by Jim Woods | August 16, 2013 1:43 pm
When it comes to China, 590-plus million Internet users can’t be wrong.
A robust percentage of this massive number of Chinese netizens use portal site Sina (SINA) as their main hub to the Internet. Another large percentage of that group are microblogging via the Sina-owned Weibo.com. The latter site is best-described as China’s Twitter, and as the Chinese go tweet, tweet, tweet, the ad revenue for Sina just keeps rolling in.
On Monday, Aug. 12, we found out just how much money poured into Sina during the second quarter, as the company posted a total revenue increase of 20% to $157.5 million. That metric includes a 209% increase in Weibo’s advertising revenue to $30 million.
As for Sina’s bottom line, excluding one-time cost items the company posted an incredible 281% spike in earnings per share to 21 cents. Both the revenue and earnings numbers easily bested consensus forecasts for a top line of $145.2 million and EPS of 12 cents.
The earnings beat prompted a number of analysts who follow the stock to raise their price target on SINA shares. According to Factset, nine analysts upgraded Sina on Aug. 13, which raised the medium target price to $95. That target represents a 20% increase from SINA’s current level.
Sina, through its partnership with Chinese e-commerce behemoth Alibaba Group, has managed to impress investors by proving they can turn Weibo into a big money-maker. In a note to clients, T.H. Capital analyst Tian X. Hou wrote, “During Q2, Sina finally accomplished Weibo monetization and the potential, we believe, could be significant.”
Perhaps even more significant than the potential top- and bottom-line Weibo represents for Sina is the potential upside for shareholders here. Sina shares have proven they can buck the wider downtrend in Chinese stocks in 2013, as SINA shares have vaulted some 58% year to date. By comparison, the benchmark China ETF, the iShares China Large-Cap ETF (FXI), has fallen some over 10% this year.
Sina is one of those plays that, at least on paper, make tremendous sense for investors. China’s massive online population has plenty of room to grow, and as of last year China’s Internet penetration rate was just under 40%. Compare that to the penetration rate in the U.S., which as of last year was just north of 77%, and you see there’s plenty of new Chinese tweeters that haven’t even come online yet.
The Chinese have embraced the Internet, social media, smartphones and microblogging sites such as Weibo, and the revenue and earnings numbers keep proving this thesis — as does the price of SINA shares.
Investors in search of a clear market message should make sure they’re reading China’s tweets.
At the time of this writing, Jim Woods held no positions in any of the stocks mentioned here.
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