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Sina (SINA) trades water on Wednesday morning lagging old fame

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sina_logoSina Corp. (NASDAQ:SINA), one of the leading Chinese webportal operator, has been extrmeely volatile in the last seven trading sessions following 2009 Q1 earnings announcement on June 9 after the close. Earnings came out worse than expected and the company issues a weak outlook for the upcoming quarter. Next morning Sina shares opened 10 percent lower and trading was very heavy until the stock price found bottom. But where exactly is the bottom? The following analysis takes you back in time to see what to expect from a strong Sina. When growth profit of Sina surpassed of Sohu and advertising revenue was over Sohu's. That was not too long ago, in 2008 second quarter.

 

Strong Advertising Business Growth

l In Q2 2008, the advertising revenues of SINA increased 58% yoy and 35.8% qoq to $64.9 million, reaching the high end of the Company's guidance of between $64.0 million and $65.0 million.

l In Q3 2008, the high growth is expected to continue as a result of The Olympic Games. However, there is a concern on a possible drop in the growth in post-Olympic Games period.

l SINA has a strong reliance on non-Olympic Games advertising opportunities.

l The sources of revenues from the financial vertical area have shifted from securities firms to insurance companies.

l Joining hands with E-house, a leading real estate services company in China can expand SINA’s national coverage of one of its four major vertical areas – Real Estate, outside the Beijing market.

2. Improved Mobile Business

l Prior 2008, the non-advertising business displayed a consistent decreasing trend, while since 2008, this trend has been reversed.

l MVAS business has been losing its relative importance as a revenue source since 2005.

l Reduced reliance on SMS products as the revenue sources were diversified to MMS, IVR and Free WAP portal. Mobile internet business will be further invested to increase profits.

3, Competitor Analysis

l In the past two years, Sina Corp. (NASDAQ:SINA) consistently generated higher revenues and profits from the advertising business than Sohu.com (NASDAQ:SOHU) and exhibited higher growth rates. This indicates more dominant market positioning of SINA than SOHU and thus less vulnerable to market or economic downturns.

Key Income Statement Data

Q2 2008

Q1 2008

Q4 2007

Q3 2007

Q2 2007

($, in thousands)

Total Revenue

91,320

71,315

70,689

64,349

59,809

Total Operating Expenses

36,569

28,679

28,264

24,729

24,495

Operating Profit

19,599

13,426

15,673

15,155

12,685

Net Interest & Other Income

6,704

6,220

3,748

3,734

2,589

Pretax Income

29,440

19,646

19,421

18,889

15,933

Tax (expense) / Benefit

-4,245

-3,580

-1,910

-1,735

-1,477

Net Income

$25,195

16,066

$17,511

$17,154

14,456

Key Balance Sheet Data

Q2 2008

Q1 2008

Q4 2007

Q3 2007

Q2 2007

($, in thousands)

Cash & Equivalents

$311,790

$363,358

$271,666

$206,861

208,013

Total Receivables, Net

75,088

57,175

56,719

54,067

52,606

Total Current Assets

627,069

580,458

543,558

502,626

475,721

Property, Plant & Equipment

36,319

29,018

26,846

27,086

27,353

Goodwill, Net

92,295

89,101

89,358

89,615

89,873

Total Assets

$758,411

701,245

662,263

622,245

$594,348

Total Current Liabilities

188,332

173,463

165,950

156,721

157,397

Long-Term Debt

5,701

1,392

1,337

1,181

1,164

Total Liabilities

194,033

174,855

167,287

157,902

158,561

Total Equity

564,378

526,390

494,976

464,343

435,787

Total Equity & Liabilities

$758,411

$701,245

662,263

$622,245

594,348

Quarterly Performance

Q2 2008

Q1 2008

Q4 2007

Q3 2007

Q2 2007

Return On Assets

2.79%

2.03%

2.52%

2.55%

Return On Equity

4.46%

3.05%

3.54%

3.69%

Operating Margin

32.24%

27.55%

27.47%

29.35%

26.64%

Pre-tax Margin

32.24%

27.55%

27.47%

29.35%

26.64%

Net Profit Margin

27.59%

22.53%

24.77%

26.66%

24.17%

Summary

1. Strong Advertising Business Growth

In Q2 2008, the advertising revenues of SINA increased 58% yoy and 35.8% qoq to $64.9 million, reaching the high end of the Company's guidance of between $64.0 million and $65.0 million. In Q1 2008, SINA delivered a growth of 51% yoy in its advertising revenue to 47.8 million dollars. The gross profits of advertising business grew 60.5% yoy and 43% qoq to $41.25 million.

In the past two years, the revenues and gross profits generated from the advertising business displayed a seasonal pattern with 11% and 20% decreases respectively in Q1 each year compared with Q4 in the previous year, followed by steady growths in the rest of the year. In 2008, a similar trend followed in Q1 however with a less magnitude. The net revenue fell 4.6%, while the gross profit reduced 10.3%. In Q2, the growth became more robust than ever.

sina08Q2_1

sina08Q2_2

In Q3 2008, the high growth is expected to continue as a result of The Olympic Games. However, there is a concern on a possible drop in the growth in post-Olympic Games period. In 2006 and 2007, when the economic growth was robust and stock market was fervent, the annual growth rates of advertising revenues were 61.1% and 57.8% respectively. In a context of government contractive policies, weak stock market performances, an end of the boost of The Olympic Games, the advertising business growth is likely to slow down from the current high rate. As the advertising revenue of SINA represented over 60% of total revenue in Q1 2008 and 69% for year 2007, any large drop will adversely affect the performance of SINA in 2009.

However, there are some factors that can partly neutralize this adverse effect. In Q1 2008, the vertical areas with the top four advertising opportunities – automobile, finance, real estate comprising 56% of total advertising revenue and contributing 80% of adverting revenue growth yoy in dollar amount. This indicates that SINA has a strong reliance on non-Olympic Games advertising opportunities. In Q1 2008, the revenue per advertiser grew 36% yoy, compared with the 11% growth in the number of advertisers. In Q2 2008, the number of advertiser increased to 694, increasing 18% from Q2 2007. These indicate improvement in business operating. Among the advertisers, over 90% are large companies, which can allocate relatively stable budgets to online media than SMEs.

Finance vertical area has been and will be negatively affected by week stock market, as the securities firms reduced their campaign budget. However, the sources of revenues from the financial vertical area have shifted from securities firms to insurance companies. Real estate vertical area will be continuing negatively affected by the contractile monetary policies. However, an expected more diversified geographical revenue sources will neutralize this effect. In April 2008, SINA and E-house, a leading real estate services company in China, formed a new venture to build the largest online real estate portal in China. E-House's proprietary CRIC database system contains detailed information and transaction data on China's real estate sector including land and residential, office and commercial buildings in 30 major cities in China, with a customer base of over 5,000 real estate developers in China. This will facilitates SINA to leverage CRIC database system to provide more comprehensive real estate data information, so that it will expand its national coverage of one of its four major vertical areas – Real Estate, 90% of which is currently focused on Beijing market. It is expected that the relative importance of Beijing market will be reduced to 70% this year.

2. Improved Mobile Business

sina08Q2_3

Prior 2008, the non-advertising business displayed a consistent decreasing trend, while since 2008, this trend has been reversed. In Q1 2008, the net revenues and gross profits from non-advertising business increased 14.2% qoq to $23.48 million and 12.5% qoq to $13.3 million. In Q2 2008, they increased 12.4% to $26.4 million and 12.1% to $14.9 million respectively. MVAS business has been losing its relative importance as a revenue source since 2005. For 2007 and 2006, MVAS revenues accounted for 29% and 41% of total net revenues, respectively. Short messaging service (“SMS”) and interactive voice response system (“IVR”) revenues accounted for  approximately 51% and 22%, respectively, of MVAS revenues for fiscal 2007. In Q1 2008, mobile business increased 16% qoq, with a reduced reliance on SMS products as revenue sources were diversified to MMS, IVR and Free WAP portal. More favorable terms between the mobile operators and large online media like SINA, the expansion of 3G businesses after the restructuring of telecommunication industry will provide growth opportunities in the mobile business.

3 Competitor Analyses

Sohu, the biggest Internet firm on the mainland expects core advertising revenue to grow up to 45 percent this year, but it warned the growth may taper off to about 20 to 30 percent in 2009. In Q2 2008, Sohu delivered total revenue of $101.98 million, rising 20.23% qoq and 161.57% yoy, gross profit of $77.105 million, increasing 19.5% qoq and 226.6% yoy, net profit of $40.189 million, increasing 86.39% qoq and 604% yoy. The two main contributors to the skyrocketed revenues were Brand advertising enhanced by the coming Olympic Games and Online games, which amounted to $41.69 million and $47,896 million revenues, growing 56.5% yoy and 1152% yoy. As a result, total advertising revenue as a percentage of total revenue reduced from 72.8% from June 30 2007 to the current 42.5%, while online games business represents 47% of total revenue, rising from 9.8% in June 30 2007.

Comparing the advertising business of the SINA and SOHU, SINA consistently generated higher revenues and profits from the advertising business than SOHU and exhibited higher growth rates. This indicates more dominant market positioning of SINA than SOHU and thus less vulnerable to market or economic downturns.

sina08Q2_4

sina08Q2_5


 

 



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