SINA Corp. (SINA) reported fourth-quarter 2010 earnings of 41 cents per share, which missed the Zacks Consensus Estimate by a penny. Earnings exclude one-time items but include stock-based compensation. Higher investment write-down related to China Real Estate Information Corporation (CRIC) negatively impacted results.
However, SINA reported strong top-line growth with revenues and operating income increasing year over year in the quarter. SINA provided better-than-expected first quarter 2011 outlook and anticipates continued growth from its social media platform Weibo in the upcoming quarters.
Operating Performance
Net income on a non-GAAP basis was $27.5 million compared with a net loss of $4.7 million in the year-ago quarter.
Non-GAAP figures exclude a $128.6 million write-down related to an impairment of equity investment in China Real Estate Information Corp. The company integrated its online real estate advertising business into its majority-owned subsidiary China Online Housing Technology Corp. It then exchanged its interest in COHT for a 33% stake in CRIC, as CRIC started trading on the Nasdaq Global Market during the fourth quarter of 2009.
Including this write-down and other one-time items, net loss was $100.0 million in the quarter.
SINA reported strong operating results in the fourth quarter. Operating income, excluding one-time items and charges, was $22.4 million in the quarter compared with a loss of $5.2 million in the prior-year quarter. This improvement was primarily driven by lower operating expenses, which plunged 34.4% year over year in the quarter.
Gross profit on a non-GAAP basis increased 17.0% year over year to $58.6 million in the quarter. Gross margin was 55.8% in the quarter compared with 53.5% in the preceding-year quarter.
Advertising gross margin was 60.0%, up from 54.0% reported in the prior-year quarter. Non-advertising gross margin was 61.0% in the fourth quarter, up 100 basis points (bps) year over year, while Mobile-value-added-services (MVAS) gross margin declined to 39.0% from 50.0% reported in the year-ago quarter, primarily due to product mix and increased revenue share with MVAS partners.
Revenue
Revenue, excluding deferred revenue, increased 12.3% year over year to $105.0 million in the reported quarter, in line with management’s guidance range of $103.0 million to $106.0 million.
Advertising revenues on a non-GAAP basis was $82.5 million, up 30.5% year over year in the quarter, in line with the high end of management’s guidance range of $81.0 million to $83.0 million.
However, non-advertising revenue was $22.6 million in the quarter, down 25.5% year over year , which fell within the company’s estimated range of $22.0 million to $23.0 million. MVAS revenue was $21.0 million, down from $28.6 million in the year-ago quarter.
SINA’s social media platform Weibo witnessed tremendous growth, with total registered users of more than 100 million at the end of February, 2011. Going forward, management believes increasing popularity of Weibo will open up significant opportunities in terms of advertising real-time search, E-commerce, gaming, mobile service and accounting distribution.
We believe Weibo’s strong growth will be the key growth catalyst for SINA in the upcoming quarters. We also believe that SINA’s continuous investment in product development and marketing will boost its market share over the long term.
Full year 2010 Results
In fiscal 2010, SINA reported earnings of $1.51 on a non-GAAP basis, compared with 62 cents in the prior year. Net income, excluding one-time charges, was $99.7 million in the year.
Operating income was $80.6 million in the year compared with $24.6 million in 2009. Operating expenses decreased 77.0% year over year in 2010. Gross profit increased 22.7% year over year to $215.2 million in fiscal 2010.
Revenue increased 16.9% year over year to $383.6 million in 2010. Advertising posted a growth of 43.8% year over year in 2010. SINA expects the strong advertising growth to continue in 2011, based on increasing demand for consumer products and strong growth from E-Commerce. Non-advertising revenue declined 26.3% year over year to $92.8 million in 2010.
Balance Sheet & Cash Flow
SINA exited fourth quarter with cash, cash equivalents and short-term investments of $882.8 million compared with $857.0 million at the end of third quarter. As of December 31, 2010, convertible debt remained at $99.0 million.
Cash flow from operating activities was $34.2 million compared with $51.3 million in the prior quarter and $34.3 million in the year-ago quarter. In 2010, cash flow from operating activities was $116.6 million compared with $98.1 million in 2009.
Guidance
SINA expects non-GAAP net revenue for the first quarter of 2011 to be between $93 million and $96 million (9.4% to 13.0% year over year growth, but down in the range of 8.5% to 11.4% sequentially). Currently, Zacks Consensus revenue estimate is pegged at $98.0 million for the first quarter.
Non-GAAP advertising revenue is expected to be in the range of $71 million to $73 million, while non-GAAP non-advertising revenue is expected to be in the band of $22 million to $23 million.
Recently, SINA signed a share purchase agreement with Maxpro Holdings Limited and Ever Keen Holdings Limited purchase 77.0 million of apparel maker Mecox Lane (MCOX) for $66.0 million. The transaction is expected to be completed by the end of the second quarter of 2011.
Our Take
SINA remains a premier company due to its strong product pipeline, continuous investment in product development and marketing and a robust user base for its E-Commerce and Weibo offerings. E-Commerce in China is still in a nascent stage and we expect solid growth going forward. We believe SINA remains well positioned to maintain its growth in E-commerce and Social Media platform over the long term.
However, weak non-advertising revenue growth will hamper the top-line growth going forward. Moreover, increasing competition from Baidu Inc. (BIDU) and Sohu.Com Inc. (SOHU) will hurt profitability over the long term.
We maintain our Neutral rating over the long term. Currently, SINA has a Zacks #3 Rank, which implies a Hold rating over the short term.
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