Monday, May 02, 2011

The RenRen Question

By Eric Jackson
RealMoney Contributor

5/2/2011 1:00 PM EDT
Click here for more stories by Eric Jackson

"Do You Like RenRen?"

I was asked that question more times last week than any other. It's actually surprising to me how many casual China investors are curious about this initial public offering, which is set to debut on U.S. exchanges Wednesday under the ticker "RENN."

The short answer is I don't really like the company, viewed by many as the "Facebook of China." But investors would be wise to get their hands on as many shares at the offer price as possible, because the stock will be hot out of the gate.

A couple of weeks ago, I gave my summary of the company's F-1 filing with the Securities and Exchange Commission. I said that the number of active users seemed to be far lower than what the company had suggested when it was still private and didn't have to worry about running afoul of pesky securities laws.

At the end of 2010, the company had only 24 million unique log-ons for the month of December, almost flat compared with December 2009. Revenues in the last three quarters have also been flat: $20 million, $22 million and $21 million, respectively. That's not a hockey stick.

I continue to hold rival Sina (SINA - commentary - Trade Now) long because I believe the growth of itsWeibo microblogging service continues at a pace we don't yet fully appreciate. Various reports I have heard from China suggest that many young users are dropping RenRen in favor of Weibo.

That said, the IPO process for RenRen has gone very well. Even before RenRen's U.S. road show, Asian demand had caused the IPO's bankers to raise the target offer price by $3 to a range of $12 to $14 per share. The company is now seeking to raise $743 million from the offering instead of about $500 million.

Maybe it's a Facebook thing. That company appears to be on track to do $2 billion in revenues this year and $4 billion next year. Facebook just released a report indicating their growth is faster than previously expected and on track for a successful IPO later this year. Of course, Facebook recently indicated that it is looking at entering the Chinese market through a joint venture with Chinese Internet search giant Baidu(BIDU - commentary - Trade Now).

Or maybe it's a China Internet thing. Youku (YOKU - commentary - Trade Now) is an online video site that did $58 million for the full-year of 2010, with a net loss of $31 million. Yet, the company has a $6.2 billion market capitalization.


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