Yingli, Renren Swim In Sea Of Red Ink

By newsdoug on March 19, 2014

Renren sinks deeper into red

Solar panel maker Yingli (NYSE: YGE) and social networking site Renren (NYSE: RENN) don’t normally have too much in common, other than the fact that both are based in China and come from the tech sector. But on this particular day, both are joined by the unflattering fact that their latest earnings reveal companies deeply mired in the red, sparking sharp drops in their share prices. Yingli’s situation certainly isn’t encouraging, though its issues look more temporary. Renren is a different story, and its latest numbers show the company won’t be able to survive on its own over the longer term and it would be well advised to start looking for a strategic partner.

Let’s start with Yingli, whose latest results are clearly a disappointment when one considers that most of its peers are seeing a rapid improvement in business after a 2 year downturn for the solar panel sector. Yingli’s top line doesn’t look too exciting, as revenue came in at 3.7 billion yuan ($613 million) during the fourth quarter, virtually unchanged from the previous period though up 28 percent from a year earlier when the downturn was still raging. (results announcement)

Those results weren’t much to get excited about, especially when one considers that other solar firms have posted much stronger growth as the sector comes out of its long winter. Yingli’s bottom line was even more discouraging, with the company posting a hefty 594 million yuan operating loss for the quarter, which was considerably larger than the 70 million yuan operating loss for the previous quarter.

One of the company’s biggest problems is commitments incurred when the industry was still booming, including its signing of long-term supply agreements based on prices that were far higher 2 years ago than now. Many solar panel makers also reportedly engaged in questionable sales tactics during the boom times that ultimately left them with inventories of overpriced products that they are now having to write off.

Investors dumped Yingli shares after its latest report came out, with the stock down 8 percent. The company’s shares are still well ahead of their all-time lows at the height of the downturn, though they’re also down by a third from late last year. The company’s issues do seem relatively temporary as it seeks to clear out old problems incurred during the downturn. Still, it could be look at a few more rough quarters before it finally emerges into the sunshine.

Unfortunately that doesn’t seem to be the case for Renren, whose losses seem to keep mounting with no end in sight as its fading social networking service (SNS) continues to struggle. The company once billed itself as China’s equivalent of Facebook (Nasdaq: FB), and its shares initially surged after their 2011 IPO on that comparison. But the stock has languished since then, as the company remained mired in the loss column and was rapidly overtaken by more popular SNS services from larger rivals Sina (Nasdaq: SINA) and Tencent (HKEx: 700).

In its latest earnings, Renren’s top and bottom lines paint a good picture of its current woes. Revenues totaled a very un-Facebook-like $30.7 million in the fourth quarter, down nearly 30 percent from a year earlier. The company’s operating loss was equally gloomy, coming in at $42.6 million — nearly double from the previous year. The outlook looked even gloomier, with the company forecasting a 40-45 percent revenue decline in the current quarter.

With that kind of outlook, it’s no surprise that Renren’s shares plunged 8 percent in after-hours trade after the results came out, re-approaching their all-time lows. The prognosis for this company as a stand-alone entity looks rather poor over the long term. Accordingly, we can probably expect to see Renren quietly start to explore “strategic options” for its business later this year, which could ultimately result in a sale to one of China’s larger, healthier Internet firms.

Bottom line: Yingli’s latest weak earnings are the result of legacy issues that could be gone by next year, while Renren will need to find a strategic partner to reverse its falling revenues and widening losses.