A leading online media company and mobile value added services for China, Sina Corp. (SINA) announced strong second quarter 2010 results. Earnings spiked up 56.5% year over year to 37 cents per share, beating the Zacks Consensus Estimate by 8 cents.
Strong growth was primarily driven by solid revenue growth and strong gross margin expansion. Earnings include stock-based compensation expenses but exclude one-time items.
Earnings on a GAAP basis increased 67.9% year over year to 38 cents in the second quarter, driven primarily by operating margin growth.
Revenue
Revenues on a non-GAAP basis increased 17.5% year over year to $94.7 million in the quarter. GAAP revenues upped 10.1% year over year to $99.4 million.
Strong revenue growth was primarily driven by higher advertising revenues. Advertising revenues were $73.1 million, an increase of 52.0% year over year, while non-advertising revenues plummeted 33.4% year over year to $21.6 million in the quarter.
Advertising revenues were driven by a strong growth from automobiles, telecom and the financial services sector. FIFA World Cup 2010 contributed to the strong quarterly growth, attributable to the massive demand for video clips of the games.
In the second quarter, average spending per advertiser grew 33.0% year over year while the number of advertisers grew 14.0% as compared with the prior-year period.
Sina’s miniblog platform received approximately 14 million World Cup-related streams. This huge traffic helped Sina to gain significant market share in online advertising during World Cup season.
Sina achieved 30.0% year-over-year user growth for its mobile Internet portal during the quarter. We believe Sina’s strategy of accumulating users both for its miniblog platform and mobile Internet will boost top-line growth in the near term.
Mobile Value Added services had to bear the brunt of a challenging operating environment and declined sequentially. China Mobile (CHL) implemented a series of measures in early 2010, which had a negative impact on Sina’s short message system (SMS), multi-messaging system and interactive voice response system revenues in the quarter.
Margin
Gross margin expanded 350 basis points to 57.2% in the second quarter 2010 as compared with 53.7% in the second quarter of 2009, based on higher advertising revenue growth.
Operating income upped significantly to $21.6 million in the quarter from $9.1 million in the prior-year quarter, primarily due to lower operating expenses. Operating expenses decreased 5.5% year over year to $31.7 million in the quarter due to lower marketing expenses.
Balance Sheet
At the end of June 30, 2010, cash, cash equivalents and short-term investments were $828.2 million, as compared with $828.0 at the end of March 31, 2010. As of June 30, 2010, convertible debt remained at $99.0 million.
Cash flow from operating activities was $12.9 million in the quarter as compared with $18.2 million in the prior quarter.
Outlook
Sina expects non-GAAP revenues in the range of $101.0 million to $104.0 million for the third quarter 2010. For third quarter 2010, advertising revenues are expected in the range of $80.0 million to $82.0 million, reflecting an increase of 48.0% to 52.0% year over year. Non-advertising revenues are expected to be in the range of $21.0 million to $22.0 million, reflecting a decrease of 3.0% to an increase of 2.0% quarter over quarter.
Recommendation
We maintain a Neutral rating on a long-term basis (6-12 months) based on strong second quarter results, advertising growth and increasing market share.
However, stiff competition from major portals such as Sohu.com Inc. (SOHU), Baidu Inc. (BIDU) and Netease.com Inc. (NTES), and sluggish growth from mobile value-added services remain a concern.
Currently, Sina has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).
BAIDU INC (BIDU): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
NETEASE.COM-ADR (NTES): Free Stock Analysis Report
SINA CORP (SINA): Free Stock Analysis Report
SOHU.COM INC (SOHU): Free Stock Analysis Report
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Earnings on a GAAP basis increased 67.9% year over year to 38 cents in the second quarter, driven primarily by operating margin growth.
Revenue
Revenues on a non-GAAP basis increased 17.5% year over year to $94.7 million in the quarter. GAAP revenues upped 10.1% year over year to $99.4 million.
Strong revenue growth was primarily driven by higher advertising revenues. Advertising revenues were $73.1 million, an increase of 52.0% year over year, while non-advertising revenues plummeted 33.4% year over year to $21.6 million in the quarter.
Advertising revenues were driven by a strong growth from automobiles, telecom and the financial services sector. FIFA World Cup 2010 contributed to the strong quarterly growth, attributable to the massive demand for video clips of the games.
In the second quarter, average spending per advertiser grew 33.0% year over year while the number of advertisers grew 14.0% as compared with the prior-year period.
Sina’s miniblog platform received approximately 14 million World Cup-related streams. This huge traffic helped Sina to gain significant market share in online advertising during World Cup season.
Sina achieved 30.0% year-over-year user growth for its mobile Internet portal during the quarter. We believe Sina’s strategy of accumulating users both for its miniblog platform and mobile Internet will boost top-line growth in the near term.
Mobile Value Added services had to bear the brunt of a challenging operating environment and declined sequentially. China Mobile (CHL) implemented a series of measures in early 2010, which had a negative impact on Sina’s short message system (SMS), multi-messaging system and interactive voice response system revenues in the quarter.
Margin
Gross margin expanded 350 basis points to 57.2% in the second quarter 2010 as compared with 53.7% in the second quarter of 2009, based on higher advertising revenue growth.
Operating income upped significantly to $21.6 million in the quarter from $9.1 million in the prior-year quarter, primarily due to lower operating expenses. Operating expenses decreased 5.5% year over year to $31.7 million in the quarter due to lower marketing expenses.
Balance Sheet
At the end of June 30, 2010, cash, cash equivalents and short-term investments were $828.2 million, as compared with $828.0 at the end of March 31, 2010. As of June 30, 2010, convertible debt remained at $99.0 million.
Cash flow from operating activities was $12.9 million in the quarter as compared with $18.2 million in the prior quarter.
Outlook
Sina expects non-GAAP revenues in the range of $101.0 million to $104.0 million for the third quarter 2010. For third quarter 2010, advertising revenues are expected in the range of $80.0 million to $82.0 million, reflecting an increase of 48.0% to 52.0% year over year. Non-advertising revenues are expected to be in the range of $21.0 million to $22.0 million, reflecting a decrease of 3.0% to an increase of 2.0% quarter over quarter.
Recommendation
We maintain a Neutral rating on a long-term basis (6-12 months) based on strong second quarter results, advertising growth and increasing market share.
However, stiff competition from major portals such as Sohu.com Inc. (SOHU), Baidu Inc. (BIDU) and Netease.com Inc. (NTES), and sluggish growth from mobile value-added services remain a concern.
Currently, Sina has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).
BAIDU INC (BIDU): Free Stock Analysis Report
CHINA MOBLE-ADR (CHL): Free Stock Analysis Report
NETEASE.COM-ADR (NTES): Free Stock Analysis Report
SINA CORP (SINA): Free Stock Analysis Report
SOHU.COM INC (SOHU): Free Stock Analysis Report
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