SINA (NASDAQ: SINA) beat analyst estimates for revenue and earnings when it reported second-quarter 2017 results on Aug. 9, but concerns about what's happening at Weibo (NASDAQ: WB) -- in which SINA holds a 46% stake -- seem to have pushed its stock down.
The Chinese internet specialist had dialed down its Weibo stake by 3 percentage points in June. Concerns of a slowdown at the social media platform that's likened to Twitter make sense as it supplies 70% of SINA's top line.
Some are concerned because Weibo's monthly user growth in the most recent quarter fell below 30% for the first time since it went public in 2014. This could be the beginning of a slowdown in Weibo's growth rate, but should SINA investors start panicking? Let's take a look.
Reliance on Weibo is a red flag
Weibo is still growing at a terrific pace. Its monthly active users in the most recent quarter shot up 28% year over year to 361 million, boosting the company's advertising and marketing revenue by almost 72%. But at the same time, revenue from non-advertisement services was stagnant at just 14% of the top line.
SINA's sizable reliance on Weibo's advertising services for the major chunk of its top line is a big red flag. New users signing up for the service are typically expected to spend a lot of time on the platform in the beginning, but the problem will start arising as the initial excitement wanes and the competition for advertisement dollars intensifies.
Some competition come from Tencent's social media platform WeChat, which had close to 940 million monthly active users at the end of the first quarter. Users were spending much more time on WeChat than on Weibo, according to data from Penguin Intelligence, as reported by Seikkei Stuido. Though investors should take the results from Penguin with a pinch of salt as it is owned by Tencent, it has apparently built an ecosystem that's capable of keeping users engaged.
WeChat started off as an instant messaging platform, but Tencent is now building "mini-programs" into the service that could let users pay bills or order food without having to leave the app. This could draw advertisement dollars toward Weibo and potentially hurt SINA's growth. There's also the fact that roughly half of China's population is already online, so there isn't endless growth in new users to be had.
The non-Weibo business is a laggard
SINA's non-Weibo business supplied 30% of its total revenue in the just-reported quarter, down from 40% in the prior-year period. This reduced contribution is not just because of Weibo's fast growth, but also because of SINA's inability to sell ads on its portal. SINA's portal advertising business was down on a year-over-year basis, though the company did see some respite thanks to impressive growth in the non-advertising revenue.
Overall, the non-Weibo business grew just over 8%. But SINA needs to fast-track the growth of this business in a bid to sustain long-term growth and reduce its Weibo dependency. The good part is that the company has already started taking steps to boost the portal business, setting up a $500 million war chest to fund online finance companies.
SINA has taken this step after getting positive results from making its recently launched online micro loan service available to users on Weibo and its own portal. The company has taken this step to enhance its non-advertising business, which is a shrewd move considering the competition from Tencent. But the success of this move isn't guaranteed yet as Tencent has been offering personal loans on WeChat since 2015.
SINA has a tough road ahead as its new initiatives to diversify away from Weibo might take time to materialize.
10 stocks we like better than SinaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sina wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017