not vested
Why Sina Has 56% UpsideHSBC says the Chinese internet stock is cheap given its 50% stake in micro-blogging site, Weibo, is worth 96% of its current share price.
Sina Corp. (SINA) (USD74, Nov.22, 2016)
HSBC maintained its Buy on the Chinese internet company and raised its target price to USD105 a share (from USD97), implying 56% upside.
Looking to maximize shareholder value: We think SINA continues to be attractive on a sum-of-the-parts basis as its 50% equity stake in Weibo (WB, USD45.61, Buy) is worth USD65 a share at market value, or 96% of its current share price.
Management issued an in-kind stock dividend for Weibo shares to SINA shareholders in August. Further, it disposed of its entire stake in Today’s Headlines, a top news app in China, recognizing a USD134 million gain.
We point out that SINA had USD2.2 billion of cash as of September (USD480 million attributable to Weibo). It currently has a USD500m buyback authorization.
On its earnings call, the CEO said he is open to further unlocking value in the company. Separately, he said Alibaba remains a “very very important strategic partner” for Weibo, working closely on sales & marketing, advertising, data sharing and payment.
Alibaba currently owns 31% of Weibo and we expect more cooperation with Weibo (large-scale social platform) to drive its social e-commerce strategy.
Solid 3Q as Weibo momentum continues and portal recovering: Total revenue grew 21% year-on-year to USD275 million, 1% above our estimate, driven by other revenue.
Operating profit margin (OPM) increased to 21% versus 13% a year ago, due to margin expansion at Weibo. Earnings per share was USD0.56, in line with our estimate.
Weibo grew revenue by 42% year-on-year to USD177 million and
net income grew 147% to USD55 million. Portal ad revenue amounted to USD80 million, down 9% year-on-year, but only 4% on a constant currency basis.
Excluding revenue from Alibaba (BABA, USD93.41, Buy), accounting for 6% of its portal revenue, portal ad revenue grew 5% in constant currency, compared to 6% in 2Q.
Mobile ad revenue is driving growth, contributing 50% of total portal revenue in 3Q. SINA’s mobile news app grew its daily users by 3-4x year-on-year to nearly 12 million, boosting revenue.
The ad load on its mobile news app is 8% and pricing is more expensive than its HTML5 mobile site. Management expects to continue to review its cost structure next year, focusing on certain content, and channel costs are fixed in nature.
Estimate changes: We raise our revenue and EPS estimates due mostly to Weibo, with our Sina core business estimates changed slightly. For 2017/2018, we raise our revenue estimates by 5/4% and EPS by 8/1% in 2017/18, respectively.
Maintain Buy and raise sum-of-the-parts-based target price from USD97 to USD105 to reflect increased value in Weibo: We continued to see SINA as undervalued given the rising value from its subsidiary Weibo, the improving performance of its portal and cash and investment portfolio.
SINA is currently trading at USD68; when we back out the market price for Weibo, net cash and investments, the core business is trading at -USD25/share. We acknowledge that its portal traffic and revenue are declining but we expect revenue to return to growth in 2017, driven by mobile ads.
Source: Barron's
http://www.barrons.com/articles/why-sin ... yptr=yahoo
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