Sina (NASDAQ:SINA) has a strong presence in the domestic digital media market, with popular websites and apps such as sina.com, Sina mobile app and social media platform Weibo under its belt. It generates a huge chunk of its revenues from online brand advertising and marketing on its websites and social media platforms. In addition to advertising revenues, the company makes money from mobile value added services (MVAS) and other fee-based services for data licensing, corporate accounts and other gaming related services. Sina’s advertising segment has thrived over the last few years, with advertising revenues growing at a CAGR of over 20% in the last five years. The trend has continued in 2016 thus far, with ad revenues through the first three quarters of the year growing by 16% to $602 million, as shown below. Comparatively, non-advertising revenues – which include MVAS revenues, Weibo value-added services and other services revenues – have increased by around 11% to $116 million.
A key point to note here is that ad revenues for Sina include portal advertising, or revenues generated from online brand advertising on Sina.com and Sina mobile properties, while Weibo advertising revenue is comprised of revenue generated by advertising and marketing on microblogging and social media platform Weibo. Within the advertising segment, Weibo has been instrumental in driving growth for the company while portal advertising revenues on Sina’s platforms have struggled this year. Portal advertising revenues from January through September this year fell by around 10% year-over-year to $222 million. As a result, combined revenues for Sina, excluding Weibo advertising, were down by 5% y-o-y to $334 million as shown below.
In addition to strong revenue growth, Weibo’s gross margin is higher than the company-wide gross margin. Weibo’s gross margin stood at just under 70% in 2015, which has further improved to 72.5% in 2016 thus far. Comparatively, the non-advertising segments have gross margins of less than 60%.
Strong Growth Prospect For Weibo
In its initial days, Weibo’s social media platform had many similarities to Twitter (NYSE:TWTR) including a 140 character limit for posts. Since then it has evolved to have more features on it such as live video streaming similar to Facebook (NASDAQ:FB) Live. Additionally, the company removed the 140-character limit earlier this year and added image-sharing features similar to Instagram and video-sharing capabilities similar to YouTube to engage more users on its platform.  Weibo has over 600 million registered users, of which roughly 390 million users were montly active users (MAUs) at the end of September. Unsurprisingly, Weibo has become a vastly popular advertising space among digital brand advertisers in China.  This has also led Weibo to become the fourth most popular app in China after messaging apps WeChat, QQ and online shopping app Taobao. Weibo’s advertising revenues have surged from $148 million in 2013 to over $400 million in 2015 – a compound annual growth rate of 65%. This trend has continued in 2016 thus far with revenues increasing by 40% y-o-y to $383 million through the first three quarters of the year as shown above.
Ad revenues from Weibo’s advertising segment have been boosted by a robust contribution from small and medium enterprise (SME) customers. Sina launched self-service ads in late 2014 to further help SME accounts post more relevant ads.  As a result, ad revenues from SME customers have contributed significantly to growth in ad revenues. This is likely to continue to drive ad revenue growth in the long run.
We expect future revenue growth and improvement in gross margins for Sina’s advertising segment to continue in the coming years, driven primarily by Weibo’s growing customer base and user engagement. In addition to revenue growth, Weibo’s strong presence in China’s social media market should help improve the company monetize its user base more effectively. We forecast the company-wide gross margins to continue to be positively impacted by Weibo’s presence, even as portal advertising and non-ad revenue streams show weakness.
We have a $54 price estimate for Sina’s stock, which is around 15% lower than the current market price. Sina’s stock price has fluctuated between $41 and $84 this year.