Shares of both SINA Corp (NASDAQ:SINA) and Weibo Corp (ADR) (NASDAQ:WB) posted early morning gains this morning before SINA drifted down, as both companies beat Wall Street’s expectations for the second quarter, with Weibo reporting a profit versus a loss last year. SINA Corp (NASDAQ:SINA) reported adjusted earnings of $0.06 per share on revenues of $211 million for the quarter, beating consensus earnings estimates of $0.04 per share and revenue estimates of $199.8 million. Meanwhile, Weibo Corp (ADR) (NASDAQ:WB) reported EPS of $0.05 on revenues of $107.8 million, above analysts’ expectations of $0.03 per share and $104.73 million respectively. This is welcome news for Weibo, a company which went public in the U.S. last year but is still majority owned by SINA Corp., as it reported a loss per share of $0.03 on revenues of $77.3 million in the same quarter last year. What may be driving down SINA Corp (NASDAQ:SINA)’s stock despite the positive quarter for Weibo Corp (ADR) (NASDAQ:WB) and its consensus-beating earnings for the second quarter, is the decline in EPS from the year-ago quarter, when it earned $0.17 per share. Gross margins also fell to 59.7% from 60.6% in the same quarter last year.
The differing reactions of the market to SINA Corp (NASDAQ:SINA) and Weibo Corp (ADR) (NASDAQ:WB)’s second quarter reports mirror how hedge funds managed their investments in both companies during the first quarter, as we will see in the discussion below. We follow hedge funds because most investors can’t outperform the stock market by individually picking stocks, because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned 118% over the ensuing 35 months, outperforming the S&P 500 Index by 60.4 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
SINA Corp (NASDAQ:SINA) saw an outflow of hedge fund money in the first quarter, with total holdings going down 23% quarter-over-quarter, to $238.84 million. As the stock only declined by 14% in said quarter, the 17 hedge funds long on the stock by the end of March, unchanged from the end of December, transferred some of their previously invested capital elsewhere. It should be noted, however, that 11.27% of the stock is owned by hedge funds we track, which means overall, the smart money is still overweight on the stock. Based on our data, Platinum Asset Management, led by Kerr Neilson, held the largest stake in SINA by the end of June. It owned 4.2 million shares worth about $225.06 million. Ken Griffin’s Citadel Investment Group let go of 409,502 SINA shares, keeping only 5,193 shares.
In contrast, more hedge fund capital flowed into Weibo Corp (ADR) (NASDAQ:WB)’s stock by the end of March, as it saw a 54.78% quarter-over-quarter increase in hedge fund holdings. The increase is amplified by the over 9% decline of the stock in said quarter. There were also six hedge funds with long positions in Weibo’s stock by the end of March, up by two from the prior quarter. On the other hand, only 0.35% of Weibo’s stock is owned by hedge funds we track. Rob Citrone’s Discovery Capital Management was the largest hedge fund stakeholder in Weibo by the end of June, holding 799,100 shares, all of which the firm bought in the second quarter.
While we do not recommend a long position in SINA Corp (NASDAQ:SINA) at the moment due to declining smart money sentiment, we do for Weibo Corp (ADR) (NASDAQ:WB), which appears to be garnering more support and could be ready for a move to the up side.
Disclosure: None
