Sina Inc. (SINA) is due to report its 3Q11 results on November 8th. The Street expects the company to earn $0.23 per share (-54% y/y) on $124 million in revenue (+20%y/y). The estimated decline in EPS is due to Sina’s continuing investment in Weibo, China’s leading microblogging platform.
Heading into the earnings, investors should focus on Sina’s strategy of monetizing Weibo.
As of last quarter, Weibo has over 200 million registered users and is ranked 7th by traffic among all websites in China. In addition, approximately 16 million new users are added each month, and the combined user base generates over 75 million daily blog posts.
Sina took the initiative of enriching user experience by adding mobile applications (~3,500 as of last quarter), voice-based microblogging, location-based services, an enterprise version catered to corporations to facilitate its interaction with customers, desktop version with built-in instant messenger, and online blogging platform that synchronizes with users’ Weibo accounts.
While I am positive on Weibo’s future in China’s social networking environment, Weibo monetization should be Sina’s top priority, especially when the company expects to invest $100 million (~20% of 2011E Revenue) and hire 1,000+ R&D headcounts to expand Weibo’s user experience and presence in China.
Investors should also note that the recent fear over government control of Weibo is unjustified and irrational. As I mentioned in my article that addressed 3 key issues surrounding Weibo, Sina already hired over 700 staffers to monitor and censor political sensitive topics on the site. In addition, the Chinese government is highly unlikely to shut down Weibo because Sina has a great relationship with the government through Mao Daolin, the former Sina CEO and son-in-law of the current Chinese President Hu Jintao. Such vital political connection ensures Weibo’s dominance on China’s microblogging platform.
Fears of government control aside, investors should focus on Sina’s fundamental, which is likely to rely heavily on Weibo for advertising revenues. Failure to monetize Weibo is destructive to shareholder value, and would negatively impact Sina’s future because it differentiates the company from rivals such as Baidu (BIDU), Sohu (SOHU), and Tencent (TCEHY.PK).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.