Shares of SINA (Nasdaq: SINA ) hit a 52-week low yesterday. Let’s take a look at how the company got there to find out whether cloudy skies remain on the horizon.
How it got here
It has not been a good year for Chinese Internet stocks. SINA is one of the worst performers over the past year, but its tough to find any that have escaped the carnage:
SINA also happens to be the most unprofitable company of the bunch. Its trailing 12-month loss per share of $5.03 is far worse than Youku’s (NYSE: YOKU ) $0.40 loss per share. A number of its peers are now profitable, but have spent the past year watching their valuations fall to earth. Renren (NYSE: RENN ) has a shorter lifespan on the public markets than Baidu (Nasdaq: BIDU ) and Sohu.com (Nasdaq: SOHU ) , which have both seen a huge decline in P/E ratios over the past five years. With a higher P/E than either Baidu or Sohu, it’s quite possible that Renren’s P/E will shrink substantially.
Baidu’s beaten this compression effect -- and given shareholders a nice gain -- by massively growing its earnings, but not every Chinese online company will have the same potential. Will SINA be able to emulate Baidu going forward? Let’s take a look at some key statistics to find out.
What you need to know
SINA might not be profitable on its income statement, but it’s at least managed to eke out some positive free cash flow. That’s better than Youku or Renren can muster, but SINA has a long way to go before it reaches the rock-bottom price-to-free-cash-flow ratios of either Baidu or Sohu.
Gross Margin (TTM)
Net Margin (TTM)
Free Cash Flow (TTM)
Price to Free Cash Flow
Source: Morningstar. NM = not material due to negative results.
SINA’s had multiple occasions for short-term gains, particularly earlier this year, thanks to bullish analysts, the Facebook halo effect, and a mixed earnings bag with some positive optimism over the company’s ability to make money off its Weibo microblogging service. If you’ve paid attention to the Facebook fiasco, you know that virtually every social media stock has been dragged down by the globe-straddling social network’s IPO face-plant.
SINA has its own concerns, particularly over a potential Chinese hard landing that’s been both predicted and scoffed at for years. The company’s heavy-handed approach to bad Wiebo-ers -- let’s call them trolls -- could also backfire. But Chinese citizens have dealt with oppressive censorship far more frequently than most Western investors ever will. We can’t transplant our Internet attitudes to Chinese online stocks and expect the same results.
Where does SINA go from here? That will depend on the company’s efforts to make microblogging mega-profitable. Wiebo is Sina’s meal ticket and, if post-earnings enthusiasm is to be believed, the site may become a cash cow. SINA's earnings have been on a strongly negative trend for the past year, but that could turn around in a hurry:
The Motley Fool’s CAPS community has given SINA a three-star rating, with 91% of our CAPS players expecting the stock to stage a comeback.
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