A month has gone by since the last earnings report for Sina (SINA - Free Report) . Shares have lost about 13.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sina due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Ad Revenue Growth Aids SINA’s Q3, Higher Marketing Cost Hurts
SINA 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.
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’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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 37.26% due to these changes.
Currently, Sina has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Sina has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.