Sina Corp.: Worth the Price?
Throwing money into a Chinese Internet stock might sound like asking for trouble.
To be sure, the market has lofty expectations for Sina Corp., China's leading Internet portal -- so much so that any slips could send the stock (symbol SINA) tumbling. But the bulls, as epitomized by Robert Stimpson, manager of Black Oak Emerging Technology, have a simple argument on their side: With Sina, "you can buy an Internet stock in a rapidly growing economy for a similar valuation as you'll find in the U.S., where people are just hoping the economy will grow at all."
Sina differs from nearly all U.S.-based Internet companies because it offers such a wide array of services. "It is Yahoo plus Facebook plus Youtube," says Pali Research analyst Tian Hou.
First and foremost an Internet portal, Sina's main site lets users jump off to local weather, original and syndicated news coverage, games, videos, blogs and a Google-powered search function. The site has 260 million registered users and tallies an average of 800 million page views a day.
Sounds like pretty basic stuff, and it is. But Sina, more than its peers, has placed a greater emphasis on fostering online communities and interactivity, and that has lent it a distinct competitive edge. Hot content such as celebrity blogs attracts multitudes of users, who can interact constantly around similar interests and multi-media platforms.
The site's popularity has translated into fat advertising revenues. Ad sales now account for 70% of Sina's revenues, and in the first quarter of 2008 grew more than 50% from the previous year's level. "If someone has a budget for Internet advertising, they'll go to Sina first," Hou says. "When you have that brand power, people come to you."
Sina's other main offering is mobile-phone services. China has three times as many wireless phone users as Internet users, and people do more with their phones than they do in the U.S. Through Sina's services, phone users can subscribe to daily news feeds, download and send multi-media, and even find dates and job referrals.
Profits are on a tear. Net income in 2007 climbed 43%, to $58 million. The company has seen advertising revenues rise at least 40%, year-over-year, in each of the past eight quarters. And in the most recent quarter revenues were up 39%, to $71 million, and profits were up 87%, to $16 million, over the previous year.
Those figures haven't gone unnoticed on Wall Street. The stock has returned an annualized 28% over the past five years through May 28, and Sina, which closed May 28 at $51.45, has rebounded 59% from its March 19 low of $32.24. Of the 19 analysts who cover the stock, 15 rate Sina either a "buy" or a "strong buy," and no one is saying "sell." The stock sells at 33 times projected 2008 earnings per share of $1.56. But next to Google's (GOOG) P/E of 28 and Yahoo's (YHOO) of 58, Sina's valuation doesn't look so outrageous.
Regardless, the stock merits a cautious approach. "Advertising is a boom and bust cycle," Stimpson says. "And the stock is highly valued, so any sort of misstep could cause a sharp correction."
Bulls say Sina's growth potential justifies the stock's froth. "The Chinese economy is growing somewhere between the high single digits and low double digits, advertising is growing faster than the economy, and the Internet is gaining market share," says Oppenheimer & Co. analyst Jason Helfstein.
Only 12% of China's population uses the Internet, so Sina's user base could still grow exponentially. Add up all those factors, Helfstein says, and Sina's earnings should easily grow at a 30% clip over the next five years. He thinks the stock is worth $63.