Sina’s Weibo : Continued growth opportunities ahead
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Weibo monetization was clearly the key swing factor as Sina’s (NASDAQ: SINA) last quarter. The stock soared ~9% after its earnings call. Sina generated $3.7 million in net profit in Q2 compared to consensus estimates of a net loss of $0.3 million. While the profits are small, they come amidst strong investment in Weibo monetization. We continue to see strong growth opportunities for Sina with the increasing traction of its Weibo platform and its growing line of new advertising products and hence rate it as a buy.
Q2 saw a return to Weibo user growth after a flat Q4 to Q1 due to regulatory real name registration issues. Daily average users (DAUs) increased 21% QoQ to 36.5 million with the active/registered ratio increasing from 9% to 10% in the quarter. While Sina’s current 36.5 million DAU remains below Tencent’s Weibo DAU figure of 82 million, Sina’s Weibo continues to be the most intensively used, making up to 85% of total China Weibo traffic. We expect this traction to build in Q3 with the Olympics acting as a catalyst to increase the social media engagement habits. This version of the Olympic Games has already been dubbed as “the Social Olympics” globally, with social media (as well as mobile devices) playing a key role in increasing user focus on the Olympics globally.
Sina’s management noted that around 10% of the quarter’s revenues could be attributed to Weibo. We believe this is an impressive number given that monetization effects were believed to come into effect in H2 rather than Q2. Weibo is genuinely gaining traction among new advertisers as contrary to the bear view as 25% of the advertisers on Weibo were new advertisers.
The management indicated that the usage trend is swiftly shifting to mobile as 69% DAU of Weibo access in Weibo came through mobile terminals growing from 65% in 1Q12. Another notable fact was that the Android daily active users exceeded Apple’s (NASDAQ: AAPL) iPhone since April 2012 as Android became the Number Uno mobile OS among Sina Weibo users. We believe that Sina Weibo’s mobile traffic will increase further in the future as Apple will pre-embed Sina Weibo in iOS6 and Mountain Lion PC OS. Apart from that Sina might benefit from the launch of Windows 8 in the fall as Microsoft (NASDAQ: MSFT) Windows’ project team through its official blog announced that Windows 8 and Windows Phone will pre-embed Sina Weibo. Furthermore, with the smartphone rates decreasing (Xiaomi cut the price of its high spec original model to RMB1300 this week) in a price sensitive Chinese market, we expect to see exponential inflection in smart device penetration in China and thus an increase in user base for Weibo.
We were pleasantly surprised with the optimistic guidance of 18.8% to 20.8% YoY growth for brand advertising revenue for 3FQ12 amidst a slowdown in China’s macro conditions. Sina’s guidance remained solid when compared to its competitor Sohu (NASDAQ: SOHU), which guided its brand ads to be flattish YoY for 3FQ12. The company noted that it will continue focusing on monetization and seeking diversified monetization channels, including its more than 2000,000 enterprise accounts, online games and mobile Internet. We are positive about Sina’s fundamentals and secular growth considering its leading portal position and the recent progress of Weibo monetization and therefore rate it as a buy.
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