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Ad Costs Hammer Sina

The company misses third-quarter earnings estimates by 6 cents a share.
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(SINA) - Get Free Report

third-quarter earnings fell a steeper-than-expected 37% from last year as a higher advertising expenses ate into the bottom line. The stock skidded 8% on the news.

The Chinese Web company earned $9.1 million, or 16 cents a share, in the quarter compared with $14.5 million, or 25 cents a share, a year ago. Pro forma earnings of 17 cents a share missed the Thomson First Call consensus estimate by 6 cents.

The quarter had "significantly higher advertising expenses than prior periods on television and radio to acquire subscribers for its subscription based short-message services products," Sina said. "Total direct advertising expenses relating to subscription based SMS products amounted to $6.7 million and accounted for 43% of the sales and marketing expenses for the quarter."

Sina said that based on existing accounting standards, part of the latest quarter's advertising expense might be eligible for capitalization, meaning it would be pushed into future quarters.

"Because the requirements for the capitalization of direct response advertising costs are complex and the amount of work required to reach a conclusion is time-consuming, the company has not reached a conclusion as to whether the direct advertising expenses should be capitalized and is not certain when such conclusion will be reached," Sina said. "Therefore the company has chosen to release the preliminary earnings for the third quarter assuming that no advertising expenses are capitalized and deferred."

Sina said revenue fell 5% from last year to $49.6 million, which also missed the estimate of $50.6 million. The company said advertising revenue rose 24% from a year ago to $23 million while other revenue fell 22% to $26.7 million.

For the fourth quarter, Sina expects to earn $14 million or $15 million before items on sales of $51 million to $53 million. Analysts were expecting sales of $54 million in the quarter.