Sina (
SINA
) is a Chinese online media company which also offers mobile value
added services (MVAS). It provides its services mainly through
Sina.com - online news & content, Weibo.com - microblog, and
Sina Mobile - MVAS. SINA's MVAS allow users to receive news
and information, download ring tones, mobile games and
pictures.
Despite rapid growth in the Chinese Internet market over the
years, Sina's stock has declined from a high of $133 in April '11
to the current level of around $50. Declining market share,
increasing expense base and the slow progress in capitalizing
its micro blogging website Weibo are some of the factors that have
eroded the stock value.
In this article we provide a quick snapshot of how Sina makes
money, the important segments that contribute to its growth and the
key trends that impact its current valuation.
Check out our complete analysis of Sina
How does Sina make money? Who are its key
customers?
Sina generates its revenue from display advertising on its
websites, mobile value added services and other fee based services
such as paid email services and casual games. For
advertising, it employs a strategy targeting both short-term
revenue opportunities such as banner advertising campaigns, as well
as longer-term, higher-value contracts that include integrated
marketing packages.
Internet users in China and the subscribers of China mobile
value added services are the potential users of Sina's services.
For advertising, global corporations doing business in Greater
China and domestic companies in each of the regions in which SINA
operates are its key customers. Automobile, fast moving
consumer goods, financial, telecommunication, information
technology and Internet services are some of the top advertising
sectors.
What are the important segments that contribute to Sina's
growth?
Except for a temporary decline in 2009, Sina's top-line has
historically registered double digit growth. Strong traffic growth
across major product lines, including Weibo, PC Internet portal and
mobile Internet portal continue to fuel Sina's growth
rate. Sina made around $480 million in revenues in 2011 and
earned 56% gross profit on the same.
Below are the three key segments that contribute to Sina's
growth:
1. Advertising
Display advertising contributes around 76% to Sina's revenue and
the company earns 58% gross profit from this segment, as per our
estimate.
Despite the steady increase in the Chinese online display
market, Sina's market share has significantly declined since 2008
as growth in Sina's advertising revenue has lagged behind growth in
China's online advertising market. However, incurring
huge investments to develop its micro blogging website, Weibo,
Sina expects the same to become a significant
revenue contributor for the company. Though the
pay-offs from monetization of Weibo have not been very prominent so
far, we expect Weibo to be a major factor driving growth in Sina's
online display revenues in the future.
Analogous to a hybrid of Twitter and Facebook, Weibo has been
increasingly gaining popularity among users in China, and is
estimated to be used by 30% of Internet users in the country by
2013. Weibo continues to attract an expanding user base and
register higher user activity. Last quarter, the total
number of registered users on Weibo increased to 424 million, a
15.2% increase from 368 million users at the end of June 2012.
Advertising revenues from Weibo as a proportion of Sina's total
advertising revenues increased to 16% in Q3 2012, a significant
jump from 10% in Q2 2012. Sina has recently taken a number of
steps to accelerate its monetization efforts for Weibo; and thus,
we expect the proportion to be even higher in the coming
quarters.
Sina's advertising gross margin has also declined in the past
few years. Sina's operating expenses, specifically sales &
marketing and research expenses, were at an all-time high in 2011
which led to a significant decline in operating margins. Much of
the increase can be linked to its growing investment in Weibo
.
We believe that as the current investments in developing Weibo
start paying off, Sina could realize higher revenues at a similar
cost base, which could help stabilize margins.
2. Mobile Value Added Services
MVAS accounts for close to 18% of Sina's revenue and makes 36%
in gross profit. Sina's revenue from the MVAS division was at its
highest in 2008, but has been declining since then. Sina
depends on China Mobile, China Unicom and China Telecom to provide
its mobile value added services to users. These operators change
their policies frequently which greatly impacts Sina's
business.
We estimate MVAS revenue to continue declining for the rest of
our forecast period. We expect that the operator policy
changes will continue to be a risk to Sina's MVAS business.
The stringent regulations in the industry, changing operator
policies and intense competition in the MVAS business have led to a
decline in gross margins. We expect this trend to continue in the
future as well.
3. Other Paid Service
Other paid services by Sina include paid email services, online
games, eReading, etc. Paid services account for around 6% of Sina's
revenue. With 85% gross margins, it is the most profitable division
for the company.
Sina's revenue from paid services has increased at a rapid pace
since 2008 and we estimate the revenue to further increase over our
forecast horizon. We believe that the increasing Internet
penetration and the growing popularity of online games in
China will fuel growth in revenue.
We expect gross margins to decline slightly over our forecast
horizon. We feel that Sina might not be able to sustain such high
margin levels in the long run. Additionally, the company will have
to incur increasing expenses to compete effectively and
attract users in the highly competitive online gaming market in
China, which would put pressure on its gross margins.
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