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SINA Q3 Earnings Surpass Estimates, Revenues Increase Y/Y

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SINA Corporation (SINA - Free Report) reported third-quarter 2018 non-GAAP earnings of 93 cents per share, which beat the Zacks Consensus Estimate by 19 cents and increased 20.8% from the year-ago quarter.

Non-GAAP net revenues grew 25.9% year over year to $554.6 million. Advertising revenues (87.2% of total revenues) surged 32.9% year over year to $483.8 million, primarily driven by 48% growth in Weibo advertising and marketing revenues and revenue reporting changes from gross basis to net basis.

Quarter Details

Non-advertising (non-GAAP) revenues declined 7.6% year over year to $70.8 million. The decline was primarily attributed to change in revenue reporting, unfavorable currency translation impact and underperformance of SINA’s fin-tech businesses.

Revenues from Weibo business grew 43.8% year over year to $460.2 million, primarily driven by robust growth in user base. Non-ad revenues grew 17.7% to $50.9 million and ad and marketing revenues grew 47.9% to $409.3 million in the reported quarter.

Portal advertising revenues declined 14.8% year over year to $74.5 million. Decline in Small Medium Enterprise (SME) customers’ ad budget, operating in sectors with strict regulations, negatively impacted growth. Portal non-advertising revenues declined 32.9% to $26.7 million.

Mobile app revenues accounted for 79% of total portal ad revenues compared with 63% in the year-ago quarter. The upside can be attributed to growth in mobile traffic for SINA Finance applications.

Notably, Daily Active Users for Finance app increased approximately 214%, year over year.

However, SINA News APP segment lagged in the quarter under review and is expected to remain a concern for the remainder of 2018.

Sina Corporation Price, Consensus and EPS Surprise

Operating Details

Sina’s reported gross profit was $444.5 million, which surged 32.8% year over year. Gross margin of 80.1% expanded 410 basis points (bps) from the year-ago quarter.

Operating expenses (49.8% of total revenues) were $276.4 million, up 45.7% year over year due to increase in personnel-related costs and marketing expense.

Sales and marketing expenses were $185.5 million, up 62.3% year over year, driven by an increase in investment in channel marketing on user acquisition of Weibo APP, SINA news APP and SINA finance APP.  Product development (28.5%) was $91.5 million, reflecting an increase of 29.8%. However, general and administrative expenses declined 3.4% to $28.4 million.

As a percentage of revenues, product development and sales & marketing increased 50 bps and 750 bps, respectively. However, general and administrative declined 160 bps.

Reported operating income was $168.1 million, up 15.9% year over year.

Balance Sheet and Cash Flow

Sina exited the quarter with cash & cash equivalents (including short-term investments & restricted cash) of $2.5 billion compared with $2.8 billion in the second quarter of 2018. The lower cash balance can be attributed to increasing investments and share repurchase programs by the company.

Cash provided by operating activities in the quarter was $100.8 million, an increase of $84.4 million sequentially. Capital expenditure was $46.8 million.  

Guidance

For 2018, Sina expects revenues between $2.09 and $2.12 billion, reflecting a year-over-year growth rate of 5-7%.

Management stated that with the continuing decline in macroeconomic conditions in China, advertising revenues are likely to be negatively impacted in the near term.

Zacks Rank & Stocks to Consider

Currently, Sina has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader computer and technology sector include Intel Corporation (INTC - Free Report) , SS&C Technologies Holdings, Inc. (SSNC - Free Report) and Upland Software, Inc. (UPLD - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Intel, SS&C and Upland Software is projected to be 8.4%, 13.5% and 20%, respectively.

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