Shares of SINA (NASDAQ: SINA) recently stumbled after the Chinese tech company posted soft fourth-quarter numbers. Its non-GAAP revenue rose 14% annually to $570.4 million but missed expectations by $3 million. On a GAAP basis, its revenue also rose 14% to $573 million.
SINA's non-GAAP net income fell 4% to $57.7 million, or $0.80 per ADS, which also missed estimates by $0.06. On a GAAP basis -- which includes stock-based compensation, investments, and other one-time charges -- its net income dropped 64% to $16.4 million, or $0.22 per ADS.
Image source: Getty Images.
SINA expects its full-year GAAP revenue to rise 16% to 23% in U.S. dollar (USD) terms, which meets expectations for 20% growth, and 18% to 25% on a constant-currency basis. It didn't provide any bottom-line guidance, but analysts expect its non-GAAP earnings to grow 21%.
Those growth rates seem solid for a stock that trades at just 15 times this year's earnings -- but is the stock worth buying at these levels?
How SINA makes money
SINA generates most of its revenue from Weibo (NASDAQ: WB) , the microblogging platform it spun off as a separate company in 2014. SINA maintains a major equity stake and a majority voting stake in Weibo.
The rest of SINA's revenue comes from its older news portal sites, which are integrated into Weibo's platform. Here's how those two businesses fared during the fourth quarter:
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Source: SINA Q4 report. YOY = year over year. *USD terms.
Weibo's growth was attributed to a 25% jump in its advertising and marketing revenues, which accounted for 87% of the unit's top line, and a 44% increase in its VAS (value-added services) revenues -- which come from newer services like live video streams and premium memberships.
Weibo's total MAUs (monthly active users) rose 18% annually to 462 million, with mobile users accounting for 93% of that total. Its average DAUs (daily active users) grew 16% to 200 million.
Image source: Getty Images.
However, Weibo's growth was offset by the sharp declines in SINA's portal business. Its portal advertising revenues, which accounted for 71% of the unit's top line, fell 29% as its small to mid-sized customers in industries facing tighter regulations (like peer-to-peer lenders and video game publishers) cut back their ad spending.
SINA's "other" portal revenues, which come from other businesses like its fledgling fintech platform, fell 19% due to the government crackdown on peer-to-peer lending services.
Many investors look at the diverging growth of SINA's two core businesses and think it's a better idea to buy Weibo's stock. After all, Weibo is consistently profitable, it isn't exposed to tightening fintech regulations, and its stock trades at just 18 times this year's earnings.
It's hard to argue against that logic -- that's why shares of Weibo surged more than 320% over the past three years as SINA's stock advanced just 65%.
Margins, profits, and potential challenges
SINA's total gross margin expanded 4 percentage points annually to 79% during the fourth quarter. However, that improvement was completely attributed to Weibo's margin expansion and an accounting standard change in fiscal 2018.
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Gross margins. Source: SINA quarterly reports.
The gross margin of SINA's advertising revenues rose from 75% to 81% (mostly due to the new accounting standard), as its nonadvertising gross margin slipped from 67% to 65% amid the aforementioned challenges in the fintech and online gaming markets.
SINA's non-GAAP operating margin contracted from 30% to 28%, as the new accounting standard changed the recognition of certain marketing expenses. Its total non-GAAP operating expenses rose 27% annually to $288.6 million -- which significantly outpaced its 14% revenue growth.
In 2019, SINA expects regulatory headwinds to persist in the fintech market and for macro uncertainties to throttle sales of its online ads. On the bright side, it expects tax cuts, other domestic stimulus measures, and the end of the nine-month freeze on gaming approvals in China to boost its advertising revenues over the next few quarters.
Wall Street's forecast for double-digit sales and earnings growth this year indicates that SINA's potential catalysts could counter its myriad challenges.
But is SINA worth buying?
SINA was once a more attractive investment than Weibo when it traded at a much lower multiple.
However, Weibo no longer looks expensive at these levels, and it's arguably better positioned for growth than SINA, which is being weighed down by its sluggish portal business. SINA could eventually recover, but I think Weibo and other major Chinese tech stocks are better investments for now.
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