Please ensure Javascript is enabled for purposes of website accessibility

4 Reasons to Buy SINA After Its Post-Earnings Pop

By Leo Sun - Feb 16, 2018 at 7:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of China’s oldest internet stocks still has a lot of room to run.

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.

A seated man in a gray shirt and silver tie smiling and looking upward with his arms behind his head while sitting in front of a drawing of a desktop computer and a red arrow going up.

Image source: Getty Images.

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 mobile app.

Weibo's mobile app. Image source: Google Play.

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.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SINA Corporation Stock Quote
SINA Corporation
SINA
Weibo Corporation Stock Quote
Weibo Corporation
WB
$23.38 (-1.97%) $0.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
319%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.