4 Fear Factors Behind Sina’s Nose-Diving Stock This Week

Chinese web portal Sina (NASDAQ:SINA) had a very rough day yesterday, as its stocks tumbled 15 percent, crashing into a trough that it hadn’t whacked since back in 2009. Although it’s a bad week for Chinese tech stocks in general, there seems to be a method to the madness: investors are getting spooked by three or four factors that represent a risk to Sina’s workings and potential profitability.

Of course, that doesn’t mean that any of the feared scenarios might well occur this year, but it’s looking like a perfect storm that Sina needs to weather.

$SINA on Wednesday morning after NASDAQ starts a new day: still around yesterday's 15 percent drop mark. Over the past year, however, it's up just over 95 percent. (From Google Finance)

According to the QQ Tech site – who, being owned by rival portal Tencent, seems to be reporting this in great detail – the three fears investors have are that Sina faces…

1. New Regulations – Investors are feeling nervous in a Chinese climate that’s increasingly hostile to media companies – which is what Sina is morphing into with its popular Weibo. The bullet train crash tragedy put Weibo between a rock and a hard place – lauded by people as a platform for truth and sharing, whilst surreptitiously trying to appease Chinese media directives to stem the tide of rumors and government-aimed invective.

   However, Sina is already running a very tight ship (my polite way of saying they’re censoring users); and I’d have to say that a drastic action – such as Weibo being shuttered (by failing to get a new, mandatory microblogging license) – is extremely unlikely.

2. VIE Clampdown – As we reported earlier this week, there are rumblings that Chinese authorities might try to tighten regulations on VIEs, the legal devices that many overseas investors use in Chinese web firms. This is a factor in the sinking Baidu (NASDAQ:BIDU), Renren (NYSE:RENN), and Youku (NYSE:YOKU) stocks as well this week.

3. Overvalued? – Despite its success with the microblogging platform Weibo, Sina might well be overvalued and due a correction. The Goldman Sachs valuation of the firm at up to US$7 billion might now be an albatross around its neck.

Beijing-based analyst Bill Bishop – the author behind DigiCha – points to news from back in the summer of an agreed share sell-off by Sina management, which gives us the fourth fear factor:

4. Down to Zero – Apparently, Sina has a forward contract with Goldman Sachs for senior execs to eventually sell out to zero percent. The previous round of dumping, back in June, caused the previous Sina shares dip. But now, there’s the concern that the biggest tranche of shares to be dispatched – 1.8 million – “within this year” might well be now, right in the midst of this regulatory and VIEs worry. This aspect might be overblown, however, as those execs don’t have significantly large stakes.

NASDAQ has just reopened for Wednesday, and Sina is off to a poor start, hovering at around yesterday’s low, with occasional dips down to new nadirs. (Youku is having an even worse day, plummeting well below yesterday’s poor form).