Sina: Shares Attractive In The Short-Term

Sep.23.11 | About: Sina Corporation (SINA)
Chinese social media company Sina (NASDAQ:SINA) has recently entered a major correction due to regulatory concerns. When SINA was trading below $90 per share on June 24, I suggested that investors be more constructive on Sina shares in the short term. Now that SINA has completed another roller-coaster ride, surging above $120 and droping back to below $90 in three months, I believe investors should buy the stock at current levels for a short-term trade. Below is my analysis:
Further downside is limited in the short term. In addition to the current correction, SINA has recently experienced major corrections around late Feburary, late June, and early August. If we overlap news headlines with SINA's stock chart, we can find that in all of these tough situations, influential analysts have always come to the rescue, stabilizing and cheering up the market's sentiment on SINA. The same phenomenon has been taking place during the past several days, which indicates we are likely to see a rebound in the short term. Such a short-term opinion is purely based on my analysis of SINA's three previous corrections. The theoretical basis for this analysis is that I believe history tends to repeat itself in the stock market, where short-term moves are heavily influenced by the behaviors of influential investors and investment bank analysts, who are highly confident in themselves and tend to defend their positions vigorously in tough times (as confirmed by SINA's three previous corrections.) Still not time to build a long-term position Having talked about SINA's short-term potential, I believe whether to build a long-term position now is not so obvious, and long-term investors should wait for more possitive developments on Sina Weibo's monetization front. Here I want to reiterate my opinion from a September 7 article: microblogs' growth in China may have peaked, and the industry's inflection point may have arrived much earlier than investors had expected. In the article reviewing China Internet stocks' performance in August, I pointed out that microblog's search queries and media coverage had shown signs of slowing down (Charts 1 and 2), despite continuous growth in website traffic (Chart 3). The conclusion was that data points on microblogs had started to diverge as opposed to previously "all going up." Having said that, I believe now it's not time for microblog service providers and investors to panic. Microblogging has already achieved a critical mass in China, with its penetration among Chinese Internet users surging from almost 0% to around 20% in the past two years, according to my research. The lack of a critical mass is no longer an obstacle for monetizing microblogging services. The real problem now is that the divergence of data points indicates that microblogs' penetration rate may not have much room for further growth. This situation means that companies in the microblogging industry have to develop a growing sense of urgency in monetizing their traffic. The failure to do so may lead to a gap between rapid user growth and large-scale monetization - as user growth slows down, investors will punish microbloging service providers' stocks if they do not see enough monetization to offset such a slowdown. Based on the discussions above, I believe recent monetization efforts launched by Sina should be, and will be closely watched by investors, and the near-term results of these experiments will soon have an impact on investors' long-term view on the stock. In fact, I believe Sina and Tencent (OTCPK:TCEHY), the two dominant Chinese microblogging platforms, should try to somehow cooperate or coordinate with each other on monetization, so that both of them can generate some profits from microblogs. This is much better than competing on who has more users and less "user-disturbing" monetization, and suddenly finding out one day that user numbers no longer grow fast while profitability is far away. 1 2 3

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.