Tuesday, April 19, 2011

RenRen (RENN) Set to IPO May 4th, Valuation Causes Another Surge in Sina (SINA)

Yesterday was another blockbuster day for Sina (SINA) as it elevated into the stratosphere despite a bad day in the market.

Apparently the filing for "Chinese Facebook" RenRen (RENN) and the proposed valuation of its 30M+ 'active users' lend to the original these we laid out many months out that the "Twitter" portion of Sina (Weibo) is being undervalued.  That said, with some nonsensical valuations in things like "Chinese YouTube" (YOKU) we are seeing the same game that was being played in 1999.  When company A stock was valued at X, no matter if X made sense, speculators could make a claim that company B should then be valued more than company A - it's the relative valuation game, and we're back to it in the Chinese internet/social networking space.  But as Cramer said last week - you just play it, until it crashes - knowing full well a lot of what is happening now is the 'nonsense stage'.


Back to RenRen (RENN) - a company I have been waiting quite a while to come public - there are actually a few "Facebooks of China" but this is the first to go public.  And the company is not without warts.  Growth seems to have stalled a bit as the user base grows slower and quarterly revenue is not seeing the dramatic quarter over quarter and year over year growth of previous years.  Not that any of that matters to the crowd that will surely bid this name up 50-100% in the first few minutes of trading, but if you still trade on fundamentals or valuation, I just wanted to point it out.

The company's revenue is mostly advertising and gaming add-ons, although a very tiny "group buying" site Noumi.com (launched last summer) is part of the mix.

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Via WSJ:
  • Beijing-based Renren Inc., a social networking site in China, is scheduled to begin trading May 4 on the New York Stock Exchange under the symbol RENN. The company, which is planning to raise as much as $584 million, claims to be the leading "real name" social networking website in China--as opposed to sites that allow visitors to use aliases or virtual identities--as measured by total page views, total visits and total user time, according to iResearch.
  • One clear sign of how hot this deal could be comes from the willingness of a group of big-name international investors to piggyback on the IPO to buy an extra tranche of shares at whatever price the public names. Alibaba Group, China Media Capital and CITIC Securities Co. (600030.SH) have agreed to purchase a total of $110 million worth of stock at the IPO price.
  • The company, formed in 2002, plans to sell 53.1 million American depositary shares at a price between $9 and $11.
  • Renren makes its money primarily from online games, which represented 45% of its total net revenue in 2010, and from online advertising, which came to 42%. Online game revenue is generated by purchases of virtual accessories. Revenue has been rising in recent years; net revenue rose 64% to $32 million in 2010 as both online ads and game revenue rose from 2009 levels.
  • The company had operating income of $7.7 million in 2010 compared to an operating loss of $2.2 million in 2009, but in both years it booked net losses of $64 million and $70 million, respectively. The net loss was the result of a change in the fair value of warrants, which won't be a factor in coming years; those warrants were all exercised in December.
iChinastock has a nice 26 page slide on RenRen that can be viewed here.  One can see one troubling issue is 'active users' - while growing - is not growing anywhere near the pace of Weibo, which has been reported to add 10M a month.  Further, many of RenRen's users are not active - hence the 117M 'users' is simply a note of registrations, not who is using the site.  Twitter in the US has a similar problem actually.

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If you are a Realmoney.com subscriber, Eric Jackson has a good piece on RenRen here.

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