SINA Corp. (SINA) reported fourth-quarter 2013 profit of 39 cents per share (including stock-based compensation), which beat the Zacks Consensus Estimate by a nickel. Earnings were much better than 5 cents reported in the year-ago quarter. The results were driven by strong revenue growth and margin expansion.
Revenues
Revenues increased 7.0% year over year to $192.3 million and were within management’s guided range of $190.0 million to $194.0 million. However, revenues missed the Zacks Consensus Estimate of $197.0 million.
The year-over-year growth in revenues was primarily driven by higher revenues from online advertising and fee-based services. The growth of total revenue and advertising revenues in the fourth quarter was mainly attributable to the strong momentum for Weibo monetization.
Advertising revenues moved up 44.6% from the year-ago quarter to $160.1 million. Advertising revenues were in line with the lower end of management’s guided range of $160.0 million–$162.0 million. Weibo advertising revenues jumped 163% year over year to $56.0 million.
Non-advertising revenues increased 29.8% year over year to $36.9 million in the quarter, ahead of management’s guided range of $30.0 million–$32.0 million. Weibo non-advertising revenues surged 114.0% year over year to $15.4 million, driven by the launch of Weibo data licensing services as well as from the growth of other fee-based services.
Mobile value-added services (MVAS) revenues were $11.1 million, down 16.6% from the year-ago quarter.
Operating Results
Gross margin increased to 63.6% from 41.5% in the year ago quarter. This increase was mainly due to a higher revenue base and an increase in gross margins of the advertising and non-advertising business. The increase in non-GAAP non-advertising revenue gross margin was primarily due to a shift in revenue mix from low-margin mobile value-added services to higher margin Weibo value-added services.
Operating expenses increased 34.5% from the year-ago quarter to $99.3 million. The sharp rise was mainly driven by higher selling and marketing expenses, product development costs and general and administrative expenses, which increased 490 bps, 350 bps and 220 bps, respectively on a year over year basis.
Operating income was $23.0 million, up from $0.9 million in the year-ago quarter. The recovery was primarily due to an increase in revenues and gross margin expansion. Net income improved to $27.5 million in the quarter from $3.5 million in the year-ago quarter.
Balance Sheet
SINA exited the fourth quarter with cash, cash equivalents and short-term investments of $1.87 billion compared with $1.22 billion at the end of the third quarter. Cash provided by operating activities for the fourth quarter was $41.9 million compared with $12.3 million in the prior quarter.
Outlook
SINA expects revenues for the first quarter of 2014 to be in the range of $162 million and $167 million while the Zacks Consensus Estimate is pegged at $171.0 million. Advertising revenues are expected in the range of $133.0 million–$136.0 million, while non-advertising revenues are projected in the range of $29.0 million–$31.0 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, vertical expansion will form an integral part of SINA’s growth strategy going forward and the company aims to achieve it through internal expansion or through partnership with vertical players, or in some cases through merger and acquisition.
However, 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 may put some pressure on the stock.
Currently, SINA has a Zacks Rank #3 (Hold).
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