Recently several of my readers have asked me to share my thoughts on SINA one of my current holdings. As always I am not making any investment recommendations on this blog. Please determine your risk profile and do your own research before investing.
From a fundamental standpoint I do not think that SINA is the cheapest Internet related Chinese ADRs. In the WVAS market, TOMO, KONG, HRAY and others offer more compelling valuations based on cash per share, EPS forecasts for the next few years, etc.
When it comes to search SOHU seems to be doing relatively well with Sogou.com as of late and along with Baidu, Google, Yisou and others have a pretty good lead over Sina. I was pleasantly surprised recently when Sina announced that they had been working on search engine development for quite a while. Unfortunately they have a long way to catch up. One thing that Sohu/Sogou taught us is that with good technology a leading portal such as Sina (and Sohu) should be able to leverage its massive traffic to build upon its search market share fairly quickly. Let's hope that Sina can catch up soon. With the low Internet usage penetration in China nothing is impossible especially for the country's leading portal Sina.
When it comes it advertising, Sina will remain one of the top players for the foreseeable future. It is possible that SOHU will overtake SINA in advertising revenue in the short term based on the combined traffic to Go2Map, Chinaren, 17173 and Focus.cn, despite having a portal second to Sina in China. However there is no doubt that ad revenues will increase substantially for Sina, Sohu, and others as the 2008 Olympics becomes nearer, more Chinese go online, and more overseas companies attempt to reach Chinese consumer market.
In online gaming, I have not been that impressed with Sina's Lineage 2 results. While the MMORPG is bringing in some profits it has not met my expectations. Sina's IGame casual gaming portal seems to be doing okay. Hopefully the people using IGame will remain loyal, so that they will try new MMORPG's that Sina may launch in the future. Based on the success of WOW, perhaps Sina should attempt to license another high profile game in the future (assuming the licensing games are not as high as The9 is required to pay Blizzard). I would like to see Sina move more heavily into mobile games in the near future before KONG, TOMO, SNDA and others gain a large lead in the China market.
In the online auction market Sina/Yahoo 1Pai.com has attracted lots of users since its launch last year. However 1Pai.com is still a very distant third to Ebay/Eachnet and Alibaba/Taobao in the China Market. Yahoo was able to beat eBay in Japan but Yahoo is mush different. In order to succeed, 1Pai will need to better localize services to match Chinese culture, develop an acceptable payment system and market heavily while continuing not to charge any listing fees for quite a while.
There is no doubt in my mind that ad revenues will continue to grow nicely going forward. I am more concerned about gaming and WVAS revenue at Sina. I think that TOMO, and others have been better executing in the WVAS market over the last year or so and NTES has clearly been more successful at gaming. With the leading portal in China, SINA should be finding as many ways as possible to monetize the traffic. I would like to see expansion into additional e-commerce areas. I am a little confused why Sina would sell Fortune trip at this time. It seems a little early to think that they had no way of competing against CTRP or LONG (the buyer of Fortune Trip). Perhaps the Long/Sina travel partnership hinged on the sale and Sina felt the partnership was more important than retaining ownership in Fortunetrip. I would like to know the reasons for the sale. I liked the Sohu Go2Map purchase and the TOMO India Games purchase. I hope Sina starts putting its cash to good use in the near future by expanding into new areas instead of buying more small WVAS players like they did in the past.
As far as the SNDA/SINA rumors are concerned, I am not counting on the merger to occur. If it does Sina will likely appreciate slightly. It SNDA sells their SINA shares and announces they are no longer interested SINA will likely drop (as much of the last big run up in SINA shares a while back was based on the SNDA share purchase and takeover rumors). In the long run I am sure that Sina can do well on its own as can SNDA. If I were a member of SINA's board I doubt I would agree to a merger offer from SNDA involving only a small premium over current share prices.
In conclusion, I have not been overly impressed with Sina's execution in the recent past and do not think that SINA offers the most compelling valuation among China ADRs. However, I am confident that Sina will remain the top portal in China at least over the near term. The U.S. market has taught us that the industry leaders will often command a substantial valuation premium over competitors (remember Yahoo vs. Excite and Lycos). If we believe that Sina will remain the leader, which I think is very possible it may currently be a great long term investment even if others have lower PE ratios, etc right now. I am too busy right now to track every market development on daily basis, so I do not day traded much anymore. I also do not want to be caught with no SINA stock (or even worse a short position) if big news breaks (such as a RMB revaluation, SNDA merger, etc). Therefore I plan on holding my SINA shares for the long term. At this point I doubt I will sell any SINA shares before the 2008 Olympics. I am not sure how Sina will do over the short term but feel very good about where Sina will likely be 5 or 10 years from now.