Sina Runs On Weibo, Dangdang On Marketplace
As today marks the unofficial end of a long earnings season, I thought I would take a look at the latest numbers from Sina (Nasdaq: SINA) and Dangdang (NYSE: DANG), 2 former superstars that are trying to make difficult transitions to remain relevant on the Chinese Internet. Frankly speaking, the numbers from both companies don’t look very exciting and seem to reflect continuing difficulties at both companies. But investors seem to be overlooking the troubles and instead are focusing on the few bits of good news in the reports, with shares of both companies posting solid gains after their financials came out.Let’s start with Sina, China’s leading web portal and one of the nation’s oldest Internet companies. The company is in the process of trying to diversify from its traditional dependence on advertising, using its popular Weibo microblogging service as the main vehicle for that transformation. The rapid rise of Weibo helped to propel Sina’s stock to new heights about 2 years ago, when everyone was excited about a service that has rapidly grown to currently boast more than 500 million registered user. But Sina quickly learned that signing up new users was far easier than making money from the free service, causing Sina’s shares to sag over the last 2 years.
Sentiment has suddenly changed once again and become much more positive, following Sina’s sale last month of 18 of Weibo to e-commerce leader Alibaba for $586 million. (previous post) Both sides say the tie-up will help Weibo in its march to monetization by allowing Alibaba to offer its e-commerce services over the platform. I suspect that expectation is largely what drove a 4.7 percent rise in Sina’s stock after it announced its latest results for the first quarter.
The results themselves are actually quite boring and even slightly downbeat, with Sina posting 20 percent revenue growth and even slower 17 percent growth in non-advertising revenues, much of which presumably came from Weibo. (results announcement) The company continued to post a net loss, but managed to return to a profit on a non-GAAP basis.
Its outlook didn’t look very exciting either, with revenue growth expected to slow slightly in the current second quarter, including a slowdown in non-advertising revenue growth to around 13 percent. Given all that mediocre news, I was a bit surprised at the rally in Sina’s shares, which was probably mostly due to low market expectations. But if it fails to quickly show some results from the new Alibaba tie-up, its shares could soon come under pressure again.
From Sina, let’s look quickly at Dangdang, which was China’s largest listed e-commerce firm until it was passed last year by the much younger up-and-coming Vipshop (Nasdaq: VIPS). Dangdang’s rapid fall from grace is directly tied to its bottom line, as the company has fallen deeply into the red over the last 2 years due to overheated competition in China’s e-commerce market.
Dangdang continued to post a loss in the first quarter, though the figure did narrow by 27 percent to a $73 million loss as revenues climbed by an unimpressive 23 percent. (results announcement) Rather than focus on these boring figures, Dangdang is trying to draw attention to its newer marketplace platform that allows third-party merchants to set up shops on its site, following a similar model to e-commerce leader Alibaba. Sales in Dangdang’s marketplace tripled in the quarter, and Dangdang forecast they would grow another 175 percent in the current quarter. Investors seemed to like the marketplace growth story, bidding up Dangdang shares 4 percent after its latest results came out.
I personally wish Sina and Dangdang success in their current transformations, and both companies seem to have won some initial investor confidence in their new directions. But that said, I do see big challenges ahead as both companies will continue to face big pressure internally due to execution issues, and also externally from stiff competition in their respective markets.
Bottom line: Investors are giving initial votes of confidence to new strategies at Sina and Dangdang, but both firms face numerous risks due to competition and execution challenges.
Related postings:
