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July 9, 2010
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We expect SINA Corp. (SINA) to witness growth in the near term and, therefore, upgrade SINA to Neutral from our previous Underperform rating. This rating upgrade indicates that the stock would be trading in line with the industry average.
SINA’s online advertising business has a competitive edge based on its wide spread popularity in China, superior brand recognition and persistent marketing innovations. We anticipate that a strong growth in advertising revenues in 2010 will benefit considerably from the World Cup, World Expo and Asian games.
SINA’s robust operating margins, led by operating efficiency gains and a strong net cash position, are promising. Moreover, SINA is expected to benefit from its 39% stake in the China Real Estate Information Corp. (CRIC).
However, competition from major portals such as Sohu.com Inc. (SOHU), Tencent and Baidu Inc. (BIDU) and slower-than-expected growth in advertising spending remain a concern. Moreover, the mobile value added service business remains a drag.
First-Quarter Highlights
First-quarter 2010 results exceeded the Zacks Consensus Estimate, aided by an improvement in the online advertising business, robust portal business and increased market share. The results were favorable, as earnings surpassed the Zacks Consensus Estimate of 23 cents per share, reflecting a positive surprise of 30.4%.
SINA reported net profit of 30 cents in the quarter, which was a modest improvement from the 18 cents in the year-ago quarter and a significant improvement from the loss of 8 cents reported in the previous quarter.
SINA reported revenues of $80.3 million, up 19% year over year. Revenues increased due to the company’s growth in the online advertising business, which grew double digits sequentially and year over year, partially offset by a decrease in non-advertising revenues in the quarter.
We expect a huge improvement in SINA’s advertising business, as advertising spending and the Chinese economy recover. Excluding the adjusted results of SINA’s real estate online advertising business, online brand advertising business grew 47% year over year.
Second-Quarter Outlook
The guidance for the second quarter remains encouraging. For the second quarter 2010, SINA expects non-GAAP net revenue in the range of $90 million to $93 million with non-GAAP advertising revenues in the range of $70 million to $72 million, and non-GAAP non-advertising revenues between $20.0 million and $21.0 million.
While the company did not offer earnings per share forecast, the current Zacks Consensus Estimate for the second quarter and full year 2010 is pegged at 29 cents and $1.31, respectively.
Short-term Outperform
Considering the company’s strong cash position, we believe SINA will be able to achieve sustained improvements. We expect SINA’s business to prosper riding on the strength of solid fundamentals, and emerge stronger from the recession.
We see some upside to the stock in the near term, which is reflected in our short-term Outperform rating (for the next 1-3 months), implying a Zacks #2 Rank.
Read the full analyst report on "SINA"
Read the full analyst report on "CRIC"
Read the full analyst report on "SOHU"
Read the full analyst report on "BIDU"
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