Stock option expenses and new billing regulations caused Sina.com's (SINA) unaudited financial results for the fourth quarter and fiscal year ended December 31, 2006 to show a 15% drop in profit.

Sina.com's net income for the fourth quarter of 2006 was US$11.7 million or US$0.20 diluted net income per share, compared to US$13.8 million or US$0.24 for the same period last year. Net income for the fourth quarter of 2006 includes $1.1 million write-off of prepaid license fees, while net income for the fourth quarter of 2005 includes a US$2.6 million gain from the sale of an online auction joint venture, both of which were excluded in the non-GAAP results.

Net income for fiscal 2006 totaled US$39.9 million or US$0.69 diluted net income per share, compared to US$43.1 million or US$0.75 diluted net income per share in fiscal 2005. Non-GAAP net income for fiscal 2006 was US$51.6 million or US$0.88 non-GAAP diluted net income per share, compared to US$46.4 million or US$0.79 diluted net income per share for fiscal 2005.

For the fourth quarter of 2006, Sina reported net revenues of US$56.4 million, compared to US$52.0 million in the same period in fiscal 2005 and $56.1 million for the third quarter of 2006. Advertising revenues for the fourth quarter of 2006 totaled US$35.7 million, representing a 43% increase from the same period last year and a 9% increase from last quarter. The growth in advertising came mainly from China, which recorded advertising revenues of US$35.0 million for the fourth quarter of 2006, representing an increase of 45% from the same period last year and 10% sequentially. The growth in advertising revenues can be mostly attributed to the Beijing Auto Show, advertising seasonality and the momentum generated from the World Cup earlier in the year. Advertising revenues in the fourth quarter of 2006 represented 63% of total revenues, up from 48% in the same period last year.

Non-advertising revenues for the fourth quarter of 2006 totaled US$20.7 million, a 23% decrease from the same period in 2005 and a 12% decrease over the previous quarter. The decrease in non-advertising revenues came mostly from the decline in MVAS revenues, which recorded US$19.3 million for the fourth quarter of 2006, representing a decline of 22% from the same period in 2005 and a decline of 11% from last quarter. The decline in MVAS revenues was primarily due to the changes in operator policy announced in July 2006.

For fiscal 2006, Sina reported net revenues of US$212.9 million, compared to US$193.6 million in 2005. Advertising revenues for fiscal 2006 totaled $120.1 million, an increase of 41% from 2005.

Gross margin for the fourth quarter of 2006 was 62%, down from 66% in the same period last year and 64% in the last quarter. Gross margin for the fourth quarter of 2006 included a US$1.1 million, or 2% of total revenues, write-off of prepaid license fees related to the iGame business, based on management's assessment of the game business during the quarter. Advertising gross margin for the fourth quarter of 2006 was 65%, compared to 69% in the same period last year and 65% in the previous quarter.

Gross margin for fiscal 2006 was 63%, down from 67% from fiscal 2005. Advertising gross margin for fiscal 2006 was 65%, compared to 67% for fiscal 2005. Advertising gross margin in fiscal 2006 includes US$1.7 million in stock- based compensation or 1% of advertising revenues. MVAS gross margin for fiscal 2006 was 60%, compared to 66% in the prior year. The decrease in gross margin was primarily related to higher transmission and content costs.

Operating expenses for the fourth quarter of 2006 totaled US$24.5 million, an increase of 5% from the same period last year. Operating expenses for the fourth quarter of 2006 include US$1.8 million in stock-based compensation and US$0.4 million in amortization expense of intangible assets, while the operating expenses for the fourth quarter of 2005 include US$0.5 million in amortization expense of intangible assets. Excluding these items, operating expenses for the fourth quarter of 2006 were US$22.4 million, a decline of 2% from the fourth quarter of 2005. The decline was mainly due to lower marketing expenses.

Operating expenses for fiscal 2006 were US$98.5 million, an 11% increase from 2005. Operating expenses for fiscal 2006 include US$7.7 million in stock- based compensation and US$1.8 million in amortization expense of intangible assets, while operating expenses for fiscal 2005 include US$3.2 million in amortization expense of intangible assets.

As of December 31, 2006, Sina's cash, cash equivalents and investments in marketable securities totaled US$362.8 million, compared to US$300.7 million and US$345.3 million as of December 31, 2005 and September 30, 2006, respectively. Cash flow from operating activities for the fourth quarter of 2006 was US$14.9 million, compared to US$14.4 million for the same period last year. For fiscal 2006, cash flow from operating activities was US$63.1 million, compared to US$58.3 million for fiscal 2005.

Sina.com estimates that its total revenues for the first quarter of 2007 will be between US$48.0 million and US$50.0 million, with advertising revenues to be between US$31.0 million and US$32.0 million and non-advertising revenues to be between US$17.0 million and US$18.0 million.

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