Competitors
In a recent article I discussed the huge potential of the online advertisement industry. According to sell side estimates the internet advertisement industry would cross $40 billion in a couple of years. Facebook and Baidu are not direct competitors of Sina because they have different business models. However when it comes to competing for advertisement revenues these are the biggest players in the market.
Facebook stock has appreciated by approximately 45% in the last 6 months on positive mobile monetization and growth in advertisement revenues. The company reported in its last quarter earnings report that it has increased mobile revenues to a staggering 23% of all revenues. This growth in mobile however did not translate to better overall earnings due to a 9% decline in desktop revenues. Another major contributor to flat revenue was the decline in ad pricing due to macroeconomic pressures.
As compared to Facebook, the stock price of Baidu has shed almost 30% in the last 6 months. This has been due to a more adverse macroeconomic impact and slower mobile monetization. Despite these issues, Baidu is still the largest player in Chinese online Advertisement market. The company has more than 400K advertisement customers and an extremely diverse customer base. Comparatively the customer base of Sina is much more focused because its target market is mostly in the younger age groups.
Bottom-line
Sina has easily beaten expectations which earnings and has provided a rosy outlook for the next quarter. The company is focusing on expanding revenues of its Weibo platform. The new Weibo products have drawn much interest from both users and investors. During the quarter the company has launched two new Weibo products. One of these new products aims at linking micro bloggers with advertisers and the other one allows advertisers to promote their tweets to audiences not actually following them.
The stock is currently trading at a P/E of 13x and 27% below its mean sell side target price of $120. The company has significant upside potential based on its valuations and overall growth in online advertisement. Sina is currently targeting the fastest growing economy in the world and also operating in the fastest growth industry i.e. online advertisement. This industry has the potential to drive away a large portion of advertisement revenues away from TV industry. Therefore, I consider Sina a top investment candidate despite recent earnings rally.
The article Earnings Make this Company a Strong Buy originally appeared on Fool.com and is written by Mohsin Saeed.
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