Shares of SINA (SINA) jumped 6% on Feb. 13, after the Chinese tech giant posted fourth-quarter numbers that soundly beat analyst estimates. SINA has already rallied 50% over the past 12 months, but I think four simple facts still make it a smart buy.
1. Revenue growth
SINA's non-GAAP revenue rose 61% annually to $501.1 million during the fourth quarter, exceeding estimates by almost $17 million. That growth compares favorably to its 62% sales growth in the third quarter, 48% in the second quarter, and 41% in the first quarter.
SINA attributes that growth to the strength of its online advertising business, which increased its revenue 58% annually to $424.8 million during the quarter. Its nonadvertising revenue -- mostly from Weibo's (WB -1.97%) membership fees, video live-streaming unit, and new fintech business -- surged 80% to $79 million.
2. Balanced growth between Weibo and portals
SINA still owns almost half of Weibo, which it spun off in 2014, with a majority voting stake in the company. Therefore, Weibo remains SINA's core growth engine, and generated 75% of its revenue during the quarter.
The rest of SINA's revenue comes from its older portal business. In the past, the bears often argued that SINA's aging portal business was a dead weight on its top-line growth. However, both businesses grew at healthy clips last quarter, as its Weibo and portal revenues rose 77% and 28%, respectively, every year.
Weibo's growth was supported by a 25% annual jump in monthly active users (MAUs) to 392 million, 93% of whom accessed the platform on mobile devices. As a result, Weibo's advertising and marketing revenues rose 77%, while its nonadvertising revenues grew 81%.
Weibo's live-streaming and fintech businesses face uncertain headwinds, due to censorship challenges and the increased regulation of fintech units, but they remain lucrative growth markets that could tether more users to Weibo's ecosystem.
Meanwhile, SINA's portals stayed strong as its mobile users, who generated 59% of the unit's ad revenues, continued using it as a primary news source in the face of fierce competition from rivals like Toutiao.
Weibo's move into the fintech space also supports the expansion of SINA's mobile payments platform, SINA Pay, which it launched in 2016. SINA's core portal ad revenue rose 16% annually during the quarter, as its "other" revenue (from the fintech integration and other services) climbed 78%.
3. Margin expansion and profit growth
SINA reported a gross margin of 75% for the fourth quarter, compared to 70% in the prior-year quarter.
Its advertising gross margin expanded from 72% to 76%, supported by robust demand for ads on Weibo and SINA's media outlets. The gross margin of its nonadvertising businesses rose from 54% to 65%, thanks to higher-margin revenue generators like Weibo's membership service.
SINA's non-GAAP operating margin also hit 30% during the quarter, compared to 26% a year earlier.
Thanks to all that margin expansion, SINA's non-GAAP net income rose 24% annually to $60 million, or $0.79 per share, which beat estimates by a penny.
4. Rosy expectations and a reasonable valuation
SINA posted 54% revenue growth and a 92% jump in non-GAAP earnings for fiscal 2017. For 2018, analysts expect its revenue and earnings to rise 37% and 46%,respectively. Those are high growth figures for a stock that trades at just 21 times forward earnings.
Weibo might seem like a better stand-alone growth play, since analysts see it posting 46% sales growth and 52% earnings growth this year. However, Weibo's forward P/E of 33 also makes it a pricier play than SINA.
The bottom line
I've owned SINA since last June, and I don't plan to sell my shares anytime soon. The stock isn't for queasy investors, since it can be prone to wild swings, but I believe that its robust and balanced growth, expanding margins, and reasonable valuation all make it a solid long-term play on China's booming internet market.