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Why Is Sina (SINA) Up 0.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Sina (SINA). Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sina due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ad Revenue Growth Aids SINA’s Q4, Higher Marketing Cost Hurts

SINA Corporation reported fourth-quarter 2018 non-GAAP earnings of 80 cents per share, missing the Zacks Consensus Estimate by 23 cents. However, the figure increased marginally from the year-ago quarter.

Non-GAAP net revenues grew 13.8% year over year to $570.4 million. However, the figure missed the Zacks Consensus Estimate of $579 million.

The year-over-year increase in revenues was driven by robust growth in Weibo’s ad and marketing revenues and user base expansion.

Quarter Details

Advertising revenues (84.9% of total revenues) increased 14% year over year to $484.3 million, primarily driven by an increase of $84.7 million in Weibo advertising and marketing revenues. However, the decline in portal advertising revenues and unfavourable currency translation partially offset the increase.

Non-advertising (non-GAAP) revenues increased 12.7% year over year to $88.7 million. The increase was primarily attributed to revenues generated from Weibo’s acquired live broadcasting platform and growth in Weibo membership fees.

Revenues from Weibo business grew 27.7% year over year to $482 million, primarily driven by robust growth in user base. SINA holds 46% stake in Weibo.

Notably, Weibo’s monthly active users (MAU) totaled 462 million in the reported quarter, a net addition of approximately 70 million users on a year-over-year basis.

Moreover, Weibo's average daily active users (DAU) were 200 million in the reported quarter, a net addition of approximately 28 million users on a year-over-year basis.

Weibo’s non-ad revenues surged 43.9% to $64.9 million and ad and marketing revenues grew 25.5% to $417.1 million in the reported quarter.

Portal advertising revenues declined 29.3% year over year to $67.4 million. Decline in Small Medium Enterprise (SME) customers’, who operate in sectors with strict regulation, ad budget negatively impacted growth.

Notably, Mobile app revenues accounted for 81% of total portal ad revenues compared with 59% in the year-ago quarter.

Portal non-advertising revenues declined 29.3% to $67.4 million. This decline was attributed to weakness in the payment business.

SINA is witnessing higher adoption of KL marketing among brand advertisers, which is a positive.

Full-Year Details

SINA witnessed a 33% increase in net revenues to $2.1 billion in 2018. This momentum was driven by the robust performance of the company’s Weibo business, which increased 49% year over year. Earnings per share for 2018 were $3.07.
    
The company’s advertising revenues were $1.79 billion, up 36% year over year, due to 50% growth in Weibo advertising dollars.

Non-ad revenues for 2018 increased 18% year over year, driven by an increase in Weibo membership revenues and incremental revenue contribution from each business.

Operating Details

SINA’s reported gross profit was $448.3 million, up 19% year over year. Gross margin of 78.6% expanded 340 basis points (bps) from the year-ago quarter. This increase was driven by a 600 bps increase in advertising platform gross margin.

Operating expenses (50.6% of total revenues) were $288.6 million, up 27.2% year over year due to increase in sales and marketing expense and expansion in the product and technology team.

Sales and marketing expenses were $191.2 million, up 33.7% year over year. Product development expense was $85.4 million, reflecting an increase of 8.2%. Moreover, general and administrative expenses rose 15.9% to $30.6 million.

As a percentage of revenues, general & administrative and sales & marketing increased 10 bps and 500 bps, respectively. However, product development declined 80 bps.

Reported operating income was $159.6 million, up 6.5% year over year.

Balance Sheet and Cash Flow

SINA exited the quarter with cash & cash equivalents (including short-term investments & restricted cash) of $2.44 billion compared with $2.5 billion in the third quarter of 2018. The lower cash balance can be attributed to higher investments in fintech business and share repurchase programs by the company.

Cash provided by operating activities in the quarter was $138.9 million, marking a sequential increase of $38.1 million. Capital expenditure was $17.1 million.  

Guidance

For 2019, SINA expects revenues between $2.44 and $2.46 billion, indicating year-over-year growth rate of 18-25%.

Management stated that with the continuing decline in macroeconomic conditions in China, advertising revenues are likely to be negatively impacted in the near term.
 

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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