International Investing

I live in China and people often ask me, “Is Sina a good investment?”

The truth is that Sina is really not a good investment in my honest opinion.  I’ll tell you the pros and cons of this stock. It’s basically a list of cons so don’t get your hopes up if you are looking for pros.

Go to www.sina.com and click on the country you are from.  The whole site looks shockingly junkie and there are messy ads everywhere.  This isn’t “Chinese” taste.  It’s just pretty pathetic and only works because they were at the right place at the right time early on.  Companies can coast on that only for so long…..

The stock has risen from $20 to $98 since April 200o and it makes no logical sense.  It makes sense for stocks in a growth phase to be losing money but you need to be profitable at some point and they’ve had plenty of time.  Here are reasons I wouldn’t touch Sina with a 10 foot pole:

1.  It’s very overvalued.

2.  It’s obviously resting on it’s laurels and not innovating.  It reminds me of a really bad version of Yahoo.  The look and feel of their site shows that a future company paying more attention to detail could dethrone it.

3.  It’s still losing money after all this time.

4.  The good news is already priced into the stock but the bad news isn’t.  Good news is that China is a huge and growing internet market and Sina is currently a top dog in it’s space.  To me it’s obvious that it’s not going to stay that way for years to come.  They don’t have much competition and still manage to lose money even though they aren’t competing with Twitter and Facebook since those sites are blocked in China.

5.  More and more Chinese internet users are using VPN proxy servers to access the blocked sites like Twitter and Facebook.  I live there and I don’t know anyone who likes it.  Chinese people use it because it’s there, not because it’s good.

I wrote about the Chinese internet bubble and Sina is a major part of it.  They bought a stake in Tudou.com, another garbage internet company.

The bulls of the China internet sector argue that they have the most internet users in the world and they are still growing fast.  They argue that Sina is a household name in the world’s most populous country.  The funny thing is that I totally agree with those claims but I strongly believe that the stock is very vulnerable to being the next MySpace after Facebook came into play or the next Yahoo after Google.  I read and write Chinese and there is just nothing that will hold people to Sina.  If something better comes along, people will migrate.  Remember that it’s still losing money and there is very little competition from outsiders.

The only thing I can imagine for Sina is that they have ties to the government and sign some deal with Twitter and do some kind of a revenue sharing co-branding thing.  I’ve never heard of that possibility though so I wouldn’t count on it.

There is so much potential downside for the stock and very limited upside.  It’s a poorly run company but it’s stock has been mysteriously well rewarded.

Even though the company is incubated from outside competition it stands little chance of surviving any bad news.  The stock trades on thin volumes and could tank at any time.  They are the opposite of cutting edge in an industry where being cutting edge is everything.   They don’t seem organised or nimble enough to move with the changing internet.  It’s more like a junk pile of silly news.  It’s not adding much value to the users and it’s not making a profit.

I’m personally not a short seller because there could always be something I’m missing like a surprise buyout.  If I was a short seller, however, I’d strongly consider Sina.  It’s one of the worst stocks I can think of and I’m glad I don’t own it. A pretty bad combo for a super expensive stock.  If you ask me, investing in Sina is a bad idea.  I could be wrong, but at least you’ve been forewarned.

If anyone has a counter argument, I’d love to read it.