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SINA Keeps Fighting as Weibo Worries Emerge

By Dan Caplinger – May 18, 2015 at 1:21PM

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SINA's recent rebound could come to a halt if investors get scared about Weibo's future contributions to growth.

Image: Weibo.

For a long time, much of SINA's (SINA) strength in the Chinese Internet space has come from its microblogging website Weibo (WB -4.96%). When Weibo was spun off into its own separately traded entity, some investors grew nervous about SINA's future as an independent company. The online media specialist's still sizable stake in Weibo, though, means the two stocks remain linked. In last week's first-quarter financial report, SINA gave its investors mixed news, posting a small adjusted profit but raising some concerns about whether Weibo could continue to drive overall growth. Let's take a closer look at what SINA said and what it means for you.

SINA keeps growing slowly
SINA again managed to improve its prospects, albeit at a slow pace. Sales rose by about 8%, roughly matching what most investors had expected. SINA's net loss was greater than expected on a generally accepted accounting principles basis, but after accounting for certain extraordinary charges, adjusted earnings of $0.04 per share were above the roughly breakeven results most of those following the stock had forecast. Still, the net income figure was down more than 70% from the year-ago quarter.

Looking more closely at SINA's results uncovers similar patterns to previous quarters. Online advertising revenue climbed about 11% to $150.4 million. Without Weibo, though, SINA's portal-ad revenue actually dropped $12.7 million, with Weibo's advertising and marketing strength adding $27.3 million to SINA's growth. Outside of advertising, SINA's results were less encouraging, with flat performance as rising revenue from SINA's games and Weibo's membership services were offset by declines in data-licensing revenue at Weibo.

Trouble reining in operating expenses contributed to SINA's difficulties in staying as profitable as it has been in the past. Adjusted expenses climbed almost 15%, with higher labor costs and spending on marketing sending overall overhead higher.

It's concerning that CEO Charles Chao keeps talking almost exclusively about Weibo in making comments about SINA's performance. "Weibo's mobile strategy has continued to deliver impressive results in both user traffic and revenue growth," Chao said in the earnings press release. "On the portal side, we are experiencing a critical transformative period to revamp our legacy business and diversify our business models." Yet despite those assurances, SINA's transformation is taking a long time to fully materialize.

As Weibo goes, so goes SINA?
One problem with SINA's continued reliance on Weibo to drive growth is that Weibo isn't necessarily a sure thing to keep growing without bumps in the road. In Weibo's own separate first-quarter report, the microblogging site continued to perform well, but its revenue projections in the second-quarter guidance fell considerably short of what investors had hoped to see. Currently, investors believe Weibo's sales growth will reach roughly 44% for the current quarter, but the company's guidance pointed to slower growth of 32% to 36%. That is still impressive, but a slowdown in Weibo could come at a terrible time for SINA as it works to get the rest of its business moving forward.

SINA also has continuing concerns of its own. The company has faced a long-standing issue concerning renewal of its video license. During the quarterly conference call, Chao said SINA had no update at this time, expressing his belief that "we can continue to operate some of our video business with our other licenses" but giving no projections about any resolution to the issue in the near future.

The stock-price reaction to SINA's results was somewhat mixed, with shares dropping after the announcement but then bouncing back later in the day. Nevertheless, the longer-term question that SINA needs to answer is how much it wants to stay involved in Weibo. With some calling for an eventual distribution of its remaining stake in Weibo to its shareholders, SINA needs to come up with a viable strategy for the remainder of its business in order to ensure it can survive in a post-Weibo world.

Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Sina. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Sina Stock Quote
Apple Stock Quote
$148.31 (0.19%) $0.28
Weibo Stock Quote
$15.15 (-4.96%) $0.79

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