In Wall Street talk where 90% of the analyst game is promoting good relationships (and ratings) so their investment banking arm can win future business, an outright “sell” rating is rare as a dodo bird. I wrote about this quite a few years ago. Usually “neutral” is the way an analyst can say sell but in a non offending way. Hence last evening’s downgrade of Sina (NASDAQ:SINA) by Goldman Sachs (NYSE:GS) to sell is quite interesting. They did move the price target up from $78 to $105, but obviously the stock is far past that level. Now those with a cynical eye, may say Goldman just wants to help clients get a cheaper price on the way to far higher levels for the stock. ;)
With the stock massively overbought, until proven otherwise this is just another “buying opportunity” as the momo trade takes a day (or at least an hour) off. The stock is down 5% in premarket…
- Goldman Sachs downgraded SINA Corporation from Neutral to Sell citing unfavorable risk-reward. The price target was raised from $78 to $105, suggesting 26% downside.
- The analyst believes the stock is now being mainly driven by expectations that Weibo will evolve from a social media into a fully fledged social network, which they say will be “challenging.”
- “In our new analysis, we believe the most likely outcome is for Weibo to become an alternative loosely-engaged social network weighted toward its distinctive social media elements, and for Tencent Pengyou to become the dominant social network in China by leveraging its much larger QQ community and more developed platforms.”
Although we believe the market sees user growth as taking precedence over near-term monetization for Weibo, Sina’s share price implies a (in our
view) rich $6.0bn Weibo valuation. With tougher competition for Weibo,
we see Sina’s current risk-reward as uncompelling, and expect a correction
as investors more deeply consider Sina’s ability to monetize Weibo. We
introduce limited revenue forecasts of $21mn in 2012E, rising to $90mn in
2015E, mainly from advertising, and using peer Renren as reference.
Our 12-month SOTP-based target price rises to $105 from $78 — rolling
forward to 2012 and on our higher valuation for Weibo of US$3.5bn (from
US$1.8bn) — based on 30%/70% probability-weighting of our bull- and
base-case scenarios, derived by benchmarking Weibo operations against
Tencent and Twitter, respectively. Applying a 100% weighting to our bullcase
scenario, our Sina valuation would rise to $165. We lower non-GAAP
EPS for 2011/2012/2013E by 15%/13%/9%, on higher Weibo operating cost.
Disclosure: No position
This is a guest post written by Trader Mark who runs the blog Fund My Mutual Fund.
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