EUR 850.00 For Business Accounts Only

Morningstar | Sina's Weibo Sees Slower Near-Term Growth due to Weak Macroeconomics; Long Term Remains Positive

We think Sina is undervalued, as the market values the company at only 52% of its net asset value (the sum of its 46% stake in Weibo and ex-Weibo net cash) at the time of writing. Other than a holding-company discount and concerns over corporate governance, we note that the loss-making non-Weibo business is a drag on the value of Sina as a whole. We think Sina should step up its efforts to eliminate the discount. This could include improving the operations of the non-Weibo businesses, improving its corporate governance, repurchasing Sina shares, or spinning or splitting off Sina’s Weibo stake to shareholders.We have seen some early signs of improvement in the non-Weibo portal advertising revenue (20% of net revenue in 2017) in recent quarters. The portal advertising revenue reverted to year-over-year growth starting in third-quarter 2017, as the growth in mobile ads can now offset the decline in PC ads. The non-Weibo non-advertising business revenue, mainly consisting of online finance, accounted for 7% of net revenue in 2017. The business has grown rapidly at 64% year over year in 2017. However, tightened micro-loan regulations took effect in the fourth quarter of 2017, and the year-over-year revenue growth rate declined to 78% in the fourth quarter from 89% in the third quarter of 2017. With more expected tightening in fintech, we expect to see pressure on micro-lending and indirectly on online payment revenue. We are not confident enough to forecast that the non-Weibo business will be operating margin positive within our forecast period. Although the non-Weibo operating margin swung back to positive in second-quarter 2017, it retreated to negative in the third and fourth quarter. Management guided for the operating margin for the non-Weibo business to deteriorate in the near term due to higher marketing expenses for Sina mobile properties and uncertainty in the fintech business. Given the weak network effect associated with the non-Weibo businesses, we think non-Weibo marketing costs could be elevated, putting pressure on long-term margins. Please refer to the investment thesis of Weibo for Weibo-specific information.