SINA Pays the Price for Growth

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SINA (NAS: SINA) keeps throwing more firewood at its scorching-hot Weibo.com micro-blogging site.

Results were mixed for the Chinese dot-com darling in its latest quarter. SINA's top line -- adjusted to back out deferred license revenue related to its equity investment in China Real Estate Information (NAS: CRIC) -- grew 21% to $125.6 million, but adjusted earnings were nearly cut in half to $0.26 a share.

Don't panic. Analysts figured that SINA would only ring up an adjusted profit of $0.23 a share on $124.7 million in revenue.

Everyone knows that SINA is throwing money at keeping Weibo's booming popularity growing. Beefing up personnel and ramping up marketing spending has seen adjusted operating expenses nearly double to $60.4 million.

We still don't know if this will all be for nothing. Chinese regulators are getting weary of the open nature of cyberspace's Web 2.0 darlings. Investors in social networking leader Renren (NYS: RENN) , video-sharing website Tudou (NAS: TUDO) , and Weibo probably won't be able to rest easy until the government decides how hard it wants to clamp down on the freedoms of self-broadcasting.

SINA is one of the better-positioned companies here. It has a strong online portal that was generating healthy brand advertising revenue before Weibo's success pushed it over the $100 million mark in quarterly online advertising revenue. Obviously it would be brutal if Weibo was watered down or neutered by government regulators, though it would also mean that SINA could get back to improving its margins.

The near-term prospects are bright. SINA is targeting adjusted revenue to lock in between $128 million and $131 million in the current quarter, posting sequential growth in both its advertising and smaller non-advertising businesses. Margins will likely continue to be squeezed during Weibo's land grab, but SINA investors probably wouldn't want it any other way.

If you want to stay abreast of the latest happenings at one of China's dot-com pioneers, addSINAto My Watchlist.

At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of SINA. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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