Chinese Internet company Sina (SINA) released its latest earnings and said its Weibo service exceeded 227 million users at the end of September and it recently surpassed the 250 million user mark.
The revenues increased, but so did costs. Marketing and R&D costs more than doubled compared to Q3 in 2010. Sina CEO Charles Chao indicated the high costs would actually increase over the next year.
Other interesting tidbits from the quarter:
- Net revenue grew 20% year-over-year to $130 million
- Ad revenue grew 25% year-over-year to $101 million
- 86 million messages a day
- 20,000 third-party apps and 200,000 more in development
- A $350 million impairment charge related to goodwill and writedowns in Mecox Lane (MCOX) and CRIC
- Video ad revenues were up 125% year-over-year
- It bought $50 million worth of Alibaba Group (which is 40% owned by Yahoo (YHOO)) through an investment they made in Yunfeng
- There are 300,000 users on Weibo who are "verified" (e.g. celebrities or important people of some kind)
- 10% of the total user base on Weibo is active
Sina's stock is down 8% in midday trading.
Given the macro environment, it wouldn't surprise me to see the stock drop 10–15% in the next week. Many people will say they are worried about margins and costs going forward, as well as the possibility of future slowing revenue.
I'm still bullish on Sina and Weibo moving forward. If you are looking at Sina Weibo's increased costs, as a stand-alone or compared to Twitter or Facebook, I think you're missing something. This is China. There is censorship. It costs money to enforce censorship.
If you want to really judge the effectiveness of the Sina management team, you should look at Tencent's results. Tencent is Sina's biggest competitor in China for the microblogging Weibo service. Tencent also announced its results last night. It met expectations on revenues, but missed on earnings as they came in at an EPS of RMB1.314 vs. consensus of RMB1.351.
What's going on? Both of these companies are ramping up censorship and other costs and trying to build their user base. I think it's unfair to complain that both of them don't know what they're doing here.
No one seems to complain about the slow pace of Twitter and Facebook monetization and yet everyone thinks it should go much faster for Sina or Tencent.
Is Sina overvalued here? Not at all. I expect that Chao is trying to dampen expectations, but he'll probably deliver monetization sooner than people think. It's very hard to market time Sina's stock. Most people who've held it over the last year have large gains, although certainly not if you piled in at $130.
I still think there are lots of positives here in the report and it's a reasonably priced stock for its growth.