Wednesday, June 22, 2011

Should You Add SINA to Your Portfolio?

SINA Corp. (NASDAQ: SINA), operator of the third-most visited website and the Twitter-like Weibo service, enjoyed a 19% rise in its stock price Tuesday, the most in more than two years. But it lost money last year and its stock has fluctuated wildly. Should you add it to your portfolio?

SINA's most financial performance suggests the challenges facing the investor seeking to understand why it enjoys a $6.1 billion market capitalization. In the last year, SINA generated $481 million in sales and lost $28 million. But since 2002, SINA has grown its revenues at a 43% compound annual rate from $22 million.

Meanwhile its net income has fluctuated wildly -- driven largely by gains and losses on asset sales. In 2002, it earned $0.9 million -- with net income peaking in 2009 at $412 million -- only to post a loss of $19 million in 2010.

The good news about SINA is that it is targeting a large and rapidly growing market. According to its 2010 20-F filing with the SEC, 2010 ended with 19% more Internet users in China -- 457 million. And 98% of the Internet users in China have access to broadband. Moreover, the number of mobile phone users in China increased 15% to 859 million at the end of 2010 and mobile users with 3G capabilities grew 282% to 47 million.

But SINA has an odd corporate structure. For example, its balance sheet includes very different assets -- such as China Real Estate Information Corporation (CRIC). CRIC's value is declining because its business is slowing down and in 2010, SINA took a $128.6 million charge to write down the value of its investment, according to SINA's 20-F. As the Chinese government raises capital requirements and interest rates to slow down the economy, the Chinese real estate market could slow down and that could further impair CRIC's value. 

SINA appears to be in no danger of imminent bankruptcy. Its cash balances have been rising steadily -- from $363 million in 2006 to $882 million in 2010 -- and it has no debt. And it does have a valuable asset in its 140-million-user Weibo -- since Twitter is blocked in China and SINA plans to introduce an English language version by the end of 2011.

Nevertheless, there does not appear to be any obvious reason why SINA popped 19% yesterday. This volatile stock behaves as though it has fairly thin trading and that a big volume buyer can move the stock price dramatically.

Since its April 2000 IPO at $20 a share, the stock has risen at a compound annual growth rate of 14.9% to $92. This is nothing to get excited about. But the scariest thing about SINA's stock is its volatility -- for example, its all-time high was $143 in April 2011 -- it has since lost 36% of its value.

That may have had something to do with its first quarter 2011 financial performance. That's when SINA reported a $15 million profit, down 39% from the year before -- while its adjusted earnings per share fell to 25 cents -- two cents below the EPS expected by analysts that Dow Jones Newswires surveyed.

Adjusted revenues of $95.5 million were up 19% but came in $4 million below analysts' forecasts. Moreover, SINA forecast disappointing second quarter revenues of between $112 million and $115 million -- analysts predicted $115 million.

Analysts believe that SINA will post future profits. And its Price/Earnings to Growth (PEG) ratio of 1.39 -- a forward P/E 69.7 on earnings forecast to grow 50% to $1.32 in 2012 -- is fairly expensive.

SINA's risks look like they outweigh its rewards. I would be wary of buying it.


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