What SINA Earnings Will Say About the Future of China's Internet

SINA (NASDAQ: SINA  ) will release its quarterly report on Monday, and the Chinese Internet company has seen its shares soar to nearly two-year highs recently. But SINA earnings are important not just to justify the current valuation, but also as a sign of where growth in China's Internet will come from in the future.

SINA was one of the pioneers of the Chinese Internet revolution, making several key decisions in getting into essential business lines within the industry. But as competitors have arisen throughout the Internet space, SINA is facing pressure to figure out where its biggest strengths lie, and how best it can take advantage of them. Let's take an early look at what's been happening with SINA over the past quarter, and what we're likely to see in its quarterly report.

Stats on SINA

Analyst EPS Estimate

$0.12

Change From Year-Ago EPS

140%

Revenue Estimate

$145.18 million

Change From Year-Ago Revenue

14.4%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How much faster can SINA earnings grow?
Analysts have had mixed views on SINA earnings in recent months, cutting their June-quarter estimates by $0.01 per share but raising their full-year 2013 expectations by $0.07 per share. The stock has chosen to support the longer-term view, climbing more than 35% since early May.

For a long time, SINA has been in the shadow of search-giant Baidu (NASDAQ: BIDU  ) , which has enjoyed commanding market share in online search, and has been hugely successful both in terms of share price and profitability. But recently, SINA's partnership with Alibaba to purchase an 18% stake in the SINA Weibo microblogging service has raised some concerns about whether Baidu could lose some of its leadership leverage against SINA.

SINA has been doing its utmost to bolster its presence in the Chinese online world, adding a new collaboration with Youku Tudou (NYSE: YOKU  ) in June to help promote Youku video content on SINA Weibo. In return for its promotional support, SINA will gain access to the Youku video library, which currently makes up more than 60% of shared Weibo video content.

But in the end, the long-term strategic question facing SINA is whether Alibaba will end up using Weibo in its own fight against Baidu in the online commerce space. Basically, if Weibo can provide Alibaba with enough social information to remove the need for advertising, then Alibaba could offer merchants a viable way to avoid spending money on Baidu ads -- or to promote its own rival search engine. With Alibaba having the right to raise its stake in Weibo to as much as 30%, SINA needs to be careful not to lose its grip on its most prized asset without forcing a would-be acquirer to swallow the entire company whole. Clearly, that hope is at least partially responsible for the recent gains in share prices.

In the SINA earnings report, look for signs of whether the Alibaba partnership is straining SINA's relationship with Baidu. If and when a break occurs between Baidu and SINA, then it will mark the beginning of what could be a long and painful fight within the Chinese Internet space, with major ramifications for SINA and its peers.

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