Sina Bearish Bets Wane on Weibo Outlook: China Overnight

Options traders are paying the least in two months to protect against drops in Sina Corp., owner of China’s Twitter-like Weibo service, on speculation the social media platform will become profitable this year.

Puts protecting against a 10 percent decline in Sina’s shares cost 1.5 points less than calls betting on a rally of the same magnitude last week, one-month data compiled by Bloomberg showed. The price relationship known as skew was the lowest since Sept. 13. Sina has rallied 51 percent this year and reached a two-year high Oct. 18. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. sank 2.1 percent last week.

Sina will probably report tomorrow that adjusted profit jumped 87 percent in the third quarter, according to the average projection of eight analysts surveyed by Bloomberg. Weibo’s advertising revenue tripled to $30 million during the second quarter, the company said on Aug. 12. Twitter Inc.’s $1.82 billion initial public offering last week signaled investors are willing to wait for the microblogging service to post a profit.

“Sina’s Weibo should become profitable either in the third or the fourth quarter,” Ming Zhao, an analyst at Beijing-based 86Research Ltd., said by phone on Nov. 8. “It would be a huge positive for its stock.”

Alibaba Group Holding Ltd., China’s biggest e-commerce company, bought an 18 percent stake in Weibo in April for $586 million with an option to increase the holding to 30 percent. Daily active users on Weibo rose 8.3 percent to 54 million in the second quarter, Sina Chief Executive Officer Charles Chao said on a conference call Aug. 12.

Revenue, Spending

Weibo spending in the second quarter exceeded revenue by $11.6 million, Sina Chief Financial Officer Herman Yu said. The gap will close in the fourth quarter as Alibaba helps boost ads on the Weibo platform, Henry Guo, an analyst at ABR Investment Strategy LLC, said by phone from San Francisco Nov. 8.

Shanghai-based Sina forecast in August revenue for July-September to be as much as $180 million, which would represent a 18 percent growth from a year earlier. Analysts estimate the company to post adjusted net income of 32 cents per share on average for the quarter, from 21 cents per share in the previous three months.

Andy Yeung, a New York-based analyst at Oppenheimer & Co., said on Nov. 8 he expects Sina’s third-quarter sales and profit to beat analysts’ estimates.

Puts, Calls

Sina’s skew, or the difference in put and call implied volatility, fell from a nine-month high of 5.1 points reached Oct. 15 to a negative 0.4 point Nov. 8. The stock dropped 7.7 percent last week to $76.04, the lowest level in three months.

Suntech Power Holdings Co., the solar-panel maker whose China unit entered bankruptcy in March, tumbled 60 percent last week on concern it may fail to pay back overseas bondholders. Its ADRs slid to a six-month low of 53 cents.

The Wuxi, China-based company filed for a provisional liquidation in Cayman Islands last week and asked for protection in the U.S. The company, which said Aug. 14 it had about $1.8 billion in debt, plans for a debt-for-equity swap and the entry of a strategic investor for its restructuring. China’s Shunfeng Photovoltaic International Ltd. said in a Nov. 1 filing it agreed to buy Suntech’s main unit for $492 million.

“The bankruptcy of the Cayman Islands unit reduces the chances that overseas investors will be able to make a meaningful claim on the company’s Chinese assets,” Jenny Chase, head of solar analysis at researcher Bloomberg New Energy Finance, said by e-mail Nov. 8.

SouFun Rallies

SouFun Holdings Ltd., China’s biggest real-estate information website, advanced 7.1 percent to $57.19, rallying for a second week.

T.H. Capital LLC lifted its recommendation on SouFun’s ADRs to buy from hold on Nov. 8 after the company reported better-than-estimated profit for the third quarter. Citigroup Inc. raised its price estimate for SouFun by 12 percent to $80.3 on the same day, reiterating a buy rating.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., sank 2.6 percent last week to $36.84 in New York. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,770.61 in a fifth week of rallies.

The Hang Seng China Enterprises Index in Hong Kong dropped 2.7 percent last week to 10,390.73, while the Shanghai Composite Index slumped 2 percent to a two-month low of 2,106.13.

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