SINA Acquires Stake in Tudou - Analyst Blog
August 30 2011 - 10:02AM
Zacks
Chinese micro-blog “weibo” provider, SINA Corp.
(SINA) recently acquired a 9.05% stake in Shanghai-based video
company, Tudou Holdings Ltd. Tudou offers movies, TV series and
self-produced content it produces itself, as well as third-party
videos similar to Google Inc.’s (GOOG) YouTube
platform.
In a regulatory filing with the Securities and Exchange
Commission (SEC), SINA reported that it has acquired 1.075 million
American depositary receipts (ADRs) of Tudou at its initial public
offering held in this month, for $31.2 million. Post Tudou’s
listing, SINA bought another 1.49 million ADRs for $35.2
million.
SINA’s primary revenue source is online-advertising. However,
the competition within the Chinese advertising market is fierce, as
popular Internet search companies such as Baidu
Inc. (BIDU), AirMedia Group, Microsoft Corp.
(MSFT) and Google have attracted a lot of
advertising clients. SINA is a relatively small company compared to
its peers and hence encounters numerous hurdles in the advertising
market.
We believe the acquisition of the Tudou stake will help SINA
gain market share going forward, as the latter is the #2 website in
terms of advertising revenue (14.0% market share in the second
quarter) in the online-video market, according to research firm
Analysys International,. Youku.com Inc (YOKU) was
the leading company (23.0% market share), while Sohu.Com
Inc. (SOHU) was #3 (13.0% market share) at the end of the
second quarter.
SINA is adding video, social-networking and electronic commerce
to its website to attract users in China, the world’s biggest
Internet market.
The company is also aggressively pushing its micro-blog service
“Weibo” and has total registered users of more than 200 million at
the end of June, 2011. Although management expects to spend more on
Weibo ($100.0 million in fiscal 2011) to incorporate features such
as virtual currency and games, we believe that increasing
advertising revenue from the monetization of Weibo will drive
top-line growth going forward.
Our Take
We maintain our Neutral rating over the long term (6-12 months).
We believe SINA remains a premier company due to its strong product
pipeline, continuous investment in product development and
marketing and a robust user base for its E-Commerce and Weibo
offerings.
However, higher operating expense, a sluggish macro environment
and increasing competition from Tencent Holdings and Sohu.com Inc.
will hurt profitability over the long term. Moreover, we believe
that more stringent government regulation will hurt the company’s
subscriber growth and monetization efforts going forward.
Currently, SINA has a Zacks #5 Rank, which implies a Strong Sell
rating over the short term.
BAIDU INC (BIDU): Free Stock Analysis Report
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MICROSOFT CORP (MSFT): Free Stock Analysis Report
SINA CORP (SINA): Free Stock Analysis Report
SOHU.COM INC (SOHU): Free Stock Analysis Report
YOUKU.COM- ADR (YOKU): Free Stock Analysis Report
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