EUR 850.00 For Business Accounts Only

Morningstar | SINA Updated Forecasts and Estimates from 14 Nov 2018

Narrow-moat Sina’s second-quarter results were largely in line with our expectations, with net revenue increasing 50% year on year to USD 537 million and non-GAAP operating income growing 38% to USD 159 million. Overall operating margin rebounded to 25% in the past quarter, versus 17% in the first quarter, on strong Weibo advertising growth and reduction in general and administrative expenses. However, growth in the non-Weibo business remained anemic, as portal advertising revenue grew 8% and other nonadvertising business contracted 4% year over year, in sharp contrast to 68% growth in Weibo revenue, which contributed 79% of total revenue in the second quarter. With shares trading at a 43% discount to our USD 131 fair value estimate, the stock is undervalued, as the market is overly concerned about Sina’s elevated investments into its sluggish non-Weibo business and potential threats from popular short video, live streaming, and newsfeed apps to the Weibo platform. The market currently values Sina at only 57% of the company's net asset value (the sum of its 45.6% stake in Weibo and net cash excluding Weibo). We remain confident about its narrow moat, given that Weibo’s strong network effect underpinned by its social media function on the “Twitter-plus-Instagram-plus-YouTube” platform is not easy to duplicate, especially when its monthly active users surpassed 430 million in June, further strengthening the value of its social network.

Despite the lackluster growth in its non-Weibo business, Sina continued to step up investments in portal advertising and the Weibo advertising business as competition intensified, with operating expenses growing over 71%, versus 39% in 2017. As a result, non-Weibo business operating margin fell to negative 21%, compared with negative 5% in 2017. The margin deterioration was attributable to weaker advertising demand from SMEs, tighter regulations related to Internet finance, and weak performance from the microloan business. We don’t expect this segment will rebound in the near term, given mounting industry headwinds. On the other hand, Sina’s news and finance apps are still in an early stage of development when compared with Weibo in terms of user base and monetization potential, and so we expect the company will continue to invest heavily to attract user growth and improvement.