- Sina earnings for Q2 2015 are expected on Aug. 13, 2015.
- Sina shares made good gains after its last two earnings calls after it managed to top its non-GAAP EPS guidance.
- Investors have placed rather high growth expectations for Weibo for the quarter, which might make it difficult for Sina to impress.
- This, coupled with the weak Chinese stock markets, places the shares at a short-term risk of slipping.
One of the China's leading Internet companies, Sina Corp. (NASDAQ: SINA), is due to report its second quarter fiscal 2015 results on Aug. 13 2015. Sina is essentially an amalgam of businesses, of which its online portal and micro-blogging site a la Twitter, Weibo (NASDAQ: WB), remain its most important. Sina spun off Weibo in 2013, but still owns a majority 56.9% stake in the company, with Alibaba (NYSE: BABA) owning about 18% stake in Weibo. Weibo usually reports its earnings on the same day as Sina.
Sina shares have never fully recovered ever since the Chinese authorities revoked its publication and distribution licenses over allegations of carrying pornographic content on its website in April 2014. The shares managed to engineer a rally from early April this year after Sina earnings comfortably managed to beat consensus earnings estimate for fourth quarter fiscal 2014, after posting non-GAAP EPS of $0.24, $0.06 above projections. This was despite the fact that the non-GAAP EPS was down almost 50% compared to the prior year period, while GAAP-EPS of -$0.18 badly missed consensus of -$0.08. Sina shares really took off after the company reported first quarter fiscal 2015 results where non-GAAP EPS of $0.04 was higher than consensus of breakeven for net income. GAAP EPS, however, came in below estimates while net income fell 70%. The fact that Sina shares have managed to make strong gains twice this year even after a drastic slowdown in bottom line growth and a miss on GAAP EPS estimates reflects lowered investor expectations and a general air of pessimism that has engulfed the company. Unfortunately, Sina Shares have suffered a massive 36% drop from their June 12 high of $60.74 after the China stock market crisis hit.
The Weibo Effect
The performance of Sina seems to be closely correlated to that of Weibo, down to the share performance of both companies. The strength of Weibo’s advertising and marketing has been giving a nice boost to Sina’s faltering portal-ad revenue. Weibo’s marketing segment provided a $27.3 million boost to Sina’s top line, thus helping the company to record 11% revenue growth. Without Weibo, Sina’s ad-revenue would have recorded negative growth. Sina’s other operating segments remain a mixed bag with Sina’s gaming revenues being offset by a decline in data-licensing revenue.
Sina (Bold Line) vs. Weibo (Green Line) YTD Share Performance
Source: CNN Money
Sina’s performance during the last quarter is therefore very likely to be strongly hinged to Weibo’s. The consensus for Weibo, unfortunately, does not appear to be positive for Sina with regard to investor expectations. Analysts’ consensus is for Weibo to post top line growth of 44% for the last quarter, while Weibo itself has issued a guidance of 32%-36%. This implies that investors might still be disgruntled even if the company manages to beat its own guidance by maybe 1 or 2 percentage points. Sina was unable to offer guidance for the quarter due to what it termed an uncertain environment, preferring to offer annual revenue guidance of $800 million-$900 million, whose mid-point is below consensus estimate of $885 million.
Weibo’s effect on Sina’s bottom line, however, has not been quite as positive since the company remains GAAP non-profitable. The good part is that its net income has lately been improving while Sina’s continues its journey south due to spiraling operational costs.
With such heightened investor expectations, it’s going to be quite difficult for Sina to deliver results good enough to impress. Hence, there is a strong likelihood that the shares might slip further after its second quarter earnings call. The ongoing crisis in China’s stock markets might make it difficult for the shares to make strong gains even in the event that Sina reports good results, as we saw in the case of Baidu (NASDAQ: BIDU) whose shares still tanked even after reporting decent results recently.
Sina’s long-term outlook depends on how much success the company achieves in its ongoing transition from an ad-driven business model to a mobile-driven transactional one. Sina’s CEO chimed a positive note about the transition during last quarter’s earnings call when he said the company’s mobile strategy was continuing to deliver impressive traffic and revenue growth. HSBC also believes the company is doing a good job on this front, and raised the company’s PT in July from $47 to $67 with a Buy rating.
Some Sina investors have been calling for the company to divest its remaining interest in Weibo. It’s not yet clear how soon Sina will grant the request, though it’s likely to suffer in the near-term if it does. The general feeling however is that Sina will remain married to Weibo until its mobile transition matures enough to allow the company to comfortably survive on its own.