Sina ( SINA ) generates a significant portion of its revenues from online brand advertising and marketing on Sina.com and Weibo.com. According to our estimates, advertising revenue will be the key area of growth for the company's top line through 2016. The contribution of advertising revenue to Sina's net revenue has increased from 79% in 2013 to 84% of net revenue last year. Comparatively, the company's Mobile Value Added Services segment includes revenues generated by SMS, IVR (Interactive Voice Response) and other such services. Since internet penetration has increased in China, complemented by a higher mix of smartphones sold, revenues from this division has fallen from about $120 million in 2009 to just about $30 million in 2015.
Sina has witnessed a strong demand from SME customers in the advertising segment, due to which the company has set up a nationwide SME distributor network to meet the marketing requirements in this segment. This could help in scaling up revenues without a similar hike in cost of goods sold. Moreover, the company has observed healthy gross margins for both its advertising and non-advertising revenue streams over the last few quarters due to a lower revenue contribution of low-margin businesses. Additionally, improved operating efficiency and cost management has led the company's cash operating profit margin to improve in the same period.
Sina's adjusted EBITDA margin stood at around 8.5% for 2015, which means that even a small improvement in profits for the year could help EBITDA margins increase by 2-3 percentage points due to the small base factor. Correspondingly, a limited increase in expenses complemented by a 12% revenue growth could lead to a 40% increase in the adjusted operating profit for Sina as demonstrated below. Consequently, its EBITDA margin for 2016 could improve by up to 3 percentage points for the full year.
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