) declined 6.76% ($3.49) to $48.15 on Apr 25, 2014, after the
company announced that the Chinese regulatory authorities have
decided to withdraw two licenses related to Internet Publication
and Online transmission of Audio-Visual programs.
The withdrawal follows a crackdown on pornographic content by the
Chinese authorities. Reportedly, the regulatory authorities found
pornographic content on SINA's online reading channel and
website. Beijing Municipal Cultural Market Administrative Law
Enforcement Unit has also proposed to levy fines on SINA for the
China has been very sensitive regarding Internet content over the
years and has imposed significant restrictions on online search
and other social-networking activities. The Chinese government
has already blocked
) YouTube and social-networking website
Being one of the largest Internet companies in China, SINA also
faced the brunt of these excessive regulations. The company has
been pressurized to impose restrictions on user content,
particularly political. Its micro-blog service
) was blamed by the government for creating instability in the
Although SINA has been somewhat lenient regarding content
compared to other websites, the recent violations of government
rules did not leave any room for the company, in our view.
Although the two license cancellations are not expected to hurt
SINA's core business, it will dent its goodwill in China. The
proposed monetary fines will also hurt SINA's profitability.
Moreover, intensifying regulation can create panic among
investors resulting in further sell-off.
Year-to-date, SINA shares have fallen 43.2% compared with a 1.7%
increase in the S&P 500. To support its falling share price,
the company recently approved a new share repurchase program
worth approximately $500.0 million. In the second half of 2013,
SINA raised $700.0 million through a convertible bond offer that
it can use now for the buyback program.
Moreover, Weibo's unimpressive initial public offering (IPO)
negatively impacted SINA's share price, in which the company
holds a controlling interest. Low demand for Chinese Internet
stocks was primarily blamed for Weibo's blotchy IPO. As compared
to its original expectation of $500.0 million, Weibo finally
raised $286.0 million in the IPO.
Although Alibaba's upcoming IPO is expected to boost the demand
for China-based Internet stocks such as SINA, we believe that
excessive government regulation remains a major impediment for
their growth in the near term.
We further believe that a significant part of SINA's growth is
now tied with Weibo, in which Alibaba has a considerable stake.
Weibo contributed approximately 35.0% of SINA's advertising
revenues in the fourth quarter of 2013. However, Weibo is
expected to face significant competition from Twitter that may
affect its revenues, going forward.
Currently, SINA has a Zacks Rank #5 (Strong Sell).
FACEBOOK INC-A (FB): Free Stock Analysis
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TWITTER INC (TWTR): Free Stock Analysis
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