There are similarities between last night's quarterly report out of SINA (NASDAQ:SINA) and what rival Sohu.com (NASDAQ:SOHU) announced earlier this week. Both companies saw their ad revenues soar. They were each weighed down by weakness in mobile services. Each company has also seen gross margins contract over the past year.
Thankfully for SINA, the sameness ends there. Despite growing revenues at a slower clip than Sohu -- 9% vs. 16% -- SINA managed to grow its adjusted profitability. For the quarter, adjusted earnings rose from $0.21 a share to $0.26 per share after backing out stock-based compensation, one-time write-offs, and certain amortization costs.
The health of SINA's online advertising business is the real story here. Ad revenue now accounts for 63% of total revenues at the company. Prolific media events helped pump up those numbers, but there's no turning back now. SINA is looking for ad revenue to account for 62% to 67% of total revenue during the current quarter, too.
It's the right place to be. We've seen how Baidu.com (NASDAQ:BIDU) has energized the paid search space, and it's great to see that the coattails are long. With regulatory and operator forces cracking down on the once-lucrative potential of entertaining users through their cell phones, the feast that once fed SINA, Sohu, and NetEase (NASDAQ:NTES) is toast.
Each company has found a way to thrive elsewhere. NetEase found its calling in online multiplayer fantasy games. SINA has its sights -- and sites -- set on being an online media juggernaut.
It's certainly a nice place to be, with just 10% of China's population online. The potential is huge. Who needs mobile value-added services? Bring on the ads, SINA.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin online stocks for a long time. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
