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SINA Falls on Regulatory Worries in China

Steve Symington, The Motley Fool

SINA (NASDAQ: SINA) announced solid fourth-quarter 2018 results on Tuesday morning, once again highlighting the benefits of the Chinese internet technology company's burgeoning Weibo microblogging platform.

But while SINA also followed with strong guidance for the coming year, management urged caution based on regulatory pressures in China that could hamper some of its most promising opportunities. 

With shares down around 3% in Tuesday afternoon trading as of this writing, let's dig in to better understand what SINA had to say.

Young Asian students using smartphones

Image source: Getty Images.

SINA's results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Growth (Decline)

GAAP net revenue

$573.0 million

$503.7 million

13.8%

GAAP net income attributable to SINA

$16.4 million

$45.4 million

(63.9%)

GAAP net income per diluted share

$0.22

$0.60

(63.3%)

Data source: SINA Corp. 

What happened this quarter?

  • On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation, net income attributable to shareholders fell 3.8% year over year to $57.7 million, but rose 1.2% on a per-share basis to $0.80. 
  • Adjusted revenue rose 14% to $570.4 million.
  • Though we don't usually lend much credence to Wall Street's demands, both the top and bottom lines were above consensus estimates for adjusted earnings of $0.74 per share on revenue of $569 million.
  • Advertising revenue rose 14% to $484.3 million, driven by a 25% increase to $417 million in Weibo advertising and marketing sales. SINA portal advertising revenue declined 29.3% year over year to just under $67.4 million. 
  • Adjusted non-advertising revenue grew 13% year over year to $86.1 million, driven primarily by Weibo's recently acquired live broadcasting business. SINA portal non-ad revenue declined 21% with continued weakness in the payments business.
  • SINA generated $138.9 million in cash from operations.

What management had to say

During the subsequent conference call, CFO Bonnie Yi Zhang stated that Weibo's monthly active users climbed by 70 million from the year-ago period to 462 million, growing faster than the overall Chinese internet population last year. 

"Weibo has become a designated place for public and social interactions, events, discovery and discussion, as well as interest exploration," she added. "These unique attributes have helped the platform to attract and accumulate increased amounts of organic traffic."

Zhang noted the portal ad business was hurt by advertising budget cuts at small and medium enterprise customers in industries under tightened government regulation, including fintech and online gaming.

Looking forward

"Heading into 2019, we are seeing the resumption of game license approval and a series of government's seamless policies...which may serve as catalysts for revenue growth," Zhang said. "However, we continue to face challenges in tightened regulation of contents scrutiny and the online finance, as well as macro uncertainties eroding advertisers' sentiment."

As such, for the full fiscal-year 2019, SINA expects revenue to climb to between 16.5 billion yuan to 17.5 billion yuan, or roughly $2.44 billion to $2.59 billion. That would be good for growth of 18% to 25%, assuming currency exchange rates remain steady.

Most analysts were already modeling 2019 revenue near the low end of that range. But shares are already up more than 20% year to date leading into this report. And so, when you combine SINA's outsized reliance on Weibo with the ongoing concerns over the macroeconomic environment and Chinese regulatory headwinds, it's no surprise to see the stock pulling back today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Sina and Weibo. The Motley Fool has a disclosure policy.