The Chinese Giant's Core Businesses
SINA (NASDAQ:SINA), is a chinese leading web company since it was created in 1998. Being the first, the company made a name amongst chinese users for having trustable news and information. It has its main web SINA.com as well as its mobile portal Weibo. On Weibo, a Twitter-like (NYSE:TWTR), online portal, users can generate their own content, in text, audio or video, as well as follow celebrities updates and news. Managing a user database of 500 million users, and a daily traffic of 61 million, the company has been able to maintain a leading position since its beginning; but, as time passes, more and more competition raises and threatens to take Sinas’ huge market share, adding features like interactive comments and a “like” button.
The company’s main strength though is its brand advertising in its internet portal Sina.com. For over 10 years, this has been the primary source of revenue but, as this business reached its maturity and the “mobile world” started taking over the market, advertising revenue on Sina’s main portal started to drop -since 2012.
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- SINA 15-Year Financial Data
- The intrinsic value of SINA
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Sina.com bennefited from its huge daily traffic and, monetarized Weibo. The company started rolling ads on Weibo, generating 22% of the company’s revenue by the end of fiscal 2013. Alone, it doesn’t seem like much, but Weibo was monetarized just in 2012, growing at a tremendous speed.
Sina Facing a Crescent Competition
Though this represents a great business for Weibo and Sinas’ shareholders, as mentioned before, the company is starting to face strong competition. The most threatening one is Tencent’s WeChat, which has a growing user database, and a daily active user base of over 100 million people. This new social network, and instant message app, was launched in 2011 and offers very similar functionality, but with no ads. Thus, it threatens to cap Weibo’s market share. Although, for now, these mobile portals have different functions, time is just going to make the competition fiercer.
However, this chinese giant is already taking action on the matter, so as not to give an inch to Tencent. Weibo received an investment by AliBaba.com Group to pave the way to develop an e-commerce, online payment and data user exchange platform. But for now, the materialized moat of Weibo comes from its monetization, which will still generate revenue -at least over the short foreseeable future. This could be an interesting turn for Weibo, since it’s focused on micro-blogging, celebrity updates, and news.
Though the company has no debt, its gross margin has been in decline, reaching a -2.5% per year. This could be attributed to new competition, mainly to Tencent’s WeChat.
Though its Operating Margin has been dropping, it’s still one of the best in the companys’ history, and we can still expect revenue from the monetization of Weibo. I’d recommend buying this stock, mainly because the company’s still rolling ads on its main portal Sina.com, receiving money from Weibo’s ads, and has been investing along with Alibaba ( which owns 18% of Weibo) on an ecommerce and online payment platform and other new features for Weibo. And, having no debt on their books, this company has nothing else to do but collect from ads and millions of daily users (as of today 665.1 on revenue in a long term escalade), and invest on R&D for the upcoming battles with the new competition.
Sina in the Mid Term
Though a clash may be inevitable between Sina and Tencent, weather on the mobile or desktop end of their internet portals, still would remain a duopoly between these two giants, and still their mobile apps remain different (one for micro-blogging, updates and news, and WeChat for instant messaging). And if the ecommerce business ends up good for Sina, it would have yet another new and unexplored business for the huge market China is. As currently many users of Alibaba are shifting their online marketing budget to Weibo.
Disclosure: Victor Selva holds no position in any stocks mentioned.