SINA Corp has been struggling lately, so it was good to see the company beat the expectations on its earnings release last Thursday, even if it was just slightly. The company posted revenues of $182 million, an 8.8% increase year-over-year, beating the consensus by $1.82 million, and had an EPS of $0.04, beating the estimate by $0.05.
But despite the earnings beat, SINA’s stock is down 3.5% since the company announced its earnings, so what gives?
Core Business Declining
SINA saw a total ad revenue increase of 11% from last year, but that was driven largely by a 43% increase in ad revenue at majority-owned Weibo, implying that SINA’s core business actually declined during the quarter. The company said it is “experiencing a critical transformative period to revamp our legacy business and diversify our business models.”
Additionally, management has admitted that brands are moving their ad spending into transaction-based ads, making it more difficult to predict SINA’s future revenue growth. This may be why the company didn’t provide guidance for the coming quarter.
Weibo Suffering a Blip?
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In some ways, Weibo looks like it’s healthy. Its monthly active users (MAUs) grew 13% quarter over quarter and 38% year-over- year to 198 million and ad/marketing revenue increased 53%. However, the microblogging website provided soft guidance for the second quarter of 2015 — revenue of $102 – $105 million versus the $111.4 million consensus. However, that number could change based on planned initiatives with Alibaba. This makes investors wary about Weibo’s future, especially considering the state of Twitter, which has a similar business model.
Weibo is also facing some significant competition from WeChat in China, which is backed by Tencent. Considering that WeChat likely has access to more resources via its parent company, this could not end well for Weibo. It’s also not good for SINA’s future, considering that Weibo accounts for over half of SINA’s ad revenue. It’s not a healthy dependence and investors know it.
According to Zack’s, SINA still has a long-term game plan that should keep investors interested. As the company restructures its core business to focus more on mobile and to diversify its revenue base, it doesn’t expect any of these initiatives to affect the bottom line in the near term.
However: “We believe that SINA has a strong product pipeline and its investments in product development and marketing are positives. Also, the user base for its e-commerce and Weibo offerings remains strong.”
As it stands, SINA isn’t a good short-term investment. As a long-term investment, it shows some promise, but the company has been on the decline for a while, boosted mainly by Weibo, and if management hasn’t been able to make any significant headway by now, it’s doubtful that its “strong product pipeline” will make that much of a difference going forward. Additionally, considering the competitive landscape Weibo lives in, it’s difficult to say whether it will be able to continue to sustain enough growth to distract investors from the real issues with SINA.