The Chinese Internet industry has gotten increasingly cutthroat from a competitive standpoint, as new players challenge well-established rivals for dominance. SINA (NASDAQ:SINA) is one of the longtime stalwarts in the Chinese Internet space, but some have questioned whether it has adapted quickly enough to changing conditions in the industry. Coming into Tuesday afternoon's fourth-quarter financial report, SINA stock had sunk to its lowest levels in five years, as investors worried about whether the success of its micro-blogging site Weibo (NASDAQ:WB) would outweigh troubles in its other business areas. SINA's results showed that the company still has further to go to claim victory. Let's look more closely at SINA's latest quarter and how it will fare in 2015 and beyond.
The challenges SINA faces
SINA's headline numbers for the quarter show some of the challenges the company faces. Net revenue climbed 7% from the year-ago quarter to $211.1 million, with SINA's adjusted sales figures falling within the company's previous guidance. On the bottom line, adjusted earnings of $0.24 per share were down by almost half from last year's figure, but they were quite a bit better than the $0.18 per share that most investors had expected to see.
As we saw last quarter, hiding within SINA's results are substantial disparities between how Weibo fared compared to its other businesses. Online advertising revenue picked up by almost 14% year-over-year, but advertising on Weibo was the main driver of that growth, producing an increase of nearly $32 million in sales. By contrast, advertising revenues from SINA's portal dropped by more than $10 million. Similarly, non-advertising revenue fell by about $5.7 million, but value added services from Weibo actually increased by $1.9 million.
A big jump in operating expenses also made the reduction in SINA's net income more substantial. In total, operating expenses rose by a third, with higher personnel costs, marketing expenditures, and expenses related to bad debt making up most of the increase.
Once again, CEO Charles Chao stressed Weibo's success, saying, "We are delighted that Weibo closed the year 2014 with solid performance on both operational and financial fronts." Yet Chao also mentioned the need to see greater improvement in its other business lines, noting that "we are also confident that our initiatives in revamping our legacy business will start to take shape and form the foundation for longer term growth."
Are things looking up for SINA?
Despite those optimistic words, SINA's guidance for 2015 wasn't entirely positive. The company said that many of its initiatives to renovate its portal business "may take time to become meaningful revenue contributors," thereby suggesting that "an estimated range of annual revenue targets would be more reliable than quarterly revenue guidance." Yet with projected sales of $800 million to $900 million, SINA set a wide range for itself -- and one that just barely includes the current consensus for about $885 million in 2015 revenue.
Still, SINA is putting money where its mouth is, accelerating its spending under its stock repurchase program. Over the past quarter, SINA bought up an additional 5.3 million shares, roughly doubling its previous repurchases under its latest April 2014 buyback authorization. The company spent $195 million during the quarter on buybacks, and it has almost the same amount remaining for future repurchases under the current program. So far, though, those purchases haven't done anything to push the stock higher.
One concern, though, is whether SINA sees more potential in Weibo than in its remaining business. The company said that SINA would swap CFOs with Weibo, which some might see as a shift in priorities. If further management changes indicate a talent exodus from SINA to Weibo, SINA investors will have to see it as a sign that the company is concentrating even more heavily on maximizing Weibo's value.
SINA investors didn't react particularly strongly to the news, with shares climbing less than 1% in the first hour of after-hours trading following the announcement. Without any specific details on exactly how the company will move forward, it's hard for beaten-down shareholders to feel optimistic about SINA's future. Until it starts making headway with its main portal, SINA won't inspire much confidence as anything other than a holding company for its stake in Weibo.