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Morningstar | Lowering Our Sina FVE to $118; Shares Remain Undervalued. See Updated Analyst Note from 10 Dec 2018

We have reduced our fair value estimate for Sina to $118 per share from $131 to reflect weaker-than-expected implied fourth-quarter guidance, regulatory concerns about advertising customers, weaker advertising demand amid a slowing economy, strengthening competition, and increasing ad load in China’s advertising space. Given our long-term investment horizon, we expect the near-term weakness will be partly mitigated by an expected recovery in the economy and therefore advertising demand in 2021 and 2022. Sina is trading at 65% of its net asset value as of the time of writing, which is the basis of our 4-star rating.

We have reduced our overall net revenue growth outlook to 33% in 2018, 19% in 2019, and 15% in 2020 before rising to 23% in 2021 and 2021 as the economy recovers. This is driven by Weibo’s net revenue growth of 53% in 2018, 28% in 2019, 18% in 2020, and 25% in 2021 and 2021. By 2027, we expect Sina’s overall revenue growth to slow to 4%. We expect more competition in the Internet space, reducing the speed of the expansion of non-GAAP operating margin as Weibo and Sina will have to invest more than we previously expected in product development and sales and marketing to remain competitive. Operating margin is expected to decline to 23.4% in 2018, but as higher-margin Weibo grows much faster than non-Weibo businesses, we expect to see operating margin climb gradually to 37.8% by 2027. We expect the non-Weibo business to see operating margin of negative 36% in 2018, negative 39% in 2019, and negative 41% in 2020. An improving economy will reduce the negative operating margin to 40% in 2021 and 39% in 2022 and stay flattish afterwards.