EUR 850.00 For Business Accounts Only

Morningstar | Sina Is Trading at 60% of Its Net Asset Value; Remains Undervalued

Sina’s revenue in the fourth quarter was $573 million, near the midpoint of the implied guidance and 3% higher than our estimate. Non-GAAP net income was $58 million, 4% higher than our estimate. We have no plan to change our fair value estimate of $98 and we think Sina is undervalued, mainly due to its discount to net asset value. Sina guided 2019 net revenue to be CNY 16.5 billion-17.5 billion or $2.44 billion-$2.59 billion, a growth rate of 18%-25% on a constant-currency basis. The low end of guidance is slightly higher than our estimate of $2.38 billion for 2019.

Sina’s main growth driver is Weibo’s focus on the content ecosystem--for example, assisting celebrities/key opinion leaders in monetization to drive fan base and content, trending search, breaking news, and social relationship--which should continue to help Weibo differentiate itself from competitors. We think Weibo’s strategic directions make sense, and therefore we believe the growth trend will continue, but at a slower rate of 18% revenue growth in 2019 versus 49% in 2018. To improve small and medium enterprise ad revenue, Weibo will expand into untapped verticals and faster-growing verticals such as Taobao merchants by restructuring its agency system in 2019. It will also change customer mix to match the higher mix from lower-tier cities’ users. Both initiatives will take time to take effect. For both Sina and Weibo, recovery in verticals affected by regulations and the economic recovery driven by the government’s support measures will take time.

Weibo’s fourth-quarter revenue and non-GAAP operating income were in line with our recently revised estimates. In the fourth quarter, Weibo’s net revenue was up 28% year over year, a deceleration from 44% in the third quarter. Non-GAAP operating income was up 18% versus 41.7% in the comparable period in 2017 due to the cost of revenue share of the newly consolidated live broadcasting business and higher personnel costs. On a GAAP basis, operating income was up 26% year over year. Net income margin was 38.1% on a non-GAAP basis and 34.6% on a GAAP basis. Advertising and marketing revenue was up 25% year over year in the quarter, led by strong key account ad revenue growth of 62%. SME ad revenue grew 8% and 14% year over year in constant-currency terms. In addition to the macro slowdown and more stringent regulations in certain verticals having a negative impact on ad revenue, the oversupply in the feed ad market has also negatively affected ad pricing and revenue. Ad revenue from Alibaba was down 18% or 13% on a constant-currency basis, as a result of high advertising spending in the fourth quarter of 2017 amid intense competition. Value-added service revenue rose 44% year over year or 51% on a constant-currency basis, mainly attributed to the recently consolidated live broadcasting business and higher membership revenue.

Portal ad revenue in the quarter was $67 million, decreasing 29% or 22% under the previous accounting standard in a constant-currency basis. This is weaker than the 15% decline in the third quarter. Portal advertising contains more brand advertising (approximately 60%-70%), which is more susceptible to an economic slowdown. Half of the advertising contracts are normally signed in the beginning of the year, when sentiment was weak. Auto and Internet services--two major key account verticals in the portal advertising business--are facing challenges. We currently forecast this segment to see a revenue reduction of 19% in 2019 versus 9% in 2018. Portal non-ad revenue in the quarter was $24.7 million, down 21% mainly due to weak performance at the payment business. Management has seen a gradual recovery in the microloan facilitation business; we continue to assume the non-Weibo non-advertising business will recover and grow at 9% in 2019.