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February 22, 2006

8 p.m. EST

Executives

Chen Fu - IR Manager

Wang Yan - CEO

Charles Chao - President and CFO

Hurst Lin - COO

Analysts

Richard Ji - Morgan Stanley

Lu Sun - Lehman Brothers

Dick Wei - JP Morgan

Wallace Cheung - Credit Suisse First Boston

Jason Brueschke - Citigroup

Frank Shi - CLSA Limited

James Mitchell - Goldman Sachs & Co.

Safa Rashtchy - Piper Jaffray & Co

William Bao Bean - Deutsche Bank AG

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the SINA fourth quarter and full year 2005 earnings conference call. I would now like to turn the presentation over to your host for today's conference, Ms. Chen Fu, Investor Relations Manager. Please go ahead, ma'am.

Chen Fu

Thank you. Good morning. Welcome to SINA's earnings release for the fourth quarter and full year 2005. Joining me today are our CEO Mr. Wang Yan; our President and CFO, Charles Chao; and our COO, Mr. Hurst Lin. This conference call is also being broadcast on the Internet and is available through the investor relations section of the SINA website.

Before the management presentation, I would like to read you the Safe Harbor statement in connection with today's conference call. During the course of this conference call, we may make forward-looking statements, statements that are not historical fact, including statements about our beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.

Potential risks and uncertainties include, but are not limited to: SINA's historical losses; its limited operating history; the uncertain regulatory landscape in the People's Republic of China; the effect of the notice issued by the Chinese State Administration of Radio, Film and Television in late January 2005; on the Company's revenues from usage-based SMS products promoted via direct advertisement on radio and television; and the Company's ability to develop and market other usage-based SMS products. These, and other information regarding the risks is included in SINA's annual report on Form 10-K for the year ended December 31st, 2004 and its recent full year report on form 10-Q, as well as in its other filings with the Securities and Exchange Commission.

Additionally, the non-GAAP and comparable GAAP information are contained in our earnings release, which can be found on our corporate website at http://corp.sina.com. Following management's prepared results, we will open the lines for a brief Q&A session. Now let me turn the call over to the CEO, Wang Yan.

Wang Yan

Thank you, Chen. Good morning to those of you in Asia and good evening to those of you in the U.S., and a warm welcome to all of you to our December quarter 2005 earnings conference call. December has both been a rewarding and challenging quarter for us. We achieved top line revenue of $52 million, an increase of 5% over last quarter. This growth was driven primarily by our strong advertising business, which was $25 million in revenue for the December quarter. This was an increase of 37% year-over-year and 9% quarter-over-quarter. This is also the third consecutive quarter we have enlarged the gap between SINA and our closest competitor in the market.

On the mobile front, unfortunately, it has been more challenging than we had expected. Our wireless value-added services revenue was $24.8 million, an increase of 3% quarter-on-quarter. But, it has decreased 31% year-over-year. The drop in our mobile revenue was the direct cause for our revised guidance a few weeks back. I will now turn it over to Charles to go over in greater details our business.

Charles Chao

Thank you, Wang Yan. Thank you all for joining our conference call today. Before I get into a detailed discussion about our business, I would like to point out one fact that is particularly meaningful and interesting. Over the past year, the investor community has been talking about our business mix and questioning our commitment to our core online advertising business. I am very pleased to tell investors today that in Q4 2005, for the first time in the last three years, our branding and advertising revenue surpassed our mobile value-added service revenues, and reached a record amount of $25 million.

More importantly, this was achieved not by a sequential decline in mobile revenue, but by a strong sequential growth in our branding and advertising business. As a matter of fact, throughout 2005 we had strong growth in branding and advertising, and have further enhanced our leadership position in China's online advertising market.

The revenue gap, as Wang just mentioned, for branding and advertising between us and our closest competitor more than doubled from $3.8 million in Q1 2005 to $8.1 million in Q4 of 2005. It is a clear validation that our position as the leading portal and the leading online advertising platform in China has been further improved.

Now let me discuss some highlights for the fourth quarter. We reported a total revenue of $52 million for the fourth quarter, growing 5% sequentially and in the middle of the Company's original guidance, and at the high end of our revised guidance in January, 2006.

We have seen a strong fourth quarter and a strong year for the advertising business. Again, I want to emphasis that our advertising revenues include mainly branding and advertising -- such as banner, text links and rich media -- but exclude such revenue. These revenues are included in other non-advertising categories. Advertising revenues for the fourth quarter were $25 million, up 9% quarter-on-quarter, and up 37% year-over-year; at the very high end of our original guidance. Advertising revenues accounted for 48% of our total revenues for the fourth quarter, as compared to 32% in the same period last year.

For the year 2005, advertising revenues grew 30% year-over-year to USD $85 million. This strong growth came off of an increasingly high advertising revenue base and in an increasingly competitive online advertising market in China. More importantly, we are not seeing a slowdown in the pace of advertising revenue growth going into 2006.

The 9% sequential revenue growth in advertising was primarily due to increased spending in our top three sectors including: real estate, information technology and automobile. Combined, these three categories accounted for approximately 50% of our total advertising revenues for Q4. To a lesser extent, the sequential increase was driven by the revenue increase from e-commerce sites and our financial services.

The timing then speaks a lot of the strengths of our online media property, which has attracted a large number of high-end Internet users in China, who are the desirable, targeted demographics for advertisers in these three -- real estate, IT and automobile. We are continuing to invest in content and other web products to further solidify our status as the premium online media in China.

In the second half of 2005, we launched SINA Blog, SINA's branding power and its high-end user base has quickly turned the SINA Blog into a national phenomenon, attracting thousands of China's rich and famous, opening their blogs on SINA. In a matter of six months, SINA Blog has become the window of the country's most trafficked blog services. In February 2006 SINA Blog attracted 1 million unique users and we quickly saw them blog posting on a daily basis.

Also in the second half of 2005, we launched a new version of Message Board and have since seen our Message Board Traffic tripled to 30 million page views, with 2 million unique visitors on a daily basis. These innovative products not only brought in more traffic, they increased our web thickness but also expanded our sources for content. In other words, we are generating much more traffic from user-created content than before. This will lay a good foundation for advertising growth in the future from more interactive advertising products.

The gross margin for the advertising business was 69% for the first quarter and 67% for the year 2005. This compares to 69% for the same quarter of 2004 and 66% for the year 2004. For 2006, we are targeting full year advertising revenue to grow 25% to 30% year-over-year as we see continued healthy growth in demand for our branding and advertising. We do not expect significant change in gross margin from 2005. For our advertising business, we anticipated higher costs in content and the bandwidth in 2006.

Now turning to our mobile value-added service business. The mobile value-added service revenue grew 3% sequentially, but declined 31% year-on-year in the fourth quarter to $24.8 million. The sequential growth rate was lower than our original projection, mainly due to a lower than expected sequential SMS growth rate of 4%.

As we discussed last quarter, we have become more relying upon direct TV advertising to acquire new monthly subscribers for our SMS product, as other means of promotion have become less effective. However, the return on TV advertising in the second half of the fourth quarter was lower than we had expected. This, coupled with the lower retention rate for monthly subscribers in general, resulted in the lower than expected SMS revenues for Q4. Our mobile revenues from non-SMS service were largely flat between Q4 and Q3 with modest increases in WAP and IVR and a modest decline in MMS and others.

The gross margin for mobile revenues decreased from 66% in Q3 to 62% in Q4. We have been telling investors that our gross margin for the mobile business would gradually decrease due to the fact that those content costs and the payments to the mobile operators would increase. The decline in mobile gross margins accelerated in Q4. Half of the gross margin decline related to increased transmission costs paid to operators, and the other half related to increased content costs.

The challenges facing mobile SPs, including SINA in China -- in addition to the positive changes -- mainly pertain to three areas: high content costs, less effective promotion distribution channels, and lack of differentiation in product offerings. Those three factors result in lower revenue and high costs for our mobile business in general. To deal with these challenges, we will increase and releverage our portal content and the media power to provide unique content and cheap distribution channels for our mobile business.

We recently formed the SINA Music Business Unit to get into the business of music production, packaging and the promotion, leveraging our popular entertainment channel and the web user-created music platform. We are also in the process of connecting some of our popular web products to our mobile service to create new fee-based services for mobile products. These initiatives will take time to materialize, but we see portal and the media strengths as something most other mobile SPs do not possess and eventually, it will provide us with competitive age against our competitors.

Assuming mobile operators do not change their operating policies -- that may be detrimental to SPs -- in the future, we have to admit our mobile service revenue will decline in high single digits sequentially in Q1 and Q2 of 2006, with further sequential decline in gross margin in each of these two quarters; although the declining gross margin should not be as severe as we have seen in Q4 2005. We hope that we will be able to see a more stabilized mobile business in the second half of 2006 for both revenues and the gross margins, with the new initiatives I have just talked about.

Over the longer term, we firmly believe it is critical and very important for SINA to maintain a strong presence in the wireless business, in anticipation of the launch of 3G mobile network in China. 3G licenses are expected to be awarded this year, and our understanding is that there will be multiple 3G network operators in China. We have been operating on a WAP portal, a wireless version of our Internet portal. We have seen strong traffic growth for WAP portal in the last six months, indicating a strong demand for our service. With much improved network speed in 3G, we will be able to extend our web content and product offerings to mobile devices, and to create new revenue streams.

Now I would like to turn the call over to Hurst to provide an update on our search and the game business.

Hurst Lin

Thank you, Charles. I will now provide some updates regarding some of our key products. First the search. During this quarter, we continue to improve on our search engines. During the past two or three months we upgraded our search engine twice and currently our search libraries have over 1.4 billion indexed web pages. This compares with the quarter before, where we had only 500 million indexed pages.

In addition, we have expanded our local search offering from 10 to 29 of the top cities in China. Search is an important tool and we will continue to improve on our functionalities in the months to come.

On the online casual game front, in addition to our own development, we have also launched two third-party games that have increased both users and use time. Going forward, we will look at both internal and external game development to increase our game offering. On the Lineage game front, we started the movement to our Free Play. Both of our games, Lineage 1 and Lineage 2 have been able to hold their ground. During the quarter, the combined Lineage 1 and Lineage 2 players reached around 50,000 maximum concurrent users.

Lastly, we have recently started video streaming products that have garnered quite a bit of attention. Our video streaming product has broken new records in this past quarter. Recently, our maximum unique daily users have reached over 1 million. Our offering includes news clips, TV programs and full feature films.

In summary, during this quarter we will continue to focus our energy on our core business and Internet with both significant product launches and product upgrades. Looking ahead, we will try to continue to invest in key areas such as search, blog and broadband streaming, to further cement our position as the number one portal in China. Thank you.

Charles Chao

Thanks, Hurst. This is Charles again. Now let me talk about a few financial items in addition to what I have already discussed in the highlights. First, operating expenses. Our operating expenses for the quarter totaled $23.3 million. Excluding the amortization of intangible assets, our non-GAAP operating expenses for this quarter totaled $22.8 million, a decrease of 4% from the $23.8 million last quarter and an increase of $12 million from the $20.4 million last year. The decrease in non-GAAP operating expenses, quarter-over-quarter, was due to a decrease in marketing expenses of $2.5 million as we cut back on TV advertising for our wireless service. This is offset by increases, mainly in high sales expenses relating to commission expenses for advertising sales; high product development costs for new product development; and high G&A expenses due to increased costs for year end financial and internal control audit.

During the fourth quarter, we sold our interest in 1Pai, an online auction joint venture with Yahoo! to Alibaba. As a result, we recognized a gain of $2.6 million from the transaction and also as a result of this transaction, we are free from the restriction of offering advertising service to other auction sites. I just want to point out that this $2.6 million has been excluded from our non-GAAP net income presentation. In addition, also in this quarter we recorded an equity loss of approximately $100,000 in the fourth quarter for our game JV with NCSoft. We expect to incur similar or slightly higher losses from this JV in the first quarter of 2006. We also recorded approximately $300,000 in losses from other smaller equity investments in Q4 2005 and we expect a similar amount of losses from those investments in Q1 2006.

For the fourth quarter, our applicable tax rate was approximately 4%. We expect the effective tax rate to be closer to 7% for the entire 2006. In addition, starting in the first quarter of 2006 we will begin expensing costs relating to employee stock compensation. Based on unvested shares as of year end, and excluding any new shares we may grant in the future, we estimate that the impact to the first quarter will be in the range of $1.5 million to $1.6 million. We will exclude the stock-based compensation from our non-GAAP net income presentation in the future.

Now let me make a few comments about our balance sheet. As of December 31, 2005 cash, cash equivalents and investments in marketable securities was $301 million, compared to $289 million last quarter and $276 million at the end of last year. Our accounts receivable balance on December 31, 2005 totaled $33.9 million and an increase of $1 million from our last call. This was mainly due to an increase in sales, offset by our better collection of receivables for advertising revenues. Our DSO for accounts receivable for the first quarter was 59 days compared to 61 days last quarter.

This brings us to the end of our presentation for today. Now we are ready for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Richard Ji with Morgan Stanley. Please proceed.

Richard Ji - Morgan Stanley

Hi, Wang, Charles and Hurst.

Wang Yan

Hi.

Hurst Lin

Hi.

Charles Chao

Hi, Charles.

Richard Ji - Morgan Stanley

I have two questions. One is regarding your advertising pricing trends. Have you reached your price during the quarter, or what is the plan going forward? And I have a follow-up.

Wang Yan

Regarding the pricing for advertising, we did reach our price in Q4 for our prime internal inventories, as I mentioned in the last conference call. The range of the rate hikes was basically between 10% to 20% for some of the prime inventories. There were also some decreases in other locations for less popular channels.

Going forward, I think we assess our pricing on a six-month basis, so we are in the process of assessing our pricing again at this point, and we plan to increase the price again in Q2 2006. Based on the experience last quarter, I think we still have a lot of potential to increase our price, especially for some very popular channels.

Richard Ji - Morgan Stanley

Thanks, Wang. And the second question again, on the online auction site. You mentioned you may get an offering from some of the leading online auctioning providers. Can you shed some light on the developments on that end?

Wang Yan

First of all, after we sold our JV interest to Alibaba in 1Pei, and it freed up, as I just mentioned, it freed up on the restriction of offering services to other auction sites. So basically we are open right now, and we are in negotiations with all of the auction sites, like any other advertising clients right now. Basically our strategy was not to take exclusivity with anybody at this point and try to negotiate with all parties on a transaction basis going forward.

Richard Ji - Morgan Stanley

Okay, thank you.

Wang Yan

Thank you.

Operator

Your next question comes from the line of Lu Sun with Lehman Brothers. Please proceed.

Lu Sun - Lehman Brothers

Thank you for taking my questions. My first one will be on the change for your wireless value-added service strategy. It seems like, Charles you have mentioned that going forward that you will focus more on connecting the web portal and your wireless value-added service platform. It seems to be less of a focus on continuing with SMS promotion. Am I getting the message right? Thank you. Then I have a follow-up. Thanks.

Charles Chao

I don't think these two services are necessarily exclusive to each other. We are going to continue our existing SMS service using our existing channels. Mainly the channels for direct TV advertising and also by marketing with mobile operators.

What I am saying is, these channels are not enough to grow our revenue further and we need to expand other channels. That is why I believe our portal strength is a very good advantage we have against other competitors and we have not fully utilized our portal strength and our media power in terms of doing our wireless business. At this point, we are going to explore more opportunities by leveraging our portals for content. Also for distribution channels going forward, so we can have additional content, a unique product and additional, cheaper distribution channels than our competitors going forward. So that would be a base for our growth in the future.

Lu Sun - Lehman Brothers

Okay, thank you. My second question is on the online advertising side. It seems like your first quarter guidance would imply around 29% to 35% year-over-year growth in online advertising. So your full year guidance is only 25% to 30%. Do you actually envision some kind of softness in the following quarters in 2006, or are you just being more conservative?

Wang Yan

Well I think it is not really more conservative here. We are trying to project our full year advertising revenues based on the contracts we have already signed, and also our general sense of the entire market going forward. In terms of advertising particularly I think the performance will be on and off just like what you have seen in the past in 2004 and 2005. Each quarter the sequential, year-over-year growth is a little bit different and so at this particular point, in Q1 2006 we are going to see growth in the range I have just indicated in our guidance.

Also, there is the fact that you probably noticed that in Q1 2005 our revenue was not performing very well, due to different factors. So I think you will see a little bit higher growth rate for Q1.

Lu Sun - Lehman Brothers

I see. My last question will be, do you actually already include some of the e-commerce contracts -- sorry, advertising contracts from the e-commerce side in the first quarter guidance? Or, are you still in negotiations with various parties for a 2006 contract?

Wang Yan

I think that element is already in the guidance and we already started to get some last quarter and also we are getting some this quarter. We are treating these advertisers as just our normal advertisers, nothing special about it. I think you will see some this quarter and will see some in the future quarters also.

Lu Sun - Lehman Brothers

Okay, thank you.

Wang Yan

Thank you.

Operator

Your next question comes from the line of Dick Wei - JP Morgan. Please proceed.

Dick Wei - JP Morgan

Hi, good morning. Thank you for taking my question. My first question is on the wireless side. I am encouraged to hear that you guys are making some changes on the wireless front, and I wonder for the distribution through TV, should we expect the Company to spend less in terms of TV advertising in 2006?

Charles Chao

Well I think that is really depending on the effectiveness of the campaign. I mean, we have -- and for example last quarter we had some good returns at the beginning of the quarter, only to see the returns deteriorate in the second half, so we actually cut back, advertising quite a lot in December. This quarter we started to see some good returns on some new products we introduced, and so we have increased a little bit in the first part of Q1.

As I said, we are going to monitor the effectiveness and return on this TV advertising to make a judgment call. If their returns are not good, we will cut back; if the return is getting better, we will increase our spending. It is just a matter of the ROI we are going to assess for every campaign we have on TV. But in general, I think that Q1's expenses should be lower than Q4 for TV advertising from the trend that we have seen.

Dick Wei - JP Morgan

I see. My final question is on SINA's branding. Recently Soho got the Olympic sponsorship for 2008 [pager and mobile pick] [inaudible headline]. I wonder if SINA has any plans to further boost its brand awareness to any kind of brand promotions or advertising activities. Thanks.

Wang Yan

I think that is a very broad question. We do not believe one particular event will cause a huge difference in a company's branding power. SINA's brand is clearly one of the best in China in the Internet space. To answer your question, of course we are going to be very aware of our branding going forward, and we will do everything we can in terms of our product and our promotion to promote our brand going forward.

I think branding is more based on the company's product offerings and its relationship with customers and users, it is not a matter of a particular event promotion. In that sense, I think clearly SINA has an advantage over our competitors in this market. If you look at the branding in China and clearly, SINA has a premium brand over our other competitors in the portal space.

Dick Wei - JP Morgan

Thank you.

Wang Yan

Thank you.

Operator

Your next question comes from the line of Wallace Cheung - Credit Suisse First Boston. Please proceed.

Wallace Cheung - Credit Suisse First Boston

Good morning. Two questions. First of all, regarding advertising business systems, third-party reports saying as the top portal, SINA may be losing some market share in the overall brand advertising market. Does management have a focus to maintain a certain level of market share when you broke out the business plan in 2006? Or, are you actually focusing more on profitability?

My second question on the wireless business is quite different from my first one. Right now, is SINA more focusing on the profitability or the margin of the wireless business, rather than the top line growth? Thank you.

Wang Yan

That is a very good question. I think in terms of losing market share in brand advertising in the entire market, I think there is a trend that we have been talking about for a long time, especially in 2005. We mentioned before that inevitable trend, especially in recent periods when there are a lot of properties coming out -- especially in some vertical areas and in some other areas not particularly for online advertising, but they also offer online advertising business such as gaming platforms and so on.

So basically, what we have seen in the past year is that there are a lot of new properties in the market -- we are talking about verticals, talking about gaming platforms and also talking about this newly created Web 2.0 website. They are all offering branding advertising right now, and most of these companies are starting from zero. So inevitably, even if these companies have a very small gain in market, that will dilute our market share because they are starting from zero. So this is a trend we cannot avoid, and I think we can -- when we compare ourselves to our own revenue base, and also compare to the entire market growth, I think the dilution will continue for another year. Obviously we have this market share in our business plan this year. We hope we can at least hope to maintain our market share, and also increase our market share among these portal players going forward, as we have done in 2005. Obviously you can see that our market share among portals has increased, not decreased, for brand advertising over the past year.

In terms of market share versus profit for the wireless business, I also talked on this topic before, and we don't believe the market share in the wireless business is that meaningful. Our primary target is to achieve high profits for our wireless business. That is affecting our business plan going forward.

Wallace Cheung - Credit Suisse First Boston

Thank you.

Wang Yan

Thank you.

Operator

Your next question comes from the line of Jason Brueschke - Citigroup. Please proceed.

Jason Brueschke - Citigroup

Thank you. Good morning.

Wang Yan

Good morning, Jason.

Jason Brueschke - Citigroup

Maybe a couple of follow-up questions. On Wallace's last question, Charles could you maybe comment on when you think you will see the impact of your ability to replace some of your expensive content on the wireless side with some more of your home grown or your portal generated content. Is that a first half event, or should we be expecting that more in the second half of '06?

Charles Chao

Well I think in terms of revenue impact we will probably see in the second half of the year 2006, and we are in the process of doing that right now in terms of our profit development and also finish model design. I think all of this will take time. Some of these products may be well-received by our users, and others may not be. It is also a matter of coordination with some mobile operators to see if some of these products can be accepted in the market, and so on and so forth. So all of these will take some time.

I think we are making some good progress right now. We see some good indications that some of our products may work going forward, but we have to set the right expectation for the revenue impact from these initiatives. I don't think that will be anything significant or meaningful until the second half of 2006.

Jason Brueschke - Citigroup

Great, and then two other quick questions. Could you maybe comment on, what are your specific efforts to monetize traffic around your blog and your message boards? Are you doing anything different than with your general advertising, and have you attempted to monetize them already, or is that something you will try to do again going forward?

Charles Chao

I think at this stage, our primary purpose and the target is to grow traffic and grow users to make these products much bigger communities and make them much more sticky products for us. I think these products will help us to maintain and to increase our general portal traffic and also they will increase our traffic on the front page of some primary channels, because in general they will bring in more users and also bring more traffic to our website. So indirectly, we will generally benefit from these traffic increases. That is one thing.

The other thing, and I think going forward that we obviously want to explore, advertising products and we are in the process of doing that, to design more product advertising and more interactive advertising offerings for advertisers utilizing these products. I think our primary purpose right now is to grow traffic and users. We are not going to monetize those products in a very short period. Our general expectation and experience in the past is that we can grow traffic and grow users, and then make a more sticky product, there will be a way to monetize it. We are not in a hurry to do that right now.

Jason Brueschke - Citigroup

Right.

Hurst Lin

Also to add to that we are exploring content-specific types of keyword advertising and I think, for community types of products such as blogs, where the discussions or subject matter tend to be much more specific, in those areas. Going forward, as our traffic gets much bigger we will begin to explore keyword links or keyword advertising in those areas.

Jason Brueschke - Citigroup

Great, and that is a good segway to my last question, which is also a follow-up to one of Wallace's questions which is, are you seeing any specific competition from the search market -- Baidu, Google, et cetera -- for advertising budgets at your customers, relative to your brand advertising efforts?

If so or if not, could you also maybe comment on what are your sales expectation capabilities that you will plan to take to market in 2006 which you think will help you execute in what, by your own admission, seems to be a little more of a crowded market on the advertising side? Thanks.

Charles Chao

Regarding this question, basically I think there is -- we have seen some competition from search engines in terms of competing on the same brand advertisers in the space. Particularly, I would say especially for those brand advertisers who are selling IT products and also those advertisers, those e-commerce sites who typically spend a lot of money before. I think they are switching more back into the search engines right now and I think this trend will continue in the future. This is inevitable, and we have seen that in China and we have seen that in other markets around the world.

In terms of our strategy to deal with that, I think the market is growing fast enough to have both branding and search type, targeted advertising to grow at a very nice pace. Also, as Hurst just mentioned, we are also exploring a lot of target advertising for that in terms of keyword targeting and content targeting. We will develop new products to be able to more visualize our deep level content page. So we can have more revenues from the targeted advertising going forward.

Hurst Lin

I think following up on what Charles is saying, our key channels like our home page, our news page, those are massive audience type of properties, and those areas are where there is -- to borrow an American expression -- is where our Super Bowl ads, branding ads are going to go on. Against, really smaller channels or emerging channels where the audience tends to be more segmented, we will explore more targeted ads like keyword ads or content-related ads to get better results out of those pages.

Generally on our branding ads, we also explore much more flashier, multimedia type of ads, because that is what branding ads are all about; creating image, creating impression, creating branding impact on the audience. That is what our advertisers are looking for. There will always be two kinds of ads. One is the branding type of ads, or image-building type of ads. The other one is basically looking for click throughs, click to type of results. Those we will try to address using keywords and content-related, subject-related types of targeted links.

Jason Brueschke - Citigroup

Great, thank you.

Charles Chao

Thank you, Jason.

Operator

Your next question comes from the line of Frank Shi - CLSA Limited. Please proceed.

Frank Shi - CLSA Limited

Hi guys. Two questions. The first question is on the SMS business. In that business segment, what products are becoming popular and what products are dying? Second question is on advertising. What are the reasons that drive an advertiser to this type of smaller website? Thank you.

Charles Chao

Please repeat the first question, Frank? I didn't hear it clearly.

Frank Shi - CLSA Limited

The first question is on SMS business. In that business, what products are popular and what products are dying?

Hurst Lin

The ad business?

Charles Chao

No, let me answer one by one. I am not sure exactly what you are talking about, but you are talking about banners, button links -- you call these products?

Frank Shi - CLSA Limited

Yes, that is my second question. In advertising, basically we are saying that the small websites, what types are taking over some market share? My question is what drives the ad money to those spots? More video sites, more websites over to SINA?

Charles Chao

No, I understand that question. I did understand --

Frank Shi - CLSA Limited

So the first question, wireless value-added services, you have SMS --

Charles Chao

Wireless. I am sorry.

Frank Shi - CLSA Limited

Yes, in wireless, SMS in particular. What products are popular? What products are not popular anymore?

Charles Chao

Well I think in the wireless business I think the popular products are still related to the entertainment products like music, for example. I think music as relating to a lot of music products are offered on different platforms like SMS, MMS as well as WAP and also IVR. So I think this is one of the major demands for the wireless service at this point. These account for more than 50% of demand for wireless service at this point. That is one of the reasons we are getting into the music production business, is to try to control more original content for music so we can have the advantage of content going forward in the wireless business.

Also in the wireless business, in terms of a community product, I think this has become less popular compared to the entertainment-related product. So in terms of categories, I think as I mentioned, SMS is still the main source of revenues and MMS, WAP we have seen some good improvement from our last quarter and we see more than a 20% increase in our WAP business in Q4 compared to Q3. But then we are also seeing some of the decline in the SMS business and the game business. So this is the change in dynamics of our product offerings in the wireless business. I hope that answered your first question.

The second question, what causes the smaller websites to take market share from large portals? I think this is just inevitable that a lot of smaller sites before, they have very little traffic and they particularly don't have the financial resources and the sales force to really monetize their web traffic. Right now I think a couple of things are going on. One is that there are a lot of well-financed vertical sites, thanks to the investment community, to put money into a lot of vertical areas. So there are a lot of vertical websites that are financed and they have the ability to monetize their web traffic much better compared to before.

Obviously as I mentioned, if they are coming from zero then there will be some growth whether this is RMB1 million or RMB2 million, it is very small in absolute dollar amounts but nevertheless, they are taking market share away from our market and from the portals.

Also, another element for these smaller websites to monetize is they typically -- some of these smaller websites join a web union for those big companies, so they monetize their traffic indirectly from their web union strategy by selling inventory to these big companies. I think these are two ways to monetize their traffic.

Hurst Lin

Generally, if advertisers are looking to do brand-building, image-building, SINA is their top choice. This is the way they can get maximum impact, massive impact, from their advertising campaigns. When you are talking about the overall advertising markets, growth and how that is growing I think you are including a lot of these, what you call small advertiser ads. They are looking for -- generally they are selling small items and those kind of ads are more suited to smaller websites that are more willing to take on much, definitely much smaller advertisers who may not have the kind of advertising budget to be on SINA.

Also, they may be offering product that might be a little bit difficult for much more image-conscious sites like SINA to take on.

Frank Shi - CLSA Limited

Thank you.

Wang Yan

Thank you, Frank.

Operator

Your next question comes from the line of James Mitchell - Goldman Sachs. Please proceed.

James Mitchell - Goldman Sachs & Co.

Thank you for taking my two questions. The first one, just a detail one, could you give a rough breakdown of the other non-MVAS, non-assetizing revenue for the fourth quarter between I guess search, games, server hosting?

Charles Chao

You are only talking about the non-mobile related advertising category?

James Mitchell - Goldman Sachs & Co.

Yes.

Charles Chao

The amount of [$2 million]?

James Mitchell - Goldman Sachs & Co.

Exactly.

Charles Chao

The amount is mainly related to the search revenues, it is between $1.5 million to $1.6 million. The remaining would be corporate emails and other fee-based services. There was no revenue from the Yahoo! joint venture or e-commerce in Q4, and there were no revenues for the hotel bookings and there were no revenues for others. So these are the main categories in that non-advertising business classification.

James Mitchell - Goldman Sachs & Co.

Great. The second question is kind of complex, so I apologize. I noticed that the earn out payment for Crillion was $28 million in '04, $15 million in '05.

Charles Chao

Correct.

James Mitchell - Goldman Sachs & Co.

I understand the consideration is based on Crillion's earnings during the year. Would this imply that Crillion's earnings dropped by around 40% to 50% year-over-year? I am trying to get a sense of what SINA's earnings did, excluding the mobile business.

Charles Chao

I understand. Actually I can answer this question. Actually, [inter spending] driver was not that significant, because there was weight at the higher part of earnings earn out in 2005 compared to 2004. They reached a number that was much higher, they were looking at 2X. I mean, in 2004 they get 2X of earnings, but in 2005 they only got 1.5X. That is the difference. And in those earnings, I think the drop was not significant and there was I think less than 20%.

James Mitchell - Goldman Sachs & Co.

Okay, so 2X in '04 and 1.5X in '05.

Charles Chao

Yes, because in order to get 2X in '05 they need to reach $18.5 million in operating income and obviously that is off.

James Mitchell - Goldman Sachs & Co.

Okay, excellent. Thank you.

Wang Yan

Thank you, James.

Operator

Your next question comes from the line of Safa Rashtchy - Piper Jaffray & Co. Please proceed.

Safa Rashtchy - Piper Jaffray & Co.

Good morning. I have three questions, and if it is too many I apologize, I can take them offline. I will try to be quick and concise. First, on the advertising front, this was a reasonably major acceleration in year-over-year growth over the past four quarters. I understand you talked about rate increases which you have had in the past as well, and maybe you indicated this and I missed -- I still don't understand what contributed to a fairly significant increase to the tune of 57% year-over-year. I believe this is the fastest growth you have had since Q4 of 2004. So if you can explain a little bit more what contributed to such a fast increase, and can it be sustained?

My second question has more to do with the management bandwidth, especially with Hurst leaving and you have several major projects, both in wireless, search and advertising online. Maybe, Wang, if you could address this in particular. Do you feel you have management bandwidth, or what else could be done?

Finally, if you could comment on the search and competitive landscape with Baidu and Google and so forth, all heavily focused in this, could you explain how you feel that you can really gain some market share beyond just having SINA's name presence and traffic? Because as you've seen in the U.S., for instance, that is not enough to gain fresh market share. Thank you.

Charles Chao

Those are very long questions. Regarding the advertising growth and year-over-year, yes we did have a very good quarter in Q4. I think this is a matter of our overall advertising organization restructure and the strategy change that is happening throughout 2005 in Q4, then it would really see more benefit of these changes. So I mean, if you compare to 2005 versus 2004 and I think simply we have executed much better and also were able to utilize our inventory better.

I don't think there is anything really particular to drive this strong growth. It is depending on -- it was based on a lot of factors, but execution and a better market especially. I mean, if you look at the categories we have seen strong growth in the real estate, in the IT industry. Basically I think not only are we doing better vis-à-vis the market, but also I think in portal. Internet companies, internet online companies in general are taking more market share away from traditional media in these sectors. Obviously, SINA has its high-end users, very fashionable high-end users, so we benefit more than other portals in these particular sectors.

In terms of growth going forward, I mean I think we are going to continue this trend of good execution, but it is a matter of how much it will grow in these sectors and how the market will grow in general. The advertising market, with its annual growth rate going forward.

Your second question about the management bandwidth.

Hurst Lin

On the management side, and I will talk about it. My mind and body are retiring from the day-to-day operations, but my heart is still with SINA. As you know, I am still on SINA's board, particularly I think some of the new products are near and dear to my heart, one of which is search.

I think going forward, we have the Company in the very capable hands of Wang and Charles who have been with the Company for a long, long time. We are bringing up new management talents from our ranks. We have new guys in our wireless business; we have people who are working on the technology side that have been with the Company for a long time. I think with one person leaving, it doesn't really change anything for SINA. So I am very, very confident in terms of the current management going forward. As you know, I am a big shareholder in the Company so I want to make sure, I will try my best even on a board capacity or even from time to time, helping out with the management of the Company.

In terms of the search industry, I think right now we are in the beginning of the game. It is a long-running marathon, and I think we can bring a lot of resources to bear with our -- as you know, some of our products have not done so well, particularly on the wireless side so the overall profitability has seen a decrease, but I can tell you the Company is going full tilt in terms of investing in search technology. If you look at the CapEx, our CapEx and our R&D increase have all gone to basically newer products, particularly search which is our top priority.

Now where are we going to go vis-à-vis all these other guys? I think obviously there are some very significant players in this field. I think SINA is probably going to go a little bit more vertical. We spent a lot of energy on the local search area, we are going to be spending a lot of energy on some of the community-based areas and knowledge-sharing search areas. We might even be looking at, how do we export our search technology into the WAP area.

So these are all new areas that have not been on the radar screen of the mainstream search guys, and we want to put our energy over there rather than go head to head with them on the pure web page. Though, I did talk about it in the beginning of the prepared statements that we are not slacking off on the web page indexing. We will continue to drive that number up.

So overall I think it is a long game and we have seen the first or second inning. As long as we keep at it I think we will have a shot.

Safa Rashtchy - Piper Jaffray & Co.

Thank you very much.

Chen Fu

Okay, I think we will just take one more question now.

Operator

Your next question comes from the line of William Bao Bean - Deutsche Bank. Please proceed.

William Bao Bean - Deutsche Bank AG

Thanks, guys. I was just wondering whether you could give us an update on any new advertisers as well as how things are going with the fast-moving consumer goods? Those campaigns, are they ongoing with your new advertisers from last quarter, or were those sort of experiments that have petered out and stopped and now you are trying to see how they did?

Charles Chao

In terms of advertisers, I think advertisers come and go so it is up and down. We are not adding that many significant new advertisers right now, but I think typical of Q4 and Q1, are not high season for the advertising business. So we are not seeing a lot of our significant, very large, new advertisers in Q4.

In terms of FMCG, same reason, I think. FMCG products typically, we are promoting products heavily during the summertime period. These drink companies and other companies, I mean we promote those products more in Q2 and Q3. This is not a high season for FMCG products in Q4. So our expectation is that we are going to see more FMCG products, advertisers in 2006 compared to 2005 and especially in Q2 and Q3.

This also is depending on our development, our progress in our broadband content development. If we can get more users and traffic for our broadband content, especially video content, we will be in a much better position to get more FMCG advertisers going forward.

William Bao Bean - Deutsche Bank AG

So just to clarify, in terms of FMCG do you see them as experimenting with the online side or is it actually part of their overall campaigns?

Charles Chao

I think some of these companies are making part of their campaign -- one very good example of this is Coca-Cola and Jianlibao, that is one of the leading new companies in China. They are making Internet one important part of their overall marketing strategies. There are other companies that are in the process of experimenting with Internet for their promotions at this stage. I would say that there would be a lot more companies experimenting with Internet going forward in 2006.

William Bao Bean - Deutsche Bank AG

A last question. Could you just give us a sense of how you expect search revenues to play out over the next year or two? Just some rough guidance there? Are you really focused on just traffic, or are you going to start monetizing? And if so, when?

Hurst Lin

In terms of SINA, right now because we are still not a major player in the search arena, I think we are certainly not in the top three, as you are aware of. So we are going to be leaning towards increasing the traffic, increasing the number of unique users rather than trying to clutter our search with lots and lots of ads. So I think it is fair to say that we are going to be more focusing on grabbing traffic and grabbing users, spreading out the brand among the end users before we think about heavily monetizing.

Wang Yan

To add to that, I would just like to make it clear here. I think it is a very important question here. In terms of search revenue, before our search revenue mainly was generated from a search engine called [dodatar]. That search engine was utilizing a different platform and we sold a lot of pay by listing products to our customers on that search engine and in Q1 2006 we are actually starting to promote our search engine and to make our search engine, iAsk, the primarily search engine on our website.

That search engine, we actually are not selling anything at this point. In fact, we are going to see search revenues decline in 2006 compared to 2005 because we are concentrating our resources to promote our search engine. That search engine cannot really, is in the process of being monetized at this point. So the traffic for the other search engine, the previous search engine, [dodatar], I think you are going to see a lot of revenues will go away.

So overall, 2006, you are going to see a decline in search revenue. We will decide when to monetize our own search engine, iAsk, going forward when I think we have accumulated a lot more traffic. At this point we don't have a decision in terms of timing and that is why in general, search revenue will have to come down in 2006 compared to 2005.

William Bao Bean - Deutsche Bank AG

Thanks a lot, guys.

Charles Chao

Thank you.

Wang Yan

I think that is the end of our conference call today. Thanks for joining us and we will see you next time.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may all disconnect. Good day.

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Source: SINA Corp Q4 2005 Earnings Conference Call Transcript (SINA)
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