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Sina Corporation (SINA)
Q4Â 2019 Earnings Call
Feb 26, 2020, 7:10 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the SINA's Earnings Conference call for the Fourth Quarter of 2019. [Operator Instructions]. And after the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your first speaker for today, Ms. Sandra Zhang. Thank you. Please go ahead.
Sandra Zhang -- Investor Relations
Thanks operator and hello everyone. Thank you for your patience. Welcome to SINA's earnings conference call for the fourth quarter and fiscal year 2019. Joining us today, are Chairman and CEO, Charles Chao and our CFO, Bonnie Zhang. This call is also being broadcast on Internet and is available through our IR website.
Now, let me read you the Safe Harbor statement in connection with today's conference call. Our discussion today will contain forward-looking statements, which involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. SINA assumes no obligation to update the forward-looking statement in this call and elsewhere.
For a detailed discussion of these risks and uncertainties, please refer to our latest Annual Report on Form 20-F and other filings with the SEC. In addition, I would like to remind you that our discussion today includes non-GAAP measures, which mainly excludes stock-based compensation and certain other items.
We use non-GAAP measures to gain a better understanding of SINA's comparative operating results and future prospects. Please refer to our earnings release for more detailed information on the reconciliation of GAAP to non-GAAP measures. During the call, we may discuss non-GAAP measures for Weibo, which apply the same methodologies we use to calculate non-GAAP measures at a SINA group level. After management remarks, we'll open the lines for a brief Q&A session.
With that, I would like to turn the call over to our CFO, Bonnie.
Bonnie Yi Zhang -- Chief Financial Officer
Thank you, Sandra and thank you all for joining our conference call today. Let me walk you through the operational and financial highlights for the fourth quarter and the fiscal year 2019. Before the detailed financial review, I would like to remind you that my prepared remarks would focus on non-GAAP results, and all the comparisons are on a year-over-year basis unless otherwise noted.
Let's start with an overview of the fourth quarter and the fiscal year 2019 results. SINA's net revenue for the fourth quarter were $590.7 million an increase of 4% or 5% on a constant currency basis. SINA's operating income was $174.9 million, an increase of 10% or 11% on a constant currency basis.
Net income attributable to SINA was $82.7 million, an increase of 43% or 45% on a constant currency basis, and the diluted EPS was $1.17. Full year 2019 net revenue were $2.15 billion an increase of 3% or 7% on a constant currency basis. SINA's operating income in 2019 increased 5% or 9% on constant currency basis to $611.9 million, representing an operating margin of 28%. Full year 2019 net income attributable to SINA was $232.6 million and our diluted EPS was $3.26.
Now, let's turn to key financial items. SINA's online advertising revenue for the fourth quarter were $460.9 million, a decrease of 5% due to a decrease in Weibo and portal advertising revenue, as well as negative currency translation impact. SINA's full year online advertising revenue totaled a $1.74 billion, down 3% or up 1% on a constant currency basis, mainly owing to a decline in portal advertising revenue.
Let me provide you with an overview of Weibo's operational and the financial performance for the year 2019. We are very delighted to see Weibo's user community base, surpassing 500 million milestone, with MAU reaching 560 million in December 2019, adding approximately 54 million users on a year-over-year basis. Average DAU reached 222 million in December, and we are particularly excited to note even more robust growth in engagement metrics such as usage frequency, feed refreshments and the daily video views.
In 2019, leveraging our indispensable social media functions and reinforce the network effect, Weibo delivered strong user performance with a disciplined, sales and marketing spend, leaving us ample room to invest in new initiatives and opportunities. Recently in the midst of novel coronavirus outbreak, Weibo demonstrates tremendous value in advocating nationwide prevention, broadcasting breaking news, connecting individuals and resources as well as raising charity donations.
As China's leading social media platform, we are proud to contribute to defeating in the virus with Weibo's massive reach, real time feature and the viral distribution capabilities. We are also encouraged by the early traction of Oasis, underpinned by synergies with Weibo, distinct content vibe as well as a series of effective operational efforts.
Moving into 2020 with a great user momentum and a positive retention trend seen recently, we expect to step up our promotional activities to drive the penetration of the Oasis, so that a broader community could have embraced the platform to share their moments of life, engaging in a enjoyable way and to discover inspirational ideas, which will lay the foundation for future monetization opportunities.
On the monetization front, Weibo's online advertising revenue for the fourth quarter were $405.9 million, down 3% or 1% on a constant currency base. Weibo's key accounts business decreased 7% or 6% on a constant currency basis, primarily dragged [Phonetic] by a cut back in border transaction revenue and the reduction of handset shipments, which negatively impacted key accounts growth by approximately 6%.
Industry-wise, the continued solid growth from the FMCG sector and the luxury brands was offset by a downturn pressure in the entertainment sector, which has faced the regulation headwinds. Weibo SME sector was down 2% or 1% on a constant currency base, as the unfavorable demand, the supply dynamics of the performance and market continues to weigh on the growth of our SME sector, despite of our efforts to navigate through these challenges.
Ad revenue from Alibaba grew 20% [Phonetic] or 21% on a constant currency base, back on to the growth trajectory. As Weibo deepened the cooperation with Alibaba to drive value for its platform and partners during the e-commerce promotional season. For full year 2019, Weibo's online advertising revenue grew 2% or 6% on a constant currency base with key accounts and SME delivering 12% and the 4% growth respectively on a constant currency basis.
On the key account side, Weibo continue to showcase a unique value proposition and to penetrate into a broader customer base. The FMCG sector and the luxurious brands led the growth as we refine our social ad process to underscore KOL's influence and a compounding effect from multiple ad campaigns, to further tap into these customers' integrated brand plus performance marketing demand.
The entertainment industry on the contrary underperformed in 2019, mainly due to a lackluster content schedule and its tightened regulation. On the SME side, the stabilization of SME ad business was a mixed result of the unfavorable demand in the supply dynamics of the performance end market and our initiative to navigate through market challenges.
Although the performance end market in 2019 was challenging in many ways, we had a chance to take a step back to reorganize our go-to-market approach, drive automatic ad placement and launch differentiated ad products, which we believe would have fundamentally improved our advertising ROI and monetization efficiency in the long run.
Turning to portal, in 2019, against a tough competitive landscape, SINA's mobile media property continued to expand user base with the average DAU of SINA News app and the SINA finance app growing approximately 26% and 88% respectively on a year-over-year basis. On the flip side, portal advertising business saw a downturn trend due to macro challenges and the competition.
Portal ad revenue for the fourth quarter were $56.5 million, a decrease of 16%. Full year 2019 portal ad revenue, were down 25% or 22% in a constant currency basis, mainly resulting from ad budget cutback from SME customers, as well as certain brand industries such as automobile and Internet services.
Turning to non-advertising business. Non-ad revenue for the fourth quarter was $129.8 million, up 51% or 53% on a constant currency basis. The increase was mainly driven by triple-digit growth in SINA's Fintech business, which generated $75.2 million revenue in the fourth quarter. Full year 2019 non-ad revenue were up 32% or 38% in a constant currency basis, primarily driven by the great momentum of our micro-loan facilitation revenue and to a lesser degree incremental revenue contributor from live broadcasting.
Amidst headwinds in the advertising market, we are glad that our early investments in the weak fintech areas to diversify our revenue stream gradually bear fruit with micro-loan facilitation business picking up as a new growth driver. Building upon strengths in traffic, funding source and the brand equity, we substantially scaled up our Fintech business in 2019, delivering $196.3 million revenue, up 94% year-over-year. Turning to gross margin. Gross margin for the fourth quarter was 77% compared to 79% last year, advertising gross margin was 82% compared to 83% last year.
Non-ad gross margin for the fourth quarter was 63%, up from 56% last year, benefiting from better gross margin profile of SINA Fintech. Full year gross margin was 78% compared to 79% in 2018. Full year advertising gross margin was 81% flat year-over-year, full year non-ad gross margin was 62% compared to 64% last year.
Now, moving on to operating expenses; in the fourth quarter operating expenses totaled $282.8 million, down 2% year-over-year. Full-year operating expenses totaled $1.06 billion down 1% year-over-year, remarkably growth in marketing expenses took approximately 28% of SINA's revenue down 4 percentage points from last year, which speaks to Weibo's improved cost efficiency in channel investments, considering the above expectation user growth and engagement.
Operating income grew 10% to $174.9 million representing an operating margin of 30%, up from 28% last year. Notably, the non-Weibo operating margin turned positive this quarter, [Technical Issues] disciplined spending and operational leverage from our Fintech business. Full-year operating income grew 5% to $611.9 million, representing an operating margin of 28% flat year-over-year. Under GAAP measure, non-operating loss for the fourth quarter of 2019 was $208.4 million compared to non-operating loss of $12.6 million for the same period last year.
Non-operating loss for the fourth quarter of 2019 mainly included $177.8 million impairment on the Company's investments in Yixia Technology which is excluded under non-GAAP measure. Number two, a $19.2 million net loss from fair value changes of investments, which is excluded under non-GAAP measure.
Number three, a $10.4 million net earnings from equity method investments which is reported one quarter year-over-year. Number four, $15.3 million net interest and other income. Full year non-operating losses totaled $115.1 million compared to a non-operating income of $88.5 million in 2018. Non-operating loss in 2019 mainly included $165.3 million net gains from fair value changes on investments, which is excluded under non-GAAP measure.
Number two, a $342.0 million impairment on Company's investments, mainly including the aforementioned impairment on Yixia Technology which is excluded under non-GAAP measures. And number three, $64.1 million net interest and other income. Turning to tax, under GAAP measure, income tax expenses were 60 -- $6.6 million in the fourth quarter compared to $14.3 million last year, largely attributable to increase in tax deduction based on preferential tax policy upon approval from relevant authorities.
Full year income tax expenses totaled $146.5 million compared to $129.1 million in 2018. Non-GAAP income tax expenses in 2019 were $97.4 million compared to $91.0 million in 2018. Net income attributable to SINA grew 43% to $82.7 million in the fourth quarter or $1.17 diluted net income per share.
Full year net income attributable to SINA amounted to $232.6 million, or $3.26 diluted net income per share. Now, let me turn now to the balance sheet and cash flow items.
As of December 31st, 2019, SINA's cash, cash equivalents and short-term investments totaled $2.9 billion compared to $2.3 billion as of December 31st, 2018. The increase was mainly due to net proceeds received from Weibo's senior notes offering, and was partially offset by continued investment activities.
For the fourth quarter, net cash provided by operating activities was $301.7 million. Capital expenditure totaled $8.5 million and a depreciation and amortization expenses amounted to $11.0 million. On a full year basis, net cash provided by operating activity was $744 million, capital expenditures totaled $29.5 million and depreciation and amortization expenses amounted to $44.6 million.
Free cash flow totaled $714.5 million with $609.9 million contributed from Weibo and a $104.6 million from non-Weibo segments, representing improved cash generating capabilities from both sides.
Let me briefly summarize the execution of our share repurchase program expired in December 2019. Under this program, we have repurchased 2.2 million shares for approximately $82.1 million. On December 30th, 2019, our Board of Directors has authorized a new share repurchase program under which the Company made repurchase up to $500 million of its ordinary shares over the next 12-month period.
Heading into 2020, we will continue to navigate through the uncertainties from both the demand and supply sides of the advertising market, and diversified revenue stream in response to the market challenges. We anticipate a near-term downside risk from the evolving situation of the coronavirus outbreak in China, which has been significantly impacting business operation, affecting advertisers' sentiment and marketing activities as well as weighing on our Fintech business.
At this moment, we are not able to estimate the full-year financial impact brought upon by the epidemic. As such, we will not provide an annual revenue guidance for fiscal year 2020, until we have a better visibility into the year. With that, operator, please open up the call for questions.
Questions and Answers:
Operator
Thank you, ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead.
Eddie Leung -- Bank of America Merrill Lynch -- Analyst
Good evening. I wish everyone, well. May I have three questions on the Fintech business? The first one is, maybe, Charles could you talk about your plan to grow the business going forward especially in terms of any new products and services. And secondly, could you also share some color on the main user segment that you have obtained in the Fintech business, for example, the age profile, the income level, etc. And then finally, any impact from the coronavirus outbreak on the Fintech business? Thank you.
Charles Chao -- Chief Executive Officer and Chairman of the Board
Hi Eddie. Thank you. And so, I will talk about the Fintech business a little bit and as you can see, we had a pretty good quarter in the first quarter, 2019 we had a strong revenue growth and also pretty good profitability in the fourth quarter. But going to the New Year 2020, I think we're facing two challenges, that's very important here. One is that -- actually the decrease in the rate of interest rate, we can charge on micro-loans because of the more tightened regulations in China and you probably read some news and articles that the overall maximum rate you can charge for micro loans have decreased significantly.
So, that will impact our overall revenue growth and also the profitability in 2020, and another challenge of course, is you mentioned in your third point is the coronavirus -- the virus outbreak and that actually has had pretty significant impact on us right now.
First, it has impact on the -- our ability for the collection for the -- during this period. And so, that will impact the bad debt rate we will have on the micro loan, we see quite a pickup in the bad debt rate here. And secondly, given the uncertainty of evolving situation, we're also scaling back our loan balance in this particular sector because we want to make sure we have a pretty good control in terms of the credibility of the loan -- we actually don't [Phonetic] out and given the situation, I want to take a more conservative approach through only money to the ones that have higher qualifications in terms of their ability to pay based on Big Data.
So, talking about that particular point, now relate to your second question, mainly the profile for micro-loan business. We actually have a different approach, in terms -- we don't know exactly too much profile in terms of our user base and income level, but we use multiple data especially the data that we have on social media to actually give people the credit rating as well, as of course, we use data -- a third party data to collaborate in terms of our user profile to make sure the user we have are the high-quality users, and it works pretty well for us.
So, for right now, we are going to limit our business into our own platform users, mainly on Weibo to consider the risk going forward, until we see a more clear picture going forward and overall, so you're going to see because we scaled back our -- the loan volume, and also the reduced interest rate, you're going to see some negative impact on our revenue growth, as well as the profitability in short-term.
And -- but, in terms of new product -- products and services I think we're still going to focus upon our micro-loan business for now and we do have online payment in some other Fintech business, but in terms of the business volume, they are relatively small.
So, the major focus was through the micro-loan business, and the only difference right now, this year versus last year, we're going to see reduced rate and as well as probably sometimes we are going to have a longer period for long. So, that we can have more stable revenues given the new regulation environment. So, I hope that answered your question.
Eddie Leung -- Bank of America Merrill Lynch -- Analyst
Understood. Thank you.
Charles Chao -- Chief Executive Officer and Chairman of the Board
Thank you.
Operator
Thank you. Our next question is from the line of Thomas Chong of Jefferies. Please go ahead.
Thomas Chong -- Jefferies -- Analyst
Hi, thanks management for taking my questions and hope everybody is in good health. My question is about the advertising business. Given we have seen the traffic for Weibo, our news app, are all going where we like the -- and where we saw the trend during this period. Can management comment about the portal advertising outlook for this year, i.e. how different advertising categories will perform, and also, how the spending for KA and SME will trend for this year? Thank you.
Charles Chao -- Chief Executive Officer and Chairman of the Board
Okay. Thanks Thomas. And in terms of the advertising business and again, let's look back in 2019, you can see some of the decline in both pay, advertising revenues as well as SME revenues. I think KA probably held relatively better than SMEs, but overall I think it was a very challenging year for us, mainly because of the competition and also the softening of the overall market from demand side because of the overall macroeconomic conditions in China.
And, but if you look at the numbers and SMEs were hit harder mainly, I think because this market was much more competitive with a lot more supplies in the market and given our size in the performance-based SME business for portal business, I think we're less competitive in this market. So, our business was hit harder in this sector and so, overall revenues, I believe came down more than 50% year-to-year basis. And so this was the SME, but the KA actually relatively held better, especially in the fourth quarter we actually saw some year-to-year growth in the KA sector in the fourth quarter, although the growth was not that significant, but it was a good turning point for us.
And when we started this year 2020, I think we had a better feeling about the market for overall advertising business portal in both KA and for SMEs, I think for KA market, mainly because I think that we are -- actually for the traffic -- from traffic point of view, that we actually grow our news app traffic, as well as our SINA Finance, pretty well last year and on a year-to-year comparison basis news app grow by 26% in terms of number of users, active use on daily basis and finance -- SINA Finance grew by 88% year-over-year basis and so that was pretty encouraging.
And I think we're gaining more share in terms of -- more mind share among advertising -- key advertising in this market and SMEs will always start the year with up a very low base. I think part of the reason we did not do very well in the 2019, one is because the market, the other was because of internal probably, we had a lot of work to do in terms of our sales channel and sales organization restructuring and we think, we should do a better job in 2020, our growth base focus for KA and SMEs and we're actually off to a pretty good start in January, but this was all disrupted by this coronavirus outbreak and the impact, actually in the first quarter was quite significant.
And right now we estimate that probably a 20% -- around 20% drop year-over-year for advertising business in the first quarter. Of course, this is a evolving [Phonetic] figure because we don't know what's going to happen in March and really depending on how fast people get back to work, and really focused on their business. But right now, we don't see it coming very soon. So, I would say the significant impact in Q1 will last and the impact will last in the entire Q1, probably will also impact Q2 business.
So, right now, it's very difficult for us to estimate exactly the outlook for the entire year, but if we set aside the coronavirus outbreak, and we'll probably will see a little bit better advertising business in this year versus last year.
Thomas Chong -- Jefferies -- Analyst
Thank you, Charles
Charles Chao -- Chief Executive Officer and Chairman of the Board
Thank you.
Operator
Thank you. Ladies and gentlemen, that concludes our Q&A session, and I'd like to hand the conference back to Ms. Sandra Zhang for closing remarks.
Sandra Zhang -- Investor Relations
Thank you, operator. This concludes our conference call today. Thank you for joining us. We will see you next quarter.
Operator
[Operator Closing Remarks].
Duration: 31 minutes
Call participants:
Sandra Zhang -- Investor Relations
Bonnie Yi Zhang -- Chief Financial Officer
Charles Chao -- Chief Executive Officer and Chairman of the Board
Eddie Leung -- Bank of America Merrill Lynch -- Analyst
Thomas Chong -- Jefferies -- Analyst
