Sina (SINA)

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With an already sizable community, SINA is well positioned to take advantage of the of the growing popularity of Web 2.0 and has begun to focus on user generated content. SINA Blog grew tenfold in the past year, and during the same time, the company launched SINA Podcasting, a service similar to You-Tube that lets users to upload videos. These efforts contributed to a 10% increase in revenues to $212.9 million with online advertising revenues increasing 44%.^[3]

[edit] Business Financials

SINA Corporation first became profitable in 2002 and has had a positive net income every year since then. Total net revenues increased 10% from 2005 to 2006 although a 26% increase in operating expenses led to a decrease in gross profit margins from 67% in 2005 to 63% in 2006.^[4] Advertising expenses increased due to increased competition and continued investment in the SINA website, and MVAS expenses increased due to higher fees paid to mobile operators and content providers.^[5] Thus, while their revenues have been increasing, SINA's net income has been decreasing since 2004 due to declining profit margins.

The company's growth was primarily due to a 41% jump in advertising revenue to $120 million, which helped to offset a 12% decrease from their Mobile Value-Added Services (MVAS).^[6] Revenues from China accounted for 97% of total advertising revenue, and the increase in advertising revenue was due to both a larger number of advertisers and an increase in overall spending per advertiser.^[7] Advertisements from the automobile, information technology, and real estate sectors accounted for approximately 53% of advertising revenue and were responsible for the growth in advertising for the past two years.^[8]

Revenues from SINA Corporation's MVAS, which accounts for the majority of their non-advertising revenue has been declining for the past three years after seeing strong initial growth.^[9] Since SINA is not a wireless service provider itself, the company must rely on third-party mobile operators for billing and transmission of their MVAS to their users.^[10] Changes in policy from these operators to automatically cancel subscriptions for users who do not regularly use these services in accordance to new government regulations have reduced SINA's ability to acquire new customers and has increased the churn rate among existing customers.^[11] Nonetheless, MVAS still accounted for $86.3 million of revenue on an operating cost of $34.3 million.^[12]

SINA's revenue and net income for the past five years. SINA's revenue has been increasing due to higher revenues from advertising, but its net income has been dropping since 2004 due to decreasing profit margins as the company makes more investments in its website content and has to pay higher fees to its content providers.^[13]

Breakdown of revenue for SINA Corporation for the past three years. Advertising revenue has been increasing steadily and now makes up the majority of the company's revenue as revenue from MVAS decreased due to a decrease in user subscriptions.^[14]

[edit] Trends and Forces

Growth in the number of internet users in China. The number of internet users has been growing steadily due to more economic prosperity, and Chinese internet users now make up the second largest population in the world.^[15]

• Size of Chinese market makes it a priority for foreign advertisers - China had over 162 million users in 2007.^[16] Chinese internet users collectively spend nearly two billion hours per week online versus 129 million for U.S. users.^[17] Online advertisers are well aware of these numbers, and since SINA.com is one of most visited websites in China, the company stands to gain from the rising number of internet users. The number of advertisers on SINA increased from 790 to 980 and average revenue per advertiser increased from $100K to $120K, reflecting the fact that more companies are willing to invest more money advertising online in China.^[18]

• Government regulation of the Chinese internet means SINA needs to closely monitor its content - The Chinese government monitors and regulates internet access and content for material that it deems inappropriate. Internet content providers are also responsible for the material on their websites and may be fined. As SINA expands into allowing user-generated content on their website, monitoring these pages will be difficult, and the company could face increasing pressures and monitoring from the government.

• Increasing value of the Yuan will make it more expensive for international companies to advertise on SINA - Since its operations are conducted mainly in China while its financial results are reported in US Dollars, significant revaluation of the RMB will affect SINA's financial statements. The higher value of the Yuan could both benefit and harm SINA as it would raise revenues in terms of the US Dollar but it would also make it more costly for foreign competitors to invest in China and advertise on their websites.

• Rapid growth of online advertising boon to Web-based communities - Internet advertising has grown faster than other channels of advertising since 2001. The internet can be a more effective means of reaching potential customers since advertisements can be tailored to specific targets based on the page visited or past internet activity. SINA also provides American companies a unique gateway into the rapidly growing Chinese market as it offers a bridge among the different Chinese cultures from the Chinese American population to mainland China.

• Betting on Web 2.0 may improve margins - Although SINA demonstrated impressive revenue growth from 2002-2006, the company's net income has steadily moved in the opposite direction, partly due to increasing content costs. In 2007, the company begin a major push into the realm of Web 2.0. One of the defining features of Web 2.0 is that the content is generated by the community. Apart from benefiting from a diversity of different view points, Web 2.0 content is also very cheap (often free). In 2007, SINA launched its own YouTube like portal, and has plans to continue developing its blog.

[edit] Competition

While SINA is the leading web portal in China, it faces stiff competition from other companies such Chinese companies as Sohu.com (SOHU), Baidu.com (BIDU), Tom Online (TOMO), and Netease.com (NTES). International companies such as Yahoo! (YHOO) have also entered the market although SINA has signed an agreement with Google (GOOG) to use their search engine. The market is still very fragmented, and rapid growth of China's online ad industry represents a risk to traditional portals, such as SINA.com.

• Sohu.com (SOHU) - Operating a collection of seven websites, Sohu is one SINA's leading competitors and offers everything from its own propriety search engine to community-based web products. In 2000, Sohu also introduced wireless messaging services similar to SINA's MVAS, and their business models are very similar. Sohu had a operating revenue of $134 million in 2006, $92 million which came from online advertising.^[19].

• Baidu.com (BIDU) - China's dominant search engine provider, Baidu controls nearly 70% of the market share.^[20] While its services mostly revolve around their search engine technology, Baidu competes in the sense that is also one of the most visited website in China and its major revenue source is from online marketing services, which accounted for $106 million of its revenue.^[21] At least one of the reasons for the agreement between Sina and Google to use Google's search technology was to counteract Baidu's growing presence in China.

• Tom Online (TOMO) - Another Chinese company that offers both an internet portal and cell phone multimedia services, Tom Online operates the website Tom.com. The company's major focus, however, is on their cell phone services, which offers text messaging, web applications, and multimedia content to subscribers. In 2006, $152 million of their revenue came from their wireless services while only $13.3 million came from advertising revenue.^[22]

• Netease.com (NTES) - Netease operates the Chinese internet portal 163.com and cell phone multimedia services as well as their very successful gaming services. Revenues are generated from fees charged for players of these games and also subscribers to their premium services.^[23] Their online role-playing game Fantasy Westward Journey is the most popular game in China in terms of peak concurrent users with over 1.5 million users playing at one time.^[24] Of its $277.3 million in revenue generated in 2006, 84.6% came from its online gaming services while 12.1% came from advertising revenue.^[25]

[edit] Market Share

SINA is the most frequently visited website in China for non-search purposes with 36.2% of the market share based on surveys of unique user usage conducted in China.^[30] This number represents a comfortable margin of nearly 13% more than its closest competitor, Sohu. SINA's market lead has also been widening from March 2006 to September 2007

SINA is the market leader with 36.2% of the market. Its lead has also been widening although it still faces stiff competition from a large number of similar internet portals.^[31]

SINA's market share in the search engine market, however, lags far behind the market leader Baidu. It is not a major player in the market and lost 1.4% market share during the twelve-month period ending in Sept. 2007.

[edit] Footnotes

1. ↑ SINA Corp Website, Media Kit
2. ↑ Alexa, Sina Traffic Information
3. ↑ SINA Corp Website, 2006 Annual Report Page 2
4. ↑ SINA Corp Website, 2006 Annual Report Page 14
5. ↑ SINA Corp Website, 2006 Annual Report Page 14
6. ↑ SINA Corp Website, 2006 Annual Report Page 12
7. ↑ SINA Corp Website, 2006 Annual Report Page 12
8. ↑ SINA Corp Website, 2006 Annual Report Page 12
9. ↑ SINA Corp Website, 2006 Annual Report Page 12
10. ↑ SINA Corp Website, 2006 Annual Report Page 8
11. ↑ SINA Corp Website, 2006 Annual Report Page 8
12. ↑ SINA Corp Website, 2006 Annual Report Page 13
13. ↑ MSN Money, SINA 10 Year Summary
14. ↑ SINA Corp Website, 2006 Annual Report Page 11
15. ↑ Internet World Stats, China
16. ↑ Internet World Stats, China
17. ↑ Forbes Online, China Surpasses U.S. In Internet Use
18. ↑ SINA Corp Website, 2006 Annual Report Page 12
19. ↑ Sohu Website, 2006 Annual Report Page 57
20. ↑ China IntelliConsulting, China Search Engine Survey Report 2007 Released
21. ↑ Baidu Website, 2006 Annual Report Page 19
22. ↑ Tom Online 20-F SEC Filing
23. ↑ Netease Website, Overview
24. ↑ China Analyst, Ranking of Top 10 Online Games in China and Its Implications
25. ↑ Netease Website, Annual Report 2006 Page 27
26. ↑ Alexa, Sohu Traffic Information
27. ↑ Alexa, Baidu Traffic Information
28. ↑ Alexa, Netease Traffic Information
29. ↑ Alexa, Sina Traffic Information
30. ↑ China InteliConsulting China Search Engine Survey Report 2007 Released
31. ↑ China InteliConsulting China Search Engine Survey Report 2007 Released
32. ↑ China InteliConsulting China Search Engine Survey Report 2007 Released
33. ↑ China InteliConsulting China Search Engine Survey Report 2007 Released