deal is expected to rake in around $380 million in advertising revenues for Weibo during the next three years on a gradual basis. Sina will create a dedicated advertising inventory for Alibaba’s merchants, and this will not compete with the existing inventory being used by other brand advertisers on the platform.
Weibo-Related Metrics in Q1 2013
Amid intense competition from WeChat (a mobile messaging application by Tencent), Sina registered a moderate increase in its Weibo user base during the quarter. The total number of registered accounts on Weibo rose by 6.6% q-o-q to reach 536 million at the end of first quarter. Daily active users also grew by 7.8% sequentially to reach 49.8 million in March 2013. While the average time spent by daily active users on Weibo had witnessed a slight decrease in Q4 2012, this figure saw some improvement during the first quarter.
Weibo advertising revenues were seen at $18.8 million, which represented around 20% of overall advertising revenues for the company. Revenue from Weibo value-added services (which includes web games and membership fees) saw more than 150% annual growth during the quarter.
Mobile Strategy Remains the Key Focus Area for Sina
Sina continues to see enhanced mobile penetration of its products in line with the recent trend towards mobile Internet in China. In March 2013, around 76.5% of Weibo daily active users utilized mobile to access the platform. In order to leverage this trend and enhance mobile monetization, Sina is actively investing in its mobile platform development.
Sina has prioritized the mobile platform (over desktop) for any new product development and is focusing on improving the user experience of its mobile application. During the quarter, Sina improved the messaging system on its Weibo mobile application and also relaunched a new Sina News mobile app. It also accelerated its efforts to enhance mobile monetization by testing a new advertising system with selective SME enterprises. Mobile gaming is also being targeted by the company to enhance its Weibo value added services revenues.
The share of mobile in Weibo advertising revenues stood at 34% in Q1 2013 compared to 25% in Q4 2012. We expect this proportion to steadily rise in the future on account of the efforts being taken by the company to bolster mobile monetization.
Guidance for Q2 2013
- Non- GAAP net revenues in the range of $143-$147 million, representing an annual growth rate of around 13% to 16%.
- Advertising revenues are estimated between $117-$119 million, while non-GAAP non-advertising revenues are forecast at around $26-$28 million.
We are in the process of revising our $57 price estimate for Sina's stock.
Disclosure: No positions.