(By Balaseshan) Brean Capital views Sina Corp.'s (NASDAQ: SINA) Weibo as an attractive strategic investment target for the mobile Internet space with solid penetration in mobile. The brokerage maintained its "Buy" rating and $69 price target on shares of the provider of online media in China.
"We are positive on the ample growth potential of social network services in China; we believe Sina Weibo is and will remain a major player. We maintain positive on Sina shares following a solid 4Q despite an overall tough ad environment," said Fawne Jiang, an analyst at Brean Capital.
With the recent restructuring, the company is committed to devote resources on mobile - its high growth and high penetration area, the analyst noted. A potential investment could help Weibo to unlock its value.
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Weibo monetization will likely continue to take off in 2013 with increasing revenue contribution from mobile, Jiang noted. Despite low seasonality in 1Q, management expects less impact for Weibo-related revenue noting that mobile contribution for Weibo could account for over 30%.
The analyst said Sina underwent an organizational restructuring at the end of 2012, with its business units divided into portal and Weibo, and set its strategic focus on mobile for 2013. In 4Q-2012, over 75% of Weibo's active users came from mobile versus 72% in 3Q.
As a result, Sina saw increasing advertising demand from the mobile side and expects mobile contribution for Weibo revenue to grow to 30% in 1Q-2013. Jiang expects increasing investment on mobile in 2013.
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In 4Q, Sina Weibo advertising revenue grew 10% sequential to $21.3 million, primarily driven by display ad, the analyst noted. Sina Weibo launched a promoted feed self-support ad system by the end of 4Q. The system is currently still in trial stage and will open to all advertisers by the end of 1Q-2013.
While Jiang is positive on long-term growth potential in targeted ad, the analyst expects monetization could take time to ramp up as the company needs to continue finetuning the system and to balance user experience with monetization.
As such, the analyst expects brand ad to remain the major contributor for Weibo monetization in the first half of 2013 and expects targeted ad could start taking momentum in second half. Sina also launched a new payment system for Weibo with two Weibo ecommerce deals in 4Q.
Jiang expects Weibo to further explore ecommerce/transactional based business potential in 2013. While the launch of the upcoming targeted ad system could be a trial-and-error process, potential improvement on macro/ad environment could offer a tailwind, the analyst noted.
SINA is trading up 7.74% at $57.62 on Wednesday.