China's largest Internet portal and media website posted a first-quarter loss that was smaller than Wall Street had expected after advertising revenue shot up 9 percent despite a weak domestic market, propelling its shares 7 percent higher in after-hours trade.

However, Sina said margins will be hurt as it increases Weibo investment to $160 million this year, up from $110-$120 million last year, with the bulk of the costs going to hiring and upgrading infrastructure.

"We may still incur operating loss in the second quarter as we continue to invest in our Weibo platform. Our operating results this year may continue to suffer," said Charles Chao, Sina's chief executive on an earnings call.

Analysts, on average, were expecting a second-quarter profit of $4.94 million, according to Thomson Reuters I/B/E/S.

Sina saw brand advertising revenue jump to $78.5 million in the first quarter from $72.3 million a year earlier.

Chao said China's overall advertising market is likely to remain weak in the current period but some of Sina's advertisers, such as automakers, may not be as badly hit.

China's online advertising market shrank 13.8 percent to 14 billion yuan ($2.2 billion) in the first quarter, according to Beijing-based consultancy iResearch.

"There's a lot of talk about Weibo but fundamentally the business of these companies is about advertising," said Taiwan-based Weng Zhixin, a fund manager with Taishin Securities Investment Trust which owns Sina shares.

ADVERTISING ON SOCIAL MEDIA

Sina, which makes most of its revenue from online advertising, has faced stiff headwinds this year as corporations slashed advertising amid a weakening economic outlook.

"The initial feedback from advertisers on our Weibo advertising is encouraging, and we believe it is critical that Sina continues its significant investments in social media and related initiatives," Chao said in a statement.

Sina's optimism on Weibo advertising stands in contrast to Facebook (FB.O), where General Motors Co (GM.N) said on Tuesday it will stop advertising just days before the social networking website's initial public offering.

While GM gave no specific reason for dropping Facebook ads, a source familiar with the automaker's plans said the company's marketing executives decided Facebook's ads had little impact on consumers.

For Sina, the climate is the opposite as multinationals clamor to get on Weibo to advertise. Chao said he expects "Enterprise Weibo" accounts, or those targeted at companies who want to advertise on the platform, to rise to 300,000 by the end of the year from 160,000 currently.

But Chao said the amount of money Sina will make from Weibo this year will still be minimal.

Sina said its second-quarter revenue would come in between $126 million and $129 million.

First-quarter revenue rose 6 percent to $106.2 million.

Its first-quarter net loss was $13.7 million, or 21 cents a share, compared with a profit of $15 million, or 23 cents a share, last year.

Excluding one-off items, the company, which competes with Baidu.com Inc (BIDU.O) and Sohu.com Inc (SOHU.O), lost 21 cents a share, slightly better than the 23 cent loss that Wall Street had expected.

Although Weibo is viewed as having major potential, Beijing's iron grip over Internet content that it considers destabilizing poses a significant risk. This year, three of China's largest Internet companies, including Sina, had to shut down the "comments" function on their platforms for a few days after the government accused them of spreading rumors.

Sina shares rose 7 percent to $55.25 in after-hours trade from a close of $51.68 on the Nasdaq.

($1 = 6.3215 Chinese yuan)

(Editing by Bernard Orr, Leslie Gevirtz and Muralikumar Anantharaman)

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