Credit: Shutterstock photoFor an education on China-based Sina ( SINA ), consider the similarities between it and longtime internet presence Yahoo.
[ibd-display-video id=2386118 width=50 float=left autostart=true] Both are pioneering but aging web portals. The two also have been targeted by activist investors seeking to shake up their board of directors and ignite major changes.
In Yahoo's case, its crown jewel was a big stake in Chinese e-commerce giant Alibaba Group Holdings ( BABA ). Sina, meanwhile, controls social media firm Weibo ( WB ), whose Twitter- and Instagram-like app has 361 million users. Weibo's advertising revenue has boomed as it cashes in on hosting accounts from most of the country's pop stars, and it has served as Sina's bread-and-butter.
Indeed, Weibo shares have shot up 144% in 2017. Sina stock has jumped 108%, partly due to its controlling stake in fast-growing Weibo and speculation that activist investor Aristeia Capital could win its proxy fight vs. Sina, in which it calls for a sale of the company or a divestiture of Weibo.
"We estimate that Sina's stock price could go up by 15% to 45% if it potentially adopts the proposal raised by Aristeia," JPMorgan said in a note to clients.
Aristeia also has proposed a complete spinoff of Weibo to Sina shareholders or a bigger stock buyback. Shanghai-based Sina spun out Weibo in 2014 but still consolidates its financials in earnings. Sina owns 46% of Weibo and controls 72% of voting power.
Big Differences
There are some big differences between Yahoo and Sina, though. Starboard Value, the activist investor that targeted Yahoo, succeeded in forcing the sale of its core internet business to Verizon Communications ( VZ ). But U.S.-based hedge fund Aristeia faces an uphill battle in China, where proxy battles launched by foreign shareholders are rare.
Sina holds its annual meeting on Nov. 3, where all shareholders will vote on Aristeia's proposal. The sale of Sina would come at a premium delivered to a third-party buyer. Alibaba looms as a candidate because it owns a 31% stake in Weibo. Another buyer could be Qihoo 360 (QIHU), the security software maker, analysts say.
Sina management could make a counteroffer before the Nov. 3 meeting. So far, though, management has argued that Aristeia shouldn't have too much say in the company's direction, because it only holds a 4.2% stake.
Aristeia would control 30% of Sina's board, if it expands to seven from five members. Aristeia is pursuing a "short-term and self-serving agenda," Sina management said in a letter to shareholders.
Another Aristeia proposal is a reverse merger in which Weibo would acquire Sina. But analysts see few synergies in recombining the two companies.
Growth Engine
Excluding Weibo, Sina doesn't have a growth engine. Sina's news portal is still popular, with 64 million users, but it's unprofitable. On the plus side, its advertising revenue is expected to fall only 2% in 2017 compared with a 10% drop last year. Most non-Weibo ad revenue comes from online payments.
Sina has leveraged Weibo to gain mobile users of its news app. But it faces keen competition from Tencent Holdings ( TCEHY ), Baidu (BIDU) and others. In a blow, Chinese news aggregator Toutiao recently severed its links with Sina and Weibo. Toutiao owns the popular Today's Headlines service.
One bright spot is internet finance, though revenue is still small, says Zhang Xueru, an analyst at 86 Research. Founded in 2009, Sina has dabbled in finance since late 2013.
Sina aims to expand into microloans, online banking and online broker age businesses. In the July quarter, "online finance bore fruit after cultivation of this business over the past few years," said a Goldman Sachs report.
Sina has created a $500 million fund for investing in internet-finance-related startups.
Sina also owns stakes in Tian Ge, an online karaoke company and Leju, an online real estate broker. Sina also has invested in Yixia Technology, a developer of video apps for Weibo.
Big Gains
Weibo's June-quarter revenue jumped 72% to $253.4 million from a year earlier, while earnings per share rose 138% to 38 cents. Weibo had been slow to put advertisements inside social streams over concerns that ads would turn off users. In the June quarter, advertisers reached 880,000, up 13% from the previous quarter.
Weibo is readying a new advertising system that analysts expect to boost revenue in 2018. The new system consolidates Weibo's services and products and lets advertisers bid for ad slots.
IBD'S TAKE:Sina has stayed mostly above a buy point reached in early August and has hovered above the buy zone since early September. Weibo, meanwhile, has been in a flat base since early September and is targeting a 108.40 buy point.
The new system will also enable Weibo to provide targeted ads based on user data.
Weibo's main rival has been Tencent's mobile messaging service WeChat, called Weixin in Chinese, whose users will top 490 million in 2017, says eMarketer. Weibo has told analysts it's aiming for 400 million monthly users by the end of 2017. Weibo is using partnerships with mobile phone makers to sign up new users in second- and third-tier cities in rural areas.
"WeChat and Weibo are two different social platforms," said Zhang at 86 Research, in an interview. "They've evolved to fill distinctive needs, with different user bases."
Seeking Entertainment
Many Weibo users are looking for entertainment and gossip news. Most of the country's movie stars, singers and other celebrities use Weibo accounts for publicity. Weibo users can buy gifts for celebrities through Weibo's online payment system.
Similar to YouTube, controlled by Alphabet 's (GOOGL) Google unit, Weibo allows users to post short videos. Weibo introduced livestreaming for users in mid-2016, borrowing a tack from Facebook (FB) and Twitter's Periscope. Pop stars are among the livestreamers.
Karen Chan, a Jefferies analyst, expects revenue upside for Weibo in 2018 from its partnership with livestreaming specialist Yizhibo. Weibo users can view Yizhibo livestreams and videos and interact with its broadcasters. Yizhibo competes with Momo (MOMO).
There's also Weibo Stories, launched in April. It's similar to Facebook Stories and allows Weibo users to share photos and videos with followers. The content disappears after 24 hours. An HSBC report says 10% of Weibo users are already sharing content monthly.
"Rich content is what differentiates Weibo from other social platforms," said Jialong Shi, an Instinet/Nomura analyst in a report.
Sina shares dipped 1% Friday to close at 110.48 while Weibo was off 1.5% to finish at 95.48.
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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 Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
