August 18, 2010 (Chinavestor) Sina Corp. (NASDAQ:SINA)
SINA is a leading online media company and mobile value-added service (MVAS). SINA Corporation’s (NASDAQ:SINA) head office is located in Shanghai, and is listed on Nasdaq. It has core operations through five major business lines: online news (sina.com); MVAS (SINA Mobile); web-based services and games (SINA Community); search and enterprise service (SINA.net); online shopping (SINA E-Commerce). The company produces most of its revenues from online advertisements. A smaller portion of its revenues are generated from fee-based services and online search.
- Market leader in online advertisement industry
- Large capacity for debt
- Superior performance and liquidity measures
We recommend a moderate BUY rating for SINA Corporation. Its performance in recent quarters have fallen short of guidance estimates. However, SINA is a highly solvent firm operating in a maturing industry. The online advertising market is set to expand, and SINA is a leader in the industry. We also noted that SINA operates in a saturated and competitive industry, with low barriers to entry and start-up costs. SINA will have many competitors vying for expanded market share.
SINA targets its services to China and global Chinese communities. Revenues are generated through these global mediums, mainly through online advertisements. Product offerings include banner campaigns, text links and button link advertisements.
The target market for its online advertisement revenues is both short-term and long term in nature. The target clients are global corporations operating in China; and domestic companies within each geographical segment in which SINA (NASDAQ:SINA) is located. Global corporate clients are Fortune 1000 companies that are geographically diversified and take a segmented approach to branding, marketing and communications. The domestic companies in its target market are medium to large sized companies that have a specialised demographic or target market within a geographical region. Examples include the Chinese American community and Chinese Taiwanese community.
- Recent news
From Q4 2009, SINA will disclose its results in GAAP. Also, it will exclude China Online Housing Technology Corporate (“COHT”) from its results. The reason behind this is due to its re-allocation of online real estate advertising to COHT, a majority owned subsidiary.
In Q4 2009, Sina and E-House spun off China Real Estate Information Corp, which raised US$216 million from its IPO. Post IPO, E-House holds a controlling interest of 51% while SINA holds 33%.
SINA's revenue growth is currently recovering as China is set to recover quickly from the global downturn. Advertising revenues are set to increase. Google's recent exit out of the Chinese market may lead to an increase in market share for online advertisement for SINA, as there will be available market share to be captured. However, there is a potential downside risk to Google's exit. SINA signed a deal with Google in 2007, which allowed SINA to use Google's web based searches. SINA compensated Google by sharing its online advertisement revenues. Thus, Google's exit out of China may cause SINA's web based search revenues to decline. Note, however, that SINA has a small market share of the web based search revenues in China.
- Revenue and earnings performance
The recent Q1 2010 results show that net GAAP revenues have increased 15% Y-o-Y to $85.0 million, up from $73.8 million in Q1 2009. The drive in revenue growth has come from the online advertising business, which has grown 47% Y-o-Y. Non-advertising revenues in Q1 2010 remained steady at roughly $31 million. Net income for the period $24.4 million, up from $9.7 in Q1 2009.
Net revenue for Q4 2009 was $98.2 million, which is a 3% decline year-on-year (Y-o-Y). Advertising revenue was down 9% Y-o-Y to $63.2 million for Q4 2009. Non-advertising revenue was up 9% Y-o-Y to $35 million in Q4 2009. Net revenue stands at $96.4 million at Q3 2009, which represents a 7% increase quarter over quarter. Advertising revenues stands at $63.8 million at Q3 2009, which was a 10% increase quarter over quarter. Net income for the period increased 25% quarter over quarter, at $16.7 million.
Sina’s performance in Q1 2010 fell shy of analyst estimates of $86 million, and is slightly under its performance in Q4 2009. On a Y-o-Y basis, Q1 has performed better with its net increases, however from Q4 2009 to Q1 2010, both its advertising revenues and non-advertising revenues were slightly down. Shown below is a chart of Sina’s earnings performance from 2007.
After experiencing stagnant quarterly growth in 2008, 2009 saw Sina grow its earnings each quarter. In 2010, it looks to continue this trend. Sina (NASDAQ:SINA) announced its Q2 2010 guidance of non-GAAP revenues to be $90-93 million.
-Cash Flows and ratio analysis
Operating Cash Flow is up from $15.9 million in Q1 2009 to $18.2 million. Cash flow from operations for Q3 2009 was $29.1 million, up from $24.0 million year-on-year. Additionally, it was up from $18.8 million quarter-on-quarter.
From the ratio table, it can be seen that Sina has superior ROA and ROE figures owing partly to the fact that it has a smaller asset base and equity base than its peers. The fact that it also has a higher current and quick ratio means that it has a higher portion of short-term assets to its current liabilities.
Sina does not have any outstanding long-term debt.
Sina is a solvent company that does not have outstanding long-term debts to pay. This is shown by its cash balances.
Sina has an abundance of cash and is highly liquid. It held off during 2008 from investing in projects, so has a built up cash balance in 2009. This bodes well for future earnings and revenue growth.
-Competitor and industry profile analysis
The online game industry is a massive worldwide market.
In 2010, the online game market is set to increase by 7% to reach USD 1600 billion. In the Asia-Pacific region, it is showing the highest growth. In the US, the online game industry is growing ten times faster than its user population in the US.
The Chinese market is set to be $4.3 billion USD in 2010
This is a small fraction of the global online advertising market of $50 billion USD.
SINA’s main competitors are NetEase.com (NTES), sohu.com (SOHU), yahoo.com (YHOO) and tencent.
In terms of market cap, SINA is third largest out of the top four online media companies. Yahoo is largest with 23.55B, followed by NetEast.com with 4.42B. SINA has a market cap of 2.24B.
Data for the above graph was expressed in terms of percent of total web users. The total percentage exceeded 100 since users may use multiple sites. The above graph converts the data into a 100% market share diagram.
I, Scott Lin, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.
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