Earnings Friday: Sina, NetEase, Pactera 解读在美上市中国企业业绩
I’m christening today “Earnings Friday” because it’s easily the peak day of third-quarter earnings announcements for major US-listed Chinese firms, with everyone from real estate services firm E-House (NYSE: EJ) to drug maker Simcere Pharmaceutical (NYSE: SCR) releasing their results overnight. Since I have a natural bias towards tech, I’m going to focus today on the latest results from 2 of China’s oldest Internet firms, Sina (Nasdaq: SINA) and NetEase (Nasdaq: NTES), as well as its newest player Pactera (Nasdaq: PACT), which was formed just last week through the merger of former IT outsourcing leaders HiSoft and VanceInfo. (previous post)
Perhaps the best place to start is by taking a quick look at share price reaction to results from this trio, as that shows how well the company did compared with investor expectations. Sina shares suffered the worst, tumbling 7 percent in after-hours trade after its results came out; NetEase shares also took a similar beating, shedding 6 percent after its results; but Pactera managed to buck the trend, with its shares rising 2 percent after it made its inaugural earnings report.
Let’s begin with Sina, whose profit was actually slightly ahead of Wall Street expectation due to improving performance from its highly popular Weibo microblogging service. (earnings announcement) But investors seemed more concerned with the company’s weakening margins, which dropped for a fifth straight quarter, as well as a fourth-quarter revenue forecast that was below expectations as the company’s core advertising revenues continued to slow sharply.
In fact, this advertising slowdown shouldn’t surprise anyone, as everyone — including online search giant Baidu (Nasdaq: BIDU) — is feeling similar pressure due to reduced spending as China’s economy cools. Still, the rapid rate of the slowdown in Sina’s advertising sales could bode poorly for the company and for advertising-dependent firms in general in the coming quarters.
Meantime, NetEase blamed weakening performance of its popular World of Warcraft game for disappointing revenues in its latest quarter, as it announced a slight profit decline that was well below the market consensus. (earnings announcement) Even the surprise announcement of a special dividend, which is probably the company’s first ever such payout, and a $100 million share buyback weren’t enough to stop the sell-off after NetEase announced its results.
Perhaps this sell-off was overdue, since NetEase shares have risen about 20 percent since late last year. That rise contrasts sharply with a broader trend that has seen shares of most US-listed China stocks remain weak due to investor concerns over their accounting practices.
Lastly let’s look at Pactera, which I previously called a “sleeping giant” for its potential to emerge as China’s first truly global IT outsourcing firm following its creation with the merger of 2 leading players, HiSoft and VanceInfo. The company’s third-quarter profit rose 36 percent to $176 million; it forecast fourth-quarter revenue of $136 million, although that only includes about a half of a quarter’s results from the former VanceInfo.
I suspect that the 2 percent share rally for the company is largely due to investor confidence about the future, and less a reflection of these actual results. The new company will have a much better balance of business between customers from China, the US, Japan and Europe than either of its predecessors. That balance, combined with cost savings from the merger and strong management, should help Pactera to realize some new potential in the years ahead, providing an interesting investment opportunity for people looking to buy into the China IT outsourcing story.
Bottom line: Sina and NetEase will suffer from weakness in the ad and gaming markets in the quarters ahead, while newly formed Pactera could emerge as China’s first global IT outsourcing giant.
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