The indications suggest that Chinese web portal Sina is nearing completion of preparations to spin off its hugely popular Weibo microblog service into a separate business entity.
The company, in a 2010 annual financial report submitted to the Securities and Exchange Commission on May 31, revealed that it has registered a new Sina Weibo company in the Cayman Islands called T.CN Corporation.
Within China's borders, the report said, Sina also has set up two independent subsidiaries under the larger Weibo operation. One of them is called Micro-Dream Internet Technology Co (China), formed on October 11, 2010. Its legal representative is Charles Chao, Sina CEO.
The other Weibo subsidiary is called Beijing Micro-Dream Internet Technology Co. It was set up on August 9, 2010 with a registered capital of ten million yuan (US$1.54 million). The legal representative is Peng Shaobin. Peng currently is Sina vice president and general manager of the Weibo operation.
In the 2010 annual report, Sina also disclosed a plan to issue Weibo stock options to its employees, a move also seen as preparation for Sina Weibo to go public.
Under the plan, the proportion of stock options to be issued to management and non-management employees would be as follows:
- Management level - Would account for 5.7% of the newly registered T.CN Corporation. This portion of the planned stock options could be cashed four years after Sina Weibo goes public.
- Non-Managerial level - Sina also promised to issue stock options to its non-managerial level employees at large, which accounts for 15.9% of T.CN Corporation.
The day for Sina Weibo to formally go public may not be too far away. On June 10, CLSA securities predicted that the management at Sina would have "big moves within the next 12 months." The prediction was taken by many to mean that Weibo may very likely have a chance to list on the bourse in the coming year.
According to First Financial Daily, Peng Shaobin recently stressed in an internal document that in the future Weibo will operate as an independent business entity. Specifically, it will develop its own market and products as well as being responsible for its own operations.
At the same time, Sina is mobilizing all of its resources to support the microblog service in its business development. Charles Chao has repeatedly emphasized that in the future Weibo will play a role no less important to Sina than its portal business.
On May 13, Sina announced that the parent company will invest US$100 million more this year in Weibo to help it further develop its business. The May 13 announcement also declared that the number of employees working for Sina's Weibo department will double to 1,200 this year.
Industry analysts differ in their assessments of Sina Weibo's market value.
- SIG - In July last year, investment banking firm SIG said Sina Weibo was worth US$750 million.
- Other experts - In March this year, Sina Weibo's market value was raised by some other exerts to US$3 billion.
- Credit Suisse - More recently, put Sina Weibo's market worth at US$3.1 billion, citing that the number of its users was increasing at a faster rate than expected.
However, a lack of transparency in business strategy may affect expert assessments of the valuation of Sina as a whole. In April, Goldman Sachs downgraded Sina's rating from "neutral" to "sell."
The Sina CEO may view things differently. Charles Chao has set a six-pronged profit-making strategy for Sina: cross-advertizing, social gaming, e-commerce, instant searching, wireless value addition and data services.
Yet all of these six areas are still in the stage of testing the waters. Noted IT industry commentator Wei Wuhui said the difficulty is how to translate those measures into action. He pointed out however that Sina, boosted by its thriving microblog business, has seen its share price nearly double this year. At one point, Sina's share price reached a new high of US$147.12.
How will Weibo's share price perform after it obtains permission to list on the stock market? Goldman Sachs predicted that it could reach US$165, given its social networking nature and massive user base.
For now, many focus their attention on the operation of Sina itself as an online media company. One major challenge facing Sina is how to transform its role from a simple portal media to an internet platform enterprise.
Up to now, Sina's main revenue has come from advertizing. The company saw its quarterly revenue surpass US$100 million for the first time in the third quarter last year, ranking it last among the mainland's seven major online media companies.
The good news is that Sina in the last two years or so has gradually shifted from its traditional portal business toward the direction of internet platform. A clear indication of this is that Sina has recently acquired a number of internet companies that it believes have good growth potential.
COMMENTARY:
COMPANY OVERVIEW
SINA Corporation (NASDAQ: SINA), founded in 1999, and based in Shanghai, China, is a leading online media company and a value-added information service (“VAS”) provider for China and global Chinese communities. With a branded network of localized web sites targeting Greater China and overseas Chinese, SINA provides services through five major business lines:
- SINA.com - Online news and content.
- SINA Mobile - Mobile value-added services (
- SINA Community - Community-based interactive services and games.
- SINA.net - Search and enterprise services.
- SINA E-commerce - Online shopping.
These products offer an array of services including online media and entertainment, online fee-based VAS/ wireless VAS, and e-commerce and enterprise e-solutions for personal, business, and government use.
SINA operates four different websites:
- SINA Weibo - According to Sina Corp the microblogging site has more than 140 million users and millions of posts per day, and is adding 10 million new users per month. The company also said it now has more than 60,000 verified accounts, consisting of celebrities, sports stars and other VIPs. The top 100 users now have over 180 million followers. Furthermore, Sina said that more than 5,000 companies and 2,700 media organizations in China are currently using Sina Weibo. Sina Weibo is commonly referred to as the second generation microblogging, when microblogging exploded in 2009-2010.
- SINA Mobile - SINA’s MVAS, launched in April 2002, allows users to receive news and information, download ring tones and pictures, and participate in dating and friendship communities using their mobile phones. Users can order these services through the SINA website or through their mobile phones on a monthly subscription or pay-per-message basis. SINA offers MVAS through a wide range of products such as content downloading, news subscription and mobile games, on multiple platforms such as SMS, MMS, WAP, IVR, CRBT and KJAVA.
- SINA Online - SINA's main online portal. Provides links for Weibo (China's biggest microblogging social network), SINA Search (a search engine powered by Google), SINA Video (a service for uploading and downloading videos similar to YouTube), SINA Match (an online dating service), SINA BBS (A bulletin board service), SINA Travel (provides domestic and foreign travel information and related services), SINA Classifieds (an online classifieds marketplace), SINA YP (an online business search service for companies in the West ), SINA Chinese (an online eLearning site to learn to speak Chinese), and SINA eSoonTravel (an online travel service for arranging air tickets and hotel accomodations, compares rates with different travel sites like Expedia).
- SINA.net - All-include Chinese portal for news and information, online search, city information, online dating, investments, industries, business opportunities, online classifieds, email, to name a few.
STOCK PERFORMANCE
SINA Corp stock price has been negatively impacted by an overheated Chinese economy, general slowdown in China's online advertising market, sovereign debt problems in the EU and a decline in its revenues and net income. There has also been a recurring belief by stock analysts that China's internet sector could be entering a "Bubble" stage. As a consequence, SINA's stock price began to drop beginning in in April 20, 2011 then plunged on June 3, 2011.
SINA Corp's (NASDAQ:SINA) stock price has declined significantly since April 2011:
- April 20, 2011 through June 20, 2011 - Stock price dropped from a high of $142.83 on April 20, 2011 to its current price of $81.27 on June 20, 2011. That's a drop of 61.56 points or 43.1%.
- June 3, 2011 through June 17, 2011 - SINA's stock price took its biggest hit between June 3, 2011 and June 17, 2011 when the stock price dropped from a high of $126.50 to $80.57. That's a drop of 45.93 points or 36.3%.
Since SINA's stock price peaked on April 20, 2011, its market capitalization has dropped from $9.4 billion to $5.31 billion, a cumulative decline in value of $4.09 billion or 43.5%.
SINA Corp (USA) - NASDAQ:SINA - Stock Price - YTD 2011 and 6/20/11
SINA Corp - Key Stock Performance Statistics - June 20, 2011
FINANCIAL PERFORMANCE
With the exception of 2009, SINA has consistently reported increases in revenues and net income through the end of Q3 2010. However, SINA began to experience a slowdown in revenues in Q4 2010 and Q1 2011, and this resulted in lower gross profits and net income. This obviously impacted their stock price.
Unlike other Chinese internet startups, which have been criticized for not reporting revenues and expenses in conformity with generally accepted accounting practices (GAAP) or having problems reporting their website traffic, SINA stands out.
According to SINA CEO Charles Chao,
"2010 has been a year of transformation for SINA. In addition to achieving significant growth in online advertising business and profitability, we have successfully built SINA microblog Weibo into the largest and most influential social media platform in China with user base increasing by more than 25 times in 2010. Total registered users for Weibo have now surpassed 100 million, doubling from four months ago. As we move into 2011, we plan to leverage Weibo as the centerpiece of SINA's new media growth strategy and make significant investments to further enhance our leadership position in social media space and to best position SINA for an Internet world moving deeper into social networking and mobile Internet."
For the years ending December 31, 2010 and 2009, SINA excluded revenues and expenses related to its financial interest in China Online Housing Technology Corporation ("COHT). A SINA financial spokesman commented on the adjustments to non-operating gains and losses.
"Starting in the fourth quarter of 2009, in addition to the disclosure of GAAP results below, SINA's historical revenues and certain non-GAAP measures (namely, gross profit, operating expenses, income from operations and advertising gross margin) have been revised to exclude results from China Online Housing Technology Corporation ("COHT"), adjusted for the impact of the amended and restated advertising agency agreement on a pro forma basis as if the agreement had been effective at the beginning of the periods presented. These adjustments were made to reflect SINA injecting its online real estate advertising business into its majority-owned subsidiary COHT and exchanging its interest in COHT for approximately 33% interest in China Real Estate Information Corporation ("CRIC") upon the successful listing of CRIC on the NASDAQ Global Select Market in October 2009 ("CRIC Transaction"). Non-GAAP measures are described below and reconciled to the corresponding GAAP measures in the section below titled "Unaudited Reconciliation of Non-GAAP to GAAP Results".
The COHT adjustments were reported in SINA's profit statement as a "Non-Operating Gains and Losses".
- COHT adjustment for the year ending 12/31/09: $375.06 Gain
- COHT adjustment for the year ending 12/31/10: $128.55 Loss
Without the COHT adjustments SINA would've reported the following net income amounts:
- Excluding COHT adj for the yr ending 12/31/09: $36.83 Profit (Instead of $411.89 Profit)
- Excluding COHT adj for the yr ending 12/31/10: $109.46 Profit (Instead of $19.09 Loss)
As mentioned previously, SINA's financial performance has been nothing less than exemplorary through Q3 2010, but
SINA Corp - Financial Highlights - Year Ending December 31, 2010
SINA Corp - Yearly Profit Statement - Years 2007 through 2010
SINA Corp - Revenue, Net Income and Profit Margin - Years 2006 through 2010
SINA Corp - Quarterly Profit Statement - Q1 2011 and Q1 through Q42010
SINA Corp - Quarterly Revenue, Net Income and Profit Margin - Q1-Q4 for 2010 and Q1 for 2011
SINA's balance sheet for the year ending December 31, 2010, shows a company that is still very financially sound in spite of the drop in revenues and net income. Here's a summary of the key numbers:
- Cash and short-term investments: $882.84 million
- Working capital: $760 million surplus
- Long-term debt: None
- Stockholder's equity: $1.239 billion
- Cash per share: $13.20
- Current Ratio: 4.06
- Debt/Equity Ratio: .32
If there is a negative, it's that SINA's return on assets (after adjusting for COHT is only 3.53%. Half of its assets are in cash and equivalents, and it doesn't appear to be generating much if any return on that cash. It's cash per share is $13.20. This is higher than any other Chinese internet companies bar none. If you excluded cash out of total assets, its return on assets would double.
Sina Webo "The Twitter of China"
SINA CORP's Sina Weibo is called the "Twitter of China", and is by far the largest microblogging service in China with 90 million and 70 million registered users and active users respectively as of March 2011.
Sina Weibo's key competitor is Tencent Weibo. One June 2, 2011, ResonanceChina compared both sites:
Tencent Holdings Ltd Investor Fact Sheet - Years Ending December 31, 2005 through 2010
Tencent Holdings Ltd is a digital social, entertainment and wireless behemoth when compared to SINA Corporation (USA). When compared side-by-side on the basis of revenues, net income, market capitalization and P/E ratio, it is obvious that Tencent Holdings Ltd is a much larger business.
- Revenues
- Tencent Holdings Ltd - $3.036 billion (12/31/10)
- SINA Corporation (USA) - $402.02 million (12/31/10)
- Net Income
- Tencent Holdings Ltd - $1.254 billion (12/31/10)
- SINA Corporation (USA) - $109.46 million (12/31/10) after excluding COHT adj for the yr ending 12/31/10: $109.46 Profit (Instead of $19.09 Loss)
- Market Capitalization
- Tencent Holdings Ltd - $44.55 billion (6/20/11)
- SINA Corporation (USA) - $5.11 billion (6/20/11)
- P/E Ratio
- Tencent Holdings Ltd - 30.87 (12/31/10 ); N/A for 6/20/11
- SINA Corporation (USA) - N/A (6/20/11) due to an operating loss of $0.54 per share
In US terms, Tencent’s social hub is as if AIM, MySpace, a mini-Facebook, and a mini-Twitter were owned by one company, and all cross-promoted and synced to each other. That also explains part of Tencent’s surely inflated user numbers–content is often synced across Tencent’s social services by default, but counts as an “active user” on each. So if you want to understand Tencent’s tangled social web, here’s your slideshow.
Tencent Weibo is integrated within Tencent the Tencent's Social Hub: Pengyou, QQ Messenger and Qzone. As a consequence it is difficult to pry loose its revenues independent of the other sites. And because it is drawing users from the other sites, many who are not very active users (reminds one of Twitter), it is difficult to accurately ascertain its registered and active user base as a standalone microblogging site. Hence, the * asterick in the above comparison.
Like SINA,Tencent Holdings Ltd operates along different business lines. It has established seven main business lines, including instant messaging (IM) service, online media, wireless internet value-added services, interactive entertainment service, internet value-added service, e-commerce and online advertising services.
Like SINA, Tencent Holdings Ltd operates several sites:
- Tencent Weibo - Microblogging social networking community. It’s impossible to introduce Tencent Weibo independently of Tencent’s other social services: QQ Messenger, Qzone (nickname SNS), and Pengyou (real-name SNS). Tencent Weibo is available inside of each–you never even have to go to the t.qq.com domain to be a Tencent Weibo user.
- Tencent QQ - Instant messaging services. Claims to have 990 million registered IM users.
- QQ.com - China's largest portal in Chinese integrating news, interactive communities, entertainment products and widely-used basic services. The website serves Chinese users around the world and is dedicated to becoming trend-setting and main-stream internet media platform with the greatest communication capacity and interactivity.
- Soso.com - Tencent's Google-like search engine website, was officially released and started operation in March 2006. It has now become one of the three most popular search engines for netizens in China.
- QZone.com - As a next-generation personalized multimedia space exclusively owned by users, Qzone creates a brand-new online lifestyle built around three major content categories: self expression, content sharing and peer interaction. Leveraging all the possibilities of multimedia, Qzone has become a popular platform of trendy online life.
- Pengyou.com - Tencent's pure play social networking site.
- Tencent Games - Tencent Games is a world-class online game developer and operator, and is recognized as the largest online game community in China with over 20 different game sites.
Tencent operate several principal wireless services, including:
- 3G.QQ.com - Tencent's mobile phone portal website, is designed to provide users with all kinds of mobile Internet services. Currently, it is the most frequently visited mobile phone portal in China.
- Mobile QQ.com - A mobile IM software which is developed by Tencent. By bringing QQ chatting software to the mobile phone, Mobile QQ satisfy users' desire to make free chat anywhere at any time.
Unlike Tencent Weibo, it will be much easier to pry loose Sina Weibo from SINA Corporation (USA) so that it can operate as a separate operating unit. According to Credit Suisse recent valuation, Sina Weibo is valued at $3.1 billion, which makes it comparable to Twitter's $3.7 billion, but it has 60 million less registered users, and its revenues and profitability are unknown. However, Sina Weibo's users appear to be much more active than Twitter's, representing 87% of total browsing time within China's microblogging market. Tencent Weibo total browsing time represents only 9% of China's microblogging market.
If the Sina Weiba IPO does happen in 2011, it is going to be very interesting what the numbers are going to look like in the S-1 Registration Statement it files with the SEC. At least we will be able to have something to compare Twitter against, when it has its IPO (probably sometime in 2012 or 2013).
Courtesy of an article dated June 16, 2011 appearing in Want China Times, an article dated March 9, 2011 appearing in ResonanceChina, an article dated June 2, 2011 appearing in Resonancechina, an
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