SINA Could Be a Winner, but Give It Time

sina-weibo-logo

SINA Corporation’s (NASDAQ:SINA) stock is expensive trading at 132 times earnings, but only at 27 times forward anticipated earnings. Is the stock too expensive to buy based on its earnings potential? And just how is it performing?

SINA is an online media company in the People’s Republic of China. It operates SINA.com, an online brand advertising portal that provides region-focused format and content, including multimedia news, sporting events news, automobile-related news, business news coverage and personal finance columns, entertainment news and events, technology updates, digital products reviews, luxury goods and services, collectibles, and video products, as well as an interactive platform for fashion-conscious users to share comments and ideas on health, cosmetics, and beauty topics. The company also offers SINA mobile, a mobile portal, which provides news information and entertainment content from SINA.com for mobile users in mobile browser and application format.

In addition, it operates Weibo.com that offers self-expression products to enable users to express themselves on the Weibo platform. Further it offers discovery products to help users discover content. The company offers mobile value added services, which allow users to receive news and information, download ring tones, mobile games, pictures and participate in dating and friendship communities. Additionally, it operates game portal that provides users with downloads and gateway access to online games, information and updates on online and PC games, and value-added application tools.

For the first quarter of 2014, SINA reported net revenues of $171.5 million, compared to $126.0 million for the same period last year. Non-GAAP net revenues totaled $167.3 million, compared to $121.3 million for the same period last year. Online advertising revenues were $135.7 million, compared to $94.3 million for the same period last year. This was due to the robustness of Weibo’s advertising and marketing business as well as the growth of SINA’s portal advertising business. Non-advertising revenues $35.8 million, compared to $31.7 million for the last year. Non-GAAP non-advertising revenues were $31.6 million, compared to $27.0 million last year. The year-over-year increase in non-GAAP non-advertising revenues was mainly due to the strong growth in Weibo value added services which was partially offset by a decline of $6.8 million in mobile value added services.

Things improved in other areas as well. Gross margin was 60 percent, compared to 51 percent for the same period last year. Advertising gross margin was 60 percent, compared to 49 percent for the same period last year. Non-GAAP advertising gross margin for the first quarter of 2014 increased to 60 percent from 50 percent for the same period last year, as the proportion of advertising from higher margin Weibo advertising increased compared to the same period last year. Non-advertising revenue gross margin was 62 percent, compared to 57 percent for the same period last year. Non-GAAP non-advertising revenue was 57 percent, compared to 50 percent for the same period last year, primarily due to a shift in revenue mix from low-margin mobile value-added services to higher margin Weibo VAS.

Despite the high revenues, expenses are out of control. Operating expenses for the first quarter totaled $111.7 million, compared to $74.5 million for the same period last year. Non-GAAP operating expenses totaled $104.4 million, compared to $69.8 million for the same period last year, primarily due to higher personnel costs and marketing expenditures in the quarter. Loss from operations was $8.7 million, compared to $9.9 million for the same period last year. Non-GAAP loss from operations $4.8 million, compared to $9.3 million for the same period last year. Overall, net loss attributable to SINA for the first quarter of 2014 was $33.2 million, compared to $13.2 million for the same period last year. Diluted net loss per share attributable to SINA was $0.52, compared to $0.20 for the same period last year.

Chairman and CEO Charles Chao stated, “We are delighted to report strong revenue growth in the first quarter of 2014 driven by our continuing success in Weibo monetization. The successful separate listing of Weibo on the NASDAQ Global Select Market in April opened a new chapter for SINA. The more independent structure will help Weibo to better realize its long-term growth potential and create greater value for our shareholders. Looking forward, we hope to repeat our past successes of leveraging SINA’s brand equity and market influence to build new businesses. We believe there is significant value creation potential by leveraging SINA’s portal assets to build leading verticals and smartly deploying SINA’s own cash pile of over $1.8 billion.”

Looking ahead it’s tough to buy the stock here. SINA estimates that its non-GAAP net revenues for the second quarter of 2014 will be between $177 million and $182 million, including advertising revenues to be between $152 million and $155 million and non-GAAP non-advertising revenues to be between $25 million and $27 million. The foregoing revenue outlook is the company’s best estimate based on its current assessment of the potential impact resulting from the measures the company has undertaken recently to address the internet publication and video license matter. Given the fact that revenues are growing rapidly, but that expenses are as well, it’s a gamble to buy this stock here. I think you are best waiting until the earnings picture is more clear and expenses are reigned in a bit.

Disclosure: Christopher F. Davis holds no position in SINA and has no plans to initiate a position in the next 72 hours. He has a hold rating on the stock and a $45 price target.

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