SINA Corp. Earnings: Will China Stunt Its Growth?

The Chinese Internet company has shown signs of strength, but will government policy in China hold it back?

May 19, 2014 at 3:30PM

On Wednesday, SINA (NASDAQ:SINA) will release its quarterly report, and investors have grown increasingly nervous about the Chinese Internet company's stock recently. Even as SINA successfully made an initial public offering of its popular microblogging site Weibo (NASDAQ:WB), investors fear that the combination of strong competition from Baidu (NASDAQ:BIDU) and a host of other players in the industry as well as the Chinese government's heightened scrutiny of Internet companies could hold back SINA from making the most of the huge growth opportunity in China.

SINA has used a holistic approach to its Internet-based business, offering a wide range of different services rather than simply focusing on one particular area of concentration. That strategy has allowed SINA to participate in many different niches of China's Internet, ranging from Weibo to online search and e-commerce. But as more companies in the space go public, SINA has to work harder to keep its place in the Chinese Internet pantheon. 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 report.

Sina
Source: SINA Weibo.

Stats on SINA

Analyst EPS Estimate

$0.15

Year-Ago EPS

$0.02

Revenue Estimate

$165.03 million

Change From Year-Ago Revenue

36%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

What's next for SINA earnings?
In recent months, investors have gotten more concerned about SINA earnings, cutting their first-quarter estimates by a third and reducing full-year 2014 and 2015 projections by 25% to 30%. The stock has behaved badly as well, falling 30% since mid-February.

SINA's fourth-quarter earnings report looked favorable on its face, but some troubling figures specific to Weibo sent shares stumbling. Adjusted revenue jumped 43%, leading to adjusted net income more than quadrupling from year-ago levels. Guidance for the current quarter was generally favorable, but what spooked shareholders was the fact that average daily active users of the Weibo site rose at just a 4.2% pace between September and December 2013, representing a substantial slowdown in user activity.

SINA also gave preliminary guidance for its first-quarter results earlier this month, providing some more information for investors to consider. Sales jumped 35%, and although Weibo-related items will force SINA to report a net loss for the quarter, adjusted profits again soared from year-ago levels.

Yet the most troubling aspects of SINA's recent past have to do with pressure from the Chinese government. Regulators revoked two of SINA's licenses for online publishing and audio-video because they found pornographic material on two of its websites. Bullish investors argue the move was symbolic, but if similar events continue, then SINA, Baidu, and other Chinese Internet giants could feel the ongoing wrath of investors rebelling against the threat of government intervention.

Still, SINA reached an important milestone last month, as Weibo began trading as an independent entity. SINA still has a 58% stake in Weibo, though, and so the relatively lukewarm reception that Weibo shares got in their IPO has reflected somewhat on SINA's own share-price challenges lately. Weibo doesn't have to worry about direct competition from Baidu, which ended its foray into the microblogging space a few years ago. But in order for Weibo to succeed, it needs to avoid the growth slowdown that has hurt its American counterpart across the Pacific and keep claiming greater portions of China's market share.

In the SINA earnings report, remember to look beyond Weibo at other parts of SINA's business. Meanwhile, listen for company officials to give color about the likelihood of future crackdowns down the road for SINA.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Baidu and Sina. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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