Is Sina Corp. Doomed to Keep Investors Away?

With shares of SINA Corporation (NASDAQ:SINA) trading around $41.68, is SINA a BUY, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Sina hit a 52-week low of $41.25 per share on December 5. The stock has trended downwards since the middle of September and suffered a sharp sell off on November 15 when it issued fourth-quarter guidance that came in below analyst expectations.

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Some feather tussling at the Securities and Exchange commission on December 3 put the nail in the coffin, pushing the stock down 3 percent and toward its current lows.

E = Equity to Debt Ratio is as Close to Zero as it Gets

Sina’s debt-to-equity ratio is within a rounding error of zero. This is a strong position for any company to be in, but does not differentiate it so much from its major competition. NetEase, Inc. (NASDAQ:NTES) boasts the same debt-to-equity ratio, while Sohu.com (NASDAQ:SOHU) clocks in at just 0.20.

It’s also important to consider total cash and total debt, which for Sina is $696.25 million in cash, and no debt. NetEase tops the category with $2.38 billion in cash and no debt, while Sohu claims $894.25 million in cash and $222.35 million in debt.

T = Technicals on the Stock Chart are Weak

As of December 4, Sina’s stock price was 10.76 percent below its 20-day simple moving average, or SMA; 20.43 percent below its 50-day SMA; and 21.09 percent below its 200-day SMA.

Since the beginning of 2012, the stock has been in a pronounced downward trend, losing 24.3 percent of its value this year to date, and 36.56 percent year over year.

For comparison, shares of Sohu are down 27.35 percent this YTD while shares of NetEase are down 8.20 percent for the period.

E = Earnings are Increasing Quarter over Quarter

Sina has a fairly strong revenue history but a weak earnings history. Revenues have increased in three out of the last four years, growing over 50 percent in 2008, dropping less than 3 percent in 2009, growing 12 percent in 2010, and nearly 20 percent in 2011.

2007 2008 2009 2010 2011
Revenue ($) in thousands 246,127 369,587 358,567 402,617 482,829
Diluted EPS ($) 0.96 1.33 6.95 (0.31) (4.64)

 

The quarter-to-quarter picture reveals a company struggling to maintain revenues but regaining some ground with two consecutive quarters of positive earnings.

Sept. 2011 Dec. 2011 Mar. 2012 June 2012 Sept. 2012
Revenue ($) in millions 130.29 133.37 106.22 131.60 152.38
Diluted EPS ($) -5.10 0.08 -0.21 0.49 0.14

 

That massive earnings hit in the third-quarter of 2011 is due to a write down on investments, and is the driving force behind the earnings loss for 2011.

T = Trends Support the Industry in which the Company Operates

If Sina did business in the United States, one of its major competitors would be Yahoo. Sina provides online media and mobile value-add services, specifically region-focused content like news, sports, finance, entertainment, technology, video, music, and a large sub-portal for fashion.

Despite Yahoo’s current struggles, the space it operates in is clearly well defined and no doubt there is a similar space in the Chinese market. Sina’s problem, like Yahoo’s, is that other, bigger players are doing it better — particularly the guys who do search.

Baidu (NASDAQ:BIDU) and Qihoo 360 (NYSE:QIHU), the number-one search provider and soon-to-be number-one browser provider, have pretty much dismantled Sina’s position.

Sina’s strength is in its popular micro-blogging platform called Sina Weibo, which could be interpreted as a hybrid of Facebook and Twitter, both in function and popularity. In 2011, the platform claimed 30 percent of total Internet users in China, and by the middle of 2012 had 368 million users, about 10 percent of which were active every day. According to Alexa, Weibo is the fifth most popular website in China and ranks 31 in the world for traffic.

Conclusion

Sina’s growth story isn’t over yet, but the company is unlikely to deliver returns that attract investors. Its performance on the stock chart is clearly an indication of this, and its bumpy quarter-to-quarter revenues have caused some concern.

Citigroup recently slapped the company with a downgrade from “Buy” to “Sell” and gave it a price target of $45 per share, which it is currently about $3.5 below. Citigroup noted that “Weak guidance and portal mobile headwinds drive our significant forecast cuts.”

Because of this, and the metrics above, Sina is a STAY AWAY.

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