Thursday, 30 October 2014

Analysts abandon China’s Renren on failed growth

Renren Inc was touted the Facebook Inc of China when it debuted in New York in 2011. Today, it’s looking more like online flameout Myspace.

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Guanyu said...

Analysts abandon China’s Renren on failed growth

30 October 2014

Renren Inc was touted the Facebook Inc of China when it debuted in New York in 2011. Today, it’s looking more like online flameout Myspace.

The stock has lost more than three quarters of its value since 2011 and will drop about 18 per cent over the next 12 months to US$2.74, according to the average estimate of analysts surveyed by Bloomberg. That’s the most bearish forecast among companies in a Bloomberg index of Chinese stocks traded in the US.

Renren is struggling to diversify its business and boost profit as sales slide in a country with 632 million Internet users. The company forecast in August a plunge of as much as 54 per cent in third-quarter revenue to US$19 million, the smallest amount since at least 2011. While Renren was one of China’s first social media websites, it has been eclipsed by rivals including Tencent Holdings Ltd’s WeChat and Weibo Corp, backed by Alibaba Group Holding Ltd, which have been faster to adapt to the rapidly changing social media industry.

“Renren was the first social media platform to go public and could expand and grow, but failed to do so,” Cyrus Mewawalla, a managing director at CM Research in London, said last Tuesday. “When a new messaging app like WeChat comes up, you have to come up with your own messaging app; when shopping goes mobile, you have to catch that trend. It’s not giving enough variety of services to keep customers there, and therefore the bigger ecosystems are going to eat its lunch.”

Like Renren, Myspace Inc was once a hot Internet property. In 2005, two years after its foundation, Rupert Murdoch’s News Corp bought the social media website for US$580 million. In 2006, Myspace had 55 million visitors compared with Facebook’s 15 million, according to ComScore Inc. In 2008, its advertising revenue reached US$605 million before dropping to a mere US$47 million by 2011, according to eMarketer, a fraction of Facebook’s US$3.2 billion at the time. The same year, Myspace was sold for US$35 million.

Renren’s management team is addressing the erosion of its business model by pursuing a strategy that focuses on a younger audience in China, chief executive officer Joseph Chen said in August.

The company posted its first quarterly profit in the three months ended June 30 after nine straight losses. On a conference call with investors, the company said that it will diversify its offerings to include an online financial business which will provide loans to students, Renren’s core users.

Cynthia Liu, a spokeswoman for Beijing-based Renren, declined to comment on the analysts’ outlook on the stock and the company’s business model.

“They probably should sell the company,” Francis Gaskins, research director at financial media site, said last Wednesday.

When Renren went public in May 2011, Mr Gaskins was one of those who had high expectations for the stock. At US$14 a share, Renren was valued at 72 times annual sales, more than twice the multiple on Facebook at the time of its 2012 initial public offering. Its market capitalisation has since then dropped by about US$5.7 billion as the stock lost 76 per cent.

Renren’s shares gained 0.3 per cent to US$3.36 on Tuesday while the Bloomberg-China Equity index of the most-traded Chinese companies in New York surged 3.1 per cent.

For Amanda Dingyuan Hou, a Chinese freelance video producer in New York who switched from Myspace to Facebook and from Renren to Tencent’s WeChat, the change in social media preferences was a hunt for more useful services and more relevant content.