June 12, 2014 (Chinavestor) Analysts have to endure frustration when it comes to looking at SINA’s financial statements. There is inconsistency in between 2012 and 2013. Such as, Sina Corp. (NASDAQ:SINA) did not record any revenue generated by Weibo until 2013 last quarter. The same information is omitted from the annual statement, and then the new annual statement structure is different compared to previous years. Nevertheless it is worth the effort because information gained is second to none. Here are some of the most important findings. Advertising Expansion growing in slower rate
The first quarter, Sina Corp. (NASDAQ:SINA) derived about 79% of its revenue from online advertising and earned a 60% gross margin on this. The online advertising market in China is huge which almost tripled in size from $1.9 billion to $5.7 billion in the last 4 years. SINA’s growth of advertising revenue has lagged behind overall market growth.
In order to make up the less competitive performance on advertising, Sina has taken a number of steps to increase non-advertising revenue. This is where instant messenger, Twitter like Weibo (NASDAQ:WB) contributed the most via value add service. Due to the shift in revenue mix from low margin mobile value- added services to higher margin Weibo VAS, the non-advertising revenue gross margin reached 62% in the first quarter of 2014 compared to same quarter last year at 57%. After Weibo’s IPO, Sina also expects Weibo (NASDAQ:WB) to bring in $380 million over the next three years in advertising and other revenues. The IPO of Weibo was a successful deal. Alibaba (HKG:1688) purchased an 18% stake for $586 million, and brought the leading Chinese e-commerce player to a partnership with a leading social media company.
Advertisement revenue for Sina Corp. (NASDAQ:SINA), 2009-2013
P.S. The large amount of non-advertising revenue increase was due to the adjustment of Weibo contribution.
Further Decline in Mobile Value Added Services (MVAS)
MVAS was a great contributor to Sina’s revenue, bringing in 33% of all revenues in 2009, or about $119 million. But it has decline ever since, only generate about $60 million in 2013. MVAS gross margin was 40% last year.
According to Sina’s conference call in December 2013, the company's "ability to offer mobile value added services to users is highly influenced by the change of mobile operators’ policies for MVAS in China". It is very hard for Sina Corp. (NASDAQ:SINA) to keep up with the changes in the regulatory environment due to high fluctuations in regulations. Mobile operators, such as China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) in the telecommunication industry are making these changes. All these corporations are own by the government and are themselves subject to strict regulation.
There are reasons to believe that changes in the regulatory environment, operator policy set forth by telecom operators, will continue to be a threat to MVAS providers, including Sina. Competitors in the MVAS area include Kongzhong (NASDAQ:KONG), TOM Online and Linktone Ltd among others. Therefore, the decline in MVAS in revenue will be hard to stop anytime soon.
MVAS revenue for Sina Corp. 2009-2013