SINA Corporation NEUTRAL ZACKS CONSENSUS ESTIMATES (SINA-NASDAQ) SUMMARY

Transcription

1 March 20, 2015 SINA Corporation Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Underperform Date of Last Change 07/08/2010 Current Price (03/19/15) $32.76 Target Price $ Week High $ Week Low $32.46 One-Year Return (%) Beta 1.66 Average Daily Volume (sh) 1,152,410 Shares Outstanding (mil) 66 Market Capitalization ($mil) $2,162 Short Interest Ratio (days) 2.88 Institutional Ownership (%) 51 Insider Ownership (%) 7 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 17.3 Earnings Per Share (%) Dividend (%) N/A using TTM EPS 99.3 using 2015 Estimate using 2016 Estimate 29.2 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page SUMMARY Risk Level * (SINA-NASDAQ) SINA reported mixed fourth-quarter 2014 results. The company s earnings missed the Zacks Consensus Estimate, while revenues came in line. We believe that SINA remains a premier company based on its strong product pipeline, continued investments in product development and marketing and a robust user base for its e-commerce and Weibo offerings. Although investments in mobile and video are the long-term positives, these will hurt profitability, going forward. Also, increasing investments in product development can weigh on the company s financials. Further, increasing regulations imposed by the Chinese government remain a major headwind. Additionally, stiff competition can pose challenges for the company. Low, Type of Stock Mid-Value Industry Internet-Contnt Zacks Industry Rank * 146 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 157 A 185 A 197 A 665 A A 187 A 199 A 211 A 768 A E 208 E 220 E 237 E 855 E ,018 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.06 A -$0.26 A $0.35 A $0.38 A $0.41 A 2014 $0.05 A $0.06 A $0.11 A $0.10 A $0.33 A $0.08 E $0.09 E $0.08 E $0.08 E $0.17 E 2016 $1.12 E Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Headquartered in Shanghai, China, SINA Corporation (SINA) is a leading provider of online media and value-added information services to global Chinese communities. With a branded network of localized websites targeting Greater China and the overseas Chinese market, the company provides services primarily through three major business lines including SINA.com (portal), SINA Mobile (mobile portal) and SINA Community (Weibo). The company's portal network comprises websites that enable users to access an array of regionally focused content through Interest-based and community-building channels. The company provides advertising services, short messaging services (SMS), free and premium , game community services, mobile value added services (MVAS), search and directory, blog services, audio and video streaming, classified listings, fee-based services, e-commerce and enterprise e-solutions. SINA provides MVAS and other services to users through third-party operators, service providers and content providers. The company has developed strategic relationships with large content, service, application and distribution partners such as CCTV, BTV, Xinhua News Agency, China News, AFP, Associated Press, Reuters, Getty Images, China Daily, Nanfang Daily Group, Xinhua Net and Beijing News. The company generates the majority of its revenues from online advertising and MVAS offerings and to a lesser extent from search and other fee-based services. Advertising revenues are derived primarily from online advertising and sponsorship arrangements. Non-advertising revenues include MVAS revenues and fee-based revenues. SINA reported revenues of $665.1 million in SINA faces significant competition in most of its operational markets. The competitors include Tencent, Sohu, ifeng.com, Netease, Renren.com, Kaixin001.com, Youku, Tudou and Baidu to name a few. REASONS TO BUY According to the China Internet Network Information Center (CNNIC), China has 649 million Internet users and the penetration rate reached approximately 47.9% by the end of Dec However, penetration is much less than the developed nations of North America and Europe, which represents good growth opportunity, in our view. We believe that SINA will benefit from the huge growth potential of the e-commerce, e-banking, online payment and online entertainment services markets in China over the long term. SINA has relationships with leading brands that help it tao the potential in the online advertising industry. Currently, the company s client portfolio includes AT&T, Caesar Entertainment, Chase, Coca-Cola, Comcast, Delta Airline, Ford Motor, General Motors, Godiva, Hyundai, Infiniti, Lancome, McDonald's, Nissan, State Farm Insurance, Toyota, Wal-Mart, Wells Fargo and Verizon among others. In 2014, SINA s advertising revenues increased 22% to $640 million primarily driven by the strength in the Weibo platform which marked an impressive growth of 78% over the prior year. We believe that given the company s strong user base, initiatives to strengthen revenues from advertisement can prove to be a key growth driver in the long run. The rapid adoption of smartphones and tablet devices, given the surge in 3G and 4G technology is expected to boost SINA s growth, going forward. According to CNNIC, China had 649 million Internet users by the end of Dec Out of these, mobile users accounted for 557 million or a whopping 86%, thus making mobile #1 Internet access terminal. We believe that SINA is well positioned to capitalize on the growing mobile market through its popular mobile portal and service offerings. Larger number of mobile users will increase the requirement for mobile services, which will boost its Equity Research SINA Page 2

3 MVAS business, thereby driving top-line growth over the long term. In the reported quarter, the mobile traffic growth for both Wiebo and portal remained strong in While Weibo users from mobile increased to 81% in the year, mobile portal users also increased 34%. Moreover, the company reported strong growth in mobile advertising revenues from both Weibo and portal. Mobile advertising revenues on Weibo was 54% of total advertising revenues compared with 28% in the year-ago quarter. On the other hand, mobile advertising revenues on portal increased by over 300% in 2014., Daily active users for Weibo reached 80.6 million in the fourth-quarter 2014, up 5% sequentially. Weibo s massive popularity has been primarily attributed to SINA s continuous efforts to add consumer centric features. This has transformed the micro-blog platform to a full-fledged social network website. As part of its monetization efforts, the company started offering display advertising services on Weibo and launched paid membership services. As a result, revenues from Weibo surged 47.3% on a year-over-year basis in the reported quarter. The company s efforts to make Weibo an indispensable part of user engagement for television programs and the launch of Weibo Pay are expected to further boost the top line over the long term. Per media reports, the number of users in Weibo is more than that of Twitter making it the largest micro-blogging platform worldwide. According to market research firm emarketer, digital ad spending across the globe is estimated to be around $592 billion in 2015, out of which $63.8 billion is likely to be in China. The report also states that spending on mobile ads in the country is likely to surge about 90% to $12.14 billion this year. Given the company s lofty share (56.5%) in the Chinese micro-blogging market, we believe SINA is well positioned to grab the growth opportunity. SINA has been forging partnerships with companies such as Alibaba, Baidu and AutoNavi. Last year, Alibaba and SINA signed a partnership, under which the former invested $586.0 million to acquire an 18% stake in Weibo and has an option to increase its ownership to 30%. SINA also has a partnership deal with Baidu, under which it integrates Baidu search into its mobile site, while Baidu s cloud service has a pre-installed Weibo app. The company has a partnership with navigation services provider AutoNavi, which allows Weibo users to directly access the mobile map application known as AMAP. We believe that these partnerships will help SINA to expand its mobile and Weibo offerings going forward. REASONS TO SELL China has been very sensitive regarding Internet use over the years. The Chinese government has imposed significant restrictions on online search and other social-networking activities by blocking popular websites such as Twitter, YouTube and Facebook. The government also has a number of regulations related to direct advertising in China, which is the major revenue source for these companies. SINA s Weibo platform has faced significant scrutiny over allegations that micro-blogs are the epicenter of baseless rumors and false news, which are tarnishing the government s image. Last year, the company had closed down about 100K Weibo accounts, which were being used for making personal attacks and spreading false information. Additionally, two of its licenses relating to Internet Publication and Online Transmission of audio-visual programs have were cancelled by the Chinese regulatory authorities on grounds of its content being pornographic in nature. We believe that censorship over online material may hurt subscriber growth, thus negatively impacting SINA s Weibo monetization efforts, going forward. SINA s core business has been witnessing sluggishness for the past few quarters owing to the ongoing shift from PC to mobile. While the company s mobile users are growing, conversion on mobile devices are typically lower, so advertiser spending usually takes time to pick up. SINA is required to prove the effectiveness of its services on mobile devices and this could take time. At the same time, as consumers move to mobile devices, advertiser spending on desktops is also taking a Equity Research SINA Page 3

4 hit. This is leading to lower advertising revenues for the company. Additionally, customers are diversifying their marketing spends on online verticals, video and social media platforms. This could further pose challenges for the company s organic growth. SINA faces increasing government scrutiny due to its controversial corporate structure, involving Variable Interest Entities (VIEs). In China, VIEs are particularly popular in the Internet sector, where foreign investors are barred from commercial activities. The company operates through numerous VIEs which are China-based companies owned principally or completely by its employees. These VIEs operate under contractual agreements. Hence, it has no equity control over these companies, which is a major impediment regarding future policy making, in our view. We believe that increasing regulations from the Chinese government regarding VIEs remain a concern. We would, therefore, like to caution investors in this regard. We believe that continuing investments in Weibo development will hurt profitability, going forward. During 2014, non-gaap operating expenses increased 30.8% year over year to $123.3 million, primarily related to Weibo. The company will further increase its spending to develop Weibo and portal product lines, which will put pressure on overall margins, in our view. Moreover, we believe that SINA s monetization efforts may see regulatory pressure due to restrictions imposed by the Chinese government, which may hurt subscriber growth. Competition within the online advertising business in China is fierce, with rapid technological changes and frequent new product and service rollouts. The industry is crowded with Internet portals in online brand advertising fields, such as Sohu and Tencent and popular Internet search companies such as Baidu, AirMedia Group, Microsoft and Google that have attracted a lot of advertising clients. SINA is a relatively small company and encounters intense competition in the advertising market. Moreover, the cyclical nature of online advertising adds to the risk. Additionally, Weibo is expected to face stiff competition from the likes of WeChat in China, which will hurt user base. In such a scenario, we believe that Weibo s monetization ability will be a major driving factor for SINA. RECENT NEWS SINA Misses on Q4 Earnings Estimates, Revenues In Line SINA reported fourth-quarter 2014 earnings of $0.10 per share, missing the Zacks Consensus Estimate of $0.15 by 33.3%. Earnings also declined from $0.11 reported in the year-ago quarter. Quarter Details Revenues increased 7% year over year to $211.1 million but came in line with the Zacks Consensus Estimate. Non-GAAP revenues of $208.5 million were within management s guidance of $204 $210 million. Advertising revenues moved up 14% from the year-ago quarter to $181.9 million. The year-over-year growth in online advertising revenues was driven by an increase of $31.9 million in Weibo advertising revenues, which was partially offset by a decline of $10.1 million in portal advertising revenues. Non-advertising revenues plummeted about 21% year over year to $29.2 million. Non-GAAP nonadvertising revenues came in at $26.6 million versus $32.3 million a year ago. The year-over-year decline in non-gaap non-advertising revenues was mainly due to a decline of $4.8 million in mobile value added services (MVAS) revenues despite an increase of $1.9 million in Weibo value added services (VAS) revenues. Equity Research SINA Page 4

5 Weibo revenues jumped 47.3% year over year to $105.2 million. Portal revenues declined 15.7% year over year to $105.9 million. Gross margin improved 100 basis points to 65%. Advertising gross margin was 65% compared with 64% in the prior-year quarter. Non-advertising gross margin was 62%. Non-GAAP non-advertising gross margin was 58% compared with 61% in the year-ago quarter, owing to lower margin from Weibo VAS. Non-GAAP operating expenses totaled $123.3 million compared with $94.3 million in fourth-quarter 2013, owing to increased personnel costs, marketing expenditures and bad debt expenses. As of Dec 31, 2014, SINA s cash, cash equivalents and short-term investments were $2.2 billion, up from $1.9 billion on Dec 31, Cash provided by operating activities in the quarter was $4.7 million. Outlook SINA expects non-gaap revenues for 2015 in the range of $800 to $900 million, excluding deferred license revenues from E-House of $10.4 million. VALUATION SINA s price-to-book value ratio in the last quarter was 1.0x, compared to 3.8x for the industry and 6.2x for the S&P 500. Over the last five years, the company s shares have traded in a range of 0.9x to 6.1x of its book value. Therefore, it is currently trading below the mid-point of its historical range. SINA remains a premier company based on its strong product pipeline, continued investments in product development and marketing and a robust user base for its e-commerce and Weibo offerings. However, stiff competition is expected to hurt profitability in the near term. We set a price target of $ Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low SINA Corporation (SINA) Industry Average S&P Changyou.com Limited (CYOU) TripAdvisor Inc. (TRIP) Changyou.com Limited (CYOU) Shanda Games Limited (GAME) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA SINA Corporation (SINA) Industry Average S&P Equity Research SINA Page 5

6 Earnings Surprise and Estimate Revision History Equity Research SINA Page 6

7 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of SINA. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1133 companies covered: Outperform %, Neutral %, Underperform 9.0%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Research Firm Copy Editor Content Ed. QCA Lead Firm Reason for Update Prachi Jhunjhunwala Debasmita Banerjee Sejuti Banerjea Sejuti Banerjea Pinky Ghosh 4Q14 Earnings Equity Research SINA Page 7