Will SINA Stop Sinking Soon?

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 Total Return Price Chart

SINA Total Return Price data by YCharts
 

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.

Company

Gross Margin (TTM)

Net Margin (TTM)

Free Cash Flow (TTM)

Price to Free Cash Flow

SINA 53.9% (67.7%) $12 million 283.3
Youku 15.7% (27.1%) ($477 million) NM
Renren 73.3% 23.4% ($23 million) NM
Baidu 72.6% 45.6% $5.84 billion 6.4
Sohu 70.2% 15.6% $133 million 11.3
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.

What’s next?
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:

SINA Revenue TTM Chart

SINA Revenue TTM data by YCharts
 

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.

Interested in tracking this stock as it continues on its path? Add SINA to your Watchlist now for all the news we Fools can find, delivered to your inbox as it happens. The Motley Fool loves to find international gems, and we’ve discovered one stock so compelling, we’ve named it our “Top Stock for 2012.” Want to find out more? Click here for the information you need -- absolutely free.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Baidu and Facebook. Motley Fool newsletter services have recommended buying shares of Baidu, Sohu.com, and SINA. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2012, at 12:03 PM, BabyBeluga2 wrote:

    Thank you for a sensible assessment of SINA! Future margins are the real issue for the stock, not censorship or even the much-feared hard landing in China. Continuing user growth, user stickiness, and interest rate cuts all suggest better weather is ahead for SINA.

  • Report this Comment On July 17, 2012, at 8:10 AM, InsideOut24 wrote:

    The investigation by a law firm focuses on possible claims on behalf of purchasers of the securities of SINA Corp. (USA) (SINA) concerning whether the company, certain of its officers and directors, or others have possibly violated federal securities laws. Specifically, the investigation concerns whether certain statements regarding SINA Corporation’s business, its prospects and its operations were potentially materially false and misleading at the time they were made.

    The investigation follows media reports that said the U.S. Department of Justice (“DOJ”) is assisting a U.S. Securities and Exchange Commission (“SEC”) probe of possible “accounting irregularities” among unnamed U.S.-listed Chinese firms. The investigation by a law firm for investors focuses several Chinese internet companies, including but not limited to SINA Corporation (USA).

  • Report this Comment On July 17, 2012, at 8:13 AM, InsideOut24 wrote:

    If you purchased shares of SINA Corporation (USA) (NASDAQ: SINA), and / or if you have any information relating the investigation including those who are former employees or/and whistleblowers, you may have certain options and you should contact the Shareholders Foundation, Inc.

  • Report this Comment On July 17, 2012, at 8:25 PM, BabyBeluga2 wrote:

    There is no credible legal threat to SINA as described by InsideOut24. There is no news reporting of such an investigation. The SEC probe is not focused on SINA, which does not fall in the same category of recent Chinese IPOs and reverse mergers. Short sellers have used rumors to take down all Chinese VIEs.

    Let's see a link to a legitimate news organization when slander is posted.

  • Report this Comment On July 19, 2012, at 5:46 PM, BabyBeluga2 wrote:

    Here is some clarification concerning rumor posted above by InsideOutside24. Analyst notes that recent news concerning Chinese education company [EDU] not related to SINA.

    http://www.streetinsider.com/Analyst+Comments/Downside+in+Ch...

Add your comment.

DocumentId: 1943756, ~/Articles/ArticleHandler.aspx, 7/29/2014 11:03:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement