Dear Investors, Stop Panicking and Pay Attention to These Chinese Stocks

SINA (SINA), one of the oldest internet companies in China, spun off its social networking platform Weibo (WB 4.92%) in an IPO in 2014. However, SINA still maintains a majority voting stake in Weibo and generates most of its revenue from the company -- so both stocks often rise and fall in tandem.

SINA's stock plunged more than 50% over the past 12 months, as Weibo's stock tumbled over 40%. Both companies were slammed by China's economic slowdown, competition in the domestic advertising market, and the novel coronavirus crisis.

That bearish trend continued after SINA and Weibo recently reported their fourth-quarter earnings. But if we take a closer look at the numbers, we'll notice that SINA is recovering at a faster rate than Weibo.

Image source: Getty Images.

Reviewing the key numbers

SINA generated 79% of its revenue from Weibo during the fourth quarter, compared to 84% in the prior-year quarter. The rest of SINA's revenue came from its newer fintech business and its older portal business.

SINA's adjusted revenue rose 4% annually to $590.7 million during the quarter, beating estimates by $29.2 million and marking its strongest growth in three quarters. However, Weibo's revenue fell 3% annually to $468.1 million, missing estimates by $1.8 million and marking its first revenue decline since its IPO.

YOY = Year-over-year. Source: Quarterly reports.

SINA and Weibo both struggled with sluggish ad sales during the fourth quarter, due to macro headwinds and tough competition from rivals like Baidu, Tencent, Bilibili, and ByteDance. Small to medium-sized businesses and major automakers and internet companies also reduced their ad spending.

SINA's portal advertising revenue, which accounted for 10% of its top line, fell 16%. Weibo's ad revenue, which accounted for 87% of its own top line (and 68% of SINA's total revenue), dipped 3%.

However, SINA's fintech revenue, which mainly came from its budding micro-loan business, surged 185% to $77.8 million and offset its declining ad revenue. Weibo previously relied on the growth of its live streaming business, which it acquired in late 2018, to offset its softer ad growth. Yet its value-added services revenue, which mainly comes from those live videos, fell 4% to $62.2 million and exacerbated its revenue declines.

Margins and profitability

SINA and Weibo's total gross margins contracted sequentially and annually during the fourth quarter. However, the gross margin of SINA's core portal/fintech business expanded to 60% as its higher-margin fintech business generated a larger cut of its revenue.

Source: SINA quarterly reports.

As a result, SINA's non-GAAP net income rose 43% annually to $82.7 million, or $1.17 per share -- which beat estimates by a whopping $0.53 a share. Weibo's non-GAAP net income declined 4% to $176.5 million, or $0.77 per share, but still beat estimates by a nickel.

In short, SINA's fintech business could continue to offset the weaker growth of its portal and Weibo ad businesses over the next few quarters. But during the conference call, SINA warned that interest rate caps on microloans and tighter government regulations could curb the unit's growth in fiscal 2020.

A cloudy outlook for the coronavirus crisis

SINA didn't provide any guidance for the first quarter, but it expects its total ad revenue to decline by about 20% annually. Weibo expects its first-quarter revenue to decline by 15%-20%. Both companies cited the coronavirus crisis as the main headwind. But excluding the impact of the coronavirus (which is the source of the disease COVID-19), SINA CEO Charles Chao expects the company's core advertising business to fare "a little bit better" in 2020.

SINA CFO Bonnie Yi Zhang also noted that Weibo, which grew its monthly active users 12% annually to 516 million during the fourth quarter, demonstrated "tremendous value in advocating nationwide prevention, broadcasting breaking news, connecting individuals and resources as well as raising charity donations" throughout the coronavirus outbreak.

So is it the right time to buy SINA or Weibo?

SINA and Weibo both remain risky investments as long as the coronavirus outbreak continues. But if the situation improves, SINA could emerge as a much stronger company as it generates a higher percentage of its profits from its fintech business. Weibo should also eventually recover, but it will still face brutal competition in the crowded advertising market. It might not be the right time to buy either stock, but investors shouldn't dismiss SINA and Weibo as also-rans just yet.