Q3 Results Indicate Sina is Strengthening Premium Brand Positioning

SINA Corp. (NASDAQ:SINA) announced its third quarter results on November 14 (see conference call transcript). The company reported an EPS of 32c, which surpassed the expectations by 4c. The market already had a bullish sentiment on SINA's results due to excellent results posted by companies like BIDU and SOHU. However, SINA was slightly off the mark. Its revenue trailed the expectations (Actuals of $64.3M Vs expectations of $64.6M). However, it has shown a 15% YOY growth, due to the strong 40% YOY growth in advertising revenues to $45.8M.

The company, which offers news, mobile services, games and shopping through its portals, provides customized content for Mainland China, North America, Hong Kong and Taiwan. SINA has been trying to position itself as a destination site for the high-end services. In our opinion, Q3 results clearly indicate SINA consolidating that position. Automobile and IT continues to remain strong contributors to SINA's advertising revenue, with Automobile segment revenue surging 60% YOY.

As part of its strategy to be a premium service provider, the company has been investing heavily to source exclusive content. In Q3, the company was the exclusive portal partner in China for English Premier League and Italian Series A League for live broadcasting all (football) matches. In addition, it has renewed its contract to broadcast all matches of the European Championship Cup. What we found more noteworthy was SINA's initiatives to strengthen its offerings in emerging segments. It secured exclusive content with major financial print media companies, and added functionalities like live stock quotes, message board and web-based chat to its finance channel. Q3 indicates that the company's investment in Financial services channel has started paying off. The segment has witnessed a meteoric 220% growth in advertisement revenues, now contributing 9% to the company's total advertising revenue. With Financial Services segment in the early stages of adoption in the Chinese market, we believe that SINA has a clear winner here.

Though the decline in non-advertising revenue and margin pressures will cast a cloud over the results in the near to short-term time frames, the possibility of continued momentum in the advertisement revenues through the longer time frames seems certain, with the Beijing Olympics approaching closer – just nine months to go (In Q3, the company witnessed a 11% increase in the advertisement customers and a 27% increase in the spending per customer). In the earnings call, the management mentioned that the overall ad rate rate hike for 2008 will be more than 20%. With robust growth in the online gaming market in China, the Gaming Business Unit initiative of SINA will provide traction in the longer time frames by offering a comprehensive game related portal. If SINA restrains itself from developing/ operating its own games, our call is that SINA can prove to be an excellent one stop shop facility for game related services, with its competitors being some of the major vendors there.

According to China Internet Network Information Center [CNNIC], China has witnessed an 18% growth in its internet user population to $162M in a six month time frame (Jan 07- Jun 07). Nevertheless, the internet penetration ratio is only 12.3%. Such a growing market provide companies like SINA an excellent business opportunity. The almost 35% growth of the broadband user base in the six month time frame indicates that SINA's premium offerings will certainly find takers in mainland China.

Disclosure: none