Earnings Preview: SINA Corp.

SINA Corp. ( SINA - Analyst Report ) is scheduled to announce its fiscal second quarter 2012 results after market closes on Wednesday, August 15, 2012. In the run up to the earnings release we do not notice any significant change in the analyst estimates.

However, we note that SINA’s earnings lagged the Zacks Consensus Estimates in the trailing four quarters with a negative average earnings surprise of 9.7%.

Prior Quarter Highlights

SINA reported a 6.3% year-over-year increase in the top line primarily driven by higher advertising revenue. However, the company posted a loss of 21 cents, which widened from the year-ago quarter.

Including stock-based compensation but excluding one-time items, loss per share stood at 27 cents, in line with the Zacks Consensus Estimate. The weaker-than-expected result was primarily attributed to higher operating expenses in the quarter.

SINA expects non-GAAP net revenue to be between $126.0 million and $129.0 million for the second quarter of 2012, lower than the Zacks Consensus Estimate of $132.0 million.

For further details please read: SINA Reports Loss in 1Q

Estimates Trend Revision

Over the past 30 days, only one out of the eight analysts covering the stock revised the quarterly estimates upward, while no downward revision was witnessed. The Zacks Consensus Estimate for the second quarter of 2012 was pinned at a loss of 9 cents per share.

Analysts covering the stock expect weaker-than-expected online advertising spending to impact SINA’s advertising revenue for the quarter. Moreover, continued investments in Weibo may affect the company’s margins in the short-run.

Recommendation

We believe that SINA has a strong product pipeline, continuous investment in product development and marketing and a robust user base for its e-Commerce and Weibo offerings.

However, margin may suffer in the forthcoming quarters due to higher operating costs related to continuing investments on its social networking platform, Weibo. We believe that any weakness in advertising revenue will impact SINA’s ability to counter increasing operating expenses, which in turn will hurt its bottom line going forward.

Moreover, increasing competition in the domestic market from the likes of Sohu.com Inc. ( SOHU - Analyst Report ) and strict regulations in China remain the primary headwinds in our view.

Thus, we remain Neutral over the long term (6-12 months). Currently, SINA has a Zacks #3 Rank, which implies a Hold rating in the near term.