Shares of Chinese internet company SINA (SINA) have delivered terrific gains of over 60% on the stock market so far this year. The company's rapid financial growth has been the driving factor behind its rally in 2017, piquing the interest of investors looking for high-growth stocks. But will SINA be able to extend this momentum and keep investor confidence intact after reporting its fiscal second-quarter results on Aug. 9? Let's take a look.
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Terrific growth in the cards
Wall Street analysts expect SINA to earn $0.57 per share on revenue of $339 million during the second quarter. By comparison, the company had made $0.27 per share in the prior-year period on revenue of $241 million, indicating that the internet specialist is set for outstanding growth once again.
The consensus estimates are in line with the midpoint of SINA's annual revenue guidance, which sits at $1.37 billion. This suggests a quarterly revenue run rate of just over $342 million, so investors shouldn't be surprised if the company is able to trump expectations once again.
Investors, however, should also keep in mind that SINA's performance could be impacted by the recent ban imposed by Chinese regulators on video and audio streaming services. As it turns out, SINA gets 72% of its revenue from the Chinese micro-blogging platform Weibo (WB -1.98%) thanks to its 46% stake in the company. Weibo, in turn, relies on video content for 18% of its advertising revenue.
Weibo, however, argues that regulators simply want better management of certain content, so it has decided to block inappropriate video content from its platform. More specifically, the company will block content related to politics and current affairs from unlicensed outlets, and will instead work with the state-backed media outlets to promote "mainstream" political ideas, as per Reuters.
The quick resolution of this matter is good news for SINA investors. However, it remains to be seen how content curation on Weibo's end will impact its engagement with users and advertisers as longer videos and unlicensed content will cease to exist on the platform.
Trends to watch
SINA has been gradually reducing its stake in Weibo through share distributions. The latest distribution, which was completed last month, has reduced SINA's stake to 46% from the prior 49%. A reduced contribution from Weibo could eventually shift the focus toward SINA's portal business, which is growing at a slower rate than the social-media-centric Weibo.
In fact, SINA's non-Weibo business increased just 1% during the last-reported quarter. Therefore, any further reduction of SINA's stake in Weibo could negatively impact its growth rates. Additionally, Weibo itself could face competition from Tencent, which is making big moves to boost video content.
Tencent has been granted the license to live-stream international soccer tournaments and European soccer leagues on its platform in China, which could help it attract more advertisers. Additionally, Tencent led a $350 million investment round earlier this year in Chinese video streaming start-up Kuaishou to boost the latter's product development and user experience efforts.
Therefore, it won't be surprising if SINA's growth rates start taking a dip on account of these developments. Analyst think the company's annual revenue growth could drop to 30% in the next fiscal year after a potential jump of 41% in 2017.
So, it will be prudent for investors to closely analyze SINA's upcoming quarterly performance and look for any signs of trouble.
