Sina Corporation (NASDAQ:SINA), a Shanghai-based leading Internet company, has been providing online media and value-added information services to global Chinese communities since established in 1998. Being known for its high-quality news and information, this company attracts a great number of users, providing services through three major business lines: SINA.com, SINA mobile and SINA community (Weibo). Sina offers advertising services, short messaging services (SMS), email services, game community services, and mobile value added services (MVAS), search and directory, blog services, audio and video streaming, e-commerce and enterprise e-solutions.
The size of this network has turned the company’s platform into a highly attractive online advertising venue, and has had significant influence over Sina’s revenue: online advertising represented 53% of company’s total revenue for fiscal 2013. Revenue total includes as well MVAS revenues and fee-based revenues. Moreover, it has developed strategic relationships with partners such as China News, AFP, Associate Press, Getty Images, CCTV, BTC, Nanfang Daily Group, Xinhua Net and Beijing News among others.
- Warning! GuruFocus has detected 3 Warning Signs with SINA. Click here to check it out.
- SINA 15-Year Financial Data
- The intrinsic value of SINA
- Peter Lynch Chart of SINA
The company is facing some hard time with mixed fourth-quarter results and the stiff competition amid the Chinese markets, which is increasing with the expansion of companies like Youku Tudou Inc. (NYSE:YOKU), Baidu, Inc. (NASDAQ:BIDU) and NetEase, Inc. (NASDAQ:NTES), among others, and threatens to hurt Sina’s profitability in the near term. Nevertheless, its strong product pipeline and constant investment in innovation and new marketing solutions have positioned the company as a premier enterprise in the Internet and Internet Content industry. Furthermore, the company is expected to proceed with the Weibo initial public offering, adding value to shareholders. Despite its planned growth strategy, involving vertical expansion and restructuring, the Chinese government is increasing its regulations and is likely to obstacle the company’s movements.
Weibo on the Watch
As we know these days, user engagement of social networking is shifting around the world to mobile devices. In this sense, the usage of mobile service Sina Weibo has been increasing. Launched in 2009 as a follow-up to its regular blog service, and quickly becoming a popular platform for sharing original user-generated content, Weibo has accumulated more than 500 million registered users and 61 million daily active users, as of 2013. Its microblog service, which uses Twitter-like a short message concept, has already proven to be successful, and was recently enhanced by allowing users to share media rich videos and audio content. Users can as well interact with celebrities by replying, sharing or clicking the “Like” button. In 2012 Sina started monetizing its Weibo business by rolling out display ads. As a result, Weibo’s revenue achieved over 190% growth in 2013 year over year.
However, Weibo’s display advertisement frequency will need to be balanced in order to preserve user experience. Moreover, Tencent’s WeChat is starting to challenge Weibo’s leadership in the mobile space with less advertisement and more functions. Its number of daily active users grew by 359% between 2012’s first quarter and 2013’s third quarter, and has already surpassed 100 million daily active user bases, 50 million more than Sina Weibo as of 2013’s third quarter. Nevertheless, Weibo has different functions and is still the primary user’s choice in social networking. Weibo’s still growing popularity was reflected by the 20 million downloads the latest Weibo mobile application version 3.6 received within a week after its release.
Market Expansion and Business Opportunities
Chinese market is in constant expansion, and Sina, as a leading Internet portal, can benefit from the huge growth potential of the e-commerce, e-banking, online payment and entertainment services. Digital ad spending in China is as well expected to increase, and given Sina’s brand recognition and persistent marketing innovation, analysts think the company will grab this growth opportunity. Moreover, the massive adoption of smartphones and tablet devices is expected to expand the mobile market and thus boost the number of mobile users of Sina’s services, increasing MVAS business, and thereby driving top-line growth.
New partnerships have been developing as well. Teaming up with companies such as Alibaba, Baidu, Inc. (NASDAQ:BIDU) and AutoNavi Holdings Limited (AMAP), SINA is likely to expand its mobile services offer, and enhance Weibo as well.
It’s no news the Chinese government has always imposed restrictions on internet services, online search and other social-networking activities, blocking websites like Twitter, YouTube and Facebook. Furthermore, direct advertisement is also highly regulated, implying a major restriction to this industry’s companies, as online ads represents one of the major revenue sources. Weibo has suffered these tight restrictions, seeing as of august 2013 the closing of at least 100K accounts. This might have a negative outcome for Sina’s Weibo monetization efforts in the near future.
Competition, always fierce, is increasing within the online advertising business in China. Popular internet search companies such as Baidu (NASDAQ:BIDU), AirMedia Group Inc. (AMCN), Microsoft Corporation (MSFT) and Google Inc. (GOOG), have attracted a lot of advertising clients in China, posing a threat to Sina’s profitability margins.
Despite the accelerating monetization of Weibo, the revenue growth and the expansion of its user’s base, Sina’s monetization of Weibo will eventually require a higher volume of advertisement display to sustain revenue levels. Moreover, the rising popularity of WeChat will compete in the mobile field for users and advertisers, and the governmental restrictions are likely to obstacle the company’s expansion plans for Weibo. However, this stock has been for quite some time now a premium stock, with high levels of growth and a privileged position within the Chinese market that is expected to continue in the long run.
Disclosure: Damian Illia holds no position in any stocks mentioned.