It's been three months a-coming, but the slow boat from China bearing Q4 and full-year 2005 earnings news from Sina (NASDAQ:SINA) has just about reached port. Time of debarkation: tomorrow after market close.

Wall Street Wisdom:

  • General consensus. A full dozen analysts follow this little Chinese ISP and online media provider. Of them, buy ratings outnumber holds and sells combined by a 2-to-1 margin.
  • Revenues. But revenues are projected to decline 9% year over year when reported tomorrow, to $52 million.
  • Earnings. And profits are believed to have fallen in the quarter, as well -- down 29% to $0.22 per share.

Margin watch:
Here's the reason for the steep profits decline relative to declining sales: Sina's margins are rapidly eroding. 270 basis points have been shaved from the rolling gross margin over the past 18 months, and nearly a third of the net margin has evaporated.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

70.8

70.1

69.2

68.7

68.2

68.1

Op.

38.4

36.4

33.1

29.4

26.7

23.3

Net

34.2

31.9

33.0

29.5

25.9

23.6
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Late last month, Sina issued the dreaded "earnings warning," predicting lower-than-expected revenues and pro forma profits and dividing the blame between "continued softness in its mobile value-added services (MVAS) business" and higher-than-expected operating cost. Analysts seem to be holding Sina to the top of its reduced revenues range, meaning there's a chance of yet another unwelcome surprise if the company ultimately announces something closer to the low end (of $51 million in revenue) tomorrow.

Valuation metrics:
Although Sina "officially" sports a pricey P/E of 28, the company currently trades for just a bit more than 20 times its trailing free cash flow. That's not at all an unreasonable price to pay if the firm can meet analyst estimates of 19% long-term profits growth. But to do that, the firm needs to reverse the slide in its revenues and turn around its margins from their 18-month slump.

Competitors:
As in the U.S., the ISP market is packed with players in China. Sina competes with, among others, NetEase.com (NASDAQ:NTES), Sohu.com (NASDAQ:SOHU), and, in some ways, its own partner Yahoo! (NASDAQ:YHOO).

Sina is a Motley Fool Stock Advisor pick. NetEase.com is a Motley Fool Rule Breakers pick.

Fool contributor Rich Smith does not own shares of any company named above.