RenRen(RENN-commentary-Trade Now) recently had its initial public offering to great fanfare, and its best price was moments after it started trading. Ever since, it's basically been straight down to $7 -- two-thirds less than its initial post-IPO price.
I recently returned from a two-week trip to China and had the chance to talk to many people within the Internet space over there, as well as a number of users. I didn't meet with RenRen management.
Nonetheless, the view that I got from my various conversations is that RenRen is in trouble. It was a very popular social-networking service in China, but much of its user base has shifted this year away from RenRen and over toSina(SINA-commentary-Trade Now) Weibo.
I interview a young applicant for an analyst position for which my firm is hiring there, and she said she used to spend most of her free time on RenRen because all of her friends were on it. But more recently, she said, they'd all move over to Weibo, so she migrated as well. I heard similar stories from many others.
Some of this was foreshadowed in the RenRen IPO filing. The company clearly demonstrated that its revenue and active users had hit a flat line in the first quarter of this year. Early buyers of the stock post-IPO hoped this pause was only temporary. But based on my discussions, the trends have, if anything, continued to further go against RenRen's favor.
The company raised an enormous amount of money -- $800 million. To put that in perspective,Mecox Lane(MCOX-commentary-Trade Now), whose management I did meet, was a hot Chinese IPO last November, and it only raised about $100 million.
So the RenRen bulls can argue that this company has a lot of resources to figure out its business model and try to restart its growth. While that's true -- and kudos to them for hauling in the money that they did -- I don't believe that's a reason to hold the stock.
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