Sina Earnings Preview: Third Quarter 2008

Sina (SINA: 75.00 -0.40%) is scheduled to report third quarter 2008 results after the market closes on Wednesday, November 12. Based on our analysis, we at eChristianInvesting are expecting SINA to report better than expected results that beat Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $105.1 million and EPS of $.44. This would represent a 63% increase in revenues from last year’s $64.4 million in the same period. The current analyst consensus calls for revenues of $102.7 million and $.41 EPS. On August 6, the company provided third quarter guidance for revenues of $100 – 104 million.

While the Chinese macro economy has certainly experienced the effects of the global recession, we feel that the negativism regarding Sina’s business has been overdone and expect a solid quarter based on the following assumptions:

·        Sina has managed to beat Wall Street’s estimates the last ten consecutive quarters and we see no reason that they can’t do so again.

·        The Beijing Summer Olympics provided a mid-summer boost to online traffic.

·        Sohu posting better than expected third quarter results on 135% growth in revenues (including 66% growth in advertising revenues).

·        Pessimism over the Chinese internet industry has been way overdone. Yes, China is facing an economic slowdown, but internet companies there are still getting the benefit of massive online adoption by the world’s largest population.

In addition, we expect the company to provide 4^th quarter guidance that is above the current Wall Street consensus of only $98.7 million.

Share Performance

To date, Sina’s shares have fallen 29%. By comparison, the Dow Jones industrial average has fallen 33% this year, and the Standard & Poor’s 500-stock index is down 38%.

Valuation

Shares are now trading at 16x consensus 2009 EPS estimates. This is a premium to the relative valuations of their peer group. However, we believe that Sina is one of the key players within the Chinese internet sector and well-deserving of a premium valuation. In addition, the company has over $9 per share in cash on its balance sheet with relatively little debt.

Recommendation: Buy with a $38 price target.