SINA 2Q07 (1): Historical Trading Pattern after Earnings
Summary of Q2 results. Sina just reported mixed Q2 2007 earnings with two "beats" and one "miss": Total revenue beat Wall Street consensus by 0.3%. Non-GAAP EPS beat the Street by 10.8%. The mid-point of next quarter (Q3) revenue guidance missed the consensus by 1.2%.
Trading pattern after earnings. As highlighted in the table below, from 4Q05 to 1Q07, SINA went up 4 out of 6 times in next-day trading. Below is our analysis on three next-day trading indicators:
1. Actual revenue beat Wall Street consensus every quarter. It correctly predicted next-day trading 4 out of 6 times (4Q05, 2Q06, 3Q06, 4Q06) with a 66.7% hit ratio.
2. Non-GAAP EPS beat consensus 5 out of 6 times - the only miss happened in 4Q05, the earliest period. This metric successfully predicted next-day trading 3 out of 6 times (2Q06, 3Q06, 4Q06) with a 50% hit ratio.
3. Next quarter revenue guidance beat the consensus 3 out of 6 times. It correctly predicted next-day trading 3 out of 6 times (1Q06, 2Q06, 3Q06) with a 50% hit ratio.
Conclusion. Based on the analysis above, actual revenue seems to be the best indicator of next-day price action, so the stock is more likely to go up tomorrow. However, the revenue just beat consensus by 0.3%, the smallest in the past six quarters (1Q06-2Q07). In addition, the mid-point of next quarter revenue guidance missed consensus by 1.2%. In our view, the market has expected too much from Sina in growing its revenues, so investors should be cautious before buying SINA. Sohu (SOHU) similarly delivered solid Q2 results and strong Q3 guidance, but it still dropped the next day, failing to repeat a 100%-correct historical trading pattern.
Table: SINA Next-day Price Action vs. Earnings Results
Source: Company reports and Yahoo! Finance
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