Chinese Internet portal operator Sina is giving investors plenty to worry about, and not much to look forward to.
Both Sina and microblog service Weibo, in which it retains a majority stake after last month's New York listing, lost money during the first quarter. Sina's revenue was up 36% from a year earlier, helped by a 161% surge at Weibo, where the number of monthly active users grew 11% from three months earlier, to 144 million. But Sina warned of a coming rough patch, with top-line growth expected to slow to 16% to 19% in the second quarter.
The weak outlook has multiple causes. Most immediate is the threat from China's censorship-loving regulators, who have revoked Sina's licenses for video and Internet publishing due to alleged pornographic content. Sina says it is working with the government on a resolution, and it can still offer some reading and video services. But Sina chief executive Charles Chao said some advertisers are already pulling back from commitments. It's another reminder that making money on the Chinese Internet has its own set of rules.
More broadly, Mr. Chao said the macroeconomic backdrop in China currently is 'not positive' for advertising, with the slowdown hitting certain ad categories such as autos. The picture is no better for the bottom line, as the company now plans to increase spending to catch up to rivals in areas like mobile and video. Mr. Chao said while developing the Twitter-like Weibo, Sina underinvested in its core portal business over the past few years. It faces headwinds similar to those hitting U.S. portal sites such as Yahoo in moving desktop users to smartphones.
Even at fast-growing Weibo, more spending is in store. Competition with Tencent's WeChat messaging app is intensifying as both companies spend heavily to attract users and keep engagement rising. In another example of an Internet company leader's telling investors they have gotten ahead of themselves, Mr. Chao warned operating results at Weibo this year 'may turn out to be significantly lower than the street has expected.'
Give Sina credit for being forthcoming, and for being prudent by keeping expectations low. But with so many storm clouds on the horizon, investors would have good sense to stand clear for now.