Almost six months ago to the day Shanda Interactive (ticker: SNDA) acquired a 19.5% stake in Sina (ticker: SINA). Speculation arose that Shanda would soon acquire the rest of Sina. But nothing of the sort has occurred. Instead Sina appears to have rejected subsequent overtures by online game operator Shanda -- and at the same time seen its business weaken (latest results), stock price suffer (despite continued Internet user growth and increasing interest in Chinese Internet companies), and institutional holders head for the exits (in Q2, 53 of 93 institutions sold all or part of their stakes). So what next? Sina is expected to hold its annual meeting next month. Might it face pressure from disgruntled shareholders to re-consider a Shanda bid in the wake of recent weak results and murky prospects? Barron's, for one, believes a merger is unlikely. It cites analysts suggesting that Shanda may actually be preparing to sell its Sina shares in order to use the funds to pursue other opportunities. Key quotes from this week's Barron's (full article here -- subscription required):
David Huang of Dynasty Asset Management
....Shanda's holdings have weighed heavily on Sina's stock price. Both stocks are treading water, and no one knows what's going to happen unless Shanda ups its bid for Sina, which seems unlikely.Yan Zhao of Reidel Research Group in Beijing
....Sina's momentum is slowing down. With online advertising revenues set to slow and mobile value-added services -- the two main pieces of Sina's business -- under pressure from regulatory issues and changes in China Mobile's billing platform, Sina will face a difficult environment in 2005.Jason Schrotberger of Turner Investment Partners (recent sellers of Sina stock)
....We saw the handwriting on the wall. We could see a slowdown coming in online advertising and SMS and other value-added wireless services. And when the company missed earnings expectations in the first quarter of 2005, that was the final straw. We felt Sina was facing a kind of a dwindling pie in terms of where and how they could capture future revenues. We respected Sina's online advertising business and expected it to continue strong into the future, growing by 35% to 40% over the next three to five years and to increase its share of Sina's total business revenues to 50% from its 40% share at present. But the rough road ahead really lies with its wireless value-added services, which probably won't grow by much more than 25% to 30% over the same period. Sina's mainstay wireless service -- SMS -- has become a bit ho-hum and is slowing compared with growing demand for multimedia services -- transmitting music, pictures or games, which is the new wave. But Sina is really struggling with this business, and you probably won't see any fresh revenue or earnings momentum until the second quarter of next year.Barron’s Conclusion
....The smart money is betting that, despite widespread interest in Chinese Internet stocks, Sina is going nowhere anytime soon.SINA chart.
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