Shares of Sina Corporation (NASDAQ:SINA) have risen 16.6% since I published a positive article on its Twitter-like service Sina Weibo. Based on my latest analysis, Sina shares have risen too fast in the past several weeks. I remain positive on the long-term future of Sina, especially Sina Weibo, but I believe existing shareholders should now take profits at the current price level. My analysis is as follows:
Analysis of current market sentiment on SINA.
Since Sina reported Q4 earnings on March 1, Wall Street analysts' consensus EPS estimates for its 2011 and 2012 fiscal years have dropped 14% and 8% respectively, according to data from Yahoo Finance. Despite these earnings downgrades, analysts' average price target on SINA has risen 17.8% to $90.5 since the Q4 earnings release, and shares of Sina have surged 26.2% since March 1. In my view, these seemingly conflicting data points have revealed the market's mainstream opinion on Sina: the market believes that new information that was not available before the Q4 earnings release will cause Sina's 2011 and 2012 earnings to be worse than previously expected, but the growth beyond 2012 will be much higher than expected and will much more than offset the weakness in 2011 and 2012. The analysis above leads to an important question: What's new at Sina since March 1? Based on my analysis, the most important piece of new information on Sina since the closing of the March 1 trading day is the company's change of strategy to ramp up investment in Sina Weibo, and focus less on its monetization.
The market's mainstream view on Sina Weibo's latest strategy is too optimistic and hence unsustainable.
The market seems to believe that de-emphasizing Weibo's monetization and ramping up investment will better position Sina for the long term - so much better that Sina's stock price deserves a 26.2% jump in less than a month. I disagree with the market on this aspect: In my opinion, Sina's new strategy on Weibo was largely a passive defense to the recent moves by Tencent (OTCPK:TCEHY
) to promote Tencent Microblog and open up the Tencent QQ platform to third-party developers. Tencent Microblog used to fall far behind Sina Weibo on every operating metric. However, my latest research suggests that Tencent Microblog has surpassed Sina Weibo in daily China-based visitors since mid-January 2011. Tencent Microblog's users are still less active than Sina Weibo users in terms of number of visits per user per day, but the two competing services' average time per visit is nearly identical now. These trends have prompted Sina to change strategies to offset Tencent's momentum, in my opinion. I thus believe the market has interpreted Sina's strategic shift too optimistically, and Sina shares have risen too fast since reporting 4Q10 results.
I remain positive on the long-term future of Sina, especially Sina Weibo, despite my cautious short-term view on the stock. I am positive on Sina Weibo not because of its changing strategy, but mainly because Sina is fundamentally more suitable than any other Chinese Internet companies to operate a microblogging service. By nature, microblogging is more informational than social. It's more of a one-to-many mass communication and broadcasting tool than a one-to-one social networking tool. Sina's traditional strength has been its industry-leading expertise to operate mass media products such as its famous news and blogging channels. I hence believe Sina will excel at running its microblogging service, which will greatly enrich its news-reporting capacity on both wireline and wireless Internet. Investors should not expect Sina Weibo to become the "Facebook of China" or "Social Network of China." Instead, a more reasonable expectation is that Weibo will significantly enhance Sina users' news-consuming experience, and propel Sina's news platform to an unprecedented level of success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.