China's largest Internet portal and media website company, SINA (NAS: SINA) , came out with higher first-quarter revenue and posted a smaller-than-expected loss as well.
However, it was mainly the company's future outlook that disappointed the Street. SINA expects more losses going forward as it plans to invest more in its microblogging platform.
So what does the future hold for SINA in a country whose Internet-based industry is increasingly facing the pinch of government restrictions? Let's find out.
Figuring it out
SINA, which operates a microblogging platform called Weibo that operates similarly to Twitter, increased its revenue by about 6% from the year-ago period to $106.2 million. It did so mainly on the back of higher advertising revenue, while other sources remained largely unchanged.
Even then, SINA is unlikely to make much money from Weibo in the near future, as it plans to increase its investment in the latter by as much as 45% over last year's, with the majority of the funding going into upgrades and efforts to stave off competition. In fact, a large part of the company's losses can be attributed to the fact that its operating expenses shot up by 61% from the previous year due to greater spending on hiring personnel, marketing, and infrastructure, all mostly related to the Weibo platform.
Of late, SINA and other companies like Tencent that operate social-networking sites have come under fire from the Chinese government for allowing "rumors" to spread on their websites. This has compelled SINA to hire personnel to censor posts that are deemed unsuitable, which in turn has added to its already-high operating expenses.
Apart from government restrictions, the threat of possible economic slowdown in China has also affected SINA, which depends largely on online advertisers for its revenue. And SINA is certainly not alone as it suffers; businesses in the region are becoming reluctant to spend heavily on advertising.
Renren (NYS: RENN) , a company running a Facebook look-alike, saw its first-quarter advertising revenue grow at a rather feeble pace of just 15% over that of last year. At the same time, search engine specialist Baidu (NAS: BIDU) also forecast second-quarter revenue that was below analyst estimates, thanks to a perceived fall in advertising revenue.
A silver lining, perhaps
SINA has been directed to verify the identity of all its users. While this translates to higher expenses for the company, it might prove to be a boon, as it's supposed to greatly improve the quality of the company's user base, which should make it an advertiser's dream. However, I wouldn't bet on that entirely.
What sounds more positive is the fact that SINA has finally begun the process of effectively monetizing Weibo, with test trials of a new Weibo brand-advertising concept. According to the company, the new offering, which is supposed to be powered by a "social interest graph recommendation engine," should have a positive effect on its brand-advertising business by the latter half of this year.
The Foolish bottom line
SINA is facing tough times due to elevated costs and virtually crippling Chinese regulations. Even though the company claims it will be able to successfully monetize the Weibo platform, I'd rather stay on the sidelines until it's able to beef up its financials. You can also keep a track of SINA by adding it to your very own free watchlist.
SINA may not be the ideal investment option at the moment. Until then, I suggest you to check out this special free report, which will help you discover the next rule-breaking multibagger. Quick! Get it now while it's still available!
At the time thisarticle was published Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Baidu. Motley Fool newsletter services have recommended buying shares of Baidu and SINA. The Motley Fool has a disclosure policy.
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