Shorting sina: China's twitter

September 20, 2016 09:00 AM

Social Media companies have been all the rave due to their growth prospects and the likelihood of merger and acquisition activity in the space, but one firm stands out. SINA Corporation (SINA), via its subsidiaries, operates as a significant social media content provider within the People’s Republic of China. SINA.com, provides a wide variety of online commerce and content, and through Weibo.com offers seemingly analogous content of U.S. social media giants Facebook (FB) and Twitter (TWTR), but with a specific region- based formatting. Significant and sufficient losses of $25.2 million versus year-to-date and its non-generally accepted accounting principles (GAAP) income is poised to single SINA out on the short list in comparison to its social media competitors. The SINA Corp. was founded in 1997 and is headquartered in Shanghai.

SINA’s first quarter 2016 operational losses of $25.2 million versus $8.5 million from the same quarter in 2015 have started to illustrate the erosion of SINA’s growth capacity. Additionally, SINA’s continued non-GAAP adjusted earnings, have still declined in its income generation of 2016’s reported $5.6 million versus previous year-to-date income of $13.6 million.

Weibo (WB) is SINA’s singular powerhouse (listed separately in the United States) and is its social media subsidiary, where users can create and post a feed of up to 140 Chinese characters and attach multimedia or long-form content. 

SINA has been waiting for its positive second quarter projections to alleviate the Chinese Facebook/Twitter regional super power uncertainty and speculation, based on SINA’s 2016 substantial decline, which has been carrying the weight of most of SINA’s positive growth.  

Weibo hit an all-time high of $43.56 per share, after a positive earnings results in mid-August. The positive report may not be able to save the downward trend and staggering momentum SINA has incurred since the beginning of this year. Weibo’s second quarter results released on Aug. 8 were met with enthusiasm with high trading volume and active traders, but in relation to SINA, this is simply indicative of an unstable bump and only further emphasizes SINA’s retracted and overall decline. In fact, it could provide a selling opportunity. 

A short covering rally rocketed the stock to just past $70, taking out its primary resistance levels. Such violent moves often leads to equally fast retracements. Expect SINA to return to its primary support level between $57 to $60 and secondary support level between $52 and $55. 

While many analysts and investors are now seemingly content with SINA’s adjusted 2016 revenue of just under $1 billion versus its previous guidance of $850 to $950 million simply because of a stronger second quarter, it does not inherently cure the underlying devaluation of SINA. 

SINA’s dependency on Weibo as its lead player in revenue growth cannot simply mitigate the bright line issues that are dragging SINA downward. SINA’s operational costs and diversified Internet offerings are laggards that cannot simply be ignored, and will continue to erode its value moving forward.

SINA’s overall technical picture has been broken up with the upward spike following the second quarter earnings surprise from Weibo. The spike pushed SINA to test the 62% Fibonacci retracement level from the sell-off from its October 2013 high to its March 2015 low. Given the weak overall fundamentals, that resistance should hold on a weekly close basis, and SINA is a juicy short prospect from $65 to $70

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