After market closed, SINA Corp. (SINA) reported revenues of $96.4 million in the third quarter of 2009. Revenues was down 8.6% year over year but was up 6.8% sequentially. Revenues exceeded the company’s guidance of $91.0 – $94.0 million and easily beat the Zacks Consensus estimate of $94.0 million.
This reflects strong execution of the company’s online advertising business in China , which grew double-digits sequentially. We expect a huge improvement in SINA’s advertising business, as advertising spending recovers.
SINA expects to benefit from government stimulus packages. Moreover, management is witnessing signs of a strong recovery in the advertising market in China in the second half of this year, which is reflected in the company’s higher-than-expected guidance.
Advertising revenues decreased 16.3% year over year but was up 10% quarter over quarter, exceeding the company’s guidance of $60.0 – $62.0 million. Non-advertising revenues increased 11.6% year over year and was marginally up from last quarter. This was better than management’s guidance of $31.0 – $32.0 million.
Gross margin was 59% in the quarter, up from 57% last year and 56% in the preceding quarter. This was due to increasing advertising revenues outpacing the growing cost of advertising revenues, primarily bandwidth-related. This raised advertising gross margin, which in turn, raised overall margins.
Operating margin came in at 22.5% as operating expenses decreased 3% year over year but increased 6% sequentially, mainly due to higher marketing costs.
Net income on a non-GAAP basis was $20.1 million, down 15.4% from last year, but up 17% quarter over quarter. Earnings per share (EPS) of 34 cents beat the Zacks Consensus Estimate of 30 cents, but were down from 39 cents reported in the year-ago period.
Under the $100 million share repurchase program, SINA repurchased approximately 2.5 million shares for $50 million at an average price of $20.37. The company expects to continue repurchasing the remaining $50 million in future quarters, which will add to shareholders wealth.
During the quarter, the company generated $29.1 million of cash from operations, compared to $18.8 million last quarter. The company ended the quarter with cash and equivalents of $599.7 million, an increase of $17.7 million from the previous quarter. As of September 30, 2009, convertible debt remained at $99 million.
In October, SINA completed the merger of its online real estate advertising business with E-House ( China ) Holdings Ltd., subsidiary of China Real Estate Information Corporation (CRIC). SINA has 39% equity interest in CRIC. This merger will help SINA form the largest online and offline real estate information and consulting platform in China .
SINA also entered into a private equity placement of its ordinary shares with New Wave Investment Holding Company Limited, a British Virgin Islands company established and controlled by Charles Chao, SINA’s Chief Executive Officer and other members of the management. SINA will receive gross proceeds of $180 million in exchange for approximately 5.6 million shares. The issuance of shares to New Wave will have a dilutive effect on the company’s outstanding shares in the fourth quarter of 2009.
Guidance
The company will account for its interest in CRIC from Oct 1, 2009 and expects to recognize a material gain from the closing of the merger transaction with CRIC.
Going forward, management expects revenues of between $93 million and $96 million, excluding advertising revenue from real estate business due to its merger with CRIC. Including the advertising revenue from real estate business, total revenue will range between $106 million and $109 million.
Advertising revenue is expected to be $61 – $63 million and non-advertising revenue to be $32 – $33 million in the fourth quarter. Including the carve out of the real estate business, the forecasted advertising revenues would have been between $74 million and $76 million.
SINA is a leading provider of online media and value-added information services in China . SINA’s online advertising business has continued to do well and has built a competitive edge based on its popularity in China . The company expects strong growth in advertising revenue in 2010 due to resurgence in margins.
We maintain our Neutral rating on the stock.
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