Sina's Profit Growth And Weibo Monetization In Earnings Focus

| About: Sina Corporation (SINA)
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    Quick Take
  • Sina will report its Q1 2013 results on May 16, 2013.
  • We expect strong revenue growth for the Weibo platform; however, the number of daily active users and average time spent by users could post slower growth this quarter on account of competition from WeChat.
  • We think the MVAS business will continue to decline in the coming quarters though revenue from Weibo value-added services could grow rapidly.
  • We will look growth signs as the company expects to see improved productivity and higher returns in 2013.

Sina (NASDAQ:SINA), a Chinese online media company, is scheduled to report its Q1 2013 financial results on May 16. Coming on the heels of Alibaba’s 18% stake in Sina’s Weibo platform, we are keen to get more details on this partnership and how it could ramp up Weibo’s monetization in the future. We will also closely track the margins as the company expects to improve its productivity and returns in 2013.

While we expect Sina to register strong revenue growth for its Weibo platform in Q1, its mobile value added services (MVAS) business could continue to decline in the coming quarters on changing operator policies and growing smartphone adoption in China.

Recap of Q4 2012 Results

Sina’s net revenue grew by 4% annually in Q4 2012 to $139.1 million. While advertising revenue rose by 7% annually, non-advertising revenue dropped by 4% on account of a significant decline in the MVAS business, which was partially offset by growth in Weibo’s value-added services.

Sina’s operating margin stood at a mere 4% in Q4 2012. We will keep a close eye on the profits this quarter as we expect Sina to generate higher returns and productivity in 2013.

Weibo Will Be The Focus Of These Earnings

Weibo will take the center stage in Sina’s Q1 results with Alibaba’s recent purchase of a stake in Weibo. We are keen to get more details on the possible areas of collaboration between the two companies. Sina aims to derive $380 million in advertising and other revenues from Weibo through this partnership over the next three years, and it will be interesting to see what initiatives the company undertakes to achieve this goal. Since Sina also launched an online payment service "WeiboPay" recently, we also want to know how this will compete against Alipay, a similar payment service provided by Alibaba.

Though Weibo’s popularity continues to grow in the Chinese market, of late it has been facing competition from Tencent’s mobile messaging application WeChat. As a result, Weibo’s active user growth slowed down from 16% q-o-q in Q3 to 9% q-o-q in Q4. Moreover, a slight decline in the average time spent by active users was also recorded on Weibo in Q4 2012. It will be interesting to see how these figures trend in Q1 2013 as it will allow us to gauge the impact of rising competition on Weibo.

The monetization from the Weibo platform has grown in the recent past. Weibo’s revenue from advertising and value added services rose by 10% and 65% sequentially respectively in Q4 2012. We expect these revenues to grow at a strong pace in Q1 2013. In addition, we are also interested in seeing revenue growth at Sina’s portal business. There have been some concerns lately that rising advertising revenues on Weibo could cannibalize Sina’s portal business as marketers may not like to advertise on both platforms.

Mobile Strategy Key For Future Growth

With the rising adoption of mobile Internet in China, we expect Sina to see an increased uptake of its Weibo platform through mobile devices. The proportion of mobile devices in Weibo advertising revenues is expected to cross 30% in Q1 2013, and we expect this trend to continue in the future. Sina is increasingly focusing on the mobile platform development for future growth and has prioritized mobile (over desktop) for any new product development.

MVAS Business Is Expected To Continue Its Decline

Sina’s MVAS business declined by 38% y-o-y in Q4 2012, and we expect this business to continue to decline in the coming quarters as it is facing several headwinds such as changing operator policies as well as growing smartphone adoption in China. Going forward, we expect Sina to reduce its focus on low-margin MVAS business and instead divert its resources on Weibo value added services, which includes games and e-commerce.

Disclosure: No positions