China. While it may not be the land of the rising sun, it's almost in the same ZIP code -- and its economy certainly seems to be on the rise. Investors looking to buy a piece of the world's most populous market should be interested to hear that one of the stars of the Chinese Internet sector, Sina Corp (NASDAQ:SINA), reports earnings tomorrow. Expect to hear from Sina sometime after close of market.
What analysts say:
- Buy, sell, or waffle? Wall Street's interest in China is rising, too. Since we last heard from the company in February, three new analysts follow Sina. The ranking now tally as follows: five buys, eight holds, and two sells.
- Revenues. Revenues are expected to be flat year over year at $45.9 million.
- Earnings. Profits are predicted to decline 25%, down to $0.15 per share.
What management says:
The most recent news of note out of Sina was that COO Hurst Lin resigned on March 31. Prior to that, we learned that board of directors member Daniel Chiang resigned in the same month.
Prior to that, the big news was, of course, last quarter's earnings release. In it, CEO Yang Wan used the dreaded word "challenging" to describe the company's situation. Sales decreased year over year for both the fourth quarter of 2005 and for 2005 as a whole, with most of the damage being done to the company's non-advertising lines of business. Meanwhile, advertising sales grew at a better-than-30% clip and are now nearly half of the company's business.
What management does:
Internet portal advertising is supposed to be a high-margin business, but you wouldn't know it from how Sina has been performing. Gross margins have been sliding for the past 18 months. Meanwhile, operating costs have been rising despite the fact that sales are headed the other way. Result: Operating and net margins have fallen much faster than have gross margins.
|
Margins % |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
70.1 |
69.2 |
68.7 |
68.2 |
68.1 |
67.4 |
|
Op. |
36.4 |
33.1 |
29.4 |
26.7 |
23.3 |
21.5 |
|
Net |
31.9 |
33 |
29.5 |
25.9 |
23.6 |
22.3 |
The Fool says:
When he re-recommended Sina in November 2005, Motley Fool Stock Advisor co-analyst David Gardner opined as follows: "Fans of Google like [an] ad-based revenue model, of course, because of the high margins. But at this stage of the Internet's evolution in China, I'm glad to see Sina keep a diverse revenue stream . I continue to like Sina's approach of exploring different revenue opportunities with a variety of services."
Based on those comments, I think the company's increasing reliance on advertising revenue streams makes the company less attractive today than it was when David originally picked it, and also when he subsequently repicked the company -- especially with the higher proportion of advertising revenues failing to boost gross margins. Even so, in his most recent update on the company, David reminded our members that Sina is "well-positioned to take advantage of many of the most important areas of the Chinese market." Let's hope tomorrow's news shows some evidence that Sina's doing just that.
If you're interested in reading the original recommendation and more recent updates on Sina and other Stock Advisor picks, click here to take advantage of a free 30-day guest pass.
Competitors:
- 51job Inc. (NASDAQ:JOBS)
- Baidu.com (NASDAQ:BIDU)
- CDC Corp (NASDAQ:CHIN.A)
- eBay (NASDAQ:EBAY)
- Google (NASDAQ:GOOG)
- TOM Online (NASDAQ:TOMO)
Sina and eBay are Motley Fool Stock Advisor picks. Take the newsletter that gives you access to the very top of David and Tom Gardner's stock list for a 30-day free test-drive.
Fool contributor Rich Smith does not own shares of any company named above.
