Sina: Margins Matter but so Does Growth
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With Sina (NASDAQ: SINA) losing 60% in the last year, we believe that the stock is largely undervalued given the monetization of the Weibo platform and a huge opportunity in the Chinese ad market. We believe that Sina’s Weibo will be the main catalyst for Sina in 2012 and could represent higher revenues than Sina's traditional portal advertising in the long run.
Weibo monetization - Though it’s expensive, we’re positive:
Sina, in an effort to monetize its micro-blogging platform Weibo, launched the Weibo ad platform in April 2012, which promotes social ads on either the sidebar or the top/bottom of the Weibo page. These Weibo ads are monitored by the Weibo’s Social Interest Graph, which is an interest based recommending engine for Weibo. In simpler words, it means that you would see ads specific to your interest on your Weibo page. For example if you like tennis, you may get tennis racquet suggestions. Sina, in its 1Q12 earnings, reported around 160,000 enterprise accounts on Weibo, which are growing at a rate of 15,000 net ads per month. These enterprise accounts currently face many challenges when it comes to advertising their products, including low user base, less content reach and irrelevant content reaching user. We believe that Weibo has a huge opportunity to monetize these enterprise accounts, as Weibo can help these enterprises reach the target audience in a better and more targeted way. Apart from its own user base, Sina’s long-term relationship with large advertisers could provide an upside to the revenues from Weibo. Weibo is also trying to make money with e-commerce applications, as it partnered with Ctrip (NASDAQ: CTRP) in an effort to facilitate hotel and flight booking. It took Twitter two years to reach $100 million of annual revenues in 2011, and we expect Weibo to trend the same path given SINA’s existing strength in online ad sales through its portal business and ad-friendly platform. Going forward, we believe that while SINA’s margins are likely to bottom in 1H12 due to stepped up investments, they would begin to rebound in 2H12 as Weibo starts generating revenues.
Technology initiatives are being taken to improve Weibo user engagement:
As Weibo is continuously making improvements to its web platform to gain user traction, we believe that its global counterpart, Twitter, could take some lessons from it. In March Sina launched location based services on the Weibo Platform, much like a foursquare application for Weibo users. Furthermore, Sina is trying to attract users on its Weibo platform through its partnership with Japan’s leading gaming platform, DeNa, by establishing a Mobage social game zone under the Sina Domain. Sina also launched enterprise Weibo 2.0, which offers analytic tools and open API for enterprise accounts to personalize their app pages to better address user demand. Among the existing enterprise Weibo account users, over 62,000 companies, at present, have upgraded their accounts to the 2.0 version. We believe that these technological innovations would help Weibo to strengthen its leadership position in China’s market and generate higher revenues.
Sina to benefit as China catches up:
China’s ad spend per capita is still very low at around $4, compared to $27 in Europe and $45 in United States. We expect Sina to benefit as companies start allocating more funds to online marketing in an effort to improve their visibility among competition. Furthermore, we expect that Sina’s online advertising growth will re-accelerate in 2H12, driven by the London Olympics in 3Q12.
Though Sina’s Weibo faces competition from Tencent’s Weibo in the Chinese market, it outranks Tencent’s Weibo in terms of user activity and stickiness. While the weakened macro trends and on-going investment in Weibo may cause some margin compression in the near term, we believe that Sina’s medium and long-term growth prospects are good with the monetization of its platform, and therefore we rate this stock as a buy.
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