SINA Corporation (NASDAQ:SINA)
Q1 2014 Results Earnings Conference Call
May 21, 2014 10:10 p.m. ET
Cathy Peng - Head of Investor Relations
Charles Chao - Chairman and CEO
Herman Yu - CFO
Alicia Yap - Barclays
Piyush Mubayi - Goldman Sachs
Ella Ji - Oppenheimer
Eddie Leung - Bank of America Merrill Lynch
Dick Wei - Credit Suisse
Gene Munster - Piper Jaffray
Tian Hou - TH Capital
Good day, ladies and gentlemen. Welcome to the SINA Corporation's first quarter 2014 earnings conference call. At this time all participants are in a listen-only mode. However, we will be facilitating a question-and-answer session towards the end of the conference. I would now like to turn the presentation over to your host for today's conference, Ms. Cathy Peng, Head of Investor Relations. Please carry on, ma'am.
Thank you. Good morning. Welcome to SINA's earnings release for the first quarter 2014. Joining me today are our Chairman and CEO, Charles Chao, and our Chief Financial Officer, Herman Yu. This conference call is also being broadcast on the Internet and is available through the Investor Relations section of the SINA website.
Before the management presentation, I would like to review the Safe Harbor statement in connection with today's conference call. During the course of this conference call we may make forward-looking statements, statements that are not historical fact, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements.
SINA assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Further information regarding these and other risks is included in SINA's Annual Report on Form 20-F for the year ended December 31, 2013 and its other filings with the Securities and Exchange Commission.
Additionally, I'd like to remind you that our discussion today includes non-GAAP measures, which exclude stock-based compensation and certain other items. We use non-GAAP financial measures to gain a better understanding of the SINA comparative operating performance and future prospects. Our non-GAAP measures exclude certain expenses, gains and losses, and other items that are not expected to result in future cash payments or that are non-recurring in nature or may not be indicative of our core operating results and business outlook. Please refer to our press release for more information about our non-GAAP measures.
During the call we may discuss non-GAAP financial measures for Weibo which have not been audited and our best estimate of Weibo results applying the same methodologies we use to calculate non-GAAP measures for SINA at the corporate level. These numbers have not been audited and exclude certain items including those used to derive non-GAAP measures, overhead allocations and inter-company transactions.
Following management's prepared remarks, we'll open the lines for a brief Q&A session. With this, I'd like to turn the call over to our Chairman and CEO, Charles Chao.
Thank you, Cathy, and good morning everyone. Thank you for joining us in the earnings conference call for the first quarter of the year 2014. We are delighted to report that we are off a good start in the year 2014 with strong revenue growth on a year-over-year basis. In the first quarter, we have continued to build scale in Weibo monetization. In April, we successfully listed Weibo on NASDAQ as a separate entity. Following the Weibo's IPO, SINA remained the majority shareholder of Weibo holding approximately 58% or 54% on a fully diluted basis of Weibo's total outstanding shares.
And Alibaba, our strategic partner, remained the second largest shareholder holding approximately 32% or 30% on a fully diluted basis of Weibo's total outstanding shares. We believe that the separate listing will allow Weibo to become more focused on developing its own platform strategies and business models and better visualize its long-term growth potentials. It also provides investors with the opportunity to value Weibo independently with separate valuation models.
With the separate listing, Weibo intends to increase its investment in product development and marketing to further build up the scale of its user base and to increase user engagements and as a result, it's operating results for the current year may turn out to be significant lower than the Street had expected. This in turn will also negatively affect SINA's consolidated operating results. However, we believe the increase investment in Weibo will help to create great value for our shareholders over the longer term.
On the other hand, the separate listing of Weibo also provides the opportunity for us to look into the strategies of the remaining SINA business and make the proper adjustments. Over the past years, SINA has underinvested in its portal business as the company had devoted significant resources in developing its Weibo platform. While we are still experiencing the growth in our portal business, we believe we need to increase our investment in areas of mobile, video end verticals to capture more market share as Internet increasingly moves towards mobile and begins to disrupt more and more traditional industries.
These initiatives will require us to increase our spending in product development as well as for the marketing which will result in negative impact on the profitability of our portal business. Our pursuit in these opportunities in the vertical areas may be achieved via a combination of internal expansions and strategic partnerships or acquisitions. While we believe it is imperative for us to invest in these initiatives to stay competitive and to create values over the longer-term, we will still rely on brand advertising as the major means for monetization for the near future. And the macroeconomic conditions for such business is now positive in the current stage in China. As a result, we will also need to adjust our expectation for the operating results for our portal business for the current year.
Before I turn to Herman for the financial review, I would like to say a few words about the video and Internet publishing license issues we experienced in China recently. On April 25 and May 2, 2014, we issued press releases regarding the receipt of government notices on revoking our Internet publishing and the video license due to certain user-generated content -- certain user-generated unhealthy and indecent content posted on the online reading and the video channels of our portal Web site. Following the receipt of these notices, the company has been working closely with the relevant government authorities and taking measures to modify the online reading and the video channels of our portal Web site. As SINA holds multiple licenses to operate its website properties, we are currently evaluating the impact of the administrative penalties on our portal operations.
We have been advised that we can continue to offer certain video and online reading services to our users on the portal and other licenses we currently hold. But the scope of such offerings are not entirely clear and we need to work closely with the relevant government authorities to gain clarity. In the meanwhile, we believe that the aforementioned measures undertaken will have an adverse effect on our revenues and result of operations but are currently unable to quantify the magnitude and extend of such impact. We have reflected these uncertainties in our business outlook for the current quarter in the earnings release.
With that, I am now turning to Herman for a financial review.
Thank you, Charles, and thank you all for joining our conference call today. Allow me to walk you through our financial highlights for the first quarter of 2014.
SINA's non-GAAP net revenues in the first quarter of 2014 grew 38% year-over-year to $167.3 million, which exceeded our guidance between $162 million and $167 million. On the earnings side, non-GAAP net income attributed to SINA grew 617% year-over-year to $11.1 million or $0.15 in non-GAAP diluted net income per share compared to $0.02 for the same period last year.
Let me now turn to other key financial items. SINA's online advertising revenues for the first quarter of 2014, grew 44% year-over-year to $135.7 million. Portal advertising revenues in the first quarter increased 11% year-over-year to $83.9 million which can be attributed to the growth from Internet services, fast moving consumer goods and financial services sector. The number of brand advertisers also saw healthy growth this quarter at 14% year-over-year.
For the first quarter of 2014, Weibo advertising and marketing revenues grew 176% year-over-year to $51.9 million. The strength of Weibo advertising came mainly from new revenue streams including revenues from promoted feeds for small and medium sized enterprises as well as Alibaba ecommerce revenues. Both of which were launched in the second quarter of 2013. Advertising revenue from brand advertisers which account for approximately a third of Weibo's advertising revenues also contributed to the robust Weibo advertising revenue growth.
Turning to non-advertising. In the first quarter of 2014, non-GAAP, non-advertising revenues grew 17% year-over-year to $31.6 million compared to $27 million for the same period last year. Non-GAAP portal, non-advertising revenue for the first quarter 2014 declined 20% to $16 million compared to $19.9 million for the same period last year. The decline in portal non-advertising revenues can be mainly attributable to the decrease in our low margin mobile value-added services business which declined 43% year-over-year to $9.1 million in the first quarter of 2014.
Weibo VAS revenues in the first quarter of 2014 grew 120% year-over-year to $15.7 million. The year-over-year growth in Weibo value-added services revenues can be attributed to the robust growth from Weibo game services and VIP memberships as well as from Weibo's data licensing business which was launched in the fourth quarter of 2013.
Turning to gross margin. Non-GAAP gross margin for the first quarter of 2014 was 60%, up from 50% for the same period of last year. Non-GAAP advertising gross margin for the first quarter of 2014 increased to 60% from 50% for the same period last year as a proportion of advertising from higher margin Weibo advertising increased 38% of total advertising revenues compared to 20% for the same period last year. Non-GAAP, non-advertising gross margin for the first quarter 2013 was 57% compared to 50% for the same period last year, primarily due to a shift in revenue mix from low margin mobile value-added services to higher margin Weibo value-added services.
Turning to operating expenses. Non-GAAP operating expenses for the first quarter 2014 increased 15% year-over-year to $104.4 million, which was primarily due to higher personal related cost and marketing expenditures. Excluding Weibo related cost, non-GAAP operating expenses for SINA for the first quarter 2014 was $48.6 million, which increased 22% from $39.9 million in the same period last year. The year-over-year increase in portal operating expenses was mainly due to higher marketing expenditures, increased personal related cost particularly in development and infrastructure related cost.
Non-GAAP loss from operations for the first quarter 2014 was $4.8 million compared to $9.3 million for the same period last year. Non-operating loss for the first quarter 2014 was $29.9 million compared to $4.5 million for the same period last year. Non-operating loss for the first quarter of 2014 included $40.2 million from the change in fair-value investor option liability in connection with Alibaba's investment in Weibo. U.S. GAAP requires us to assess the fair value of such option liability on a quarterly basis to recognize the change in fair-market value in the P&L.
Accumulated loss from such changes in fair-market value as of March 31, 2014 was $19.1 million. Since this is a non-cash item, we have excluded such item from our calculation of non-GAAP financial measures. Non-operating loss for the first quarter of 2014 also included $8.7 million or $10.7 million on a non-GAAP basis and earnings from equity method investments which were accounted for under the equity method accounting and reported on a one-quarter lagging basis. Non-operating loss in the first quarter 2013 included $1.5 million or $4.8 million on a non-GAAP basis and earnings from equity investments.
Non-operating loss in the first quarter 2013 also included a non-cash $10.2 million loss from the dilution of equity interest in E-House as a result of E-House issuing new shares to its management. Turning to taxes. Income tax benefits from the first quarter of 2013 was $1.2 million compared to an income tax expense of $0.2 million for the same period last year.
Turning to net income. Non-GAAP net income attributable to SINA for the first quarter of 2014 grew 617% to $11.1 million compared to $1.5 million for the same period last year. Non-GAAP diluted earnings per share for the first quarter was $0.15 compared to $0.02 per share for the same period last year. Excluding Weibo's losses, non-GAAP net income attributable to SINA was $15.9 million in the first quarter of 2014.
Turning to balance sheet and cash flow items. As of March 31, 2014, C&N cash, cash equivalent and short-term investments totaled $1.8 billion compared to $1.9 billion as of December 31, 2013. Excluding cash in Weibo, SINA's cash as of March 31, 2014, was approximately $1.3 billion. Cash provided by operating activities for the first quarter of 2014 was $4.9 million. Capital expenditures totaled $23.8 million which included the development of a headquarters site in Beijing. Depreciation and amortization expenses were $11.86 million.
Moving to recent developments. As Charles mentioned, in April 2014, we successfully spun-off our subsidiary Weibo which was listed under NASDAQ global exchange. As a result of the IPO, SINA sold $24 million Class A ordinary shares of Weibo directly and indirectly to AliWB, a subsidiary of Alibaba for net proceeds of $346.7 million. Following these transactions, SINA remained a majority shareholder of Weibo holding approximately 58% of Weibo's total outstanding shares.
Following Weibo's IPO, SINA's own cash balance exceeded $1.6 billion, which does not include the inter-company loan of approximately $250 million it expects to receive from Weibo. As SINA's cash balance increased we are open to opportunities to deploy our cash to create long-term value for our shareholders. For example, in April 2014, our board of directors approved a share repurchase program of up to $500 million. In the past, we have also used our cash to make strategic investments to strengthen our online media ecosystem as well as take stake in product and technology companies where we do not have core expertise.
As on March 31, 2014, the book value of our investments is approximately $520 million. We typically make investments with in intention to obtain strategic value as well financial return. For example, in the fourth quarter of 2011, we invested $50 million in Yunfeng which was set up to solely invest in Alibaba and the book value of such investments remains at $50 million today. Giant Interactive Group made a similar $50 million investment in Alibaba at around the same time that we did and recently liquidated such investment for $199 million.
Our investment in Alibaba in 2011 began an important relationship that has since resulted in Alibaba forming strategic alliance with and making an investment in Weibo. Another example in 2010, we made an investment in TIANGE, which is spelled T-I-A-N-G-E. It's a leading live video social platform in China which recently filed for an IPO in Hong Kong. Our book value in TIANGE today is $31 million. Based on TIANGE's perspective, we expect to hold an equity interest of 24% following its IPO. Such investment allow us to enter the online video industry without incurring significant losses and if TIANGE successfully IPOs, we expect to request significant amount of unrealized gain. These are just a few example of strategic investments that we have made.
Turning now to second quarter guidance. For the second quarter of 2014, we are targeting non-GAAP net revenues between $177 million and $182 million, representing an increase of 16% to 19% year-over-year. For advertising revenue, we are targeting between $152 million and $155 million, representing an increase of 26% to 29% year-over-year. For non-GAAP, non-advertising revenues, we are targeting between $25 million and $27 million as we expect a sequential decline of approximately $6 million to $7 million from non-Weibo, non-advertising revenues.
Non-GAAP net revenues and non-GAAP non-advertising revenues for the second quarter exclude the recognition of $2.6 million in deferred license revenues related to SINA's equity interest in E-House. This concludes the written portion of our call. We are now ready for questions. Go ahead, operator?
(Operator Instructions) And your first question will come from the line of Philip Wan with Morgan Stanley.
Operator, Phillip seems to have got disconnected. Can we move onto the next?
Your next question will come from the line of Alicia Yap with Barclays.
Alicia Yap - Barclays
Good morning. Thanks for taking my questions. My first question is regarding your second quarter guidance. So can you give us more color in terms of the slight softness on the brand advertising revenue guidance? Is that mainly due to the uncertainty on the license issues that you mentioned or is that also due to some of the uncertainty on the macro environment and what is your outlook for the overall advertising sentiment for the rest of this year?
Okay. Alicia, we will take this question. It's Charles. In terms of guidance for second quarter as mentioned in my opening remarks, there is a fact, I mean we have in terms of uncertainties regarding our license issue particularly with the video license. And of course less so is relating to the macroeconomic condition. But that’s probably not the most important factor, the most important fact is the license issue. Because of the uncertainty with the video license in terms of what we can offer, what we cannot offer, I think that we have seen some indirect impact from advertising community in terms of our customer base have been reluctant in terms of buying into our video advertising and also the integrated marketing package including the video element. I mean they have become a little bit more reluctant.
We have experienced some of these incidents in the World Cup campaign and some of our routine budget by our multinational customers for video or interview marketing package earnings. So I think softer guidance probably more reflects to that license issues more so than the macroeconomic conditions. And the second question, how long we believe that will last in terms of the impact? We clearly don’t know. It would probably, for sure, it will impact our third quarter because we don’t expect this issue will be resolved very quickly. And as you know the World Cup covers both second quarter and third quarter, so the impact will last in the third quarter. In terms of the impact on the fourth quarter, we don’t know. And so this is the only thing I can tell right now. So we would just have to update you next time in terms of these impacts when we have more clarity from what we have been doing here in terms of working with the authorities to pick this out.
Alicia Yap - Barclays
Sure. Thank you, Charles. Can I have a follow up question? I think you mentioned that we plan to spend a lot more aggressive on some of the new verticals. So how should we expect some of the margins trend for the portal business for the rest of the year? Thank you.
Well, when we say the spending, I think mainly in three areas, the mobile video end verticals. In the mobile we would probably will be spending more money in terms of most spend in terms of product development and also for the marketing in terms of getting more usage of our mobile apps into the news and sports and other areas. And into the video, I think now we are a little bit reluctant to spend rapidly in terms of our purchase of content and other spending because of this license issues we are encountering right now. So we probably will delay the spending a little bit and we would probably have more color in terms of how much more we are going to spend in the next quarter.
And into the verticals, I think it's a combination, as I said, in terms of our spending. In terms of internal expansion in areas like finance, like sports, like automobiles. These are areas where you intend to spend more in terms of our spending in exploring new business opportunities. But I think on a [record] speaking basis it's not going to be that significant. To put in this way, I cannot really quantify exactly how we can spend in these area because it really depends on opportunities we are going to encounter. So our intention is of course to increase the spending in all these areas to prepare ourselves for the future. And with separate listing of Weibo, we probably have more flexibility in terms of our spending and investment in these areas and we probably will have a more concrete picture in the near future.
Your next question will come from the line of Piyush Mubayi with Goldman Sachs.
Piyush Mubayi - Goldman Sachs
Thank you for taking my question. Could you just remind us what percentage of revenue comes in from video and if there is any revenue contribution from the publishing of books, so we get a sense of what is at, what could be at stake? And the second is, could you give us a sense of how many customers are bundled? You talked about that fact in terms of the impact of the video license across the board. And if I may slip in a third question, you talked about a slowing economy. I wondered how brand advertisers are thinking in lieu of the way the economy is progressing. Could you, this is a more general question I realize, but I would appreciate your take. Thank you.
I am going to let Herman take the first question.
Yes. Hi, Piyush. With regards to video as a percentage of total advertising. It's a rather small percentage in single digits. But we also have our package deals where video historically has been bundled into these integrated packages so it's going to impact more than a few percentage as we have shown in our Q2 guidance. Secondly, with regards to revenue from publishing, we actually have also showed that in Q2 guidance. If you look at our revenue on a sequential basis, we are saying that our non-advertising revenue. So non-Weibo, non-advertising revenue on a non-GAAP basis we think it's going to decrease on a sequential basis $6 million to $7 million.
So that is coming from two factors. One factor is, probably half of that is coming from MVAS. As you know that the channel for pushing on those products gets limited during this indecent content cleanup campaign. And secondly, the other part -- the other half of that relates to the publishing revenue that we derived in the first quarter.
Yes. Let me add to this particular question. The video, as I said, I think that the revenue impact for video probably is more indirect. In fact, logically people are more reluctant to spending more money with anything relating to video, especially from multinational company. And also the once that are actually -- who are willing to spend more money on the World Cup may be more reluctant. So because the World Cup campaign typically the video package -- the integrated package with video can sell much better than in other package we have. And so that had to have some indirect impact here and it's really difficult to quantify but we can see that reluctancy in terms of our contract signing process right now.
Video I think as a total percentage of revenues, it's small but on total basis -- I mean if you are talking about the videos, the revenues on the video page, I mean on the video content not just at the video advertising sales, that could be a large percentage. Total could be close to 10%. And so the impact sometimes could be more than we have expected. And in terms of the revenues from booking, it's more direct impact with basically the revenues for online readings having reduced to a very small number from the first quarter number. So that impact will last for a while and this indirect impact from these two revenue sources.
And in terms of the forecast for advertising and how we see the impact from macro-economic conditions, I think -- I would say in general it's slow but not really effecting on areas, for example in the first quarter we have seen increase in spending for -- on a year-over-year to basis spending for ecommerce Internet service and also on the financial services as well as some of the FMCG clients spending more money than they had in the same period of last year. And on the other hand we see a little bit slow down, for example, in the areas of automobiles and IT and other categories. So it's not like across line you see a slowing down but on overall basis, the overall condition is not as good as we expect it.
Your next question will come from the line of Ella Ji with Oppenheimer.
Ella Ji - Oppenheimer
Thank you for taking my questions. I have two questions. The first one is relating to your user engagement on your video and book websites. Since the news broke out I just wonder if you have seen any, let's say for example, the unique visitors or time spent on these two websites. Are there any significant change since then? And then my second question is relating to your Weibo business. I understand that you have just started to open up promoted feed for key accounts. Just wonder what type of advertising interest do you think you will attract in the promoted feeds versus the traditional ads? And do you expect any cannibalization at the traditional advertising dollar from the key accounts? Thank you.
I think I will take the second question as I still remember that question. In terms of our spending by key accounts in the promoted feed advertising, I think we open this to all type of customers right now in all categories. I think the once who will try first probably will be the once like automobile customers. The customers, more FMCG. These are two big categories for Weibo and we expect these people will also become the early adopter of promoted feed advertising system for key accounts for Weibo.
And in terms of cannibalization, I think it's inevitable. I mean as I said, there was cannibalization between portal and Weibo and with introduction of this new product to key accounts, we also expect to see some cannibalization between display ads and the promote feed ad earning for key account within Weibo platform. But this is inevitable but we do not expect that’s going to be significant in terms of overall revenue. But going forward, I think our real objective is to introduced more key accounts to promote feed advertising because this is area that we see growth in inventory and we also the growth of effectiveness of advertising, especially on mobile going forward.
So this is the area so we are going to push and so it will be a good trend if we see more and more customers adopt this promoted feed advertising from key accounts. And what was the first question? I am sorry, what was the first question?
Ella Ji - Oppenheimer
The first question is relating to the user engagement, user activity on the video....
Ella Ji - Oppenheimer
Yes, and on the portal Web site.
Yes. I think at the current stage, it's too early to tell because we still remain most of video -- we have a lot of video service offerings still on Web site right now and as I said, it's not clear exactly what we should be taking off whether we should remain as a service provider for certain services in video. And in our video is probably more measured by our unique visitors because we do not have a lot of long-form video in the movies, in the miniseries for TV. And a lot of related to news, to sports, to entertainment. And these tend to be short videos, not long form videos. So we do not really measures in terms of our spend of our video users. I mean we probably put more weight on the unique visitors on a daily basis. We do see a decline here but not significant, but of the period we don’t know exactly what's going to happen because we are still not clear what we can offer away now. So we will probably give you more update once we have more information there.
Your next question will come from the line of Eddie Leung with Bank of America.
Eddie Leung - Bank of America Merrill Lynch
Just a follow-up question on your portal advertising. You mentioned that you've seen some weakness in certain categories, for example, like automobile. Just wondering if you could also comment whether some of these weakness are coming from general slowdown of the industry or competition from some of the verticals. And then just a follow-up question on that, you also mentioned that verticals could be an area that you really focus on going forward. Could you elaborate a bit more? Because we have seen certain categories like [VOSA] (ph) and automobile, already have some of the pretty big verticals getting quite some market share. So wondering how you could get into the market from this current stage. Thanks.
Eddie, this is Charles. I think you are right. I think the weakness is coming probably from both areas. I think for us we don’t know exactly I mean what our competitors are doing in terms of their numbers at this stage. So I think it's inevitable there will be some competition here. Especially with more verticals going public where they have more brand recognition and also the means to get more market share once they get public. And so it's inevitable there will be more competition but I think what we have seen is a general slowdown in the market but I wouldn’t exclude the impact from the competition. Also because I think that’s probably inevitable. And in terms of our strategy in terms of exploring these opportunities and the verticals, I think it has to do with several areas. One is of course what kind of product we are going to offer. I mean as you know, we are probably, historically we are probably -- in the past we offered more like media content service. Some of these could be data service in terms of the -- for different verticals in the finance area, in the automobile area.
But in the future we probably want to have more comprehensive service to our user base. For example in the finance area we can offer Internet finance product to our user base. In the automobile area we can also offer different kind of services like insurance, financing and other services going forward. All these will require our investment. As I said, either internally or we intend to have expansion through our partnership or acquisitions going forward. All these are in the process but we probably cannot really carry too much in detail at this stage because some of these have not being completed or finalized in terms of strategies. And we will probably update you more in the future.
Your next question will come from the line of Dick Wei with Credit Suisse.
Dick Wei - Credit Suisse
I guess, two questions. The first question is maybe in terms of the mobile monetization, what kind of progress or plan there is for the portal? And secondly is, maybe, I guess Herman mentioned it, we got quite a lot of good-performing investments. I wonder any plans of cashing out or giving out dividends or other use of cash thoughts. Thank you.
I think that target is on the track and we probably want to do more if we can. But I think it takes in time going forward. But I think our mobile monetization portal will also have to do with our mobile monetization for Weibo going forward because both will utilize our user data and there are lot of synergies in between, so that in the future I mean in the mobile space we believe a lot of advertising will be on push basis and also will be based on the unique user ID and accumulated data associated with the unique ID. So once we get more and more unique IDs and also more data accumulated for these users, we will be able to push these advertising more accurately so to increase overall effectiveness of our mobile monetization on our properties and maybe also extend our offering to other Internet property, mobile properties. I mean for other Web sites. So that’s our plan and we believe the key is to have more users, more data and more good technology for targeting going forward and I think we are doing that and this is area we will be very focused upon for future mobile monetization.
Your next question will come from the line of Gene Munster with Piper Jaffray.
Gene Munster - Piper Jaffray
I think this question has been asked in various ways, but now that Weibo has been spun out, Herman, you outlined some of the investment opportunities that you currently have. But what are some of the things that you're most excited about in terms of the growth of SINA? Is it things like investing in the automotive and finance verticals or anything else that'd be worth highlighting, maybe mobile, but just to get us all thinking on the same page as far as what you're most excited about? Thanks.
I think the most exciting areas for our portal business going forward, probably I would say, is in the area of vertical areas. And as you know, SINA has very strong brand recognition in China with strong market and media influence and we can leverage that with our very high public user base and with other market opportunities to get into the vertical areas to really diversify our revenue streams and that requires investment, requires partnership, requires acquisitions. And most importantly that would require the talent in particular areas, especially for particular industries. And so I think these, I mean as I said in my opening remarks that Internet began to disrupt traditional industry more and more and went up another. And I think it's time to really see some good opportunities in this vertical areas and we are very excited about that and we believe we are in a good position to do that. The key is good execution, good team and with the patience I think we can do well in these areas.
Your next question will come from the line of Tian Hou with TH Capital.
Tian Hou - TH Capital
I have a couple of questions. One is, as you guys, the business was negatively impacted by this video license and so definitely the revenue growth will be slower than before and then at the same time you're talking about investments in multiple area. So video is one of the area that's actually really hard to get away regardless what kind of vertical you are developing, like your automobiles and sports and/or even finance. So I wonder how to re-conciliate those two issues? Without video how you're going to grow the vertical, organically or non-organically? So that's the number one issue. Number two is, you're talking about investment. I wonder where the investment is going to go. It's going to go to the content or it's going to go to sales and marketing and then R&D? So how big the investment could be or at the end of the year how should we expect your portal operating income to be? Is that going to be negative throughout the year or it's going to be breakeven or even profit? That's all my questions.
Well, Tian, this is a lot of questions. I would say, I mean, put in this way, we do not expect the operating income will be breakeven or negative for portal this year. We are still going to expect profit at the operating level but it probably would be less than people have expected. And as you said, I mean there is other areas we need to invest but will invest in more cautious ways, smartly, so not to disrupt our the financial model significantly. But we do need to invest in area like, as you mentioned, about marketing product, these area definitely we have to invest. In the areas of mobile and video, these areas mainly relate to product and also some of these relate to marketing channels so that we can get more users for apps we have. But in the verticals, it little depends. Sometimes it could be doing acquisitions, doing partnerships, and sometimes really through the internal expansion. But internal expansion is mainly for headcount, which we do not believe that could be very, very significant because the headcount could not be that significant in terms of incremental cost we are going to encountering here in terms of our spending.
And in the video, is a very complicated issues. And as I said, we will probably delay just a little bit given the competition of this license issues. And also even we have this -- we don’t have that license issues, we will do that more cautiously because we do not intend to get the video at the full scale in terms of increased, all sort of content acquisition, in terms of increase our network bandwidth or everything. You know there is a lot of money to be spend in this area. We probably will be very cautious in terms of spending a lot of money in terms of long form acquisitions. We probably will more seek to innovative ways in terms of our video offerings to our users utilizing our strengths in terms of our news, sports and also our Weibo traffic to get into these areas more efficiently in a different angle then other competitors. So these are the areas we think but it's a very complicated issues. Cannot really elaborate very shortly in short period of time. We probably can talk more offline in the future.
Tian Hou - TH Capital
Yes, that sounds good. And a follow up question. So as you're selecting investment target, so is SINA itself going to be on the top of the list?
What do you mean?
Tian Hou - TH Capital
Herman knows what I mean.
I really don’t have too much comment on that question.
Okay. That concludes our call for today. Thank you all for joining us. We will see you next quarter.
Thank you for your participation. This does conclude today's conference call, you may now disconnect.
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