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Can SINA Keep Going After Last Week's 11% Pop?

By Rick Munarriz – Sep 4, 2016 at 12:00PM

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A distribution of shares of Weibo to SINA investors got the market excited about the Chinese internet portal. The stock went on to hit a new two-year high.

Image source: SINA.

Cutting loose with a chunk of one of its most valuable assets helped push shares of SINA (SINA) higher last week. The Chinese internet portal climbed 11% on the week, after announcing a plan to distribute shares of its fast-growing microblogging site, Weibo (WB 1.59%)

SINA will distribute a single share of Weibo next month for every 10 shares of SINA. The move will reduce SINA's equity stake in Weibo from 54% to 51%, but it will continue to own a dominant 75% of Weibo's voting power. 

Weibo stock also moved slightly higher on the week. The social-media darling saw its shares climb 2%, even if there are concerns that SINA shareholders will flood the market next month after receiving their Weibo shares. That's something that could happen. SINA shareholders can simply treat the distribution like a dividend that can be cashed out. 

On a roll

Viewing the partial distribution of Weibo as a dividend isn't enough to explain the 11% pop in SINA stock. The value of that single share of Weibo is actually less than 7% of the value of 10 shares of SINA.

It's also important to point out that SINA shares have closed higher in nine consecutive trading days -- up 16% in that time -- so it's not as if this was the only thing pushing the stock higher. There's an impressive streak of positive momentum happening here, and that can string us all the way to earlier in August, when it posted strong financial results for the second quarter. 

Revenue climbed 14% since the prior year, and adjusted earnings soared nearly fivefold. The stock landed well ahead of Wall Street's top- and bottom-line targets, but that's not much of a surprise. SINA has consistently beaten analyst profit expectations for more than a year. 

Too many eggs in one basket

SINA's namesake portal isn't holding up as well as its results seem to suggest. There's a lot riding on Weibo. SINA posted a 16% year-over-year spike in online advertising during the second quarter, but that was a $38.4 million increase in Weibo advertising helping to bail out a $9.7 million decline in its portal advertising business. 

Weibo has been a big winner since going public at $17 two years ago. The stock has gone on to nearly triple in that time. It hasn't been a disappointment. Weibo had 130 million monthly active users when it went public. The tally is up to 282 million now. 

SINA is unlikely to unload all of its shares of Weibo -- it's too important -- but it can keep giving investors more shares in the future without relinquishing its controlling voting stake in the dot-com speedster. Weibo's success is a big reason for SINA's success, but it's not the only reason for the stock's recent good fortune. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Sina. 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.

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