Shares of SINA Corporation SINA jumped over 23% after the company announced that it has signed an agreement to sell as many as 11 million newly issued shares to Charles Chao, the company’s CEO and Chairman.
The shares will be priced at $41.49 each, which is the average closing trading price of the company’s shares for 30 trading days trailing the agreement on May 29. The total value of the deal comes to approximately $456 million.
According to the deal, CEO Chao has entered into a six-month lockup restriction per which he will not able sell any of these shares for a period of 6 months. This further boosted investors’ confidence in the company. This was the highest increase recorded by the company in a single trading session in more than a decade.
We believe that SINA has scope for growth, given the huge growth potential of the e-commerce, e-banking, online payment and online entertainment services markets in China over the long term. Additionally, rapid growth in the mobile market is a positive for the company especially for its mobile portal and service offerings.
Moreover, SINA’s micro-blogging platform Weibo has been gaining immense traction of late. The company has been making continuous efforts to add consumer centric features, transforming the platform to a full-fledged social network website. As part of its monetization efforts, SINA started offering display advertising services on Weibo and launched paid membership services, which resulted in revenue growth of 43% on a year-over-year basis in the recently reported quarterly results.
However, it is still unclear as to why the company has resorted to this financing. SINA had a robust cash position with cash and cash equivalents (including short-term investments) of $2.1 billion at the end of the first quarter. On the other hand, the convertible debt was much lower at $800 million. Also, the increased number of shares will be dilutive to earnings.
SINA currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the same space include Angie's List, Inc. ANGI, Brightcove Inc. BCOV and Yandex N.V. YNDX, all three carrying a Zacks Rank #2 (Buy).
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