Sina Corporation SINA CORP (SINA)
May 20, 2019 - 5:49pm EST by
kalman951
2019 2020
Price: 47.10 EPS 3.34 4.12
Shares Out. (in M): 69,553 P/E 14.1 11.4
Market Cap (in $M): 3,415 P/FCF 0 0
Net Debt (in $M): -1,480 EBIT 0 0
TEV ($): 2,646 TEV/EBIT 0 0

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Description

Given the company's depressed share price along with limited exposure to trade and Huawei sanctions, Sina Corporation shares are starting to look interesting once again.

 

Sina was written up by ahab931 in January 2017. That post contains all the necessary background information about the company and is strongly recommended to those who are not familiar with the Sina story. The stock price doubled during the twelve months after the writeup (kudos to the author!), but lost all the gains and then some during 2018 and 2019 despite a more than a fourfold increase in LTM EBIT. 

 

 

What happened?

 

  1. First, there were fears that Douyin (aka TikTok) would steal eyeball time from Weibo. This short-video platform appeared out of the blue and acquired hundreds of millions of users in a matter of two short years, which spooked quite a few people on both the buy-side and the sell-side. However, Weibo’s user engagement numbers remained robust and nobody is talking about the Douyin threat anymore. The former should have been unsurprising to anyone who has tried both platforms and seen just how different they are, anyway.
  2. Then, there were fears about a US-China trade war, which continue to this day and which have put enormous pressure on the stock despite trade considerations having very little to do with Sina's fundamentals. At some point, either tariffs and trade barriers will become the new normal or a trade deal will be struck, and, when either happens, this source of indiscriminate selling should go away.
  3. And, finally, China has been experiencing an increasing softness in online ad spend coupled with inventory oversupply. Most recently, Baidu guided for a flat 2Q19 YoY and precipitated a new round of selling in Chinese internet names. Weibo and Sina were hit especially hard despite being cheap and very cheap, respectively, in the first place.

 

As a result, Weibo is currently trading at 16x FY2019 earnings ex-cash, whereas Sina’s valuation implies that Weibo is worth a hard-to-believe 4x FY2019 earnings ex-cash. The long-term prospects of online advertising in China remain unchanged and so does the wide economic moat around Weibo’s business model. While it is hard to predict how long and how bad this downturn is going to be—after all, it is possible that some correction is due after years of 40%+ growth—it is hard to imagine a scenario under which Weibo’s revenues and profits do not double over the next 5-7 years. These might not be the mind-boggling growth rates of the past, but it is still far better than what most other stocks offer.

 

We believe that anyone who is willing to sit through this period of volatility is going to be handsomely rewarded in the long run. In our opinion, an asset like Weibo should trade, at a minimum, at 20x NTM earnings ex-cash and, most likely, closer to 25x. We value Sina’s legacy portal business at zero and subtract capitalized overhead from the resulting valuation. We believe no further discount to Sina’s assets is necessary because:

 

  • Weibo is controlled by Sina
  • Sina does not have any other major investments apart from Weibo
  • Weibo class B shares owned by Sina deserve a premium because each of them has three votes vs one vote per publicly traded class A share
  • Charles Chao, Sina’s CEO and Weibo’s Chairman, owns $400+ mln worth of Sina shares

 

Fair value of Weibo @ 20x FY2019 earnings ex-cash

$14,800 mln

Fair value of SINA’s 45% stake in Weibo

$6,700 mln

SINA’s net cash and investments ex-Weibo

$1,600 mln

SINA capitalized overhead

($1,200 mln)

Fair value of SINA

$7,100

Diluted shares outstanding

70 mln

Fair value per SINA share

$101

Upside from today’s price

100%+

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

  • Continued buybacks
  • Buyout offer from management, Alibaba, Tencent, and/or Baidu
  • U.S.-China trade deal
  • Normalization of Chinese ad spend
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