SINA Posts Narrower-Than-Expected Loss
SINA Corp (SINA) reported first quarter loss of 6 cents per share (including stock-based compensation), much better than the Zacks Consensus Estimate of a loss of 11 cents per share. First quarter results significantly improved from a loss of 27 cents in the year-ago quarter.
Revenues
Revenues jumped 19.5% year over year to $121.3 million in the quarter. Including deferred revenues of $4.7 million, revenues surged 18.6% year over year and were slightly better than management’s guided range of $115.0 million to $119.0 million.
Revenues fell short of the Zacks Consensus Estimate of $124.0 million.
Higher advertising revenues primarily drove the year-over-year growth in revenues in the quarter, up 20.0% from the year-ago quarter to $94.3 million. Advertising revenues were slightly ahead of the low end of management’s guided range of $94.0 million to $96.0 million.
Non-advertising revenues increased 17.4% year over year to $27.0 million in the quarter, ahead of management’s guided range of $21.0 million to $23.0 million. Mobile value-added services (:MVAS) revenues were $15.9 million, down 17.0% from the year-ago quarter.
However, Weibo value-added services helped the rest of the non-advertising revenues to increase by a staggering 180.0% from the year-ago quarter to $11.1 million.
Operating Results
Gross margin expanded 60 basis points (“bps”) from the year-ago quarter to 49.4% due to higher revenue base and favorable product mix. Advertising gross margin expanded 40 bps while non-advertising gross margin surged 650 bps in the quarter.
Operating expenses as percentage of revenues declined 470 bps from the year-ago quarter to 61.4%. The improvement was primarily driven by lower sales & marketing expense (down 940 bps), partially offset by an increase in product development expense (80 bps) and a sharp rise in general & administrative (400 bps) expense.
Operating loss was $19.2 million, much better than a loss of $27.4 million in the year-ago quarter. The improvement was primarily due to higher gross margin base and lower operating expenses. Net loss also improved from $17.8 million reported in the year-ago quarter to $3.7 million.
Balance Sheet
SINA exited the first quarter with cash, cash equivalents and short-term investments of $681.9 million compared with $713.6 million at the end of the fourth quarter. Cash outflow from operating activities in the quarter was $5.9 million.
Outlook
SINA expects revenues to be between $143.0 million and $147.0 million for the second quarter of 2013. Advertising revenues are expected in the range of $117.0 million to $119.0 million, while non-advertising revenues are projected in the range of $26.0 million to $28.0 million.
Recommendation
We believe that SINA remains a premier company based on its strong product pipeline, continuous investments in product development and marketing and a robust user base for its e-commerce and Weibo offerings. Moreover, the company expects to strengthen its Weibo value-added services on the back of continued growth in mobile Internet in China.
In this regard, the recent partnership with Alibaba Group is expected to boost SINA’s position in the Chinese e-commerce market going forward.
However, results continued to disappoint primarily due to higher product development costs related to Weibo.
We believe that any weakness in advertising revenues will impact SINA’s ability to counter increasing operating expenses, which in turn will hurt its bottom line going forward.
Moreover, increasing competition from Sohu.com Inc. (SOHU), Yahoo (YHOO), NetEase (NTES) and Tencent will hurt profitability over the long term. Further, we believe that increasing regulations imposed by the Chinese government will remain the primary concern for the stock going forward.
Currently, SINA has a Zacks Rank #3 (Hold).
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