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*'''[[China's Internet Crackdown|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. *'''[[China's Internet Crackdown|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.
 +:*Highlighting the disruptive capability of the government, the Beijing Municipal Government announced that users of microblogs (such as Sina's Weibo) would be required to register their real names and other identifying details.<ref>[http://news.xinhuanet.com/english/china/2011-12/16/c_131310381.htm Xinhua "Beijing requires real names in microblog registration" December 16, 2011]</ref><ref>[http://digicha.com/index.php/2011/12/translation-of-beijings-new-weibo-regulations/ DigiCha.com "Translation Of Beijing’s New Weibo Regulations" December 16, 2011]</ref> This increased scrutiny could have a negative impact on user trends and also affect the quality of the user experience - it seems unlikely that users will post grievances online if Chinese Internet censors can link a person to a particular post.
*'''[[Revaluing the Yuan|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. *'''[[Revaluing the Yuan|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.

Revision as of 06:51, December 18, 2011

With over 280 million registered users, Sina Corporation (新浪公司) (Nasdaq: SINA) is the largest online Chinese community in the world. [1] [2] The company's main services are its web portal, Sina.com, and its microblog site, Weibo.com. The company's main revenue stream is advertising sales on its web portals (sites offering aggregated local news, entertainment, sports, etc. content). The company also sells mobile phone applications, ringtones, and other content to mobile phone users. Although the company's main audience is in mainland China, it also delivers local content to Chinese communities in Taiwan, Hong Kong, and North America.

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]

Business Overview

Business & Financial Metrics

FY 2010

Revenue grew +12.3% YoY to $403 million, with strong sales in Advertising (+27.6% YoY) offsetting weakness in MVAS (-27.8% YoY). Advertising growth was driven by demand related to the World Cup. The decline in MVAS revenue was mainly due to China Mobile implementing policy changes, including suspension of WAP billing, limiting the service offerings and partnerships allowed for each SMS code, and requirements for additional confirmations and notices before purchasing.[4]

Gross profit grew +14.8% YoY to $248 million, driven by strong YoY sales and gross margin expansion in the Advertising segment (gross profit margin grew from 56% to 60% in 2010).

Operating profit grew 130.3% YoY, driven by improved gross margins and proportionally lower SG&A spending. Total operational expenses declined 15% YoY, driven by lower marketing expenses for the Advertising and MVAS segments and lower stock-based compensation charges.

Net income for the year was $-19.1 million, the company's first net loss since it achieved profitability in 2002. The company spun off its online real estate advertising business and recognized a loss of about $129 million, pushing net income into the red.[5]


Business Segments

Image:Sina-Sales-GP-Mix.jpg

Sina's operations are divided into three business segments:[6]

  • Advertising: This segment generates revenue by selling advertising space on its internet properties, mostly Sina.com. The company offers two types of products: short-term ads (banner ads, buttons, etc.) and more comprehensive longer-term marketing solutions. Target customers include large global firms (Fortune 1000) with a presence in China and domestic companies that have a regional focus. The mix between ad types (short vs. long term) can impact revenue trends; revenue for a pay for click ad is recognized almost immediately, revenue for long-term agreements are recognized over the whole period of service. Revenue from advertising spending is seasonal; spending is heaviest in Q4, and lightest in Q1 (due to Chinese New Year).
  • Mobile Value-Added Services (MVAS): This segment generates revenue by incorporating advertisements into its SMS-based mobile services and offering users value-added services (news, wallpapers, ringback tones, etc).[7] Mobile phone users either subscribe to the service (a monthly rate) or pay for each item individually. Sina provides content for MVAS users and relies on mobile carriers (like China Mobile or China Unicom) to deliver content, bill customers, and pay Sina. Relying on mobile carriers as a distribution channel can introduce risks - in 2007 China Mobile changed its billing platform and regulatory changes increased customer churn, two factors which combined to decrease revenue.[8]
  • Other Non-Advertising: This segment includes revenue generated by the sale of paid personal email services, corporate email services, and casual games.[9]


Weibo.com

Weibo.com is a microblogging platform (where users can post short messages, 140 Chinese characters, and interact with other users' posts) that was launched in 2009.[10] Weibo.com users can receive near real-time updates from other users that they "follow" and reply, forward, or share other users' messages. Although the Weibo.com service has achieved popularity (about 250 million users as of August 2011[11]), the company hasn't focused its efforts on monetizing Weibo.[12]

Trends and Forces

  • Size of Chinese market makes it a priority for foreign advertisers - Chinese internet users collectively spend nearly two billion hours per week online versus 129 million for U.S. users.[13] 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 has increased from 790 to 980 and average revenue per advertiser has increased from $100K to $120K, reflecting the fact that more companies are willing to invest more money advertising online in China.[14]
  • 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.
  • Highlighting the disruptive capability of the government, the Beijing Municipal Government announced that users of microblogs (such as Sina's Weibo) would be required to register their real names and other identifying details.[15][16] This increased scrutiny could have a negative impact on user trends and also affect the quality of the user experience - it seems unlikely that users will post grievances online if Chinese Internet censors can link a person to a particular post.
  • 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.

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.[17].
  • Baidu.com (BIDU) - China's dominant search engine provider, Baidu controls nearly 70% of the market share.[18] 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.[19] 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.[20]
  • 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.[21] 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.[22]

Footnotes

  1. SINA Corp Website, Media Kit
  2. Alexa, Sina Traffic Information
  3. SINA Corp Website, 2006 Annual Report Page 2
  4. Sina 2010 20-F, page 56
  5. Sina 2010 20-F, page 60
  6. SINA 2009 20-F pg. F-34  
  7. SINA 2009 20-F pg. 7  
  8. Sina 2007 20-F, page 6
  9. SINA 2009 20-F pg. 89  
  10. SINA 2010 20-F pg. 31  
  11. CIC and SINA (joint release) - 'Microblog Revolutionizing China’s Social Business Development' October 19, 2011
  12. SINA 2010 20-F pg. 6  
  13. Forbes Online, China Surpasses U.S. In Internet Use
  14. SINA Corp Website, 2006 Annual Report Page 12
  15. Xinhua "Beijing requires real names in microblog registration" December 16, 2011
  16. DigiCha.com "Translation Of Beijing’s New Weibo Regulations" December 16, 2011
  17. Sohu Website, 2006 Annual Report Page 57
  18. China IntelliConsulting, China Search Engine Survey Report 2007 Released
  19. Baidu Website, 2006 Annual Report Page 19
  20. Tom Online 20-F SEC Filing
  21. Netease Website, Overview
  22. China Analyst, Ranking of Top 10 Online Games in China and Its Implications
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