SINA Corp (SINA) reported second-quarter loss of 26 cents per share (including stock-based compensation), much wider than the Zacks Consensus Estimate of a loss of 1 cent per share.
Revenues
Revenues jumped 20.4% year over year to $152.8 millionand were much better than management’s guided range of $143.0 million to $147.0 million. Revenues also beat the Zacks Consensus Estimate of $150.0 million.
The year-over-year growth in revenues was primarily driven by higher advertising as well as non-advertising revenues. Advertising revenues in the quarter moved up 16.9% from the year-ago quarter to $120.6 million. Advertising revenues were slightly ahead of the high end of management’s guided range of $117.0 million to $119.0 million.
Non-advertising revenues increased 35.4% year over year to $32.2 million in the quarter, ahead of management’s guided range of $26.0 million to $28.0 million. Mobile value-added services (MVAS) revenues were $19.9 million, up 12.7% from the year-ago quarter.
However, Weibo value-added services helped the rest of the non-advertising revenues which increased by a staggering 186.0% from the year-ago quarter to $7.7 million.
Operating Results
Gross margin increased 70 basis points (bps) from the year-ago quarter to 52.1% due to higher revenue base and increase in gross margin of the non-advertising business. Advertising gross margin remained flat while the non-advertising gross margin expanded 400 bps in the quarter.
Operating expenses as percentage of revenues increased to 67.1% from 55.0% in the year-ago quarter. The sharp rise was primarily driven by higher General & Administrative expense (up 130.1%) and higher Product development cost (up 57.8%).
Operating loss was $27.6 million, wider than a loss of $9.2 million in the year-ago quarter. The decline was primarily due to higher operating expenses, which surpassed the growth in revenues. Net loss improved from $19.9 million or 30 cents per share reported in the year-ago quarter to $17.4 million or 26 cents in reported quarter.
Balance Sheet
SINA exited the second quarter with cash, cash equivalents and short-term investments of $1.24 billion compared with $681.9 million at the end of the first quarter. Cash provided by operating activities for the second quarter of 2013 was $43.6 million against a cash outflow from operating activities in the previous quarter of $5.9 million.
Outlook
SINA expects revenues for the third quarter of 2013 to be in the range of $176.0 million–$180.0 million. Advertising revenues are expected in the range of $151.0 million–$153.0 million, while non-advertising revenues are projected in the range of $25.0 million–$27.0 million.
Recommendation
We believe that SINA remains a premier company based on its strong product pipeline, continuous investments in product development and marketing and a robust user base for its e-commerce and Weibo offerings. Moreover, the Weibo value-added services have started witnessing substantial growth in revenues.
In this regard, the recent partnership with Alibaba Group is expected to boost SINA’s position in the Chinese e-commerce market. SINA has already permitted Alibaba to increase its ownership in Weibo to 30% on a fully diluted basis.
However, results continued to disappoint primarily due to higher general & administrative expense, personnel costs and product development costs related to Weibo.
We believe that any weakness in advertising revenues will impact SINA’s ability to counter increasing operating expenses, which in turn will hurt its bottom line, going forward.
Moreover, increasing competition from Sohu.com Inc. (SOHU), Yahoo (YHOO), NetEase (NTES) and Tencent will hurt profitability over the long term. Further, we believe that increasing regulations imposed by the Chinese government will remain the primary concern for the stock, going ahead.
Currently, SINA has a Zacks Rank #3 (Hold).
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