Citi Downgrades Weibo On Alibaba Uncertainty, Sina On Valuation

• Weibo Corp (ADR) WB shares have surged 52 percent since September 30, while shares of SINA Corp SINA have jumped 29 percent over the same period.
• Citi’s Thomas Chong downgraded the ratings on both companies from Buy to Neutral, while reducing their price targets.
• While shares have spiked, there are uncertainties related to the Alibaba contract for Weibo and to in portal advertising for SINA, Chong said.

Weibo: Alibaba Contract Expiring

Analyst Thomas Chong reduced the price target for Weibo from $19 to $17.30. The company is expected to report its 3Q15 total revenue at $120m, broadly in-line with consensus estimates and representing 11 percent sequential and 43 percent y/y growth.

Chong expects Weibo’s advertising revenue to grow 20 percent sequentially and 164 percent y/y to US$41m, and non-GAAP operating profit to come in at $13m, with non-GAAP op profit margin of 11 percent.

“We expect Weibo to maintain profitability and generate non-GAAP net profit of US$13.3m (vs. US$13.8m for consensus),” the report stated.

Weibo’s shares have rallied recently, and already reflect “most of the upside catalysts to the stock,” Chong wrote. On the other hand, there are uncertainties related to the revenue contribution from Alibaba, since the contract is scheduled to expire in 2016.

The EPS estimates for 2016 and 2017 have been reduced from $0.63 to $0.59 and from $1.01 to $0.91, respectively, to reflect lower revenue growth assumptions given “the overhang relating to contract renewal with Alibaba,” Chong added.

SINA: Macro Uncertainties Impact Portal Ads

Citi reduced the price target for SINA from $50.40 to $48.90. Chong expected the company to report its 3Q15 total non-GAAP revenue at $225m, in-line with consensus estimates, and representing 15 percent y/y and 7 percent sequential growth.

The company is expected to post non-GAAP ad revenue of US$197m, up 12 percent sequentially and 18 percent y/y. Among this, brand advertising from SINA is expected to grow 8 percent sequentially, but decline 6 percent y/y.

Chong expects the company to report non-GAAP operating profit of US$13m, and non-GAAP net profit of US$13.5m. “We see downside risks to our estimates from macro headwinds and competition from other online media (e.g. video),” he added.

Portal ads from brand advertisers are likely to have been impacted due to macro uncertainties, especially in the auto and financial sectors. Moreover, advertisers may shift their budgets to other portals and verticals on account of increasing competition.

The EPS estimates for 2016 and 2017 have been reduced from $0.38 to $0.33 and from $0.84 to $0.70, respectively, due to reductions for Weibo.