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Morningstar | Sina’s 2019 Advertising Revenue Guidance Cut by 10%-15%; FVE Reduced to USD 93. See Updated Analyst Note from 26 May 2019

In the first quarter, narrow-moat Sina's net revenue rose 8% or 14% on a constant-currency basis, lower than the guidance of 18% to 25% on a constant currency basis for the full year of 2019 but in line with our full-year estimate of 14%. Management guided a 10% to 15% discount to Sina’s previous full-year advertising revenue guidance due to weaker advertising business at both the Weibo and Sina portals, while nonadvertising revenue guidance remains unchanged. We expect Sina portal business will see deterioration at a larger magnitude compared with Weibo as both key accounts and SME will be weak at the Sina portal business. We cut Sina’s total advertising revenue for 2019 by 11%, and Weibo’s revenue by 8%. Sina’s 2019 total revenue growth is now 2% compared with 14% previously. We reduced non-Weibo operating margin to negative 57%, versus negative 55% in the first quarter and we have no confidence that margin will turn positive in the coming decade. We have reduced our fair value estimate to USD 93 from USD 98.

Portal ad revenue in the quarter was USD 46.9 million, a decrease of 27% or 22% on a constant-currency basis, mainly attributed to reduced budgets of SME customers. Unsurprisingly, Sina’s portal advertising business, both SME and key accounts, see the same pressure as Weibo, namely weaker economy, oversupply of ad inventories, weaker fundamentals, and tighter regulations of the industries of portal customers and so on.

The key accounts of the portal advertising business are weaker compared with Weibo, as Weibo has partnerships with TV stations and advertisers can evaluate their sales conversion on Tmall, unlike Sina. As indicated in our previous note on Feb. 5, key account verticals such as Internet services, IT, and auto continue to face challenges. Management commented that the FMCG industry has also been hit by the weak market conditions. However, the financial services vertical of Sina continues to be strong.

Portal non-ad revenue was USD 34.9 million, up 30% year over year, driven by the strong growth of transactions facilitated in Sina's micro loan business. Sina's non-GAAP operating income was USD 114.2 million, a year-over-year increase of 21% or 28% on a constant-currency basis, while GAAP operating income was up only 18%.

At present, the financial segment is the largest segment for key accounts with 21% contribution to Sina’s portal revenue. Auto is the next with 20%, which used to be 30s and 40s. IT such as telecom and cellphone manufacturers had 14% contribution; FMCG had 11%; and Internet service had 7%.

Please see our Weibo first-quarter note for more details.