We updated our research report on SINA Corporation SINA on Jun 2, 2015.
SINA reported dismal first-quarter 2015 results. The company’s earnings and revenues missed the respective Zacks Consensus Estimate. Although investments in mobile and video are the long-term positives, these will hurt profitability. Also, increasing investments in product development can weigh on the company’s financials.
SINA’s core business has been witnessing sluggishness for the past few quarters owing to the ongoing shift from PC to mobile. While the company’s mobile users are growing, conversion on mobile devices are typically lower, so advertisers’ spending usually takes time to pick up. SINA is required to prove the effectiveness of its services on mobile devices, which could take some time.
Additionally, two of its licenses relating to Internet Publication and Online Transmission of audio-visual programs have been cancelled by the Chinese regulatory authorities citing objectionable content. Cyberspace Administration of China (CAC) has also warned the Zacks Rank #5 (Strong Sell) stock following a series of complains about offensive and distorted content. Censorship over online material may hurt subscriber growth and affect SINA’s Weibo monetization efforts, in our view.
Nevertheless, SINA recently gained significant momentum backed by its agreement to sell 11 million newly issued shares to Charles Chao, the company’s CEO and Chairman, for nearly $456 million. According to the deal, CEO Chao entered into a six-month lockup restriction per which he will not be able to sell any of these shares for a period of six months. This further boosted investors’ confidence in the company, leading to momentum in stock prices. We believe that SINA will benefit from the huge growth potential of the e-Commerce, e-banking, online payment and online entertainment service markets in China over the long term.
SINA has relationships with leading brands that help it to tap the potential in the online advertising industry. Currently, the company’s client portfolio includes AT&T T, Caesar Entertainment, Chase, Coca-Cola, Comcast, Delta Airline DAL, Ford Motor, General Motors GM, Godiva, Hyundai, Infiniti, Lancome, McDonald's, Nissan, State Farm Insurance, Toyota, Wal-Mart, Wells Fargo and Verizon among others. We believe that given the company’s strong customer base and initiatives to garner revenues from advertisement can prove to be key growth drivers over the long run.
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