- After spectacular earnings and subsequent 25% increase in the shares, Sina is still very undervalued.
- Special Weibo distribution to Sina shareholders makes Sina a must-buy here.
- Shareholders of Sina will receive additional Weibo shares.
Soon after Sina (NASDAQ:SINA) reported a spectacular set of numbers a couple of weeks ago for its March quarter, I had written an article for another platform titled "Will Sina Slip Through Investors' Finger Yet Again?".
Sina's shares closed that day at $99.04 per share, up $15 after a blow-out earnings report the night before. Shares closed this past week at $104.25 per share.
Two weeks ago, Wall Street analysts were expecting the company to earn $2.30 per share in earnings for 2017, and currently, those estimates have been raised to $2.70 per share after the company's Q1:17 earnings report a couple of weeks ago. For 2018, estimates have been raised from $3.55 per share to $3.90 per share just in the last two weeks or so.
At $3.55 per share in earnings for 2018, Sina is currently valued at roughly 27x. Using a P/E multiple of just 31x (based on Wall Street estimated revenue growth for 2018 versus 2017) gives us a potential target price for Sina at $120.90 per share.
Sina has roughly $3.5 billion in cash and cash equivalents, short-term investments, restricted cash and long-term investments on its books (zero debt) as of March 31, 2017, which works out to $47.70 per share using the 73.4 million fully diluted shares outstanding.
In addition, just this past Friday, Sina announced that it will be distributing additional shares of its majority-owned subsidiary, Weibo Corporation (NASDAQ:WB), to shareholders of Sina on a pro-rata basis. Shareholders of Sina (as of close of business of June 7, 2017) will receive one share in Weibo for every 10 shares held in Sina. After the distribution, Sina will own approximately 46% of Weibo Corporation.
Shares of Weibo currently trade at $77.57 per share (closing price as of 5/27/17), and at that price, the company is valued at $17 billion. Thus, Sina's 46% stake in Weibo (post fractional distribution of Weibo shares to Sina shareholders) is currently worth $7.8 billion.
So, Sina owns a $7.8 billion stake in Weibo, has roughly $3.5 billion in net cash, and will earn roughly $3.55 per share in 2018.
Based on its own earnings and expected growth rate going forward, Sina is reasonably worth $120 per share. Add in the $47 per share in cash that Sina has, plus the $100 per share (at least) in value of its stake on a per-share basis in Weibo, and the undervaluation is almost beyond any reason.
Put another way, Sina has cash and equivalents of $3.5 billion, and its stake in Weibo is valued by the market at $7.8 billion. Sina on a stand-alone basis is valued currently by the market at $7.4 billion. Even if we totally discount all of Sina's other revenue and earnings streams to zero, the company is being currently undervalued by the market by at least 50% just using its cash and 46% post-distribution stake in Weibo Corporation.
We could be looking at a share price well north of $150 per share (only based on the cash holdings and 46% stake in Weibo) in Sina when/if the market realizes there is free money for the asking or management decides to take advantage of the current undervaluation and makes the decision to "go-private."
So again, investors are faced with the question I seem to be asking quite often of late, "Will investors buy Sina here or will they buy it at higher levels?"
Something to think about this long holiday weekend.
Disclosure: I am/we are long SINA.