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Morningstar | Reducing Narrow-Moat Sina’s FVE to USD 98 Per Share due to Weaker Near-Term Outlook. See Updated Analyst Note from 05 Feb 2019

We reduced Sina's fair value estimate by 17% to USD 98 per share as a result of a slower economy in China, the Sino-U.S. trade spat, weaker sentiment among advertisers, and our 10% downward revision of the fair value estimate of Weibo. This will be partially offset by better microloan performance in the non-Weibo other revenue line. We expect 2018 revenue to be at the low end of the guidance of USD 2.09 billion. We forecast revenue to grow at 32%/13%/9% from 2018 to 2020 before recovering to 23% and 22% in 2021 and 2022. Non-GAAP operating margin is expected to drop to 28.5% in 2018 and 27.3% in 2019 before rising to 34.2% in 2022. Sina is undervalued.

The non-Weibo business is facing more challenges than expected previously. The non-Weibo advertising business has 60%-70% of revenue contributed by brand ads or key accounts. We reckon brand ads are less resilient compared with performance-based ads amid downturns, as the return on investment of brand ads is harder to observe. Around half of the key accounts negotiate the advertising contracts in the beginning of the year. Given uncertainty about the macro currently we think it is likely the contract value will decline year over year. Larger key accounts are from the auto industry, fast moving consumer groups, financial services and Internet services, where auto industry and the Internet services industries are facing relatively more headwinds. We estimate roughly 20% of the advertising revenue came from automobile makers that are negatively impacted by the weak auto sales. Auto sales were down 13% in December and 3% in 2018 year over year according to CAAM. The market appears to expect auto sales to decline without major policy support while CAAM expects flattish growth in 2019. The Internet sector is facing more challenges now as the mobile market is close to saturation. Some Internet companies have announced plans to reduce headcount. They also face new regulations or more scrutiny by the regulators.


Please see our Weibo note for more information regarding its downgrade.