Sina's struggles demonstrate China's business problems

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Bobby Raines 05/26/2014

Chinese internet stocks were all the rage several years ago and that enthusiasm made sense given the population of the world's largest country was increasingly moving into the middle class and getting online. The potential for a Chinese company or two to become the new Google ( GOOG ) or Amazon ( AMZN ), only several times larger seemed to be close at hand. If a company could penetrate the Chinese market at the levels achieved by American internet giants, users could be measured in billions instead of millions, and revenue and earnings numbers would then also be orders of magnitude larger.

But then the reality of doing business in China set in. First, the country's economy has slowed. Due to what I'll call the opacity of Chinese economic data, it is hard to tell how much the economy has slowed, but since a government that seems determined to paint the rosiest picture possible is admitting that things are slowing down, the real picture is assumed to be even worse.

Economic fluctuations are something that investors should be used to. Other issues with doing business in China have also emerged recently. Take for example Sina.com ( SINA ) which reported earnings last week. The company lost its licenses for video and internet publishing after the government accused it of having pornographic content. I haven't seen the content in question, but stories about the capriciousness of Chinese censors aren't too difficult to find.

For its part, Sina says it is working with regulators to get its licenses back and it is still offering some content. That apparently hasn't stopped advertisers from pulling away from the company. Unfortunately for Sina, even if it does get its licenses back, a site hosting user-generated content could easily run afoul of regulators again through no fault of its own.

In terms of actual earnings, Sina lost 52 cents per share, or earned 15 cents per share on an adjusted basis. Analysts had expected the company to earn 16 cents per share. Revenue was $171.5 million.

Sina recently sold part of its Twitter-like Weibo ( WB ) microblogging service in an IPO. The IPO raised less than expected and resulted in the company taking a $40 million non-cash charge in the quarter. Weibo is regrouping quickly, but the company is spending a lot of money to attract those new users in hopes of staying ahead of competitors.

Sina's CEO, Charles Chao said that in addition to continued high spending at Weibo, Sina needs to invest in its portal site, which it has neglected recently as it tried to build out the Weibo service.

That spending, plus a disappointing revenue outlook for both Sina and Weibo likely mean that Sina could continue losing money. The technology sector is full of companies that lost money for years before turning things around. That could end up being true in Sina's case as well, but all those American internet companies didn't have government censors to deal with.


Chart courtesy of stockcharts.com

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Originally published on InvestorsObserver.com


This article appears in: Investing , Options

Referenced Stocks: GOOG , AMZN , SINA , WB

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