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SINA Tempers Advertising Expectations on Macro Concerns

By Steve Symington - Updated May 23, 2019 at 4:24PM

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The Chinese internet media leader threw cold water on its 2019 outlook today.

SINA (SINA) announced mixed first-quarter 2019 results on Thursday morning. The Chinese internet media specialist continued to rely on its popular Weibo micro-blogging platform to drive top-line growth, but also suggested that growth will be more challenging to find given current macroeconomic uncertainties facing China.

With shares down more than 10% today in response, let's look at what SINA accomplished over the past few months, and what investors should be watching in the coming quarters.

People holding smartphones.

Image source: Getty Images.

SINA's results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Growth

GAAP net revenue

$475.1 million

$440.8 million

7.8%

GAAP net income attributable to SINA

$33.1 million

$28.7 million

15.3%

GAAP net income per diluted share

$0.46

$0.38

21.1%

Data source: SINA Corp. 

What happened with SINA this quarter?

  • Adjusted for items like stock-based compensation, SINA's (non-GAAP) net income was $28.9 million, or $0.40 per share, down from $35.2 million, or $0.47 per share in the same year-ago period.
  • Adjusted revenue climbed 8% year over year to $472.5 million. 
  • SINA doesn't provide specific quarterly guidance. So for perspective -- and though we normally don't pay close attention to Wall Street's demands -- these results were mixed relative to consensus estimates for higher adjusted earnings of $0.42 per share on lower GAAP revenue of $473.2 million.
  • Advertising revenue grew 6% year over year to $388 million, driven by a 13% increase (or 20% at constant currencies) in Weibo advertising, and partly offset by a 27% decline (22% at constant currency) in portal ad revenue.
  • Adjusted non-advertising revenue increased 19% to $84.5 million, driven by Weibo's live-streaming business and higher sales from SINA's fintech businesses.
  • SINA generated $93.5 million in cash from operations.

What management had to say

During the subsequent conference call, CFO Bonnie Yi Zhang credited Weibo's advertising strength to the fast-moving consumer goods (FMCG) sector -- that is, products that are sold quickly and at reasonably low cost. That sector, she said, has moved to "adopt Weibo's differentiated social marketing tools to enhance brand awareness, accumulate social assets, and leverage [key opinion leaders'] influence" to reach a broader internet audience.

Meanwhile, Zhang says advertisements on SINA's flagship portal declined, given budget reductions from small and medium enterprise (SME) customers.

Looking forward

However, when asked for updates to the company's full-year guidance -- which was provided in early March and called for revenue growth of 18% to 25% -- Zhang said that while increases in non-advertising revenue should be roughly consistent with previous expectations, estimated ad revenue growth for both Weibo and the SINA portal has been "trimmed down ... compared to the market expectation" given macroeconomic uncertainties facing China today.

"[F]rom total advertising revenue for the full year compared to initial estimates," Zhang stated, "we see that forecast being challenging in the current market conditions."

Make no mistake, that warning was the primary source of SINA's drop today. With shares already down nearly 50% over the past year leading up to this report, I suspect the stock could have further to fall unless the company is underpromising with the intention of overdelivering.

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