Why SINA Corporation Has Crashed 53% in 2014

Did the much-anticipated Weibo IPO hold SINA back? Source: SINA Weibo.

China's Internet sector has seen its share of boom and bust times, as investors alternately get excited about the immense growth prospects in the space, and then worry about the potential for a repeat of the U.S. tech bust nearly 15 years ago. Recently, investors have had renewed interest in Chinese Internet stocks as IPO activity in the sector has picked up dramatically. But for Internet player SINA (SINA), the strength of competitor Baidu (BIDU 1.02%) has crushed SINA's stock price, and has left it with losses of more than half so far in 2014, even though it made its Weibo (WB 0.49%) micro-blogging business available to investors as a separately traded company.

SINA generated a lot of excitement in 2013 -- it climbed almost 70% as investors looked forward to the idea of a Weibo spinoff to take advantage of interest in the company's social-media division. Yet, this year, the pendulum has swung back in the other direction, and SINA investors worry that, if the company decides to distribute its remaining interest in Weibo, the remaining business won't be able to stand up to Baidu and other competitors. Let's take a closer look at SINA to see whether the stock can rebound.

Stats on SINA

Source: Yahoo! Finance.

What's holding SINA back this year?
Part of the challenge that SINA has faced this year has come from the mercurial and fickle attitudes of investors in Chinese Internet stocks. Prior to the Weibo IPO, investors looked at SINA as a way to participate in what many hoped to be the most exciting Chinese IPO of the year. Yet, once the Weibo IPO actually happened, investors largely lost interest in SINA, focusing instead on Weibo. Moreover, many investors simply moved on to the next big deal, and subsequent IPOs have overshadowed Weibo's debut due to their size and relative importance in the industry.

In addition, Weibo's own poor performance has had a dramatic impact on SINA in 2014. From its first-day price above $20, Weibo shares failed to provide the explosive growth that many had hoped to see, even after SINA reduced the amount of stock it had initially expected to sell.

The stock price has lost more than a quarter of its value in just the past month as concerns about demonstrations in Hong Kong ripple across the Chinese social-media space. Even though it offered some of its own Weibo shares in the IPO, SINA still retains about a 57% stake in Weibo; poor stock performance from Weibo reflects badly on SINA, as well.

Source: SINA.

Negative publicity hasn't helped SINA's prospects. In April, SINA was the target of a Chinese government crackdown on pornography and other illicit Internet content, with the government initially revoking its publishing and content licenses, and banning it from certain content areas, as well as threatening to impose fines. Although the direct impact on SINA's business of the moves will be minimal, it still reminded investors that investing in an area in which the Chinese government maintains so much control has dangers for shareholders.

Can SINA reconnect with stock gains?
Despite these concerns, one of SINA's biggest attractions is its low valuation. With a current market capitalization of $2.65 billion, SINA sports $2.3 billion in cash and short-term investments versus just $800 million in long-term debt. Add in the value of SINA's stake in Weibo, which, at current share prices, would be worth about $2 billion, and the sum of the parts already exceeds the value that investors are placing on the whole business.

Moreover, SINA's core business has continued to see reasonably good results. In its fiscal second-quarter report in August, SINA reported that overall revenue climbed 19%, with advertising revenues growing at an even faster 29% pace. Net income rose by an even more impressive 37%, with gross margins soaring by seven percentage points. Those figures are somewhat slower than high-growth investors want to see from SINA, but they don't represent a complete failure in SINA's attempts to take advantage of opportunities as they arise.

SINA doesn't have the same reputation for strength that Baidu has, but from a value perspective, SINA offers attributes that neither Baidu nor many other well-known Chinese Internet stocks can match. That should put SINA in a good position to see its stock recover once investors recognize the potential in the Chinese Internet player.