Wednesday, November 9, 2011

Sina (SINA) Posts Massive Loss of Over $5 Share on Impairment Charge - but Excluding Items Beats Estimates, Stock Still Hit

An interesting report last night by Sina (SINA) - the company posted an enormous impairment charge of $350M ($5.10 per share!) but of course in Wall Street world we don't count one time charges as real, so instead the company reported EPS of 26 cents versus analysts 25 cents.  (I continue to be at a loss at why they invested in Mecox, which sells clothes online - boggling)  There continue to be concerns about censorship on their Weibo (Chinese Twitter) platform and the costs associated with that, which along with the weakness in the general market, is hurting the stock today.  Comments about the advertising market in 2012 also hurt.

After peaking in April along with the rest of the market, the stock has been hit with the general concern about Chinese stocks and the broader market pullback. During the October rally it never really regained that 200 day moving average hence is more or less hands off for now.

Via Reuters:

  • Sina Corp , the operator of China's largest Internet portal, swung to a third-quarter loss due to hefty writedowns on investments in two online businesses, and said it does not expect a significant increase in advertising spending next year.
  • China's online advertising market grew 54.9 percent in the third quarter to 13.7 billion yuan ($2.2 billion) with Sina ranking fourth in the overall market behind Google China, Taobao and Baidu , according to Beijing-based consultancy iResearch.
  • On an earnings call on Wednesday, Sina's management gave a cautious outlook on the advertising market for next year as China's economic growth is expected to cool. Advertising trends are largely tied to macro-economic conditions.  "Overall, the sentiment is good but not great based on our assessment...There may be some increase (in advertising spending) but not significant," Sina's Chief Executive Charles Chao said.
  • Sina booked non-cash impairment charges -- essentially write-offs of intangible assets -- of $350.1 million in the third quarter due to writedowns on investments in China Real Estate Information Corp (CRIC) and Mecox Lane Ltd .  Shares in loss-making Mecox, an online retailer in which Sina bought a stake in March, have fallen 77.7 percent so far this year, while shares in CRIC, an Internet real estate information and consultancy firm, have fallen around 45 percent.
  • Excluding one-off items, Sina posted an adjusted profit that beat market expectations helped by strong growth in advertising revenue and user additions on its Weibo platform.
  • "On the impairment charges, there's really nothing you can do. They've made some bad investments. Mecox Lane was a bad investment for them," said Hong Kong-based Paul Wuh, head of Telecoms and Internet research at Samsung Securities.
  • For the fourth quarter, Sina expects revenue of $128-$131 million. Analysts on average expect revenue of $128.1 million, according to Thomson Reuters I/B/E/S.
  • For the third quarter, Sina posted a loss of $336.3 million, or $5.10 a share, compared with a profit of $31.3 million, or 48 cents a share, a year ago.  Excluding one-off items, it earned 26 cents a share, beating the average forecast for earnings of 23 cents a share.
  • Revenue, excluding Sina's separate real-estate advertising business, rose 20 percent to $130.3 million, beating its forecast of $123-$126 million.  Advertising revenue rose 25 percent to $101 million, while non-advertising revenue grew 7 percent.

Onto Weibo:
  • Sina rolled out specialised Weibo accounts for government officials and a functionality that allows businesses to set up accounts on the platform in the quarter.  Analysts said doubts lingered over when and how the company would monetise its Twitter-like Weibo platform.
  • The firm is testing and developing an advertising system for Weibo to be rolled out in the second quarter next year and will continue to enhance its micro-payment platform, he said.  "Our focus now turns to adding more social networking features to Weibo to increase user stickiness," Chao said in a statement.
  • However, not all analysts agree on the monetisation potential of the user base.  "I'm still cautious for the potential of Weibo right now. This is a social media platform; Twitter is a social media platform that has had problems monetising its platform, that's one of the biggest concerns I have," Samsung Securities' Wuh said. Wuh has a "sell" rating on Sina.
  • Sina has also faced increasing regulatory scrutiny, with government officials putting pressure on Sina to better police Weibo, which has become a powerful medium to vent frustration against government policies.  Chao said the firm was looking at ways to implement a "better management system" for the platform to counter rumours and "negative sentiment."

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